Aspen’s Energy Policy And Market Assessment Experts Deliver

The Practice Director for Aspen’s Energy Policy and Market Assessment Group, Catherine Elder, submitted testimony in a federal class action lawsuit involving an independent natural gas provider. These independent providers often call gas users and claim they can provide gas at rates that will be cheaper than the utility. Elder explained in very simple terms how the total rate we pay for gas service covers the cost of delivery plus the cost of the gas itself. The cost of gas is merely passed through at zero mark-up or profit by the utility and it would be unusual for a small provider to be able to beat the utility’s economies of scale in buying natural gas for its customers. In the current natural gas cost environment, it is the cost of delivery that is increasing, not the cost the utility passes on to us for the gas itself. This provider’s sales pitch was misleading, and the customers ended up paying twice what they would have paid had they stayed with PG&E. Elder says more customers understanding how to read their gas bill would prevent their falling prey to misleading sales claims. This case took advantage of Elder’s prior expert witness work, her experience in energy commodity risk management, her involvement in developing and implementing California’s gas utility procurement and rate policies as well as her direct involvement in procuring natural gas supply. As often happens in class actions, the case settled and should be approved in late June.

Aspen’s Energy Economics Analyst, Joe Long, presented his first professional paper to the annual conference on Regulation and Competition in Network Industries, organized by Rutgers University. Joe’s paper examined the Time Of Use (TOU) rates being implemented by California utilities and compared the spreads between peak and off-peak rates to the cost of battery energy storage systems. TOU rates are intended to encourage electricity consumers to shift their consumption from the late afternoon and early evening hours (when solar production begins to fall off) to mid-day (when solar production might otherwise have to be curtailed due to lack of demand). Battery Storage would allow consumers to charge during the off-peak rate and discharge when prices are high. Joe found that the TOU rate spreads are not large enough to cover the cost of battery storage in four out of five of the utilities studied. In the final case of SCE’s territory, the arbitrage value of battery storage can cover the cost of the battery with the current SGIP incentive available but does not always cover the cost of installation (estimated $1,000-$3,000). The important takeaway is that the total arbitrage value of battery storage is highly variable across TOU rates (ranging $900-$4,000) which is influenced by price differentials, peak duration, and the implementation of dynamic rates in the Winter season. Various Aspen employees have participated in this conference over the years and look forward to the interaction with academic and utility economists and regulators.