A shift of consumer electrical service charges from “usage” to “a connection fee,” as happened in the telecom industry, will upset traditional thinking about how to support an effective and yet affordable electrical grid under changing usage patterns.
Some will argue that such a switch is harmful to lower-income customers. Others will argue higher electricity costs are equally harmful to lower-income customers. As always, there are trade-offs.
Assume a traditional utility rate that might include charges for fixed and variable costs (generation and customer usage) of:
Fixed costs: $100/month (embedded)
Energy rate: $0.20/kWh
Average bill (500 kWh): $100
But self generation even by consumer customers changes the business model, to say nothing of large business customer self generation.
If, for example, a home owner installs a solar system, the grid-delivered electrical usage bill could fall to $20 to $30 a month. But the common costs of maintaining the grid do not change. Eventually, that causes a capital recovery problem.
So assume pricing changes to include a heftier “access to the grid” fee, with lower usage fees, possibly including a grid access fee of perhaps $60 per month; usage of $20 per month at $0.08/kWh.
The customer still pays $80 per month to remain connected to the grid and the utility does not go out of business.
The telecom industry had to make this explicit shift over the last couple of decades as usage of fixed networks dropped dramatically, replaced by use of mobile networks. At the same time, demand for the core “voice service” changed as internet access became the anchor product on the fixed network.
So today the fixed network is supported more by fixed “access” charges than “usage.” And even at that, policymakers argue that fixed cost recovery mechanisms are insufficient.
Still, the advantages are that explicit revenue mechanisms to cover shared and fixed costs are available, even as more customers remove themselves from the fixed network.
Subsidies are targeted and transparent and cross-subsidies are policy choices, not accidents. Even on the replacement mobile networks, the widespread use of flat fee access, with “unlimited” data usage, national voice calls and text messages, show the reliance on “access to the network” pricing, rather than “minutes of use” or “bytes consumed” usage models.
The implications for the electricity network, as more customers move to self generation, is rather obvious. The sunk costs of the grid must be paid for, irrespective of individual customer usage.
“Access to the network” becomes the “product,” rather than usage.
What’s really happening is a decoupling of value from volume, something that also happens in other infrastructure contexts.
The grid’s value is optionality and insurance, but it’s priced like a commodity pipeline. Distributed generation exposes that mismatch.
As for the argument that access fees hurt low-income customers, consider today’s situation, where solar power benefits homeowners with the means to self generate; living in sunnier climates.
Renters, those without capital or physical means to generate their own electricity and people living in less-sunny climes are disadvantaged.
Access fees help ameliorate such problems, while still protecting an electrical utility’s ability to build and maintain universal access networks under conditions where “best customers” are creating their own substitutes.
Access fees, rather than usage, now dominate telecom service fees. People actually pay for ability to use the networks, not the amount of usage of those networks, which once was the case.
If electrical energy networks must have a “universal service” character, then we also have models for ensuring such access for lower-income customers. We use subsidies.
