Note: this post will only be relevant to Oklahoma readers …
Long ago and many miles away, I worked in energy economics consulting. For those with a furrowed brow, that means we built a lot of spreadsheets relating to oil and gas, pipelines and electricity, production and transportation, etc. etc.
The biggest lesson I learned from that job was that I needed to find a new career. But along the way, I picked up a few other fun facts:
- Electric utilities and their rates are highly, highly regulated.
- As regulated entities, utility rate proceedings are (a) mostly open to public scrutiny and theoretically susceptible to public pressure, but (b) almost no one in the general public actually knows anything about utility rate-setting and therefore the full force of public pressure is rarely exerted. Utilities win!
That brings me to today’s topic.
Way back in 2015, Oklahoma Gas & Electric (OG&E) filed a request with the Oklahoma Corporation Commission (their principal regulator) to change the prices and rate structure for our residential electricity service. The Corporation Commission has yet to make a final decision on the request. So, since the issue has been in limbo for the past year, OG&E went ahead and increased our electric rates on an interim basis (if the rate increase is eventually denied, then some of the over-collected rates should be refunded).
The political battle over this rate increase has been ongoing for more than a year. It’s a big deal politically and economically, and the Corporation Commission (comprised of three people we elected to represent the public interest and to whom the state of Oklahoma pays a six-figure salary) still have it under active consideration. This fact pattern is well suited for citizen activism. It is time to make our voices heard.
Under OG&E’s previously approved rate structure, we pay for standard residential electricity service through (i) a fixed monthly customer charge (currently $13/month), and (ii) a charge for the amount of electricity actually used (this is about $0.06 per kWh, with adjustments if a customer exceeds certain usage thresholds in a month).
Under OG&E’s requested new rates, the fixed monthly customer charge will be doubled to $26.54/month and the $/kWh variable charge lowered a bit to $0.05/kWh in the summer and $0.02/kWh in the winter. There will also be a totally new charge added to our bills. They call this a “demand charge” and it has never before been levied by a regulated utility against residential customers anywhere in the United States. Basically the way the “demand charge” will work is that each month OG&E will take your household’s fifteen minutes of highest usage and charge you a fee equal to $2.75 multiplied by the kW load during that peak-demand period.
Now, it is hard to know (as an individual) what your electric usage is at any given moment, much less what your top 15-minute demand is for any given month. The Oklahoman has stated that average peak demand for most residential customers will be between 6 and 8 kW. If we assume that range is accurate, and use a peak demand of 7 kW for example purposes, it appears that we might expect the new “demand charge” to average about $19.25 per month. Of course, if something were to happen – say your water heater was to malfunction for an hour, or your kids were to come home from school and open the refrigerator door 15 times in a row at the same time that they flipped on all the lights and turned on the TV and the stereo and the computer and the PlayStation and the A/C, you could easily have 15 minutes of peak demand that far exceeds the average.
The problems with OG&E’s proposed new rate structure are readily apparent: (1) the basic fixed cost of electricity will double for everyone, from $13 to $26.54, (2) shifting more of the overall cost of electricity from variable pricing to unavoidable fixed monthly charges will disincentivize consumer efficiency, and (3) the new demand charge will create unpredictable swings in each month’s electric bill that have nothing to do with total amounts of electricity used. Assume, for instance, that you go on a 29 day trip and turn all of your power off during that time. You come home on the 30th day, turn on your A/C, water heater, run your dirty clothes through the washer, start up the TV, coffee pot, computer, charge your phones, etc., and inadvertently have 15 minutes of 12 kW usage. Your electric bill for that month would start at $59.54, for just the basic customer charge ($26.54) plus the demand charge for your 15 minutes of high usage ($2.75 x 12 = $33). Even if you use almost no actual electricity during 29 days of that month, you will still need to pay OG&E almost $60. That doesn’t make sense. And it isn’t fair.
In order to further illustrate how this change might impact your bills, I have drawn up a quick comparison of what I would expect my own bills to look like under the new approach (assuming winter monthly consumption equal to my January 2016 actual usage and summer monthly consumption equal to my July 2016 actual). As you can see, I expect at least a 20-30% cost increase for my bills, regardless of season (and with the risk of a lot more, if I accidentally turn on too many appliances during any 15 minute period).
This change will hit a lot of people’s pocketbooks. And a great many of those people – the poor, the elderly, those on fixed incomes – will find the cost increases to be crippling. And it won’t be their fault. Even if they turn off the A/C and sit in the dark, sweltering in the Oklahoma heat, they won’t be able to avoid the doubling customer charge and the unpredictable demand charge.
If you feel like this is unacceptable, please contact the Oklahoma Corporation Commission and let them know. OG&E is a monopoly; the Corporation Commission is the government agency charged with protecting us from abuses of that monopoly power. It’s important that our government hear the actual voices of the people whose wallets and lives are at stake. You can provide the Corporation Commission with your thoughts by leaving a comment here (enter case #201500273). Please note that any comments you provide will become part of the public record for this case.
- OG&E also has an alternative rate option (elective) called “SmartHours“. Under that program, your bill wouldn’t include a demand charge at all, but your summer energy consumption on weekday afternoons and evenings would be subject to variable rates far in excess of the standard rates (up to 4x as high and in times of heavy system demand, even higher). This program might help lower costs for customers who can consistently minimize electricity use from 2-7 pm every weekday.
- Paul Monies, the Business Energy reporter for The Oklahoman, deserves a shout-out (and credit) for pursuing and reporting on this story frequently over the past year.