By Bill Oakey, August 1, 2022
Electric Utilities Can’t Make a Profit
It’s simple economics. If homes and businesses get too energy efficient, the utilities can’t sell enough electricity. And yet, most offer home weatherization programs, and credits for rooftop solar panels. These utilities have whole divisions that do nothing but promote energy conservation, and they directly help customers achieve energy efficiency.
But now, many utilities find themselves facing a potential death spiral. Here in Austin, rapid growth requires expanding the utility services. City regulations do not require enough developer fees to cover all the costs associated with adding new customers. In addition, homes and businesses have become more energy efficient. As a result, Austin Energy has been losing money. They are not selling enough electricity throughout the year. Their solution is a hefty base rate increase. Austin Energy’s revenue bonds were downgraded to AA- in June. They told the Fitch bond rating service that additional rate increases, beyond this one, may be necessary.
The Utility Death Spiral Is Easily Explained
Austin Energy faces a daunting dilemma that they share with other utilities across the country. Rate increases as an ongoing business strategy will almost certainly backfire. They will push builders, homeowners and businesses to implement energy efficiency solutions at an accelerating pace. Businesses that sell solar panels have already stepped up their advertising. It’s easy to see that a whole series of rate increases, each followed by similar market responses, would drive the utility into a death spiral.
Within the next ten years, Austin residents and businesses will have a significantly lower demand for purchased power than they have today. We will always need electric utilities. As connected customers, we are assured of reliable service, assuming that the power grid holds up. But, future declines in electricity sales are inevitable. So, it is imperative for Austin Energy to find a new direction, and change their business model. Their very survival depends on it. If they don’t get it right, the City will face an additional, ominous revenue shortfall. Austin Energy’s transfer to the General Fund will have to be reduced.
If Utilities Try to Wage a Battle Against Technology, They Will Lose. And the Country’s Climate Change Efforts Will Suffer
I recently wrote a blog piece about an incredibly exciting climate change opportunity. CNN did a major study on the potential benefits of large-scale rooftop solar installations at big-box retail stores. Read that piece to get all the details.
But, the big dilemma comes back to bite us again. What if every Walmart, Home Depot, Lowes, big warehouse and distribution center across the country put solar panels on their rooftops? What if Austin put one on their massively expanding convention center? Austin Energy and the other utilities would sell a lot less electricity. And yet, we’d be addressing climate change. Severe drought, intense hurricanes, wildfires, epic flooding and West Coast water shortages might finally begin to subside. Further mitigation will become possible, once battery storage technology gets more efficient and affordable.
Some Utilities Are Pushing Back Against Solar Panel Credits
The seriousness of the utility profit / climate change dilemma is laid out in a disturbing article from NBC News, published in May. Utilities in some states are reducing their solar energy buyback rates. Austin Energy’s solar buyback program could be weakened, as part of their new rate proposal. The Sierra Club and Public Citizen are intervening in the case, to protect solar-use customers. In Mississippi and other places, utilities are telling their State regulators that maximum buyback benefits are no longer economically viable for them. The most stunning example is California, where drought and wildfires are prevalent. A battle over huge reductions in solar buyback rates has been raging there since January. Governor Gavin Newsom should step in and defend solar credits.
Utilities Need to Embrace Declining Electricity Sales
The pushback by utilities against technologies that help their customers is a major threat to national climate change efforts. The outdated utility business models are as dangerous to the environment and the planet as fossil fuels and carbon emissions. To put it quite simply, gradually selling less electricity over time must become one of the utilities’ primary goals. How to make that happen, while keeping the utilities in stable financial condition is the challenge.
Maybe the U.S. Congress Can Help
Congress is poised to pass a historic climate change bill this week. Funding will be available for energy efficiency programs and infrastructure improvements on a large scale. I have requested an appointment with Congressman Lloyd Doggett, during the August recess. One of the topics I would like to discuss is the daunting dilemma that is described here. Maybe Congress could facilitate a series of discussions among climate scientists, utility company executives, State regulators and business strategy experts. They could task them with studying the dilemma and finding ways to resolve it. Our utilities need to counteract the death spiral, before it’s too late.
A First Step Toward the Solution
We only need to look at the frightening condition of the Colorado River to “get it” about climate change. A recent Washington Post report highlights the West Coast lakes that are drying up. The Austin City Council should stop Austin Energy’s rate increase proposal dead in in its tracks. And they should insist on maximum solar panel credits. The revenue windfall from the historic summer heatwave will buy some valuable time. With innovative planning and a fresh new approach, our city could shine a light on the rest of the nation. We should turn the daunting dilemma into an exciting opportunity for positive change.
A note about the author of this blog: I am a longtime affordability activist, with nearly 40 years of experience observing and participating in electronic utility rate cases.