Pilot projects are demonstrating the potential of smart metering and smart rates to make the most of supply and demand resources. But as empirical studies show, not all pricing designs are equally...
Green Price Stability
New approaches account for the economic benefits of renewables.
bills called the “Air Quality Improvement Rider” to recover the costs of voluntarily installing air-pollution mitigation equipment on several coal plants in the Denver-Boulder metropolitan area. The Colorado PUC decision on the matter called for participants of the utility’s Windsource green power program to be exempted from the rider for all of their wind energy purchases. 41 On the other hand, the Minnesota PUC approved an “environmental improvement rider” in March 2004 for Northern States Power (NSP) that did not exempt Xcel’s Minnesota Windsource customers. NSP successfully argued that “although participants in the green pricing program help encourage the diversification of our energy supply, they also benefit from the nonrenewable portions of the utility system and appropriately should share in its costs.” 42 Recently, there has been increased attention focused on the risks associated with CO 2 emissions from power generation and interest in mitigating these risks. In response to growing concerns about global climate change, many states and municipalities, as well as several U.S. regions, are adopting policies aimed toward reducing CO 2 emissions. Some of these efforts might affect consumer electricity rates or result in surcharges on consumer bills.
Finally, a number of utilities recover costs for implementing renewable portfolio standard (RPS) policies that require the utility to procure renewable energy to meet a portion of their retail electricity sales. In some cases, these costs are being assessed as a separate adder to utility bills, but for the most part, these costs are rolled into the utility’s base rate. Either way, how should these charges be assessed to those green power consumers who already are paying a premium to obtain 100 percent of their electricity from renewable energy sources? If these consumers are assessed the RPS charge and pay a green power adder for all of their electricity needs, they might be charged twice for a portion of their renewable energy purchases.
Green Value Proposition
The overall success of the voluntary green power market rests on the willingness of large numbers of individual consumers to pay a premium for these electricity products. Accordingly, electric utilities must present a compelling value proposition for their green power products. The stable-price characteristic of renewable energy generation offers an important and appealing benefit for many consumers. However, the availability of stable-price green power products does not guarantee program success. Other factors are important as well, such as program awareness, the extent and effectiveness of program marketing, and the overall pricing of the product compared to conventional electricity rates.
Several approaches exist to provide green power customers with the stable-price benefits of renewables and provide a hedge against increasing fossil fuel prices. The most straightforward method is to establish a separate green power rate that substitutes for a utility’s conventional energy or fuel rate. However, this approach requires both an unbundled rate structure, and for the utility to enter into long-term contracts for the renewable energy resources used. The latter condition presents some risk to the utility and its ratepayers if the program is undersubscribed.
An alternative approach is to exempt green power customers from