Unraveling Your Utility Bills -- Part 1 of 3

                                                       The Valleyist Papers

A COLLECTION OF ESSAYS

WRITTEN IN FAVOUR OF THE IMPROVEMENT OF STEPHENS VALLEY

Author – William Ray

 

Edition 2. Issue 9.

Unraveling Your Utility Bills – Part 1 of 3

This subject is far more involved and complex than most of what we have offered here. To keep this discussion short and simple, such that you might choose to stay engaged, this subject will be offered in three parts.

There is a good chance that the most recent electric bill you got from NES is the most expensive you’ve seen for your Stephens Valley home. It is also likely that you don’t spend a lot of time studying your NES bill. That might be exactly the way you want it, but if you decide to read this issue, you’ll learn some interesting facts about your energy consumption here in SV, the way NES bills you for that energy, and how your billing could be a lot fairer, and more effective.

Looking at the bill, you don’t get a lot of information, and, unfortunately, that is by design. The generic electric bill in the United States only shows you the difference between your meter readings for the current month and the preceding last month. Those readings are used to determine your kWh consumption for the month. The kWh usage is then multiplied by just over eleven cents and that becomes your simple energy charge. The net bill also includes a NES customer charge of $16.90 (unless you’ve had a month in the last year where your home used over 2,000 kWh, which makes your customer charge $24.90) and a TVA grid access charge of $6.66 for a total Customer Charge of $23.56 for an average residential account. This simplistic billing seems to best suit the customers who are not energy experts, but is that reason enough to use it?

Just how are these simple rates derived? If you want to know that answer, prepare yourself for a little mathematical discussion that will reveal some intrinsic, yet bizarre issues with the way NES (and, for that matter, all retail rates presently implemented by TVA’s local power companies) designs its retail electric rates. Where does the 11 cents per kWh cost come from, and what is the deal with the additional customer charge? Well, here goes. Out of that 11-cent charge, about 8.4 cents is collected just to pay for the power purchased from TVA (the TVA wholesale cost varies by time, day, and month, so that 8.4 cent cost is averaged here for simplicity). The remaining 2.6 cents per kWh is retained by NES to help cover their non-energy costs of accomplishing their mission (these are called Fixed Costs in utility speak). So, NES is using a volumetric adder to kWh consumption (which is sort of invisible to the customer) and a Customer Charge to collect the revenue needed to cover their Fixed Cost for serving each account.

Here we should discuss this important difference between volumetric charges and fixed charges, as that is the big argument among retail electric rate experts at the 3,000 electric utilities in the United States. Volumetric charges are derived by measuring the volume of something, then multiplying that volume by a per unit amount. That works fine for kWh, because utilities like NES also buy their kWh from a wholesale vendor that charges them volumetrically. The problem comes when a utility tries to collect a fixed amount, to cover a fixed cost, via an added amount to a volumetric per unit amount. Since the volume purchased varies wildly, it is certain that any volumetric collection of a fixed cost is going to be inaccurate, unjust, and discriminatory. NES, and scores of other local utilities, try to skirt this issue by doing some of both, which guarantees that their rates are not actually cost-based, but it allows them to bury some Fixed Cost revenue collection by disguising it within the cost per kWh. Other utilities serving SV do the same thing. HVUD and Piedmont Natural Gas both employ the monthly fixed charge plus a per unit adder as well. This system isn’t fair because it is invisible to most customers. This situation is just another example of the struggle we all face in the search for equality of treatment from vendors we count on to make us feel secure.

For a residential electric customer of NES, the assigned Fixed Cost is somewhere around $54.00 per month (this is an educated guess from experience). So why are we charged $23.56 (or $31.56) per month for the customer charge? Why isn’t everyone charged $54.00 instead? This is where the commitment to ancient metering infrastructure, ancient rate architecture, and political philosophy rears its head, as discussed above. If everyone were paying a customer charge equal to the Fixed Cost of keeping our home attached to the NES grid, then we should only have to pay that average 8.4 cents per kWh, which is the wholesale cost, for our actual energy usage. Instead, mainly because of the momentum of the way electric utilities have operated for the last century, NES marks up each kWh by 2.6 cents to collect a portion of their Fixed Costs AND they also charge a customer charge which is also intended to collect another portion of the Fixed Costs. As explained above, this is a problem that results in practically no one paying their fair share of a utility’s Fixed Costs.

If you are interested in this matter, look for more details in next month’s issue of The Valleyist.