Encouraging Energy Conservation Through Inverted Rates – Iowa Utility Tries New Approach

Date: 9 May 2007 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

In early April 2007, Waverly Light and Power’s Board of Trustees approved a new residential rate structure designed to encourage energy conservation by charging customers higher rates as more electricity is used. This "inverted" rate is going into effect only during four summer months beginning July 1, 2007.

WLP, a municipally-owned utility with about 4,500 customers, experiences the highest demand for electricity during summer and is hoping that this program leads to decreased demand for power. The rate structure after July will look like this:

New WLP Residential Rate Design After July 2007

 

  • Residential customer charge $10 a month
  • Summer Rates – June through September:
    • First 600 kWh used $0.0850/kWh
    • Next 500 kWh used $0.1201/kWh
    • Next 400 kWh used $0.1600/kWh
    • Over 1,500 kWh used $0.1701/kWh
  • Winter Rates – October through May
    • flat rate $0.085/kWh for all kWh’s used

 

"In 1992 we went with a flat rate, following many years of having a six-block, declining block rate that encouraged more usage," said Glenn Cannon, WLP’s general manager. "We have numerous programs to help customers reduce usage, but a price signal may be the best way to promote energy efficiency."

Seventy-three percent of WLP customers use under 1,100 kWhs/month during the summer months. These customers will only experience a moderate change in their monthly bills. According to WPL, customer’s using over 1,100 kWhs/month will notice an increase in their bill ranging from $20 topping out at $88 a month for those using around 2,000 kWhs during the summer months.

Democratic Energy notes that some research seems to indicate that time-of-use (TOU) and critical peak pricing are more effective than inverted rates at creating a rate structure that leads to conservation and demand reduction. However, we believe that inverted rates have a role to play in creating an environment where people will be more apt to save energy because of the pricing signals they get.

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John Farrell
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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.