Energy economics

Here in Pennsylvania, I get my electricity delivered by PECO, which has a monopoly on distribution in this area (not all of PA, but I believe each area has a single electricity distributor. Makes some sense, as overlapping wiring would be grossly inefficient. I could buy the electricity from PECO as well, but do buy it at a cheaper rate from a competitor. In a move that some would consider not most economically efficient, I pay a little more per kWh to get energy mainly from renewable sources. It’s not a whole lot more, and I’m not buying the source with the most renewable, which would be significantly more per kWh.

I just bought a new basement dehumidifier. PECO is offering me a $50 rebate just because I bought an Energy Star one, even though I didn’t buy it from or through PECO. It means I’ll be paying them less in distribution charges compared to buying a less energy-efficient one. The $50 is available to me as a PECO customer: same rebate whether I buy electricity or just distribution from them.

Why does that rebate structure make sense from their point of view?

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Don’t know for sure in PA, but in California, the regulator allows the utilities to earn more margin on energy efficiency than on traditional energy sales. So, in essence, they are then able to charge a higher per kWh distribution rate (though the timing of when they collect is not clear to me).

Essentially the state has policy goals and uses economic tools to align utility incentives with those goals.


Procrastinator is correct.

I work for an electric utility in a different state with what sounds like a similar setup to yours. Our company has energy efficiency goals and we make money off of those.

I don’t know the exact situation in your state or mine, but here is one way it could make sense.

  • The customer pays 20 cents per kWh, 10 cents goes to poles and wires distribution and 10 cents pays for energy.
  • The energy efficiency program is paid for by the customers and they end up paying 15 cents for every kWh that is saved by the program. This is set up by the state.
  • The customers in aggregate save money because they are paying 15 instead of 20. Most of that savings goes to those using the energy efficiency.
  • The utility benefits because they are bringing in 15 instead of 10.
  • The power producers lose because they aren’t selling power at 10 cents. But that’s the goal

This is just how I think about it at a high level, the numbers and the details I’m sure are different and don’t represent my employer.

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