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Power play: why your electric bill may be changing soon

Power play: why your electric bill may be changing soon


In the near future, power companies may have to decouple electricity use from prices

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electricity pylon flickr deptfordjon
electricity pylon flickr deptfordjon

Americans are buying bigger homes, using more appliances, and firing up more data centers than ever before. You’d expect electricity demand to skyrocket accordingly, but the trend is actually the opposite. Total electricity use in the US has actually declined in the past four out of five years, according to a new government study, and many analysts expect that to continue.

Electricity use was growing around 10 percent per year in the 1950s, but slowed to about 1 percent in recent years and was down almost 2 percent in 2012. There are a number of reasons why, but the change is largely due to gains in energy efficiency: new homes, office buildings, and electrical devices are more efficient than ever, especially now that new lighting standards are being phased in.

Changing consumer behavior also played a big part

Changing consumer behavior also played a big part. In 2012, 83 percent of customers said they took step to reduce their electricity consumption, according to market research by Deloitte, up from 68 percent in 2011. At the same time, people are installing more home solar panels, although the exact rate of growth is hard to measure.

Temporary factors such as the recession, which led Americans to cut back on usage, and warm winters, which reduce the need for heating, also contributed to the decline.

Electricity use is still growing in some areas. Data centers consumed 29 terawatt hours of energy in 2011 and are expected to increase to 95 terawatt hours by 2040, according to the US Energy Information Administration (EIA). Demand from electric cars and other modes of transportation is growing even faster at around 3.6 percent a year, according to the EIA, but from a much smaller starting point. Other miscellaneous uses, such as the relatively recent popularity of large video displays in commercial buildings, are ticking up at around 2 percent a year.

The overall trend toward efficiency seems to be strong enough to overcome these new sources of demand, however. That fact has some analysts crying doom for the utility sector, considering the demand for their product is going down. Utilities are also under pressure to make expensive upgrades in order to repair aging infrastructure and comply with environmental regulations.

These companies are perhaps most worried about the trend in home solar generation, which may be the strongest indicator that centralized electricity use really is declining. They’re even lobbying state-by-state to charge home solar generators extra fees. There are also hints of new forms of distributed electricity generation, such as electric car chargers that can send electricity back to the grid.

"Decoupling" separates profits from usage"

Energy companies in states that have adopted a new pricing model called "decoupling" don't have this problem. The name refers to the idea of separating profits from usage, so that energy companies are incentivized to sell less energy, not more.

Pacific Gas & Electric, which serves most of California, has operated on this model for three decades. State regulators limit PG&E’s profits so that the company has no incentive to encourage customers to buy more electricity. Meanwhile, the company gets paid for making infrastructure investments and meeting environmental targets. That means PG&E actually encourages customers to install solar panels, make data centers efficient, and charge their electric cars during off-peak hours.

Customers are still charged more for using more electricity under most decoupling schemes, but it’s complicated. If you’re a PG&E customer, you’re placed in one of four price tiers based on your monthly usage. If you use more electricity, your cost per kilowatt hour is higher. Then, you pay based on how many kilowatt hours you use. However, if PG&E sells more electricity than it estimated — say it’s an unusually hot summer or cold winter — the company will have to give that money back in the form of refunds to customers.

Critics of decoupling say a straightforward, pay-for-what-you-use scheme would be more effective in getting customers to reduce their electricity use. However, there are efficiencies to be gained through centralization: a Tesla charging station is likely to be more efficient than your plug at home, just as a data center in the desert is likely to be less wasteful than sticking servers in your closet.

By the end of 2012, 52 natural gas utilities and 25 electric utilities in 25 states had decoupled their revenues. If the downward trend in electricity use continues, we will probably see more decoupling around the country.

For years, energy efficiency was driven by regulation. It now seems that technological advances and cultural attitudes have taken over.