Power companies

When K and I got home today, we had not one, but two different offers from the local power company (Progress Energy) to enroll in their equal payment plan program. The first was a generic flier touting the benefits of having a consistent power bill. You sign up and based on your past two years of power consumption, they compute your monthly bill and that’s what you’ll pay all year long. They’ll recompute a new amount 12 months later. We had something like that with Duke Power in Durham. They computed your recent average. You paid that for 11 months and then settled up on the 12th month, paying less or more depending on actual use.

We had liked the Duke Power plan. It equalized payments. You could track whether you were on target to have a higher or lower 12th month bill. And you only paid for what you used because in that 12th month you settled up . With that experience we looked into the Progress Energy version. That second mailer from Progress contained our actual numbers if we wanted to sign up. Unfortunately, it told us that our average monthly usage was $X and that they proposed to enroll us in the equal payment plan program at (something like) 120% of X per month. The claim of course is that if our use increases by more than 20%, we’ll be insulated from the increases of yearly fluctuations, etc. Of course, there are no refunds if you use less. So essentially, we have no incentive to conserve power and we’re likely to lose money. Wow, where can I sign!

Of course, it’s not all shiny green conservation at Duke power either. I was flipping through the N&O today and ran across an interesting Point-of-View letter from Jim Rogers (president and CEO of Duke Power). The POV letter was promoting their Save-a-Watt program as a cheaper, better alternative to renewable power sources – a program to promote power conservation. If you read the letter, you should quickly note that it’s missing one thing: details on the actual program.

Fortunately, the details aren’t hard to dig up. The proposed program would add $15 per year to every customer’s power bill. This fee would be used to promote energy conservation and provide discounts on energy efficient appliances. Interesting. It does have the down side that those too poor to afford new appliances are subsidizing those who can afford it, but I’ve heard of worse ideas. That said, it seems a bit counter intuitive that a power company would want to cut into their profits by encouraging conservation. Silly me. I haven’t described the other half of the plan. The company would then take the projected conservation amounts and would increase rates to cover 90% of what it would have cost to produce the amount of conserved energy. Their claim is that consumers are now saving 10%! Everyone’s happy, we don’t have to produce power from renewable sources and we can still claim that we are green!

Huh?!

It’s a shell game. It’s the old riddle of “where’s the missing dollar?” It only sounds reasonable if someone’s throwing out numbers fast enough that you don’t add up what they mean.

What Duke Power is proposing to do is to make a projection for energy consumption over the next N years without the program. Essentially, it’s a table that says in each year, the area will consume so much energy. Then each year thereafter, they look at how much energy was actually used. For every kilowatt-hour that isn’t used, their rates will increase so that they earn 90% of that missing kilowatt-hour. Save 100 kwhs – pay Duke Power for 90 kwhs.

Hrm, perhaps a more specific example is in order. Let’s assume that I run a small power company for my house. K is currently using 1 kw of power I produced through a RAIHW: redundant array of inexpensive hamster wheels. To produce my 1 kw of power, I’ve got 100 hamster wheels connected in a serial and parallel configuration. Assume that each hamster costs me $10 plus another $5 for food each year. So my infrastructure costs are $1000 in hamsters, plus another $500 in food each year. If we used 1 kw in 2007, I’m going to predict 10% year over year growth: 1.1 kw in 2008, 1.21 kw in 2009, 1.33 kw in 2010, etc.

Assume that on top of the amortized infrastructure costs plus the operational costs plus profit (call it $800 per year), I charge K a $10 fee (I’ll use the money to encourage her to change out an incandescent for a florescent bulb). According to my projections, I need to increase capacity by 10% in 2008 – or 10 new hamsters. Assuming the infrastructure costs are amortized, we might expect our power costs to go up 10% ($80) to $880 per year.

But what if my projections are wrong? K only uses 1 kw in 2008. Well, as a producer, I’m happy. I don’t have to buy 10 new hamsters (saving $100) and I don’t have to feed any new hamsters (saving $50). But wait! I’m missing out. I’m not getting the profit on that 0.1 kw of power. Under the Duke plan, I’ll still get 90% of that money. Even though I have no additional expenses, K’s power bill will be $872 per year. I get $72 free and clear; and K “saves” $8 per year because without my charging a $10 fee, she never would have replaced that incandescent bulb, so she would have used 1.1 kw. See, we’re conserving hamsters, K’s power bills increased less than I projected they would have, even though she used no more power. Everyone should be happy.

Duke Power claims that this is their incentive to increase conservation through education and programs to help purchase more energy efficient appliances. Of course, it’s also an incentive to game the system and make unreasonably large growth projections. Even if you assume that doesn’t happen, it’s a great deal for Duke Power. The program is funded by a fee. You earn enormous profit margins off of energy that you aren’t producing. You get to claim that you are a supporter of energy conservation. And you get to tell the environmentalists that want you to build renewable (or in some cases nuclear) power plants to go to hell, while building CO2-intensive coal fired plants when needed.

What’s not to love?

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One Response to “Power companies”

  1. Progress Energy Says:

    The program you discussed above is our balanced bill program, which is slightly different from the equal payment plan program. If you’d like to speak to someone about the differences, please feel free to contact us at 1-888-999-8856 and we would be happy to assist you.