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2008 Regulators Forum: Putting Efficiency First

New rate structures prioritize conservation, but will customers buy it?

Fortnightly Magazine - November 2008

past 20 years, and by all accounts it’s been very successful, and is one of the reasons customer usage of electricity has remained essentially flat since the 1970s while it’s continued to grow across the country. We have evidence that suggests it isn’t going to be a problem.

Ervin (N.C.): There is a substantial public perception issue that needs to be addressed, and we ran smack into it with a natural gas case a couple of years ago. We had approved a two-schedule natural gas rate design that was intended to have categories for seasonal natural gas customers and year-round customers. It charged the year-round customers a lower rate in an attempt to reflect the better utilization they made of the system. We then got a huge public backlash, because in the preceding winter, when natural gas prices had spiked in the aftermath of Katrina, we’d done everything we could to encourage conservation and we got a reasonable response from that. When this two-schedule rate design went into effect, we got inundated by people who said, ‘You mean to tell me I followed your advice and conserved, and because of my conservation I don’t meet the usage necessary to qualify for this year-around rate, and therefore my rate goes up?’

We thought that was a valid point, and we changed the rate structure to a summer-winter rate, which made more sense. But the controversy over that rate put front and center the notion that people expect that if they conserve their rate will go down. We all know that’s unlikely. If you go down the efficiency road, the effect frequently is to increase per-unit costs to some extent in the interest of reducing overall bills. I’m not sure the average customer understands there may be a trade off, and their rate isn’t necessarily going down.

Smith (Idaho): In a pending rate case we’ve been asked to consider inclining block rates. With inclining block rates, if you do conserve you can get into a block with a lower rate. Maybe the message here is conservation may expose warts in our existing rate design.

Ervin (N.C.): A lot of us need to look at our rate designs. We’re engaged in a study at the request of our legislature to look at a host of rate designs, including decoupling.

Smitherman (Texas): The issue of decoupling is something we’re going to be talking about in my state, probably pretty soon. But I think it’s going to be driven more by advanced-meter issues than energy efficiency issues. Once you get these advanced meters deployed, then the customer has the ability not just to slow their increase in demand, but to save 10, 15 or 20 percent off their bill. That’s when I think the wires and poles companies and citizens will begin to ask hard questions.

Our wires and poles charge is a pretty small component of the total charge that any customer has today, and within that the recovery factor for energy efficiency is a small number within a small number. So presently it’s not a