Unfortunately, it hasn’t often been the case recently that I get to write about things that I’m excited about that are happening at the Public Utilities Commission (PUC). But when progress happens, it’s important to call it out.
As such, the goal of this blog post is to call attention to a pending Settlement Agreement that has been proposed in Unitil’s rate case. A rate case is generally where an electric distribution utility officially asks the PUC for permission to increase how much it charges customers to pay for the lower voltage poles and wires that carry electricity from the transmission system to homes and businesses. These are important dockets where a lot of state energy policy is interpreted, though they often fly under the radar, since all of the arcana of PUC ratemaking can be difficult for the lay public to follow.
But there’s no reason that these rate cases *need* to be confusing, and so let’s pull back the veil a bit, shall we? Most of the rate cases are focused on the utilities recovering costs for system upgrades and maintenance that they have incurred since the last case. But sometimes forward thinking changes are made as well. Here’s what’s in the rate case that we’re excited about.
Revenue Decoupling
You don’t have to hang out in Energy Policy Land very long to hear people complain about what many consider to be the central flaw in the electric utilities’ business model: “throughput incentive.” This is the idea that utilities only make more money when they sell more electricity, and so even though it might be in society’s best interest to use energy efficiently, utilities profit motive entices them ultimately to do whatever they can to sell more KWhs.
However, it need not be so. Let me introduce you to a little idea called “Decoupling.” If you want to dive very, very deeply into this idea you can read all about the various methods in this exhaustive report by the Regulatory Assistance Project, but at its core the idea is fairly simple.
Regulated utilities have something called a revenue requirement--the amount of money they need in order to provide their public good and a “reasonable return” for their shareholders. Regulators set that revenue requirement, but then in normal ratemaking, they divide the revenue requirement by the number of KWh a utility is expected to sell to set your electric rates.
In revenue decoupling, the regulator simply says: “we set the revenue requirement…and then that’s what you get.” There’s a lot of ways to go about it, but all of them amount to “if you collect too much revenue you give some back, but if you collect too little we let you collect a little more later.” Under decoupling, utilities now no longer have an incentive to sell extra electricity just to earn a little extra profit. When combined with other policy tools like performance incentives for hitting energy efficiency goals, their business model becomes better aligned with what’s good for the economy, society, and environment.
Liberty Utilities was the first to undergo decoupling in NH. If the settlement is accepted Unitil will decouple as well. That’s a good thing.
All House TOU Rates
Very little electricity is stored. The vast majority of electricity is generated and consumed simultaneously, and the grid must always be kept in balance. This enormous balancing act means that grid operators need to deploy a huge variety of resources with staggeringly different costs in order to match demand with supply. On one end of the spectrum wind, solar and hydropower have no fuel cost, and on the other end of the spectrum are power plants that burn ultra-refined jet fuel. The higher cost resources, which tend to be used only during the periods of high electrical demand, also tend to have much larger climate and environmental impacts. Reducing the high cost, highly polluting resources will have benefits across society. These high cost resources, when dispatched also tend to set the electric rates that we are charged.
Despite the impact of these high cost resources, most NH ratepayers spend the exact same amount for every kilowatt-hour they purchase. This means that a million plus NH residents have absolutely no incentive to modify their behavior in very simple ways that have the potential to massively ease the stress on our electricity infrastructure.
A very simple solution to this is to create an electric rate that provides households with a “price signal” that encourages them to shift their energy consumption to those times of day when electric prices are lowest. This can be done by charging people different amounts for electricity at different times of day. (Even more exciting is the idea of a “transactive energy rate” but we’ll leave that discussion for another blog post.) We have been debating the merits of these Time of Use (TOU) rates for decades now, but finally the utilities seem to be willing to give them a try and Unitil includes such an option in their rate case.
The basic take-away from the earliest pilots of TOU rates is that the bigger the price difference between “on peak” and “off peak” hours, the more effective they are at driving consumer behavior. The biggest changes in behavior come when the cost of electricity during peak hours is at least five times more expensive than off peak hours.
And sure enough, Unitil’s TOU rate is right on target. The “illustrative” rate example they included in their filings has a ratio of 5.22 : 1 between on and off peak. For homeowners that opt in to this rate (it’s not mandatory), this means that they will have an opportunity to use electricity during some periods of the day that are deeply discounted compared to current default electric rates. As more people adopt these rates and respond to price signals, less of the expensive dirty generation will be called into service, providing economic, public health, and environmental benefits.
Let’s gooooooooo.
Electric Vehicle “Make-Ready” Investments
It is my belief—based on all of the available evidence—that eventually the electrification of our transportation sector is going to save society a metric boatload of money. However, you have to spend some money to make money, and at first we’re going to have to invest in the electric vehicle (EV) charging infrastructure needed to encourage the transition to electric vehicles. Without a robust public charging network, NH residents and visitors may be hesitant to purchase or drive their EVs as there will be limited opportunities to charge their vehicles away from home. While some of the funding will come from already established public sources, and some will come from private investors, additional investments from the NH electric utilities are needed at this stage. This is called “make-ready” investment, and includes the back-end work (poles, wires, transformers, etc) needed to upgrade the grid in places where charging is happening.
The Unitil Settlement Agreement proposal for these investments is pretty darn good. It includes make-ready investments that enable:
Four fast charging sites, each with plugs for six cars, owned by third party charging companies.
Twenty Level 2 chargers, each with plugs for as many as ten cars, (that’s as many as 200 chargers!) also owned by third parties.
Another twenty Level 2 plugs installed on light poles in local main streets.
Funding for $600 rebates for 250 individuals to install smart “managed” chargers at their homes so that the company can gather data on how such chargers are used.
If this investment seems small to you, remember that Unitil is the state’s smallest investor owned utility and doesn’t have a gigantic service territory. This much EV charging infrastructure within the Unitil territory could be a big deal and lead to other utilities seeing similar scale investments in their territories, leading to the development of that critical public charging network.
In Sum
While our proposal for our rate-case would be even more ambitious if Clean Energy NH ran the world, Unitil’s is pretty darn good. As such, we’re pleased to sign on to the proposed settlement. We encourage the PUC to approve it without delay.