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Gerry Clinchy
10-07-2011, 05:16 PM
I've written before about my heating system, installed in 1991. It involves a 300-gallon tank of water that heats up overnight to provide BTUs for the heat pump during the day (for winter heating).

The premise of the system was that the utility company could sell electricity that would otherwise go unused, and defray use of resistance heating elements during high demands during the day. Heat pumps always need back-up heat in temps under 42 degrees. Some people use oil, but for many resistance heating elements within the air handler provide the back-up.

The electrical generating plants can be tamped down when demand is low, but cannot be shut down. So, they are generating electricity in the middle of the night when nobody wants to buy it. Makes sense. If it costs something to produce a product that you have to throw away, why not sell it instead, at slightly above cost? The concept also meant that total number of generation plants would not have to increased as rapidly since peak demand was being defrayed.

Consumers got a better electric rate, but did risk a surcharge if they drew too much during the day period. A minor inconvenience. It meant not using high-draw appliances like dryers and electric ovens during those daylight hours. My electric bill showed one charge for $/KWH.

De-Regulation arrives! We now have a choice! Well, not quite.

Since all the power lines are in place, it's kind of hard to have a company from No Dakota come in to put up new ones. Why would they want to?

So, my electric company became two companies ... one that "distributes" electricity and one that "generates" electricity. The distribution company can now buy the electricity from any generation company they want to & get the best price. The distribution company maintains the lines and distribution grid that transmits the electricity.

Getting the best price doesn't really matter a whole lot, though, since the law does not allow my home company to make a profit on what they sell. This does not apply to the other companies who sell their "generation" to me.

Now my electric bill has three separate charges: distribution, transmission and generation.

I can buy my "generation" from whomever I wish. My "home" company must sell me the electricity they buy at no mark-up. They make their money only on the distribution.

This means that my distribution company does not really have any incentive to sell that "overnight waste", since they can't make any profit on it. The companies who compete for my generation business offer, typically, a 10% discount from whatever my distribution company is offering for rates. There is no incentive to go any lower than that. And the 10% discount is only good for a certain term.There are penalties for switching away from the other generation companies before the "contract" period is up.

My God! It's like every consumer has to be watching the spot electricity market to know when to change from one provider to the next! The utility company pays people to do that!

The key is that de-regulation removed competitive incentive from the generation portion of the bill. However, my distirbution company had it's largest profits in history in the year deregulation was phased in! Why? Because they are making a bundle on distribution because they are still a monopoly in that sector! They don't care where I buy my generation because they are not allowed (by law) to make any profit on it.

I spoke to someone at the electric company. The biggest demand for electricity is between 1 -3 PM. The spot market price can be as high as 15 cents/KWH. OTOH, the spot price for overnight (low demand) can be as low as 3 cents. Wow! My "home" distribution company doesn't care to buy it because even if they can sell it to me for my heating system, they can't make any profit doing that. So, why bother?

If we really want to become energy independent, why are we throwing energy away when it could be useful?


Meanwhile, state law has mandated that electric companies must decrease electric usage by specified amounts by certain deadlines ... or be faced with a penalty fee for failure to do so. I think it's fair to expect that the penalty fees will simply be tacked onto the electric bills of the consumers in one way or another.


Does this sound like a complicated mess to you? It does to me.