Rising Electric Utility Investments Increases Your Need to Pay Attention

Author: Dale Thielen, Account Manager, Kinect Energy

Most likely, without your awareness, 2016 electric utility capital spending will increase your 2017 electricity rates. “How much?” you ask. It depends on various factors including local grid and energy market conditions, regulatory oversight, and stakeholder involvement.

Electric utilities are investing in clean energy and grid modernization to reduce carbon emissions, improve reliability, boost security, integrate central station power with distributed generating resources, and offer consumers more choices.

The Edison Electric Institute (EEI), an investor-owned electric utility trade organization, estimates its member electric companies spent $120 billion in 2016 grid work and clean energy development. To better understand the magnitude of this investment, consider year-end 2015 investor-owned electric utilities’ net assets in service were $898 billion, according to the EEI. Since 2016, capital spending represents over 10 percent of the 2015 net assets in service. Expecting no rate increase would simply be naive.

Regulated electric utility assets have trended upward over the last several years while revenue has trended down. Energy efficiency efforts and offshore (formerly domestic based) U.S. manufacturing has constrained electricity demand, according to the EEI. (Annual growth in electricity output from 2013 to 2015 has been under one-half of one percent.) Spreading increasing fixed costs over fewer megawatt-hours means utilities need to increase rates to adequately recover costs.

Regulators are sensitive to utility cost recovery, so consumers should expect to see continued approval of rate increases. While utility commissions are charged with granting appropriate rate increases, protecting all consumer segments is a balancing act which often yields in favor of the residential rate class. Consequently, commercial and industrial consumers are more frequently participating in rate cases as interveners.

The rate case process involves two primary decisions: identifying allowable costs; and determining cost allocation among the rate classes. All interveners receive a common benefit when their collective efforts reduce the amount of allowable costs. However, interveners often have competing interest on cost allocation. Residential customers are automatic interveners, represented often by the state office of the attorney general. Absent other intervening groups, costs are sure to be allocated to the advantage of residential customers at the cost of commercial and industrial consumers.

Another regulatory proceeding to monitor relates to the electric utility’s long range plan. This “Resource Plan” describes supply and demand side capital initiatives and resulting rate impact scenarios. While these proceedings tend to fall below the public’s “radar,” stakeholders are paying increasingly more attention because of future cost and environmental impact.

As the electric utility industry continues to invest significant capital in transforming the grid and reducing carbon, consumers can ill afford to remain passive. Prepare to engage!

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