Unitil, the capital region’s electric utility, is asking approval for permission to increase how much it charges customers to pay for poles and wires that carry electricity to homes and businesses. This is normally a fairly dry and boring proceeding, called a rate case, in which a utility makes the case that this substation or that SCADA system is a worthwhile investment, but this time around there are some exciting new proposals.
We at Clean Energy New Hampshire are pleased to be one of the parties that have signed on in support of a proposed settlement that regulators will have the authority to approve, because we think Unitil has done a pretty darn good job of putting this rate case together. Here’s why.
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 are encouraged to make more money by selling more electricity and even though it might be in society’s best interest to use energy more efficiently.
However, it need not be so. Let me introduce you to a little idea called “Decoupling.”
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 amount of electricity a utility is expected to sell. Needed revenue, divided by expected units sold, gets you your electric rate.
In revenue decoupling, the regulator simply says: “we set the revenue requirement and 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.
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.
Very little electricity is stored. The vast majority 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. Wind, solar and hydropower have no fuel cost and so are always dispatched first.
On the other end of the spectrum, there are power plants that burn ultra-refined jet fuel for hundreds of dollars per megawatt hour. The higher cost resources, which tend to be used only during periods of high electrical demand, also tend to have much worse environmental impacts.
Despite the impact of these high-cost resources, most New Hampshire ratepayers spend the exact same amount for every kilowatt-hour they purchase. There’s no incentive to use less when those high-cost generators are running.
A very simple solution to this is to create an electric rate that has a higher price during peak hours and a lower one overnight. Unitil includes such an option in their rate case. Homeowners that opt into this rate (it’s not mandatory) will have an opportunity to use electricity during some periods of the day when rates are deeply discounted. As more people adopt these rates and shift their consumption to lower price times of day, less of the expensive dirty generation will be called into service, providing economic, public health, and environmental benefits.
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, sometimes you have to spend money to make money and at first, we’re going to have to invest in charging infrastructure. While some of the funding will come from already established public sources and some will come from private investors, additional investments from the New Hampshire electric utilities are needed at this stage.
Again, the Unitil Settlement Agreement proposal for these investments is pretty darn good. It includes $2.2 million worth of investments that would enable investment in more than 200 fast and slow chargers to be installed throughout their service territory.
While Clean Energy NH’s proposal for this rate-case would be even more ambitious if we ran the world, Unitil’s is pretty darn good. As such, we’re pleased to sign on to the proposed settlement and encourage the Public Utilities Commission to approve it without delay.
(Sam Evans-Brown is executive director of Clean Energy NH.)