What will rising electricity rates mean to clean energy?

By Elisa Wood

June 17, 2010

A political consultant once told me that Americans only vote for the environmental candidate if the economy is thriving. The nation’s financial house needs to be in order before voters will tend the garden.

Green energy advocates appear to have circumvented this tendency in recent years by promoting green jobs. The political formula is no longer the environment or the economy, but the environment and the economy.

But the strength of that link may soon be tested.

The Deloitte Center for Energy Solutions published a recent survey that found 85% of utility regulators expect electricity rates to rise this year, and they worry that consumers will revolt.

“Our survey demonstrates that state utility regulators are increasingly cognizant of electricity costs and the burden they represent on the average consumer,” says Branko Terzic, Deloitte’s energy and resources regulatory policy leader and a former commissioner with the Federal Energy Regulatory Commission.

Conducted in the spring 2010, the survey showed some poignant shifts in the thinking of regulators over the last year. More than a third of the regulators now feel that consumers will not accept any rate increases, up from less than a quarter surveyed a year ago.

Moreover, 67% fear that it is environmental measures that will drive up electricity rates. They are especially wary of the price tag carried by renewable energy.

Regulators already have shown strong reticence to grant utility rate increases in many states this year. As they search for ways to reduce utility spending, we will see how strongly embedded the ‘economy-and-environment’ message in the national consciousness.

It’s hard to say if green energy will become the victim of budget slashing. One thing is for certain. Cutting green energy spending creates a bizarre chicken-and-egg for energy efficiency, a resource that ‘takes money to save money.’ Energy efficiency requires an initial investment in equipment and building upgrades to reduce electricity consumption and therefore lower consumer bills.

The survey hints that innovation may come to the rescue. State regulators appear increasingly drawn to the idea of time-of-use (TOU) rates, where customers pay prices closer to the actual cost of electricity, which changes throughout the day. This approach can lead to significant savings since consumers can put off energy intense household activities until a time when prices drop. Sixty percent of regulators surveyed said they were considering TOU rates for consumers. And when asked ‘whether they believed that time-of-day should be considered,’ 82.9 percent said yes. 
 
”Clearly regulators are interested in time-of-day rates as way for the public to benefit from cheaper access to energy, especially in light of the current economic downturn,” Terzic said.

No one wants to see electricity rates rise, but if they must, the best reason is to bring consumer bills down. With the economy still weak, it may be time to expand the clean energy argument to: environment and economy and lower household bills.

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