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The ‘Real’ Cost of Electricity

Interestingly enough, one thing I’ve noticed when we discuss ‘how much we pay for electricity’, the media and blogosphere is fond of throwing out figures from the Department of Energy for the national average – which is around 11.88 cents per kWh (according to the US Energy Information Administration).  What no one seems to mention is that the cost of generation – or even the cost customers pay per kilo-Watt hour – is not an accurate picture of what we are truly paying for our electricity.

power_generation_main2[1]One of the things the Colorado Springs Utilities group was proud of was the efficiency of the Drake Power Plant, and how they passed those savings on to consumers in the form of low rates.  While true – our individual cost per kWh for May was only 6.05 cents – they are falling into the same trap that all utilities are guilty of – that of being non-transparent with consumers.  The cost of generation and the cost of production are not the same thing as the end-users cost to buy their electricity.  In between generation and consumption we, the consumers, are paying maintenance fees, tariffs, service fees, access charges, supply costs, etc.

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There is very good reason that people need to pay these fees – I just feel like it needs to be a more honest conversation.  Power generation is expensive – something we’ve discussed earlier.  The average Colorado household monthly electric bill was around $96 in 2011 (according to the US EIA).  For those prices, there is an additional lump of charges, fees, and tariffs on top of consumption that can equal 50% or more of an electric ‘bill’.  Generating that kind of power was relatively easy – transporting it to the consumer becomes more difficult; especially more-so when we consider the fact that production and consumption is frequently performed in different places or on different grid systems.

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Considering energy demand only increases from year to year, it is especially important to be prepared for the fact that even if energy production itself is relatively cheap, transmission and the infrastructure to transport it is expensive.  We can camouflage those charges, call them any number of various fees or tariffs: access, supply, transmission, storage, etc.  It doesn’t make them go away, it just helps us pretend they aren’t part of the ‘real’ cost of electricity.  The most important part is the costs to us as consumers via the cost of infrastructure maintenance, installation, and repair – and the cost of energy losses.

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Transmission – the act of sending electricity from power plants over high voltage lines to smaller substations where they are stepped down for home usage – might seem like no big deal; as a matter of fact we utilize AC solely for the fact that distance transmissions with it are easier and more efficient.  Losses are negligible in terms of wire transmission – wire resistance and small transformer waste (in the form of heat) leads to between 6-7% for most power systems (higher during high-demand, lower during off-peak).  The biggest losses utility consumers actually suffer are from the costs of maintaining and updating the infrastructure system – building new sub-transmission stations and overlapping loop circuits, replacing power poles, converting overhead power lines to underground ones…  Those are where the real costs roll in for those who generate power – not just locally, but across the grid.APTREES[1]

The first municipal electricity system incorporated was around 1890, when affluent home owners, businesses, and city transport utilized the newly established power plant (along with Nikola Tesla, as previously discussed).  Successive price gouging by oil magnates and utility barons caused the municipality to band together and for the city to create their own four-service utility in 1924.  Since then, CSU has been fighting the good fight – against rising rates, expanding metropolis boundaries and population, continuously rising demand, and aging infrastructure.  The local utility grid powers Manitou Springs, Green Mountain Falls, and Chipita Park.  CSU transmission lines are connected to Arizona, Wyoming, New Mexico, Nevada, California, and Texas.  They are the sole means for the Air Force Academy, Peterson AFB, and Fort Carson to import their energy through.  Front Range Power generates their power onto this grid, and then transmits it across the region.  The regional grid itself is comprised of 232 miles of transmission lines (high voltage), and 3316 miles of distribution lines (sub-transmission and local substations, residential service, etc.) with three interconnection substations.

COLORADO SPRINGS AERIAL PHOTOS

Here we are, 90 years in the future, and the annual budget for ‘maintenance and repairs’ is lucky to receive $5 million dollars – split amongst electric, gas, water, and the wastewater and stormwater systems.  There were several years – very recently – where the utilities only had a couple of hundred thousand dollars a year to keep poles up and power on despite the desperate need for real updates and improvements.  Last year, there was a $30 million dollar shortage for funds to pay for the maintenance of these vital systems; upkeep, improvements, and modernization are things that are a priority but lack the fiscal support.  Smart grid improvements are becoming something we all expect – but they do cost even more than traditional power solutions – and while smart meters do eliminate or at least diminish the need for meter readers and a fleet of trucks, they also require a pretty heft initial investment to get installed, along with the very expensive and complicated software required to maintain and operate them.

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Enter the ‘special’ charges – to help absorb those grandiose improvements citizens expect to see, all while keeping power generation costs at 6.05 cents per kilo-Watt hour AND updating and upgrading service systems that could be up to 120 years old.  The average Colorado Springs residential electricity bill is $87.62 according to myenergy.com.  For residential customers, CSU charges an access charge of 33.8 cents per day and 7.11 cents/kWh, an electric supply fee 2.69 cents/kWh plus an access charge on-peak or off-peak that is time-dependent and averages out to 6.3 cents/kWh, an electrical cost adjustment of 1.02 cents/kWh and an electric capacity charge of .15 cents/kWh.  If you consider your supply costs 6.05 cents/kWh, our rough price per kWh is:

7.11+2.69+6.3+1.02+.15+6.05=23.17/ cents/kWh (including fees and tariffs)

$87.62 average bill – (33.8 daily access charge*30 days=$10.14) = $77.48

77.48/.2317=334 kWh/month Average monthly electricity bill (@ 7% loss of transmission you’re really buying 357kWh)

334kWh * .0605/kWh = $20.21

The moral of this story?  Generating that stream of electrons to power your TV wasn’t particularly expensive – paying for the transmission and upkeep and maintenance of the infrastructure that got it to your house, is.  And if you have ever wondered why utilities are willing to pay you to conserve energy, use it more efficiently, and make your own electricity (discussed in an earlier blog post), let’s just say that this is one more reason out of a dozen good ones why it makes sense for utilities to encourage and even support those who are making an effort to use less.

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This is an original article written by Mai Bjorklund for Swartz Electric. This article may not be copied whole or in part without the express permission of Swartz Electric, LLC.

The ‘Real’ Cost of Electricity was last modified: February 11th, 2015 by Mai

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