Wall Street Journal: Utilities Update Grid to Increase Rates

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According to the Wall Street Journal (WSJ), the price consumers in New York are paying for electricity today is 40 percent more than it was a decade ago. At the same time the price of natural gas, the basic fuel that is most often used to produce energy in the state has fallen by 39 percent. So why are New Yorkers paying more for their power? The WSJ postulates that utilities have been spending hundreds of thousands of dollars on updates to the grid in order to raise rates and make more money. 

The way utility companies make money is driving increased rates 

Investor owned utilities (IOUs) are regulated by public commissions which put a cap on how large their profit margin can be. (Profit margin is the amount of revenue a company has after they subtract their costs.) Utilities then set rates that create enough revenue to cover their expenses and let them to make a profit.

Increased spending by utility companies is causing increased prices for consumers

Last DecadeProjected for next Decade
 Price increase in cost of power in NY40%63%
NY Utilities Spending on new equipment 17 Billion

The Wall Street Journal postulates that utilities are spending more on improving their infrastructure, which increases their costs, then allowing them to raise rates and maximize their profit margin.

Solar can reduce the need for big capital expenditures, in turn avoiding rate hikes

Some utilities blame those who go solar for having to increase the rates consumers pay. They argue that under the most popular strategy for compensating for solar power production (net metering) in which solar producers use up their own power first and then buy power from the grid they aren’t shouldering their share of the cost burden of grid upkeep, therefore forcing the utilities to rase rate. But as the WSJ article points out, less expensive options are becoming more popular. Solar installation is certainly less expensive than creating new facilities.

“In New York, regulators balked at Consolidated Edison Inc.’s plan to build a $1 billion electrical substation in Brooklyn and Queens by 2017. Instead, the company has decided to help customers cut energy use by improving the efficiency of their electrical equipment through a $500 million program that defers a decision about a new substation for at least a decade.

“What we’re doing is an alternative that’s less costly,” said Stuart Nachmias, vice president of regulatory affairs for ConEd.

From now on, utilities must prove that their spending will make an electric system cleaner, more efficient or stronger, says Audrey Zibelman, chair of the New York Public Service Commission. “Business as usual has become unaffordable.”

Utilities argument that Solar forces them to raise prices isn’t true.

Going solar on an individual level can be a way to help break this cycle. Solar panels create the most energy when demands for energy are highest. When the sun is at its peak in summer months the grid strains to keep up with the demands of all appliances running trying to keep things cool. Because solar produces the most energy when power is in highest demand, solar power allows utilities to avoid the wear that strain on the grid causes, in turn saving money by avoiding repairs to facilities.

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