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June 26, 2008

Heads in the Sand

"Please, don't buy my product" is how fellow Vermonter Art Woolf, in a post on the Vermont Tiger site,  characterized yesterday's statement by all 21 of the state's electric utilities. The utilities were warning consumers NOT to substitute electricity for fossil fuel as a heat source this winter even though we may be billed less for the electricity than we would have to pay for gasoline, propane, or kerosene. The coverage of that strange statement including a lead story on WCAX probably did more for space heater sales than a paid advertising campaign would have.

As I've been posting (probably ad nauseum), electricity at $.15/kWh is a cheaper way to heat house than oil at $5.00/gallon. Since an electric space heater costs $20 (according to the WCAX story), this is a switch that many people will make at current prices and will make en masse if the price of oil continues to climb AND ELECTRIC RATES REMAIN UNCHANGED. (NOTE: check your local tariff, some towns including Stowe, VT have penalty rates which could kick in and more than negate savings). Jawboning against the switch will only encourage more people to do it – they have to look out for their families this winter.

The utilities DO have two legitimate problems:

  1. Current rates encourage us to use electricity for heating onpeak as well as off. The cost to the utilities will skyrocket if they have to add massive amounts offpeak purchased power to their supply. Since onpeak power is produced by burning fossil fuels (NOT including much coal here in the Northeast), it's expensive. Current electric rates make onpeak residential use a loss leader: the more of it the utilities sell, the more they'll lose. Even worse, prices in the spot market for wholesale electricity literally change every minute. A growth in demand without a growth in supply will drive the unit cost up – perhaps drastically.  The utilities response will predictably and necessarily be to ask for rate increases.
  2. There is not enough electrical transmission everywhere in Vermont to deliver a significant increase in peak load.

Fortunately there is an option besides jawboning but it's hard and has to be planned quickly. We need to go to time-of-day pricing for residential electricity everywhere in Vermont. It must be mandatory – at least for those who use more than a certain amount of electricity per month. There must be a provision to change which times of day are peak and offpeak with fairly short notice as demand fluctuates. Towns with a totally inadequate supply will have to protect themselves with very high peak rates.

The huge job includes installing time-of-day meters which may not be very smart meters meaning they themselves will be replaced and scrapped in not too many years. There are regulatory changes required – not something that usually happens fast. the whole effort MAY be premature if the price of oil comes back down (which it may).

Fortunately electric heat is not all or nothing if you already own a furnace. Even if rates only encourage electric heat at night, you still save money on fuel. Moreover, time-of-day rates give you the option of saving on other discretionary electric use during the day and saving money by doing so.

Time-of-day rates align the interest of the power producers and power consumers; that's a good thing. Utilities can be more profitable (or charge less) if peaks are smoothed out. New facilities are more quickly paid for if they serve more than peak needs.

Burying our heads in the sand and hoping that people will voluntarily buy more expensive oil to prevent FUTURE electric rate increases is not a good thing. It won't work; the utilities are perfectly right to predict problems this winter WITH THE CURRENT rate structure. The rate structure needs to be changed.

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