This is part five of a series on climate change and the electric power industry.
The electric utility industry must invest in significant updates to grid infrastructure to address climate-related issues, including severe storms, expanded renewable energy sources, and increased demand for electricity. Without these vital updates, grid reliability and resiliency are sure to suffer.
The cost of this overhaul will be pushed onto electricity consumers in the form of higher electric bills. As difficult as it will be for consumers to pay higher bills, it would be even more difficult to face a future with lower quality electricity than we’re all used to.
Electricity consumers will have to accept higher prices and different price structures if we are to continue to have reliable, resilient electric power in the future, especially as the global climate changes.
Let’s explore a similar situation in a different utility: water and sewer in the small town of Carlton, Oregon, population about 2,200. Because water and sewer infrastructure were neglected for almost 50 years in Carlton, consumers now bear the brunt of the cost for replacing the main water transmission line, as well as implementing mandatory updates to the sewage system. This case study illustrates the potential cost to consumers when outdated infrastructure undergoes necessary updates.
Carlton's Water and Sewer Systems Need Repairs
In the small town of Carlton, where I live, the water transmission system was neglected for so long that repairs are now essential if the city is to prevent massive water leaks. According to the city’s water history outline, the water and sewer systems were neglected for almost 50 years. During that time, consumers saw minimal rate increases. No major changes were made to improve water or sewer infrastructure until the mid-2010s.
Water utility rates increased significantly in 2012, but even then, funding did not immediately go to repair the failing water transmission line or sewage system. Today, the water pipes are so corroded that several thousand feet of lines must be replaced, costing millions of dollars in planning, excavating, and construction fees. The city must also implement mandated sewer system infrastructure repairs, as required by the Oregon Department of Environmental Quality.
In addition to the main line replacement project, repairs are constantly needed around town, when water leaks are obvious. For example, in mid-August, amidst a months-long drought, water was pooling on a street just blocks from my house due to a burst underground pipe. Repairs like this pop up across town frequently.
Small Town Living, Big City Prices
While grants provide some of the necessary funds, local water consumers continue to be on the hook for funding the long overdue replacement of failing infrastructure. For the past 9 years, water and sewer base rates in Carlton have steadily increased a few percentages each year. As of July 2021, residents now pay a base rate of about $112 per month just to connect to the water and sewer systems. This connection fee does not include water or sewage usage.
For my household, our summer water utility bills averaged around $250 each month. We used water for our garden, outdoor water activities for neighborhood kids, and of course regular household use. By comparison, households with similar amounts of water usage in Hillsboro, Oregon, have a water bill of about $90 per month.
It makes sense that the city of Carlton has such high water rates because the water and sewage systems are in a state of disrepair. As a resident, I want my water to be transported safely with less waste. So, each month I grimace and pay the price so that my family can continue to water our garden and let our son play in the sprinkler. Our neighbors do the same, with frequent grumblings and complaints.
Updating Infrastructure is Costly
Several million dollars must be invested into updates to Carlton’s water system, which services only 2,200 residents; in contrast, billions of dollars must be invested to update substations, transmission and distribution lines, and other grid infrastructure.
One electric utility company, Pepco Holdings, is currently working on their Capital Grid Project, which is projected to cost up to $720 million. This project will upgrade the electrical grid in some of the Washington, D.C., area’s fastest-growing neighborhoods; however, it will only reach about 10% of Pepco’s total customers.
Moreover, electric utilities frequently spend billions of dollars to repair the grid after severe weather. Often, the funding for these projects is passed onto rate payers in the form of increased electric bills. This means that in many areas, rate payers are already seeing an increased cost of electricity without benefitting from significant upgrades to the power grid.
Today's Rate-payers Must Fund Updates
The reality is that all of Carlton’s water consumers must pay for upgrades to the water and sewer systems. This will also hold true for electricity consumers.
Like the water and sewer systems in Carlton, electric power infrastructure has been maintained but not updated in several decades across the entire U.S. Leaky pipes are comparable to short circuits on electric power lines. In both events, crews need to complete repairs as soon as possible. Fortunately, unlike in Carlton, a full-scale replacement project may not be necessary to prepare the power grid for challenges associated with climate change.
One potential solution to prevent a tremendous spike in the cost of electricity is for electric utilities to establish savings accounts, like home-buyers’ escrow accounts, to cover the cost of future upgrades. This could allow for slower increases in electric rates over time, rather than sharp increases every time an upgrade is needed.
We’ll explore this opportunity in more detail in our next post. We’ll also dive into the price consumers are already paying for an outdated electric power grid, and the necessity of increased electricity prices.
To learn more about Prescient’s ideas for the next generation power grid, check out our blog collection, or contact us to continue the discussion.
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