As we’ve discussed in our recent series on the fourth generation (4Ge) electric power system, flat rate billing practices are the way of the future for electric utilities. Flat rate billing not only provides sustainable revenue for electric utilities in a future with climate change; it also provides equitable rates for consumers. Moreover, by implementing escrow accounts in tandem with flat rate billing, electric utilities will have funds available to upgrade the electric power system so that electric utilities are prepared for climate change-related severe weather events.
Today’s kilowatt hour (KWH) billing method is a rear-facing system that depends on each consumer’s past electric energy usage. In contrast, flat rate billing prepares for future energy usage because it provides funding for the infrastructure required during peak load periods.
However, as utilities consider future billing methods, some detractors to innovation, also known as innovation assassins, may point to aspects of flat rate billing that seem to be glaring flaws. In this article, we outline these perceived flaws that may dissuade electric utilities from implementing flat rate billing. We then explore the solutions to these issues. Follow along to discover how to squelch nay-sayers before they can stop innovation in its tracks.
KWH Consumption Graphs Bolster Innovation Assassins
Currently, electric utility revenue is based on KWH consumption. As rooftop solar panels and other distributed renewable energy sources become widespread, monthly KWH consumption will be skewed and electric utility revenue will not be consistent throughout the year. Furthermore, consumers with rooftop solar will be subsidized by consumers without renewable energy because of the lack of flat rate infrastructure fees.
Developing graphs that focus on monthly KWH consumption, such as Figures 1-3 below, is an easy task for innovation assassins who are adept at Excel. These graphs can be used to highlight the positives of KWH billing, and point to perceived downsides of flat rate billing. While these graphs reflect the methodology used in current electric utility billing practices, they lack the data used to determine if utilities can meet peak demand, as this is measured in kilowatts (KW), not KWH.
Figure 1 shows the monthly KWH consumption of electric energy in a residence with gas heat. In the summer, this home uses significantly more electric energy to power its air conditioning.
Innovation assassins may point to the increased revenue in the summer; however, they fail to consider the decrease in revenue in the winter.
Figure 2 shows monthly KWH consumption for an all-electric residence. In this case, electric bills would be relatively high year round, and are subject to significant decreases if the owner decides to add rooftop solar panels.
Figure 3 shows monthly KWH consumptions of an all-electric residence with rooftop solar panels. In this case, KWH consumption dips into the negatives in the summer as the solar panels provide plenty of power to the residence. Electric utilities risk losing money when customers with rooftop solar do not have to pay a flat rate fee to maintain infrastructure that connects the home to the electric power grid.
Figures 1, 2 and 3 are indicators that billing practices need to change because while the infrastructure provided by the electric utility remains the same, the revenue received by the utility varies with externalities, in this case gas heat and rooftop solar.
Innovators Rethink the Data
Innovators will take a different approach to analyze the above data. Beginning with the end in mind, innovators consider kilowatt (KW) demand as well as KWH consumption, and use this data to develop graphs that show monthly KW demand. These graphs show a proactive estimate for KW demand, rather than a reactive analysis of KWH used.
Figure 4 shows monthly KW demand of a residence with gas heat. This chart illustrates that infrastructure is a function of hourly demand, KW, in the summer months rather than monthly consumption, KWH.
Figure 5 shows monthly KW demand of an all-electric residence. This chart illustrates that infrastructure is a function of hourly demand, KW, in the winter months rather than monthly consumption, KWH.
Figure 6 shows monthly KW demand of an all-electric residence with rooftop solar panels. This chart illustrates that infrastructure is needed every month as air conditioners and household appliances consume energy provided by electric utilities from sunset through sunrise.
This method of data analysis is vital because electric energy production, transmission, and distribution systems are designed using the concepts illustrated in Figures 4-6. NERC entities, such as ERCOT, compare KW demand with KW production capability, and use this information to determine if there is sufficient energy production capacity to meet peak summer demand. It makes sense that this data would be used to inform electric utilities’ billing methods, rather than be excluded from it as in Figures 1-3.
Flat Rate Billing: Sustainable Revenue, Reasonable Prices
Flat rate billing based on KW demand must be implemented by electric utilities to ensure that electric energy is available for all consumers at reasonable prices. Energy pricing must be based on yearly energy production, rather than hourly production. Figures 4-6 above outline the yearly KW demand so that utilities can set prices based on yearly energy consumption. These graphs are meant to be an aid to innovators working to change electric utilities’ billing methods.
Billing methods can be compared to driving a car: KWH billing is like using rear view mirrors to make all driving decisions, including when to stop. Flat rate billing, on the other hand, is like driving while focusing ahead, with a few glances in the rear view mirror. Which way would you rather drive?
To learn more about Prescient’s recommendations for flat rate billing and other next generation power system concepts, check out our blog. Contact us to learn how to apply future billing methods to your electric utility.