Wednesday, July 21, 2010

Colorado's Tiered Electric Rates

Since the start of the summer when Xcel's new two-tiered rate scheme went into effect in Colorado, the PUC customer complaint line has been ringing off the hook. And, really, it's no wonder to anyone who has given this rate structure more than a modicum of thought. In the PUC propaganda promoting its decision approving the two-tiered rates, the PUC Chairman proclaimed that "For years, consumers have advocated 'the more you use, the more you pay' for electricity." Really? I wonder what consumers he's been talking to?

But, truthfully, this is a serious topic and those who complain about the tiered rate schedule are not all wrong, even though some may not artfully express their dissatisfaction. I agree with the sentiment that those who impose the greatest load during peak times should perhaps shoulder the greater incremental cost. But, if the average use is, as Xcel noted, 657 kWh per month, then the 500 kWh threshold at which the higher rate goes into effect seems exceedingly low. Does that imply that the average user is wasteful? What about the unfortunate person who is on an oxygen generator that by itself consumes over 300 kWh per month? Or the person who installed a ground source heat pump in the name of efficiency and is now being penalized because the electric pumps for those systems run much more often. And, those respondents who noted that Denver water users were so successful in heeding the Water Board's call for conservation that rates had to increase because revenues fell so drastically expressed a very valid concern. So much for the argument about efficiency saving consumers money. The same could easily happen here.

From a societal standpoint, I am not convinced that average rates (what we have traditionally had) are not in the best interests of the community as a whole. After all, we're not talking about a luxury here but a necessity. And, that is why the monopolist is regulated. If you want to place a luxury tax on the commodity, then increase the threshold for the more expensive tier to something that is truly reflective of luxury use rather than necessary use. Moreover, Xcel's two-tier rates for June-September don't seem particularly targeted at peak loads, just aggregate demand by individual users. If we want to fiddle with rates to promote energy conservation, then TOU rates would be better than a naive two-tier rate that does not provide adequate discrimination between uses. TOU rates would at least allow many of the consumers who have a valid use to shift it to lower cost times. We need a tool that can be applied with more precision than a sledge hammer.

Of course, TOU rates would require new, so-called "smart meters" which Xcel would be only too happy to foist on ratepayers. But the problem there is that the PUC and Colorado legislature seem only too happy to jump into palliative, partial solutions without considering all of their ramifications. While the PUC does have open a couple of "investigatory dockets" into matters such as data privacy and cyber security, one would think that it would address those issues before entertaining utility applications for cost recovery of its Boulder Smart Grid City experiment.

It seems a particularly perverse notion of technological innovation in which the goal is to increase the cost of a commodity necessity to the end user. If the computer industry had adopted this model of innovation you'd still be reading your morning paper on newsprint and blogs would be handed out on street corners as they were in colonial days. Rather than coercing users to use less of what has been called the "master resource," shouldn't the focus be on making its production more efficient, with less environmental impact, AND at lower cost?


  1. Rich,
    It's not a question of efficient generation or efficient use. Both should be pursued.

    Tiered rates do not increase the cost of a commodity to the end user: they only increase the marginal cost. While rates in the high tier are higher, rates in the low tier are lower, and the effects offset each other. Since you should know this better than anyone, I find it highly disingenuous for you to equate tiered rates with higher total cost.

    As for your comment about people with oxygen generators, they live in Colorado at 5000+ feet by choice. Is living at 5000 feet a right or an entitlement? They might not need oxygen generators (and, if they did, those generators would use less electricity at a lower elevation.)

    If people choose to live at an altitude beyond which their bodies can function without external aid, why should ratepayers subsidize that lifestyle choice?

  2. Tom,

    It's good to hear from you and I hope you're enjoying your new surroundings. I'm sorry but you are not correct about the high tier and low tier rates offsetting one another. That occurs only for someone who is at the break even point. My quarrel with the 500 kWh threshold is that it is set too low, especially if the average residential load is, as claimed 657 kWh (which I believe is a year-round average, not a summer month average). We'll see if this becomes revenue neutral as claimed. The problem is that the downside for the utility's revenue (and the potential customer benefit) is capped while the upside for the utility's revenue is unlimited. Real people live on a budget, often from month to month, and cash flow is an issue. You can't tell them that the present value of one rate structure over time is the same as another. That's fine for making business investment decisions. It is not how most consumers budget their expenditures for necessities. As I said, we needed a mechanism that could be applied with more precision than a sledge hammer.

    As to your other comment, that is so bizarre that I'm not quite sure how to respond. So, according to your philosophy, a person who has lived his or her entire life in Colorado and then develops, say, emphysema later in life is just out of luck and should move somewhere with a lower cost of electricity or a lower elevation. Really? A lifestyle choice? That's about the most elitist pap I think I've heard from someone outside of B****** in a long time. Why don't we just round up all the poor people in Colorado and deport them to someplace with a lower cost of electricity, like... where?

    -- Rich

  3. And so, the end of the story to my criticism of tiered rates for those with medical disabilities is that in 2013 the Colorado legislature passed bill SB13-282 which required the PUC to promulgate new rules creating an exemption from tiered rates for those with such medical conditions or who require use of an essential life support device. In Decision R13-1326 issued today the PUC issued a recommended decision adopting such rules... more than three years after I raised this issue but I suppose better late than never.


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