FCSG Comments on Tiered Electric Rates and Feed-in Tariffs

Remarks made at City Council Meeting on April 6, 2010 

Tiered Electric Rates 

The City of Fort Collins is currently considering implementation of a city-wide “smart grid.” A smart grid can enable, among other things, the implementation of “time of use” electric rates. The Fort Collins Sustainability Group urges the city to first consider implementing a different type of rate structure, one that is both more effective at promoting the efficient use of electricity and which does NOT require the existence of a smart grid before it can be put in place. 

Specifically, we advocate for a “tiered electric rate”, that is, one which charges residential customers the least amount per kilowatt-hour for the initial block of electricity consumed, and higher amounts per kilowatt hour as consumption increases beyond that initial block, or tier. The first tier is typically set equal to the minimum amount of electricity that each household would need per month. The first tier rate should be lower than the current flat residential rate, while the second, third, and higher tier rates would increase steadily beyond that. 

A tiered electric rate for residential customers offers the following advantages with respect to a flat electric rate, which is what is currently in place: 

1. Better price signal to encourage efficient use of electricity. Residential customers have a stronger incentive to take steps to reduce their electric energy use in order to lower their electric bills. 

2. More socially equitable. Those who use a minimal amount of electricity to begin with will see their electric bills drop without having to make any changes. 

3. Capable of generating additional funds to provide incentives for energy efficiency programs. Additional funds generated from the highest tiers can be plowed back into customer incentives for technologies like compact fluorescent lamps, smart power strips, programmable thermostats, and high efficiency HVAC equipment, which make it still more financially attractive for homeowners to reduce electricity use. 

How might tiered electric rates mesh with time of use and other dynamic rate structures? We suggest that the City of Ft. Collins do the same as PG&E in California, which makes a tiered electric rate the default rate for residential customers. Those who are able to shift their electric energy consumption to times when it is less expensive for the utility to produce it can opt in to a “time of use” rate in order to lower their bills. Such a rate does depend on having a “smart meter”, which is of course part of a “smart grid.” 

In conclusion, a tiered electric rate for residential customers can effectively promote the City’s goals of helping customers maintain affordable energy bills AND of reducing energy use and the attendant greenhouse gas emissions. The Fort Collins Sustainability Group therefore respectfully asks the Mayor and Council Members to request that Fort Collins Utilities develop a plan for implementing such a rate structure for Council consideration and approval later this year. 

Feed-in Tariffs 

In February 2010, Fort Collins Utilities made a presentation on feed-in-tariffs (FIT) for renewable energy incentives (mainly solar photovoltaics). Overall, this was a very good presentation. However, it made assumptions and provided a conclusion that bears pointing out and correction. Fort Collins Sustainability Group (FCSG) would like to clarify this. 

At the end, the presentation asked a salient question: Why should Fort Collins adopt a FIT? The answer given was three fold: for carbon reduction goals, for meeting the city’s renewable portfolio standard (RPS) requirement of 10% by 2020, and for economic development. 

These are all valid points. But, the presentation concluded that for the carbon reduction goals, the low hanging fruit, energy efficiency and energy conservation is the least expensive alternative. 

Which it probably is. And that a FIT would be too costly compared to other means. But maybe not. 

FCSG would submit that in a time when the global energy paradigm is being turned on its head — especially in light of the extraordinarily rapid changes occurring in the energy generation field, when our energy security is paramount, when alternative fuels and renewable energy use is discussed from NY to LA, from Wall Street to Main Street, and among many electric utilities across the country, we need to consider all possible frameworks that will encourage the adoption of renewable energy. Thus, viewing an FIT solely through the lens of carbon costs (and reducing carbon output) may not serve us well. With this economic framework Fort Collins may be left behind. 

The list of states, cities, and counties/provinces that have implemented successful FIT programs that meet all of the three goals: carbon, RPS, and economic development are not extensive (yet), but they are nevertheless important. 

Successful European models include: Germany, Spain, Italy, England, Scotland, Greece, and more on the horizon. 

Germany implemented FIT and guaranteed access to the grid for all energy producers approximately 10 years ago. As a result (2009 data) Germany captured 50% of the worldwide PV market. 

Successful US/North American programs in effect (city, utility, or statewide): California, Florida, Hawaii, Vermont, Washington, Wisconsin, and Ontario, Canada 

In 2010, eleven programs are being proposed on a statewide basis: Arkansas, Florida, Hawaii, Illinois, Indiana, Michigan, Minnesota, New York, New Jersey, Rhode Island, Wisconsin. 

A FIT might provide a better price signal to encourage more solar PV installations and might provide a economic boost in employment in installation jobs and perhaps even in manufacturing – it did both of these in Gainesville, FL, Washington state, and Ontario. 

A FIT might also be more socially equitable, since it may allow people to take advantage of SPV who otherwise couldn’t afford it. 

Importantly, as an FIT rewards energy production over capacity, we get a greater guarantee that a solar PV system will perform as designed. 

And finally, since Fort Collins commercial electric customers pay a lower kWhr rate than residential customers, an FIT may be more attractive to larger commercial projects. 

A feed-in tariff, in contrast to using rebates and tax subsidies, allows both non-profits and governments (who don’t have a tax liability) and profit-making enterprises (who do have tax liability) to participate. It also helps with individuals who, while they may have capital to invest in solar PV but who don’t have sufficient tax liability, to participate. 

On the utility side, using feed-in tariffs to stimulate the customer market, a utility need not raise its own capital to build it’s own solar projects. Instead ratepayers make the investment themselves and revenues they earn return directly to the community. This keeps money local. It also reduces carbon and contributes to Fort Collins’ Utilities renewable portfolio standards requirements. 

This summer, the city utility begins implementing a citywide smart meter installation project, and ultimately a smart grid. We think that the combination of smart grid and an FIT might be a worthwhile consideration. We encourage city council to direct FCU to revisit the idea of feed-in-tariffs for the Fort Collins community. 

Let’s take a second look at what we can do.

Author: Rick Casey

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