Have you ever wondered why your utility company wants you to consume less energy and lower your energy bill? Doesn’t it seem strange that a company would want you to consume less of a service it provides? That seems like it would hurt their profit margin. Believe it or not, both utilities and consumers can improve their bottom line from these new initiatives.
The Push for Energy Efficiency
In the past decade, there has been a strong push for energy efficiency in the United States. Global warming, sustainability, and emission reduction for cleaner air have been hot issues, spurring governments, businesses, and society into the “go green” movement. This social force makes it imperative for businesses—small and large—to perform social good and improve sustainable measures in order to stay competitive in today’s green-focused markets. Yet, what drives utility companies to want to lower your electric consumption are not so much these new social forces, but new government regulations, incentives, and economic considerations.
For over 20 years, state- and federal-level regulations have been put in place that mandate utilities charge a small percentage (around 1%) on your utility bill. This fee goes into the energy efficiency program you keep hearing about. You’re already paying for these programs, and this is why you’ll see a lot of utility companies offering rebates to upgrade or replace inefficient equipment. Furthermore, utility companies are highly regulated, and there are measures in place that allow them to charge you a small percentage for fixed costs, such as maintenance and operation fees. If the utility accrues too much income from fixed costs, it must send customers a refund. If it does not accrue enough, the government will cover their losses. Essentially, utilities will always be able to meet their fixed cost demands. In addition to the energy efficiency and fixed cost fees, there are, of course, service fees that allow the utility to generate profits.
Here’s the important part for the utility companies: generating electricity is very expensive. Your utility company has to pay for every kWh you consume. Our society is becoming more connected, and as such, we consume more and more electricity. At first, this sounds great for your utility; they’ll be able to make more money, right? Not necessarily. To meet electric demand, utilities need to have power plants, generators, and other infrastructure in place and fully operational. As mentioned before, we’re already paying the utility for these fixed costs. If electric demand keeps increasing, the utility will be forced to build new power plants. This is an extremely expensive process, and your rates will increase as a result.
Why Your Utility Wants to Lower Your Bill
Believe it or not, your utility does not want your rates to increase for three major reasons. First, they’ll lose government incentives. Utility companies are being mandated to lower electric consumption, or else they receive a large fine. Second, the higher your rates increase, the more likely you, as a customer, are going to seek out alternative energy sources. With huge growth in the renewable energy sector, such as solar and wind, your utility is doing its best to keep your rates low and save you as much money as possible. Third, greenhouse gas emissions and climate change affect the weather and the availability of resources.
The size and damage output of natural disasters in the U.S. and the world have increased. Hurricanes, blizzards, tornadoes, floods, nor’easters, etc. can break power lines or damage utility infrastructure, causing disruptions to electricity, heating, and cooling services. Natural disasters also can cause resource shortages to oil and gas. When utility companies struggle to fix these problems, their costs are passed on to you.
The chart below depicts the general economic repercussions of natural disasters.
Source: AccuWeather
Final Thoughts
Utility measures to help homeowners and business owners reduce their energy bills is a win-win-win for utilities, consumers, and our planet. Sustainability is the future, for both economic survivability and social good. Remember, you’re already paying for these energy efficiency programs. Business and residential customers should take advantage of all the benefits the utilities have to offer.
Robert Mittelstaedt, dean emeritus of the W.P. Carey School of Business at Arizona State University, sums all of this up nicely: “Electric utilities find themselves in an awkward position where they make money by selling power, but are required by regulators, and increasingly by consumers, to help customers find ways to save power or use renewable sources. The collision of new technology, social good, business strategy and politics will make the next decade the most interesting in the century-long history of the industry.”
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