Unraveling Your Utility Bills -- Part 2 of 3

The Valleyist Papers

A COLLECTION OF ESSAYS

WRITTEN IN FAVOUR OF THE IMPROVEMENT OF STEPHENS VALLEY

Author – William Ray

 

Edition 2. Issue 10.

Unraveling Your Utility Bills – Part 2 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 is offered in three parts.

Last issue we were discussing the way that utilities like NES (and HVUD and Piedmont Natural Gas) collect their Fixed Costs. This month we will return to that discussion and expand on the subject.

When NES (and nearly every other electric utility) tries to collect the $54.00 Fixed Cost per residential customer (which covers all their costs that are not directly related to your volume of energy consumption) with a customer charge AND a markup on each kWh, practically no one pays an amount equal their cost of being served. Nearly everyone either overpays or underpays. In Nashville, the average monthly kWh usage is currently about 1,250 kWh, so if we multiply 1,250 kWh by 2.6 cents, we get $32.50, which is more than half of what NES needs to pay their Fixed Coster per residential customer! If you add that $32.50 to the $23.56 Customer Charge, then NES neatly collects nearly exactly $54 to cover the Fixed Cost for the average residential customer (this makes sense because retail rates are designed around the average customer). So, for the handful of residential accounts that regularly consume the average 1,250 kWh per month, the NES rate architecture works quite well. But it gets remarkably unfair (and remember, this is not a NES exclusive problem), when we examine what happens to residential accounts whose monthly consumption of kWh is lower, or higher, than average.

Stay with me now. That 8.4 cent per kWh average wholesale cost has several components besides the varying cost of a wholesale kWh. For example, a very large component of the wholesale power cost is the monthly peak demand charge. This can amount to 40% of NES’s monthly wholesale power bill from TVA, and while modern electric meters like the ones on our houses in SV can determine just how much each home contributes to that peak demand, the local power companies choose to ignore the opportunity to determine that amount and bill each account for their actual contribution to that cost. Rather, the local power companies choose to socialize the demand charge and include that cost as a portion of the 11 cent per kWh charge for a residential account. A residential account’s contribution to NES’s monthly peak demand charge can vary wildly. In the summer, NES’s peak demand will always happen between noon and 6 PM on a weekday. If your home is only using air conditioning during the peak, it is likely that the socialized rate over-estimates your contribution to peak demand such that you over-pay. If you throw a roast in the oven, or wash and dry clothes during the peak hour, your actions might drastically eclipse the amount NES has estimated in the socialized retail rates, which means that you under-pay. This is a demonstration of how no one really pays the true cost of buying electric power using the simple rate architecture employed by NES and most other local power companies.

In summary, NES needs to collect a bit over $54 from each residential customer over and above what the actual wholesale energy cost is for each customer. To accomplish that, they have implemented a Customer Charge of $16.90+$6.66 ($23.56) for those accounts who use something near 1,250 kWh per month, and that works quite well. But this system fails for any residential accounts who use less than the average amount. Those accounts are served at a loss, and it might amaze you to know that many of us in SV fall into that category! For those who use more than 1,250 kWh per month, things go really off the rails. At present NES published retail rates, if an account has used over 2,000 kWh in the last year, the Customer Charge goes to $24.90+$6.66. Also, that 2.6 cent markup would produce about $55 in net income (for a residential account using just 2,100 kWh). For that volume of kWh (an amount used by many homes in SV), NES is thus collecting about $87 to cover its Fixed Cost estimated at $54 per month. As consumption goes beyond 2,100 kWh per month, the problem just gets worse. These customers are being forced to subsidize the Fixed Costs of those who use less than 1,250 kWh per month. That bears repeating. That large home just down the street from you is likely averaging over 2,000 kWh per month of electricity consumption, and they are being forced to pay more than their actual Fixed Cost for being connected to the grid. The Fixed Cost of serving each residence in SV does not vary, but what those residential accounts are being charged for Fixed Cost recovery varies greatly!

Recently NES implemented their Power of Change Program, wherein they round up all energy bills to the next higher dollar (all accounts were automatically enrolled in this program, but all accounts are also allowed to opt-out if they contact NES and tell them) and many howled about this on social media, even though it would only add, on average, 50 cents to their monthly bill. What if those folks knew they are regularly forced to subsidize their neighbor’s power cost to the tune of maybe $30 per month?

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