Xcel Energy wants to rewrite your electricity bill and change the way you pay for energy. The first step in that effort is now before the Colorado Public Utilities Commission, one of at least five filings by the state’s largest utility.
Taken together the filings, known as dockets, would transform the way Xcel does business in Colorado and the relation between the utility and its customers. Much of this is being done in response to new technologies such as rooftop solar, electric vehicles, home-scale-battery storage and smart meters.
To finance grid overhauls, cope with loss of revenues and try to give customers price signals that lead to a more efficient energy use, utilities and regulators from New York to California are looking at new types of rates and charges.
“This is something we are seeing across the country,” said Corey Honeyman, a senior analyst with the consulting firm GTM Research in Boston. “Everyone agrees something has to happen. Nobody agrees how.”
Past changes in rates were triggered by the energy crisis of the 1970s and the deregulation of the utility business in the 1990s, said Alice Jackson, vice president for rates and regulatory affairs at Xcel’s Colorado subsidiary. The industry, she said, is facing another trigger.
The full shape of the filings — parts of a five-year plan, which Xcel calls “Our Energy Future” — is not yet clear as it is spread out over three dockets already filed and at least two more to be filed.
”There is no real ability for the public to see all the interlocking pieces. It is not being presented in a way that is conducive to public participation,” said Rebecca Cantwell, executive director of the Colorado Solar Energy Industries Association.
The dockets deal with renewable energy, a new solar energy program Xcel would offer in competition with private solar companies, upgrading the grid and the utility’s electric generation needs.
And then there is the docket that would start to rewrite your electricity bill. In 2014, the PUC granted Xcel a $1.6-billion rate hike. The current docket divvies up that increase among customer classes — industrial, large commercial, small commercial and residential.
Within the residential class, all households have been charged the same rate based on how much electricity they use, but Xcel’s Jackson says all households are no longer the same. “The demands small customers are putting on the system are changing,” she said. “We have some residential customers using 200 kilowatt-hours a month and some using 4,500 kilowatt-hours.”
The 25,000 rooftop solar arrays owned by Xcel customers “eroded” revenue by an estimated $9.8 million in 2015, according to an Xcel filing. That loss the utility says is made up by non-solar customers and it will continue to grow as nearly 5,000 rooftop units are installed each year.
So how does Xcel want to rewrite your bill? The change, and this is not a perfect comparison, would be akin to the difference between how you pay to run your car and the way you pay to insure it. To run it, you buy gasoline and you pay for as much gasoline as you use. Right now, Xcel pretty much charges you by how many kilowatt-hours you use in a month. The average household uses 628 kilowatt-hours at a charge of about 11 cents of kilowatt-hour.
The annual auto insurance payment is calculated based on a set of factors, such as the age and type of vehicle, driving record, credit score and amount of coverage. Your mileage and fuel consumption may go up and down during the year. The elements used to set your insurance premium do not.
The insurer also looks at their total customer base and calculates the premiums to ensure there is enough money to cover projected claims plus a profit for the company.
Xcel is aiming to become a little more like an insurance company by adding charges calculated on the overall demand or peak demand customers place on the system during the course of a year, separate from the amount of electricity used in a month. These fixed charges would not change even if you were on vacation for a month and used little electricity.
These so-called demand charges have long been a part of the bills of large industrial customers who place unique demands on the system, requiring Xcel to add equipment or capacity to maintain service for that big customer.
Now houses with solar arrays, a home battery, an electric vehicle or high-tech energy efficiency devices are all different, placing different demands on the electric system, Jackson says.
Xcel is proposing to add what it calls a “grid use charge” based on a rolling 12-month average of a household’s monthly use. A customer using an average 200 kilowatt-hours would see a monthly charge of $2.62, one using more than 1,400 kilowatt-hours would have a $44.79 charge. The average 628-kilowattt-hour household would pay $14.56 a month.
Xcel is proposing cutting the basic kilowatt-hour charge, so on the average bill the change amounts to an extra 18 cents. The utility says that about two-thirds of residential customers will see a lower bill.
Six other charges, called riders, now on your bill to pay for things such as transmission, energy efficiency, retiring coal plants and renewable energy would remain. A rider would be added to pass through the cost of items such as chemicals and water used in generating electricity.
Xcel isn’t alone in seeking to add demand charges. About 15 large utilities, from Florida to California, have added them, and Illinois’ Commonwealth Edison is seeking legislative approval to add one.
Xcel also wants to add a second monthly demand charge for transmission and generation costs. This would be based on the 15-minute peak use of a household during a 2 p.m. to 6 p.m. weekday period – the time the utility sees the highest demand for electricity.
This proposal will have to wait until smart meters, which can keep track of daily use, are installed for all Xcel’s 1.2 million residential customers. The current meters only record monthly use. An upcoming Xcel “energy future” docket will propose a plan for meters, grid improvements and the money needed to cover them.
Not everyone is enthused with Xcel’s vision. The plan jeopardizes the rooftop solar industry, said the industry association’s Cantwell. Adding a fixed charge and cutting the credit solar households get for putting kilowatt-hours on the grid, so-called net metering, undermines the economics of solar panels, she said.
“This is a big disincentive to solar,” Cantwell said. “The solar industry is opposed to the new rate design.” Rooftop arrays installed before January 2017, when the new rates would go into effect, would not pay the new charges.
Energy efficiency advocates are also critical of demand charges and cutting kilowatt-hour charges. “When utilities lower the amount they charge per kilowatt-hour, they reduce the financial incentive for consumers to save energy,” Howard Geller, the director of the Southwest Energy Efficiency Program, wrote in a blog. Fixed charges also fall more heavily on low-income households.
And while industrial customers can monitor and manage their peak demand, it is often not easy for a household to do the same.
“A fixed charge is a blunt and short-sighted approach to cost-recovery. It doesn’t send much in the way of price signals for customers to manage their load,” said Dan Cross-Call, a manager in the electricity practice of the Boulder-based Rocky Mountain Institute.
An approach favored by rate reformers and energy-efficiency advocates is time-of-use rates, which are higher during peak demand and drop during periods of low demand, encouraging consumers to shift their energy use to low-cost periods.
“Residential time of use rate is a much more precise,” Xcel’s Jackson agrees. “Over the long term, you send the most appropriate signals, it keeps the cost of energy down.” But Xcel must await installation of smart meters, which can read the time households are using electricity.
As part of the rate docket, Xcel is proposing a voluntary pilot in which smart meters would be installed and time-of-use rates would be used in up to 42,000 households over three years to determine the best way to implement such rates. “That’s why the pilot is so important,” Jackson said.
So the Xcel bill of the future could have two set demand charges, a new pass-through charge for the cost of materials used in making electricity and eventually time-of-use rates. This would all lead to more predictable revenues.
But rate reform needs to be about more than industry profits, RMI’s Cross-Call said. “Rates have for too long been focused on cost recovery for the utility at the exclusion of other equally important objectives such as customer engagement and environmental practices,” he said. “The challenge is not just the reform of rates. The larger question is how the utility business model needs to evolve.”
Mark Jaffe writes on Colorado environment and energy issues. He is a former Denver Post reporter.
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