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!