Will the Tea Party Crash the Utility Rate Party?

There is a fast moving firestorm spreading across the political landscape over the utility rate impacts of the clean energy, smart meter and emissions reductions aspirations that politicians and regulators signed up for in a better economy.  This firestorm has been smoldering for a while but the flashback was delayed by subsidies and stimulus payments.  Unfortunately, the rate impacts of those aspirations are hitting the fan while the responsible politicians and regulators are still in office raising electricity rates and causing customers to rise up in revolt.

This firestorm is making headlines now in California and Texas but that is not the only place it is breaking out. Unless controlled, the firestorm threatens to undermine years of progress in building support for clean and renewable energy across the country.

Rebecca Smith’s April 5, 2010 story in the Wall Street Journal about the rate war conflict between the Los Angeles City Council and the City’s Department of Water and Power frame the current issues well, but only tells half the story about how we got into this situation. [1] LADWP has been working diligently to achieve its renewable portfolio standard target of getting 20% of its energy from clean and renewable sources by 2010.  Unlike the investor owned utilities in California, LADWP is expected to meet that 2010 target on time.  This would be a great news story if LADWP’s political masters had only stopped there at 20% to celebrate their achievements. Instead, today they are embroiled in a rate controversy and running for cover looking for someone to blame.

But Los Angeles went further—much further telling the utility to get as much as 40% of its energy supply from renewable sources by 2020.  This sounded great in the politicians’ press releases at the time, but achieving that goal requires that LADWP displace about 50% of its energy supply now produced by coal with more expensive supplies of wind, solar and other clean energy sources.

LADWP said we can do that but it won’t be cheap, but politicians said “Do it!”

The problem is no one told customers what all these promises were going to cost and now that it is hitting the fan customers as ratepayers are giving these politicians a piece of their mind. So after months of negotiations, the Los Angeles City Council authorized a 5% rate increase or 0.6 cents per kilowatt hour, but the LADWP Board said it needed to 5.7% to pay for the City Council’s policy. Feeling the political heat the politicians ran for cover, denied the increase and shelved the entire rate matter for three months to allow cooling off time.  The problem will not go away, in fact it will get worse because rates might have to go up even more to make up for revenue lost over the three months.

Fear of Ratepayer Revolt

A similar flashback is taking place in the Central Valley, but having been stunned by the backlash PG&E seeking to get ahead of the problem recently proposing changes in the electricity rate structure moving from a five tier system of progressive block rates to a three tier system that would lower the cost of energy for some of the highest users in the warmest parts of the state like the Central Valley where the utility rate flashback hit home for PG&E in Bakersfield.

While the CPUC has not yet begun to hear the case there are both cheers and jeers among ratepayers and advocates.  Central valley ratepayers say it is about time but advocates of solar power fear changes in rate structure will cut the market out from under them.

PG&E says it is just responding to growing ratepayer concerns that rates are unfair to those in the warmest parts of its service territory.  Its solution would increase customer service charges imposing a small increase across the vast expanse of lower volume users in the cooler coastal and mountain areas thus reducing the impacts in the Tier 4 and Tier 5 high volume user categories.

Meanwhile, PG&E is spending $35 million to sponsor Proposition 16 to require a two-thirds vote for cities and counties to create municipal aggregation programs or new public power utilities. Separately, petitions are being circulated gaining signatures to put an initiative on the ballot to repeal or delay AB32 the California Global Warming Solutions Act because of growing concerns about cost and growing doubts about whether global warming solutions are really worth their cost.

So what?

The sobering reality of the recession and the stunning impact of rising national deficit and the expansive role of government is beginning to force politicians and regulators to rethink their own policies.  The same citizen angst that gave rise to the tea party movement is showing up in the surly mood of ratepayers in the face of rising utility rates.

This is an equal opportunity revolt hitting both investor owned utilities regulated by the states and public power utilities that are community-owned.  In fact, public power may face some of the most difficult challenges because local politicians have often been more aggressive about the transition to clean energy strategies because of the pressure of local advocates to do more.

This ratepayer revolt is hitting the fan today in California but other places are not immune like Seattle and Austin, Gainesville and Boulder where clean energy policies and goals are well established and broadly supported but are also feeling the heat. Those that have had many regular small rate increases will likely fair better than those that held rates steady and now face big jolts.

But the big ticket cumulative cost of the transition to a clean energy portfolio strategy now requires putting all the costs and cards on the table and giving voters and ratepayers an opportunity to endorse the continued progress forward or seek a Plan B that slows the pace in order to mitigate the cost impacts.

The fear of politicians and advocates is that voters and ratepayers if given a choice between green or cheap will chose their pocketbook in today’s economy.  I think that underestimates the environmental values of ratepayers and voters, but it may mean the transition to the clean energy future might take a little longer than advocates planned.

[1] http://online.wsj.com/article/SB10001424052702303450704575160092725253492.html?mod=WSJ_hp_editorsPicks#articleTabs%3Darticle