OPPD’s Proposed Rate Restructuring to Negatively Impact Residential and Small Business Customers
OPPD is considering a rate restructuring, which the Board of Directors will discuss November 12th. The proposed change would increase the basic service charge for residential and small business customers from $123/year to $420/year in fixed charges while slightly decreasing consumption costs.
To give this ‘basic service charge’ some context, the Wall Street Journal reported a typical rate of “$5 or so” per month ($60/year), and the ACEEE reported fixed fees of $5-10 per month ($60 – $120/year) as of late 2014 for average residential customers.
The proposed rate structure is bad policy for the following reasons:
- Low use customers will pay more ($60 – $180 annually) including many low-income residents and fixed income seniors, while high use customers (higher income) will pay less by roughly the same amount;
- Apartment & small home dwellers who conserve will pay more for the same energy;
- Reduced incentive to for all customers to be more energy efficient and conserve;
- Increased wasteful use of energy, adding to air pollution and climate change;
- Makes investing in renewable energy harder to justify economically.
I urge OPPD to strive to live their new slogan – “Leading the way, we power the future.” Lead our community in its battle against poverty and its goals to care for the natural environment. With the Pope’s recent encyclical in mind, OPPD’s rate restructuring is a real life decision where care for the poor and care for the environment go hand in hand.
The proposal to lower the cost of a kWh, the rate you pay for the electricity that you actually use, is counter to the future power-generation plan OPPD recently approved. Lowering the rate a customer pays for the electricity consumption reduces the incentive to conserve energy. Often, customers and small businesses look at how long a technology investment will take to recover its upfront cost in energy savings – financial payback. Lower rates result in poorer paybacks, which will slow investments in energy efficiency and renewable technologies that are important for our planet’s long-term health.
UNO’s report, “Nebraska Energy Burden Study: 2013 Update” provides the following statistics for Nebraskan’s energy expenses:
- For households making less than $30,000, the average cost of energy was $1984 per year.
- For households making more than $40,000, the average cost of energy was $2451 annually.
- Households making more than $100,000 had an average cost of energy of $2738 per year, more than $750 above households making below $30,000.
This data demonstrates that low-income households pay less for energy than high- income households, as they should. They use less, they should pay less. The new rate structure begins to shift the current, rather equitable distribution of costs so that the poor, elderly, and environmentally conscience pay for large homes or other homes that consume larger portions of the energy load.
I’d like to see a map from OPPD that shows which customers’ bills are going down and which are going up. Real data, real addresses, mapped over the OPPD territory. Board members and OPPD leadership should be asking for this to ensure they fully understand the impacts of this change. Such an exercise will quickly tell who is paying for whom in the community under the new rate restructuring. I can’t help but think that the map would look something like this one.
As an accountant who cares about both the poor and the environment, here are my thoughts:
- It doesn’t matter whether a business has fixed costs or variable costs. The customers are not responsible for the costs. Customers pay for the products they purchase. A business’s executive leaders, accountants and finance folks are in charge of managing both fixed and variable costs, and that’s one of the many reasons accounting and finance is sometimes complex. It’s also why it’s great that Nebraska has public power, which shouldn’t feel the same pressures as shareholder-owned utility companies to meet quarterly earnings projections.
- Customers are not buying a part of a power plant, part of a power line, nor are we asking to take on a week’s salary of an OPPD employee. Customers are buying electricity delivered into their homes. That’s it, nothing more, just kWh.
- If OPPD has missed budget targets or future purchase forecasts have changed, they should adjust the price of the product being delivered, kWh. If I built a house that’s too big for my budget, I don’t go to my boss and say, well gosh, I’ve got a big fixed mortgage now, I need a raise.
The reality is that OPPD has a pretty significant budget shortfall. So rather than solely poking holes in their proposed plan, I’ll offer three ways for them to narrow that budget gap:
- Increase kWh rates for all users, which lets everyone share the load equally.
- Do what you do with your large business customers, charge a demand charge to residential customers and small business customers too. Demand charges continue to incentivize energy efficiency, because consumers can affect the amount charged by reducing consumption.
- Move to a time-of-use pricing structure, where electricity costs more when it is most expensive to produce, usually during the late afternoon hours of the summer.
OPPD has made great progress in the past few years, with wind power purchases and decisions to retire three coal units in North Omaha. I am truly amazed that our power company will likely be 1/3 wind and 1/3 nuclear by 2018, both very low carbon and affordable power sources.
This is a public power state. We, the people, own our utilities, and we are represented by elected officials that are supposed to represent the consumers by definition.
The OPPD Board will hear from staff and the community at their November board meeting on Thursday, Nov 12th at 10:00 a.m. The public will have an opportunity to make 3 minute statements to the Board or you can email the Board at their website.
Speak up residents and small business customers – speak up and help OPPD lead us in the right direction!
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Featured Image courtesy of Watie White.