REU’s Opportunity: Get Fat Eating with a Small Spoon

 

There are good reasons to reestablish the Redding Electric Utility (REU) Citizens’ Advisory Board. One example: That Board could study and advise Council, as requested, on impacts of the successor solar tariff and the Stillwater Park 100-megawatt solar farm with battery back-up project. Another example, detailed below, is to evaluate the potential for REU to benefit financially from the public’s growing adoption of electric vehicles (EVs).

Accounting theory suggests that driving an electric vehicle (EV) should benefit both you and your neighbors’ pocketbooks. EVs shift significant dollars from oil companies to utility companies. For utilities, greater numbers of EVs should contribute to increasing sales and profits. As a community-owned utility, that which benefits REU benefits the community.

Redding Electric Utility presents itself as a high fixed cost enterprise. Accountants model fixed and variable costs and the impact of varying revenues on profit (cost-volume-profit analysis), and perform breakeven analysis given financial models. At a breakeven level of sales, fixed cost burdens are met and revenue yields neither profit or loss. Beyond breakeven, that percentage of sales previously allocated to fixed cost migrates to ‘the bottom line’. Accounting shows that the higher the percentage of fixed cost, the more profitable each additional revenue dollar above breakeven. Given REU’s high levels of fixed cost, every additional EV charging dollar is projected to be increasingly and disproportionately profitable for Redding.

A business strategist would recognize growing local adoption of electric cars and trucks as a window of opportunity, and deploy the ‘get fat eating with a small spoon’ strategy to maximum advantage.

Here’s why the small spoon strategy is especially appealing. 80% of EV charging occurs during off-peak overnight hours, precisely when REU’s hydro and wind generators spin off 100% renewable excess capacity electrons. These are precisely the category of electrons that REU, and any other utility, would love to sell! EVs present a new home for unwanted nighttime capacity, and that new home pays full retail price under Redding’s flat rate pricing policy!

EVs are coming, and soon. It’s a matter of time, and time is short. In 2019, there were few EV alternatives. Starting this automotive year, more and more electric cars and trucks come on line, at every price point. Also starting this year is the unfunded mandate that all new residential construction be zero net energy (ZNE), meaning new residences must produce as much energy as they consume. Those fortunate enough to afford a new home have the opportunity to add panels above breakeven, adding capacity to power the home AND a car. A solarized 2nd unit could power itself, a car AND the main residence! To compensate for the expensive ZNE mandate, every reasonable incentive is needed.

Powering both home and car is technologically feasible, but is it economically feasible? The vast majority of California’s new solar customers will enjoy discounted nighttime charging, thanks to time of use (TOU) metering. Under that system, energy consumed overnight is offered at low rate based on its lower cost of production. REU does not offer this incentive. In fact, the opposite set of incentives are in place. Excess solar energy produced receives the lowest feasible price REU can pay. Overnight, energy is offered back to the producer at full retail. Not much of an incentive there. And, REU is considering upgrading meters and software that does not support TOU. Is this the most profitable technology?

Policy determines the economic viability of energy self-production. That’s why policy deserves careful attention. Because you can make your own electricity, but you can’t make your own gasoline!

Avatar
Jeff Morrow is the operating partner of Affordable Housing Associates, and a proponent of entrepreneurial communities. Affordable Housing Associates produces accessory dwelling unit home kits, which in January will be required to be ZNE, even if located in the shade.

If you appreciate being able to read posts like this one, and want to ensure ANC's ability to provide more content like this, please click here to demonstrate your support and become a paid subscriber.

Comment Policy: We welcome your comments, with some caveats: Please keep your comments positive and civilized. If your comment is critical, please make it constructive. If your comment is rude, we will delete it. If you are constantly negative or a general pest, troll, or hater, we will ban you from the site forever. The definition of terms is left solely up to us. Comments are disabled on articles older than 90 days. Thank you. Carry on.

4 Responses

  1. Avatar Debbie Davis says:

    Great information!

    I would like to see a citizens review board for REU. It adds transparency to their operations, customer advocacy and accountability.

  2. Avatar ED MAREK says:

    Almost ten years ago, in December of 2010, I wrote this comment (now erased from its archives?) for the Record Searchlight:

    “Can Redding afford THE REU rate hike?

    …A major reason most utilities have moved away from fixed rates, and replaced them with seasonal, tiered and time-of-use rates, is that fixed rates fail to produce the lowest total costs to ratepayers.

    This is because the cost to utilities to deliver power to customers varies dramatically.

    REU pays many times more per kWh to supply electricity at peak demand periods (summer afternoons) than at other times of the day, and seasons of the year.

    Fixed rates require a utility to sell electricity below cost at peak demand periods.

    Utilities then need to increase other charges (such as REU’s high service fee) to offset these losses.

    Since REU rates conceal the true cost of power from the ratepayer, customers cannot realize full savings from conservation, or by shifting their electricity use schedules. Fixed rates raise total utility costs for all customers, by preventing reductions in peak load. Can REU, its ratepayers and the city of Redding afford to continue to pass up the savings offered by better rate designs?…”

    And over the last ten years REU’s dedication to maintaining its rate structure subsidy to high peak-use residential customers has cost ALL its ratepayers dearly. I have personally saved thousands of dollars over the last decade as a PG&E customer (almost nine years of which I’ve been driving a BEV) by using PG&E’s (rather high!) TOU rates.

    But the real comparison for REU ratepayers should be with a well-run municipal utility, like SMUD, which allows ratepayers a choice of seasonally fixed or TOU rates, passing on the savings benefits of NOT being PG&E customers on to ALL of its ratepayers.

    If you are an REU ratepayer, take a look at both options, to see how much you could be saving:

    https://www.smud.org/en/Rate-Information/Residential-rates

  3. Steve Towers Steve Towers says:

    Every other proposal to add a Citizens’ Advisory Board to REU that I’ve encountered has come from small government, anti-tax conservatives (who ironically want to add a new layer of bureaucracy to City Government in the form of this board). I’m wary of such a board falling into the hands of such people. These are the same people who railed against forming REU in the first place, and now that REU is saving them $#!+loads of money relative to PG&E, they want to run the utility so they can further cut rates. They complain that government should be run like a for-profit business, and complain when it actually is run like a for-profit business. They don’t come off as the most forward-looking of the populace.

    I’ve never been opposed to Redding using REU as a cash cow, given that it’s still saving Redding’s citizens lots of money while turning a profit. That said, I find the argument above for TOU metering to be fairly compelling. But if it’s compelling, it ought to be compelling to City Council. I don’t see the need for an advisory board.

  4. Frank Treadway Frank Treadway says:

    We REU customers are in a voting/approval pickle. If we don’t approve the proposed rate raises then REU will come back in a couple of years and ask for even more. If I were to support the proposal I’d also ask the City Council and the REU staff to add another 1-2% to those who receive the RD Energy Credit.

Leave a Reply

Your email address will not be published. Required fields are marked *