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Tried and True Conservation Tool, Tiered Rates Face New Test
The more you use, the more you pay. That's the premise behind tiered power rates, which have been in place for many Northwest consumers for more than two decades. The utility practice of charging one rate for an initial amount of power and progressively higher rates for successive blocks has long been regarded by conservation advocates as an appropriate incentive for customers to curb wasteful consumption, improve energy efficiency and switch to more efficient gas heat. Tiered rates also have critics, and with many Northwest utilities implementing hefty rate increases, policy makers and regulators are looking at tiered rates with renewed interest.
Jim Lazar , an Olympia, Washington -based economist, energy consultant and nationally recognized architect of tiered rates, makes a convincing case for them. Most importantly, argues Lazar, tiered rates reflect what it costs utilities to serve their customers. Most Northwest utilities have access to a limited supply of inexpensive hydropower, either from their own dams or through the Bonneville Power Administration, while the rest of their supply portfolios are made up of significantly more expensive sources. "It's about equity," said Lazar. "With tiered rates everyone gets their share of cheap power. Under flat rates the biggest piggy gets the most slop. Why should one customer get a higher share of cheap resources than another?" he asks.
But Seattle Major Greg Nickels recently attacked Seattle City Light's third tier, which grew to 16 cents per kilowatt hour under the utility's overall rate boost last year of 59 percent. Among other complaints Nickels said 6 percent of low-income households reached the highest tier, "probably for reasons only marginally within their control." Low-income housing is often heated with energy-intensive electric baseboard heaters — likely the reason those low-income households reached the third-tier threshold.
Chris Attneave , with the Eugene Future Power Committee , argues tiered rates punish people who either can't afford or don't have the option to upgrade their homes. "Switching to gas heat or improving energy efficiency is fine if you have the money," said Attneave who lives in rural Oregon , near Eugene , and says affordable access to gas isn't available to many local residents.
Other common criticisms of tiered rates are that they are unfair to large families and to renters who cannot invest in better insulation, energy-saving appliances or otherwise make their homes more efficient.
Lazar counters that tiered rates benefit far more residential customers, including low-income, than they might hurt. Despite often relying on baseboard heating, low-income customers generally use less electricity than the average residential ratepayer and so are less likely to reach upper tier thresholds. And for those that do make it into higher tiers, Lazar says, there is help available through home low-income rate discounts, weatherization and bill assistance. Arguing against flat rates, Lazar notes U.S. Census figures indicate fewer than 2 percent of Northwest households have five or more family members "You wouldn't want to distort the entire rate structure for a small minority of consumers," said Lazar.
Case Studies
Two utilities recently implemented tiered rates and their experience illustrates that timing and customer education likely play a key role in acceptance of them. The Idaho Public Utilities Commission this month scrapped tiered rates, implemented last winter by the Idaho Power Company . Most residential customers will actually see an increase in their annual energy bill as a result. But in making the decision, commissioners cited feedback from customers who blamed their higher electric bills on the new rate structure, rather than the actual cause — a 31 percent increase over the previous winter's rate. "From the public comments we received, it was apparent many ratepayers did not understand the purpose or actual dollar effect of tiered rates," commissioners said in a press statement.
The Eugene Water & Electric Board (EWEB ) also generated a heated public debate when the utility implemented tiered rates last fall at the same time a 35 percent rate increase went into effect and the winter heating season began. "Most of our message was that bills are going up regardless of tiered rates," said EWEB spokesman Lance Robertson . "But clearly the timing could (have been) better. Tiered rates hit people hard over the winter." EWEB reported when tiered rates went into effect that 70 percent of its residential customers would save money under the new rate structure over the course of the year. But many first saw higher bills because tiered rates were introduced as winter set in. A December 2001 survey conducted by EWEB, however, revealed that most customers understood the distinction between the new rate structure and the overall rate hike.
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Mark Glyde