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Higher utility bills are tickling the limits of people’s ability to pay, and some investor-owned utilities (IOU’s) find themselves in poor cash positions as they struggle to collect on overdue accounts. Xcel Energy of Colorado now disconnects 600-650 customers daily, and reports that nearly one in five of its customers – or about a quarter million accounts – are in arrears. Xcel’s delinquent receivables are now a record $40 million. (Story – USA Today)

Public Service Company of New Mexico is having its own share of troubles as it tries to raise cash in the wake of a plunging stock price. PNM’s stock has recovered a bit from a low below $9 in March, but shares are still worth less than half the $35 they sold for a year ago. PNM shed its gas business in Santa Fe to raise cash, and is looking to sell other assets as well. They hope to fix their troubles by investing another $1.7 billion over the next 5 years, and concern about the rate impact of that investment has prompted Santa Fe to look into creating a public power authority.

Much of the trouble for IOU’s began with deregulation, when utilities confessed that the assets they were holding would be much less valuable in a competitive environment. Nobody could be expected to compete with 1960’s technology running at sub-thirty percent efficiency, could they? Now as these same utilities seek another big round of investment, investors and regulators are wary. Will we get competitive investments this time around?

There are good reasons to believe the answer is “no”. If anything, the regulatory landscape has tipped even further in favor of utilities. Most notable is the new trend toward revenue guarantees that ensure utility investments can be recovered in rates even as throughput drops on the system. But investors must be wondering why they should buy assets that can be so easily bypassed with distributed generation.

Besides, investors have better opportunities in the emerging “clean tech” sector, where distributed generation and load management technologies have made bi-directional, internet-style grids a reality. The Nordic countries still lead with their “active grid” technology, wherein connected resources actively participate in the health of the network, and soon enough these companies and their investors will pry open the U.S. market.

If active grids do get built here in the U.S., where would it leave our utilities? Waving their revenue guarantees in front of legislators and demanding a bailout, is my guess. It’ll have to be the taxpayers, because ratepayers will have left the system en masse to create active grids that can operate in parallel or stand-alone at will , delivering much higher efficiency.

The local economic benefits of creating an active grid that supports local, independent energy producers are too great to ignore any longer.

Note: For basic information on feed-in tariffs, visit:

http://en.wikipedia.org/wiki/Feed-in_Tariff

 

 

Feed-in tariffs are generally funded by adding a charge to customer utility bills, so the idea that feed-in tariffs can reduce electricity rates is somewhat counterintuitive. But if your electric power system is inefficient – and most are – a well designed tariff can be a powerful tool for reducing rates or, at a minimum, stabilizing rates against future increases.

Electricity rates are determined primarily by the cost of operating and maintaining the electric power system. There are caveats, of course, but for the most part utilities add up their costs and bill them to customers. In the case of investor owned utilities, an allowable profit is added and also billed to customers.

So how much does it cost to operate and maintain an electric power system? That depends, more than anything, on what utilities buy with the money they spend. All other things being equal, a utility that invests in high-efficiency equipment and builds an efficient system will have lower rates than one that buys inefficient equipment and builds an inefficient system. Efficient systems run cooler, last longer, and use less fuel to deliver the same amount of energy. If you want to minimize system costs, high efficiency is essential.

One of the strongest arguments for feed-in tariffs is that they stimulate investments in equipment that raises system efficiency. Recipients of the tariff – generally independent energy producers – earn higher profits with efficient equipment and processes. A well structured tariff can also encourage placement of new equipment in strategic locations such that overall system efficiency is increased. In that case, even though the tariff is funded by an added charge on the bill, the resultant gains in efficiency can be enough to bring rates down.

Communities considering a feed-in tariff should determine whether efficiency improvement opportunities exist on their electric power system. If the majority of the energy comes from distant coal or nuclear plants, with supplemental energy provided by gas turbines, overall system efficiency is likely below 30 percent. Throwing away 70 percent of the energy in the fuel means there are lots of opportunities to raise efficiency.

Feed-in tariffs also promote more efficient investments for meeting load growth. Instead of constantly adding new, remote generators and upgrading lines for more capacity – the expensive way to do it – a tariff can be designed to promote additions of strategically located resources that obviate or delay line upgrades and generation additions. Such strategic measures generally have lower capital costs, and they further improve system efficiency. Denmark and the Netherlands have perhaps taken strategic system architecture further than anyone, shutting down nearly all of their inefficient central power plants in favor of many smaller plants that cooperate to serve nearby loads efficiently and without reliance on bulk power shipments over a massive wires infrastructure.

There are many reasons for considering a feed-in tariff, including to support the independent energy producers that live and work in your community, and to accelerate implementation of renewable energy. But if your power system is inefficient, a well designed feed-in tariff can improve efficiency enough to either reduce rates or, at a minimum, to insulate a community against future rate hikes. With rapidly rising fuel costs and an increasingly uncertain economic climate, the time for feed-in tariffs is here.

The amount of money leaking out of communities to pay for natural gas is rising as the price of natural gas rises. Even little Santa Fe County, New Mexico, with about 42,000 residential gas accounts, now loses more than $40 million annually as residents purchase the non-local heating fuel. Numbers from the analysis done by Local Energy are shown below, and a flyer for distributing the data can be downloaded here. I'll work on getting commercial numbers too.

 

 

Residents in and around Santa Fe, New Mexico who heat their homes with natural gas are now paying an estimated $14.08 per million BTU of delivered heat – up from $13.78 per million BTU a year ago, while gas-fired heat for domestic hot water is $18.08 per million BTU this year compared to $17.31 per million BTU last year. All prices are calculated for the period beginning July 1 and ending June 30.

 

 

 

Costs shown include fuel delivery charges and taxes. Current year costs are estimated.

 

The cost of heating with natural gas has been trending upwards at more than 12 percent per year over the past 10 years.

 

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