Why tiered rates?
In the recently
concluded Idaho Power rate case (IPC-E-08-10, Order No. 30722), the Commission
approved a tiered-rate structure, which assesses customers higher rates as
consumption increases.
Some
customers, especially those residing in all-electric homes, question the
fairness of the new rate structure. Some are confused as to how tiered-rates
work. We’ve prepared a brief Question and Answer document below that we hope
will help. There are two very important items to understand about tiered
rates:
1) You don’t pay the higher rate on all your use.
You pay one rate for use up to 800 kWh per month, a slightly higher rate for
use from 801 kWh up to 2000 kWh, and the highest rate for use above 2000 kWh. For
example, if your total monthly consumption is 2050 kWh, only the last 50 kWh is
priced at the highest rate. Your first 800 kWh will be billed at the lowest
rate, which is actually lower than the rate you paid before Feb. 1. Then, your
next 1200 kWh will be billed at the second-tier rate. Only your use
of more than 2000 kWh is billed at the highest tier.
2) While
it’s true you will pay more the more you consume, we believe that all customers
will save in the long-run. The reduced use of electricity that will happen
throughout Idaho Power's territory will eventually mean lower costs for
all customers in the future, even those in all-electric homes. When Idaho
Power cannot produce enough electricity to serve customers with its lower-cost
hydro and coal plants, it must either start up its more expensive
gas-fired turbines or buy electricity on the market. This results in
higher rates for all customers. Further, less consumption will delay the need
for Idaho Power to build costly new generating facilities. That also saves all customers considerable
expense.
Tiered
rates seek to lower overall energy use, thereby delaying the need for highly
capital-intensive projects to increase baseload
facilities.
Here are some frequently asked
questions.
1.
How
does a 3-tier rate system work?
a.
A
tiered-rate structure charges different rates per kWh depending on how much
energy you use. In this case, the first
800 kWh of energy is priced at the lowest rate.
The next 1200 kWh are priced a bit more, and energy over 2000 kWh has
the highest rate.
If you would like to see more on how
your bill will be calculated under the 3-tier design, there is an interactive
table
(Excel format) CLICK HERE in which
you can put in your total energy consumption for the month and see a line by
line billing example.
2.
Why
did the Commission want to institute tiered rates?
a.
There
are many reasons why tiered rates are instituted, but two main reasons are to
reflect the higher cost to produce greater amounts of electricity and encourage
efficient energy use by customers.
3.
How
do tiered rates reflect higher costs to produce electricity?
a.
In
the short term, if Idaho Power cannot produce enough electricity to serve
customers with its low-cost hydro and coal plants, it must either run its expensive
gas-fired turbines or buy electricity on the market. In this case, the costs to provide that
additional power can be rather expensive.
Looking at it
from a longer perspective, if people respond to the price signal in the higher
tier blocks, then Idaho Power may be able to prolong having to make investments
in new generation facilities, which saves everyone money.
4.
How
do tiered rates encourage efficient energy use by customers?
a.
By
pricing higher usage at a higher rate, customers can see some real savings by
lowering their bill through conservation or energy efficiency measures.
For instance,
if you use 1,100 kWh in the summer (close to average usage for Idaho Power
customers), and found ways to reduce your usage by 100 kWh, you would save
$6.57 per month (100kWh*6.586˘ per kWh).
If you use 2,100 kWh and reduced down to 2,000 kWh, you would save $8.17
(100kWh*8.168˘ per kWh) - that’s almost 25 percent more savings for the same
amount of reduction!
5.
I
have an all-electric home that uses more than 2000 kWh in the winter. Do I pay the highest rate for all of my
usage?
a.
No,
you only pay the highest rate for the electric use over 2000 kWh. The first 800 kWh are billed at the lowest
rate. The next 1200 kWh are billed at a
rate a little more than the first 800.
And anything over 2000 kWh is billed at the highest rate, but only that
portion above 2000 kWh.
6.
My
January bill showed I used 3000 kWh.
Would I have paid 7.129˘ for each kWh?
a.
No,
only the last 1000 kWh. Here is an
example of how your non-summer bill would be calculated:
800 kWh
@5.5792˘ = $44.63 (1st
tier)
1200kWh
@6.1991˘=$74.39 (2nd tier)
1000kWh
@7.1290˘=$71.29 (3rd tier)
Total for
3000 kWh =$190.31 (does not include
service charge, the annual Power Cost Adjustment (PCA) or the Energy Efficiency
rider)