This Is How Electricity Rates Are Actually Set

Tracy Alloway (0:02)

Bloomberg Audio Studios. Podcasts, radio, news. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:23)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, I have big news for you.

Joe Weisenthal (0:26)

Go on.

Tracy Alloway (0:26)

I'm an electricity generator now.

Joe Weisenthal (0:28)

Oh yeah, tell me what's up with that.

Tracy Alloway (0:30)

This is big news. In my personal life, I am finally the proud owner of a pretty big solar panel that is feeding into the grid in Connecticut.

Joe Weisenthal (0:38)

How's that going so far? Like are you, has it, so I got- Your lower electricity bills?

Tracy Alloway (0:42)

I got one electricity bill so far, and it was about $20 for a few weeks, which is amazing. However, I have also experienced my own intermittent energy problems because we are recording today on December 5th. And in case you don't know, it's been snowing up in New England. And the solar panels are covered with about eight inches of snow, so there's no electricity.

Joe Weisenthal (1:05)

They're not producing any electricity right now.

Tracy Alloway (1:07)

All the electricity is out. We have a power generator, so that's kicked on. But I'm now learning one of the downsides of renewable energy.

Joe Weisenthal (1:15)

No, it's like perfect. This is the end of the conversation right here. It's cheap, but it's intermittent.

Tracy Alloway (1:19)

It's cheap and intermittent. Yeah, that's basically it. But, you know, it got me thinking. I'm not in Connecticut at the moment. We are both in Washington, DC for a big energy conference. And because I am now an electricity generator of sorts and I feed into the grid that is owned by a giant utility, we have never actually interviewed someone from a utility.

Joe Weisenthal (1:39)

That's right.

Tracy Alloway (1:40)

I don't think we have.

Joe Weisenthal (1:41)

I don't think we have either. And I have to say, and now this is starting to make sense to me, that like how utilities work, how pricing in particular works for electricity, is this incredible black hole in my knowledge. Because this has come up, but you know, we're not called customers. We're called rate payers. And I know that in many markets, there's this negotiation where there's some utility commission or something like that and the utilities have to figure out, okay, we spent this much and can we raise our prices this much, et cetera. And then, you know, I know there's in some places sort of live auction markets and how the weather changes, the price changes. But I really find this incredibly hard to wrap my head around. I guess basically the question of why you pay what for electricity.

Tracy Alloway (2:29)

Yeah. So two things here. Number one, it seems incredibly complex because of all the factors that you just laid out, including the patchwork of different regulations for different states and the limits there. And also, well, the political tensions as well. That's one thing we can maybe talk about. But the other thing is, it feels like the whole system is becoming more and more complex. Because you have more renewable energy coming on, a lot of that renewable energy, you know, you get credits for feeding that into the grid, which means special people like me are no longer actually paying that much for electricity, but we're still drawing on the resources of the utility.

Joe Weisenthal (3:05)

And I guess there's really two things, because there's this rise of sort of distributed energy, rooftop solar and things like that, new forms of energy production, and then something that comes up a lot, the resumption of load growth for the first time in decades.

Tracy Alloway (3:17)

That's right.

Joe Weisenthal (3:18)

And so you have the renewables, you have load growth, you have this impulse from the public and the corporate sector to reduce emissions overall, net zero, there's always net zero press releases going out over the years. And so how this all comes together, wildly complex, and usually when people are explaining it to me, I have to pause them every five seconds. Like, wait, what is that term? What's the capacity market? Again, all these things.

Tracy Alloway (3:40)

So it's nice of you to warn our listeners in advance that they're going to have to pause this episode quite a bit. No, hopefully we'll be able to explain everything because we do in fact have the perfect guest. We're going to be speaking with Lon Huber. He is the Senior Vice President of Pricing and Customer Solutions at Duke Energy. So Lon, thank you so much for coming on the show.