Guest opinion: Holy Cross rate restructuring and the shape of things to come
Holy Cross Energy’s recent announcement that it’s restructuring its rates is a big deal — and not only for Holy Cross customers. It’s a leading indicator of major changes that are underway as utilities adjust their business models for the transition to a clean-energy future.
Wind and solar power are providing a growing share of the energy mix, and these renewable sources are cheaper but also more intermittent. To keep things balanced, utilities are banking partly on storage capacity (think batteries) to cover the supply dips, and partly on incentives to change customer behavior (think fees and credits) to lower the demand peaks.
Renewable energy is also making the grid more decentralized, with many more nodes (think of all those rooftop solar arrays and solar farms) and power flowing in different directions. That, along with smart technologies, is increasing grid resiliency. But it also means that delivering electricity — as opposed to generating it — is becoming an important service that needs to be separately charged for.
Meanwhile, more and more of our vehicles and buildings are running on electricity. Utilities are anticipating a long period of capital investment to build a bigger and better-connected grid to meet the increasing demand.
Holy Cross has an extra sense of urgency in preparing for these transitions because it’s committed to making its power 100 percent carbon-free by 2030; it’s already at 50%.
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What will this mean for Holy Cross customers? In short, a fairer — but more complicated — rate structure.
Starting Sept. 1 and continuing in stages through 2025, the “energy charge” that Holy Cross customers pay for each kilowatt-hour they consume will drop substantially. However, this will be offset by a new “delivery charge” (to cover the cost of maintaining the poles and wires of the grid itself), a “demand charge” (to cover the extra cost of producing electricity at peak times) and a doubling of the monthly membership fee. Other changes will affect customers with solar systems, who have been getting a particularly good deal from Holy Cross up till now.
Customers of Xcel Energy and other utilities: your rates aren’t changing now, but this is very likely the shape of things to come. The grid of the future will be cleaner, and in the long run probably cheaper, but the way we pay for it will have to be renegotiated.
The practical matter for energy users is how to make the best of these changes, and ideally come out ahead.
One opportunity is to reduce your demand charge, which is based on your household’s peak electricity usage during the peak hours of 4 p.m. to 9 p.m. You know the expression, “You don’t build the church for Easter Sunday?” Holy Cross doesn’t want to build costly extra power supply just to satisfy the demand for a few hours when everyone comes home in the evening and wants to run their appliances. The utility’s new rate structure penalizes you for doing that, but by the same token, it rewards you for shifting your electricity use to non-peak times.
Other opportunities include energy efficiency and electrification.
Very few homes and commercial buildings are as energy-efficient as they could be. A professional energy assessment will typically identify efficiency measures that will more than pay for themselves, thus lowering your net costs.
Electrification refers to replacing fossil-fuel-powered appliances with ones that run on electricity. If your furnace, boiler or hot water heater is due for replacement, switching to an electric heat-pump unit will save money in the long run because the price of electricity is likely to remain more stable than that of natural gas.
Finally, Holy Cross’s new rate structure includes a fundamental change to solar customers’ net metering agreement — and this too looks to be a strategy that many other utilities will eventually adopt.
Currently, Holy Cross customers with solar systems are able to send electricity to the grid when they’re producing an excess and buy it back at the same price as needed. In effect, this net-metering arrangement enables the customer to “bank” electricity for future use at no charge. Under the new rate structure, they’ll have to pay for this grid service via the new delivery charge.
Holy Cross is smoothing the transition by offering its existing solar customers two options designed to make them whole on their investments. The first is a 10-year grace period on the delivery charge on banked electricity. The other is a one-time credit, which for a typical 7.5-kilowatt system would be about $1,875. Customers must make their choice by Aug. 15.
If you’re planning to install a new solar system and you’re in Holy Cross territory, you’ll have until Aug. 31 to submit your project application and take advantage of either offer. Now would be a good time to check back in with your installer and review the numbers.
Solar is still a great deal, and there are many good reasons to go for it. One is the federal tax credit, which last year’s Inflation Reduction Act increased to 30%.
Another reason — one that isn’t widely recognized — is that electricity that you produce and consume on site is much more efficient than electricity that has to be delivered via the grid. Holy Cross’s new delivery charge incentivizes solar customers to utilize more of the electricity they produce without exporting it to the grid. They can do this by installing onsite storage (Holy Cross offers its customers a great deal on Tesla Powerwalls) or, to a lesser extent, by shaping their demand to better match their production.
The bottom line for Holy Cross customers — and eventually, for all of us — is that electricity is going to get cheaper, but we’re going to have to start paying extra for our share of peak demand and our use of the grid. The end result will be a more economically optimal, and certainly a cleaner, energy system.