Every few year’s utilities take a look at their financials and realize it is costing more to do business than it used to. So, they go through the laborious and very expensive task of determining what revenues are necessary to stay afloat in the years ahead.
And, by stay afloat – I don’t mean, necessarily, how much cash should be paid the stockholders in the case of investor owned utilities, or consumers in the case of public and cooperative power – I mean stay afloat in terms of operating a utility – and keeping the kilowatts flowing to our refrigerators, freezers, wine coolers, latte machines, water heaters, pumps, and yes, even lights.
The electric utility that delivers the spark to your house or business is part of a very complicated system. Electricity can’t be stored in massive amounts for any long period of time. So, it’s generated as it is needed.
When you flip the switch in the living room, or turn on the oven, or call for heat from your furnace, or turn on your computer, the utility needs to provide the power. Somewhere along the line a generator is working just a little bit harder.
A utility like the Public Service Company of New Mexico, one of the smallest in the country, is still so big that flipping a light switch at home doesn’t show up…but I’m told when the lights come on at UNM’s football stadium, or at Isotopes Park, or at community ball fields – in fact there is a “blip” on a screen somewhere that says – make power electricity – now!
In order to do that, the infrastructure needs to be in place. Wires, poles, insulators, switches, breakers, transformers, and even generators need to be working – all the time 24/7. If there is a defective part – the power doesn’t get delivered and it is hell to pay.
To alleviate those little inconveniences like no electricity, systems are in place to re-route power from one location to another – in almost every case it is done automatically – and we don’t even know. In major cases, someone somewhere in a control room issues a command and opens switches allowing power to flow from the generator to the customer over a different path.
And – there had better damn well be electricity, all the time.
That’s why utility rate increases are necessary – to provide the infrastructure to get the spark to your house, business, or mountain cabin.
The real challenges in rate design these days must be – how do we design a system that provides power to the end user – when it is needed?
End users have installed wind mills, solar units, or in some cases built little hydro generation systems along a creek – to help protect the environment, to take advantage of tax breaks, or just because it seemed like the right thing to do.
Everything is fine and dandy as long as those little generators are working. But, if something happens and the little generator can’t produce power – what happens? That customer still wants to run the TV, or a computer, or the furnace and the power needs to come from a central station provider – the utility.
So, the rub.
How does a utility build a system that allows the end consumer to generate his own power, thus allowing the huge generating plants to spew less stuff in the air or consume coal, uranium, oil or gas – unless something goes wrong and the power goes out –leaving the house or factory dark and cold?
Developing the econometric model that answers those questions is not perfect, so the utilities make their best educated guess at what rate the customer can accept that will keep the power on.
We should be glad they do.
And, my experience is, the utility will ask for more – because the regulators aren’t going to issue an automatic yes. The regulators will take the utility work, do their own studies, and then agree the utility needs more money to keep the lights on…but just not quite as much as they asked for.
You can take that to the bank!