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As Industry Changes, So Will Electric Rates

Chris Meyers

There are reasons utilities have to restructure their rates. In the past, electricity was generated by serving consumers with large centralized coal, natural gas, and nuclear power plants. The utility either owned generation plant assets or had them under long-term contracts. Your power came from those plants controlled by your utility. Today, the ownership hasn’t changed but the market has. No longer does your utility’s plant necessarily supply the energy you use. Most utilities now belong to organizations with day-ahead energy markets. It’s a market that expands far beyond the borders of your local supplier giving access to a larger pool of generation sources.

In addition, utility scale renewables like wind and solar are playing a larger role in energy production. We have managed to accommodate renewables into our portfolios despite their intermittent nature.

The real challenge and driver for rate changes comes with consumer or “behind-the-meter” production of energy. Current rate structures were never designed to recover the cost incurred to serve “standby or backup power” for those who self-generate. Nor do current rates properly reward self-generators when they benefit the grid. We have to adapt to the next form of generation even if it is a small overall contributor.

For most consumers, the change from simple rate structures to more complex will go unnoticed. The total monthly amount due in a redesigned rate will be about the same for a large majority of consumers. And like today, most consumers won’t care about much beyond the amount due.

In the end, new rate structures should not be feared. They actually give all consumers who want to aggressively manage their energy costs a greater opportunity to do so.