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The Little Utility that Could? – Energy Institute Blog

One very small public utility within the Sierras tries to implement extra cost-based charge design.

Kirkwood Meadows Public Utility District – by some measures, the smallest electrical utility in California – had an issue. The District’s tiny electrical distribution firm was charging gigantic charges to its 750+ residential and business prospects, together with the group’s water remedy facility and the ski resort that shares its title. What had pushed its electrical energy value to about $0.70 per kWh – 2 to five occasions greater than the massive utilities in California – was principally the $37 million funding in a transmission line connecting KMPUD to the state’s grid that started working in 2014.

(Source: KMPUD.com)

KMPUD made the funding partially to drastically reduce its reliance on dirty and less-reliable diesel generators. Since the road was accomplished, KMPUD has had loads of capability to provide electrical energy and a comparatively low marginal value of doing so, estimated to be within the vary of $0.13/kWh. By early 2021, nonetheless, it was clear that the astronomical charges have been creating substantial distortions. Owners of 1 rental constructing have been contemplating putting in rooftop photo voltaic with a purpose to get out from underneath the punishing costs – seeing a payback interval of solely three years. Most prospects who had the selection have been heating with propane relatively than electrical energy. And charging an electrical automobile at $0.70 per kWh is like paying round $9 per gallon for gasoline, a troublesome promote even in California.

That’s when Bob Epstein, a member of the KMPUD Board, known as me to see if I had any concepts for making Kirkwood Meadows much less reliant on burning fossil fuels and extra reliant on the increasingly-clean California grid. Well, I certain did.  

KMPUD’s transmission line was accomplished in 2014 (Source: http://www.mtdemocrat.com)

I realized from Bob that KMPUD’s residential prospects fell broadly into two teams: occasional occupants for whom it was a trip residence and full-time occupants, a lot of whom have been service employees round Kirkwood. Not surprisingly, the primary group has decrease common electrical energy utilization and better revenue. During our February 2021 Zoom, I additionally realized from Bob that KMPUD was getting hammered by the pandemic, as a result of it was decreasing electrical energy demand from the ski resort. That created a gaping price range shortfall, as a result of the overwhelming majority of the District’s prices have been mounted, together with debt service on the transmission line.

Based on my work with Jim Bushnell and with Meredith Fowlie and Jim Sallee, all of which we have now written about on this weblog, I breezily informed Bob that all they needed to do was decrease volumetric charges to close social marginal value.  That would give prospects environment friendly incentives to eat further electrical energy after they worth it greater than the associated fee it imposes on society. Heating, cooking and charging with electrical energy would then be drastically extra financial, whereas the price range would keep extra balanced via demand fluctuations. Then increase the month-to-month mounted cost to make up the income shortfall. Due to the bizarre demographics and occupancy of the Kirkwood group, this mix of adjustments would additionally shift extra of the income assortment onto extra prosperous prospects. A win-win-win.

That’s once I was reminded of the various views of fairness. Sure, shifting income obligation from lower-income to wealthier households is one concept of bettering fairness. But immediately growing electrical energy payments for one set of consumers, whereas decreasing payments for others, didn’t appear notably equitable to some locally. Then there have been those that had paid tens of 1000’s of {dollars} to put in photo voltaic and would see a lot of the future financial profit disappear underneath the worth construction I recommended. That didn’t appear very reasonable to them.  In reality, one of many Board’s clear standards for evaluating various charge designs was to reduce the variety of prospects going through giant adjustments of their electrical payments in comparison with the prior tariff.

(Source: KMPUD.com)

Alternative plans shortly surfaced, from preserving the volumetric charges the place they have been, to mounted month-to-month costs based mostly on utilization throughout previous years (reminiscent of 2017-2019) or based mostly on residence sq. footage (primarily a type of constructing tax), to a hard and fast cost for every day of occupancy (as indicated by home water use – primarily an occupancy tax).

Each plan creates a unique set of winners and losers. Advocates of basing mounted costs on utilization in earlier years have been invoking the notion that prospects who would eat extra get extra profit, so ought to pay extra of the mounted prices, an concept I explored in a 2019 weblog. Opponents identified that some house owners used their homes greater than others throughout these years for causes unrelated to their utilization going ahead. And it raises questions of the right way to take care of new homes and houses that change possession.

A each day occupancy mounted price additionally appealed to the concept that extra utilization of the home probably meant extra profit, and recommended it might be equitable for these house owners to pay a bigger share of the mounted prices. But others famous that households within the mountains can use fairly a little bit of electrical energy when unoccupied, reminiscent of for preserving the indoor temperature above freezing or avoiding ice dams on the roof with warmth cables. And as with the excessive volumetric charge or basing the mounted cost on earlier-years utilization, it might nonetheless hit the year-round occupants tougher than others.

How Ice Dams Form and How to Prevent Them
(Source: thespruce.com)

A price for residential sq. footage is friendlier to the full-time residents, nevertheless it raises extra implementation questions than I had appreciated about what counts as footage, in addition to operating up in opposition to potential restrictions on property taxation. Plus, the price could be giant sufficient that it might change the calculation of what kind of home to construct, or the right way to rework, in methods that don’t replicate precise prices.

The excellent news was that practically everybody acknowledged that charging $0.70 per kWh when the true marginal value is only a fraction of that quantity harms the entire group by making uneconomic all types of utilization that would profit households, the atmosphere and KMPUD.

In the top, KMPUD made a whole lot of progress, although nobody (together with me) was totally happy with the compromise that the Board reached. As of August 1, 2021, the volumetric cost was lowered to $0.22 per kWh and a hard and fast month-to-month cost was adopted based mostly on every family’s utilization from April 2017 to March 2020. Households with photo voltaic can pay a hard and fast cost based mostly on web utilization for 10 years, which can then convert to being based mostly on gross utilization. Homes that have modified fingers since 2017 may have a everlasting mounted cost based mostly partially on utilization over the subsequent yr or two, which creates a particularly excessive implicit value on consumption throughout that time.

The course of was troublesome and the end result just isn’t good. Some perverse incentives stay within the new tariff. Still, I feel that is what progress in direction of a extra environment friendly – and finally extra equitable – charge construction appears like. Nonetheless, after seeing what a heavy raise this was for a tiny utility with goodwill among the many group contributors, I understand that it is going to take a whole lot of work to wash up the mess in residential electrical energy charges of California’s giant investor-owned utilities.  

But local weather change and a dedication to making sure an equitable clear vitality transition go away us no selection, so it’s time to get to it.

I tweet vitality information/analysis/blogs and occasional political beliefs @BorensteinS .

Keep up with Energy Institute blogs, analysis, and occasions on Twitter @energyathaas

Suggested quotation: Borenstein, Severin. “The Little Utility that Could?” Energy Institute Blog, UC Berkeley, November 8, 2021, https://energyathaas.wordpress.com/2021/11/08/the-little-utility-that-could/

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