UTILITYBUSINESS BY CHUCK ROSS
Most electric utilities don’t make
money on the kilowatt-hours (k Wh) of
electricity they sell, although those sales
help keep generating stations running
for utilities that own such assets. In most
cases, fuel charges are passed directly
on to consumers; the utility receives no
added margin. Instead, utilities recoup
their costs, along with their guaranteed
rate of return on assets, under line items
that might read “distribution services” or
something similar. Each state’s utility commission sets this per-kilowatt-hour charge
at a rate it believes will support the upkeep
of lines and substations and provide a reasonable return to utility shareholders.
This arrangement is beginning to put
electric utilities in the same position as
the nation’s gas-tax-financed highway
system. As utilities sell fewer kilowatt-hours, they either have to raise their
fixed connection fees or come up with a
new way to place the burden of supporting the distribution system on customers.
This is a problem that first emerged as
net metering for rooftop solar generation
and became a mandate in many states.
However, while solar-panel owners
are still a minority of utility customers,
decreased consumption is an issue across
all utility customer classes.
Chicago’s ComEd, Arizona Public
Service, Dominion in North Carolina and
Virginia, and Georgia Power are among a
number of prominent utilities with pro-
posals or actual plans in place (typically
voluntary opt-in rate structures) that
factor demand into monthly customer
bills, not just consumption. Demand, in
this case, means the amount of electric-
ity in kilowatts (k W) a home is drawing
at any given time. These new plans add
a per-k W charge to participants’ bills
based on either the 30-minute period of
highest use in the month or the highest
use during a defined utility-peak period.
In return, these customers typically pay
a lower per-k Wh charge on their total
consumption through the month.
Demand charges are seen as a fairer
approach to rate design than raising the
fixed charge most customers pay to connect to the grid. Raising this charge may
disproportionately impact lower-income
customers, and it doesn’t provide any
kind of pricing signal that reflects the
higher costs utilities pay to prepare for
Unlike some utility business decisions
that only affect large electrical contractors (ECs)—such as new transmission-line
technologies or the need to replace aging
substations—a shift to demand charges on
residential rates could mean a boost in the
fortunes of even the smallest companies.
The 2016 Profile of the Electrical Contractor notes that EC firms with one to four
employees earned 57 percent of their revenues from residential work. Over time,
demand charges could spur a number of
Homeowners with photovoltaic (PV)
panels on their roofs would see the big-
gest short-term impact from new rates,
because electricity demand typically peaks
just as rooftop production slows down.
Suddenly, a battery-based storage system
capable of reducing a home’s peak demand
during limited periods could earn itself a
much faster return on investment. In fact,
Vermont’s Green Mountain Power already
sees such value in home-based storage for
reducing system peaks that the utility is
subsidizing the equipment for customers
that allow it access to the stored energy
during high-demand periods.
Consumers without PV panels also
would feel a price pinch from high demand
charges that could motivate investment in
devices that help them to reduce and shift
peak load. Smart thermostats are an obvious example, especially when paired with
home air conditioning systems. Oklahoma
Gas & Electric, for example, provides price
signals to smart thermostats, shifting them
back a few degrees to reduce peaks for
homes and the utility grid.
Appliance makers are getting into
the market, too. Whirlpool introduced
a smart dryer that can be controlled by
a Nest smart thermostat. It might seem
an irrelevant upgrade, but in a demand
charge environment, this feature can
automatically shift one of the home’s
major energy loads to off-peak periods.
Tackling an even bigger load-shifting
opportunity, Rheem Manufacturing Co.’s
EcoNet system allows Nest-based control of electric water heaters.
If demand charges become a new
component of residential electricity bills,
homeowners will gain new motivation
to smarten up their homes. ECs aware
of new rate programs and related technologies could see a shift of their own—to
a range of new service offerings and prospective customers.
Staying in Demand
New utility rates could build business for ECs
THE LATEST ELECTRICITY SALES DATA AND FORECASTS from the U.S.
Energy Information Administration (EIA) are just the latest indicator that energy
efficiency works. Even as the economy ticked up (albeit, moderately) over the last
year, electricity sales have declined, falling 2. 3 percent in April 2016 over 2015. Even
more important, the EIA anticipates per capita energy intensity to remain flat or
decline between now and 2040, meaning utility sales growth will largely depend on
population growth. While this sounds like good news for consumers, it is beginning
to put electric utilities in a tight space. As a result, some companies are moving to
add a new line item to consumers’ bills.
ROSS is a freelance writer and editor who has covered building and energy technologies
for a range of industry publications and websites for more than 25 years. He specializes in
building and energy technologies, along with electric-utility business issues. Contact him at
Chuck@Chuck-Ross.com. B O