Author Topic: Electric company incentives?  (Read 723 times)

wawot1

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Electric company incentives?
« on: June 05, 2018, 07:01:57 PM »
Help me understand what economic incentives the electric company has to send me a letter like this, congratulating me for consuming less of its product than my neighbors...

The electric company makes money by selling me electricity.  Laudable though it is, what economic incentive does the electric company have to encourage me to use LESS electricity?

Anybody know?

pecunia

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Re: Electric company incentives?
« Reply #1 on: June 05, 2018, 07:30:22 PM »
Yes - The story goes that through conservation, the electric utility can avoid building new facilities such as generating stations.  Generating stations can be very expensive and raise your rates on the long journey to paying them off.

Other electric facilities also need to be upgraded due to load growth.  Since you are one of the frugal users of electricity and do not contribute much to load growth you are helping to avoid things like circuit breaker upgrades, line up-sizing and transformer replacements.

Capitalism is not always in the public interest as greater consumption can also mean greater pollution and other waste products.  You are doing your share to minimize that pollution.

It may seem backwards for the utility people to look at things that way, but they will still have enough sales for their regulated return and to pay their employees.  Come to think of it that business does not seem to have major ups and downs like building airplanes, cars, houses or even roads.

geekette

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Re: Electric company incentives?
« Reply #2 on: June 05, 2018, 08:23:34 PM »
Ours does the same, plus they'll send someone out, free, to do an energy check and give you free LED bulbs, insulation for outlets/attic drop down stairs, and other goodies. 

wawot1

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Re: Electric company incentives?
« Reply #3 on: June 05, 2018, 08:59:59 PM »
Yes - The story goes that through conservation, the electric utility can avoid building new facilities such as generating stations.  Generating stations can be very expensive and raise your rates on the long journey to paying them off.

Other electric facilities also need to be upgraded due to load growth.  Since you are one of the frugal users of electricity and do not contribute much to load growth you are helping to avoid things like circuit breaker upgrades, line up-sizing and transformer replacements.

Capitalism is not always in the public interest as greater consumption can also mean greater pollution and other waste products.  You are doing your share to minimize that pollution.

It may seem backwards for the utility people to look at things that way, but they will still have enough sales for their regulated return and to pay their employees.  Come to think of it that business does not seem to have major ups and downs like building airplanes, cars, houses or even roads.

Yes, I understand this, but I don't think that tells the whole story. 

I get it that at some point using an extra KwH of electricity will require the utility company to build more infrastructure (power plant, transformers, etc) and cause the unit cost of electricity to go up - but they could then, in turn, raise the price and pass along that higher price AND a profit margin to me, the consumer.  Right? 

Still not seeing how discouraging me from using electricity is positively influencing the power company's bottom line.

bacchi

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Re: Electric company incentives?
« Reply #4 on: June 05, 2018, 09:26:16 PM »
Yes, I understand this, but I don't think that tells the whole story. 

I get it that at some point using an extra KwH of electricity will require the utility company to build more infrastructure (power plant, transformers, etc) and cause the unit cost of electricity to go up - but they could then, in turn, raise the price and pass along that higher price AND a profit margin to me, the consumer.  Right? 

Still not seeing how discouraging me from using electricity is positively influencing the power company's bottom line.

In certain markets, state regulations require a return of profit above a certain amount. This can be done via a conservation department or free LEDs. The state may also require a slim part of revenue to be used for energy conservation programs.

It's not corporate altruism.


gooki

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Re: Electric company incentives?
« Reply #5 on: June 05, 2018, 10:12:29 PM »
Still not seeing how discouraging me from using electricity is positively influencing the power company's bottom line.

1. Assuming you are on a fixed cost per kwh, in peak times they may be loosing money. Reducing peak consumption improves their profitability.

2. They can sell you the same product for greater margin in the future, without having to invest more in infrastructure.

pecunia

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Re: Electric company incentives?
« Reply #6 on: June 06, 2018, 04:59:29 PM »
Quote
I get it that at some point using an extra KwH of electricity will require the utility company to build more infrastructure (power plant, transformers, etc) and cause the unit cost of electricity to go up - but they could then, in turn, raise the price and pass along that higher price AND a profit margin to me, the consumer.  Right?

Still not seeing how discouraging me from using electricity is positively influencing the power company's bottom line.

Don't forget, it is a regulated business for the most part.  Their bottom line is dependent on pleasing the state's public service commission whose job in most states is to look out for the interest of the common good.  Non wasteful use of electricity is in the common good.  (As prompted this discussion.)

The utility may not be able to pass along price increases to the customer.  If the public service commission believes that expenditures on capital equipment were not performed in a prudent fiduciary manner, they can disallow that cost from being passed through to yourselves.

I don't think this is a bad thing.  As I've pointed out elsewhere on this site, public utilities have invested a tremendous amount in capital expenditures.  Now - look at your electric bill and look at the bill from your cable or cell phone company.  Think of what you get.  Heat, light, air conditioning, refrigeration are some of the things you will get.  In addition, you can charge that cell phone or watch that cable TV.  Yet, I think in relative proportion to things that you value in life, you get a better deal from the power bill.  The regulation of the natural monopoly has given you that.  You also have state representatives giving you some protection from being ripped off.