Senior decision-makers come together to connect around strategies and business trends affecting utilities.


How do power rates should evolve?

image credit: kW is by far the most important cost factor
Rafael Herzberg's picture
Consultant energy affairs, Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

  • Member since 2003
  • 2,222 items added with 1,295,765 views
  • Jul 31, 2020

How do power rates should evolve?
A suggestion: design tariffs essentially associated with the capacity demanded by each consumer.

In real life, the sizing of the electricity generation, transmission and distribution infrastructure is associated with its capacity in kW.

In simple language, two examples of middle class houses that consume the same monthly amount of electricity.

One has instant electric showers and for this reason they demand 10 kW from the grid at night, at peak consumption. Another has electric tank heaters and demand 3 kW at peak consumption.

The two, in the current system, pay the same bill, as they consume the same amount of energy per month!

To meet the loads of the two houses, the investment in infrastructure is widely different. But in the current rate system, this reality is not captured. 

Result: the costs actually incurred end up being "prorated".

In order to progress, it will be important that the rate structure reflects the reality of the costs incurred.

Bob Meinetz's picture
Bob Meinetz on Jul 31, 2020

Rafael, that system has been in place in the U.S. for a while. Manufacturing facilities, entertainment centers, shopping malls, etc. with large power needs pay a surchage to cover the cost of added transmission to their locations. As it is for residences, their consumption charge is measured in kWh, although the rate is generally lower.

I would support strengthening the service connection to all residences. It would offer an incentive to electrify water heating and even space heating, and could be financed by a surcharge on all bills, or even state subsidies.

Everyone benefits from clean power, but there's a caveat -

Electrification of appliances commonly powered by natural gas only reduces carbon emissions if electricity isn't generated by burning fossil fuels. In that case, it's less emissions-intensive to burn gas at home. Because most energy for space heating and cooking is required when solar energy isn't available, at those times gas-fired electricity is necessary to meet demand.

If we don't decarbonize electricity first, we're going backwards.

Rafael Herzberg's picture
Rafael Herzberg on Aug 1, 2020

Hi Bob,

Above a certain kW demand (around 100 kW) end users - whether industrial, commercial or institutional - must contract tariffs that are based on kW demand and kWh energy.

The residential sector however pays just for the kWh. That's the reality these days for the vast majority of home owners, in a global fashion!

The post brings toour discussion the need to evolve! Simply put because right now the tariff structure does not recongnize the difference of instant (high capacity) heating and the alternatives though it makes a huge difference for the supply side. 

In the US demand response programs are becoming quite successful because the local utilities are trying as much as possible avoid peaks. Wi-fi home thermostats are becoming the "tool" used by electric utilities to reduce air conditioning (for instance) of selected regions of their concession.

New times, new challenges - a great oppoortunity for changes!

Bob Meinetz's picture
Bob Meinetz on Aug 2, 2020

Rafael, "demand-response" is nothing more than a polite term for the trend of energy monopolies to thrust the responsibility of providing adequate supply on consumers.

I have yet to meet a single customer whose electricity bill went down when they participated in a demand-response (DR) program. Utilities typically raise rates, then implement DR so customers can maintain their current level of consumption. Some must even allow their utility to turn off their air conditioning when it's needed most - only to help it pad its profit margin. Though DR might be successful for PG&E or Edison, it doesn't lower anyone's bill.

I find the current fascination with a "need to evolve" grid electricity fascinating in its own right. Boil it down to basics, and there is very nearly always someone seeking to profit on the "evolution". Generating and transmitting a reliable supply of AC electricity is not rocket science, and I think we would agree that making it available to everyone in society benefits everyone. That means keeping its costs low.

In place of charging everyone more on an ongoing basis to use more power (beyond its marginal cost), it would be less expensive, and ultimately more beneficial for the environment, to levy a one-time fee to upgrade customers' service connections. It could be amortized over several years if necessary.

Rafael Herzberg's picture
Thank Rafael for the Post!
Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.
More posts from this member

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »