Don't buy my product!

November 11, 2009 8:08 AM

Why is my energy company asking me to cut back on energy use? The grocery store doesn't try to get me to buy less food. The gas station doesn't try to help me get better mileage.

Just wondering: Our 7-state energy company has numerous campaigns advising customers on using less energy. How to save energy. How to save money. And yet... it's a private, for-profit business. Essentially they are advising me on how not to purchase their product.

We're not having brownouts or any sort of energy shortage. So I would think they're not overburdened...? Like a bakery advising you on how to eat less bread, save money on bread etc.

What are the political/economic/market reasons for this?

posted by ecorrocio to grab bag (35 comments total)

It may have soemthing to do with the cost of getting licenses (and such). It's become extrememly expensive to build new power plants and so they have an incentive to avoid it if at all possible.
posted by Confess, Fletch at 8:12 AM on November 11

Its just an advertisement to keep their name in your consciousness. When the Public Service Commission considers a rate hike, the Power Company wants you to associate the increased expense with consumer use, not with profits.

As a general rule, when a company with a monopoly is advertising, it is because that company is about to tweak the rules of the monopoly and wants to divert your attention away from the fact that no competition exists.
posted by jefficator at 8:13 AM on November 11 [6 favorites]

My guess is that there are financial incentives for them to help people spend less and use less of a finite resource: government grants or other promotions. They can take that money and spend some of it on staffing and other expenses and as a side effect, tell you to use less power and then make big ads that says BlaBla Company Helps Save the Planet!!

Unlike your bakery, your electric company (I'm assuming) is heavily regulated in what it can charge for electricity. My electric company in Vermont is a co-operative, so there's a "we're all in this together" sense. It's not just a flat out "you buy more power, we make more profit on each unit of power, please buy more power!" situation.
posted by jessamyn at 8:13 AM on November 11 [1 favorite]

It's just marketing. It's like when the cigarette company puts out anti-smoking ads...
posted by the foreground at 8:20 AM on November 11 [1 favorite]

Where I live (Winnipeg, Canada), the power company does a ton of advertising to encourage saving electricity. Here, it's because the local power rates are less than they can get selling the power into the US, so anything that's not used locally can be sold abroad for more profit. Maybe your power company is selling excess power to other states that pay more than you do.
posted by pocams at 8:22 AM on November 11 [4 favorites]

They want to look superficially like good guys so as to ward off green/climate change complaints and help discourage the government from taxing or restricting the consumption of their product. Like when alcohol producers add little extra slogans to their ads saying "Enjoy Skull-Splitter hyper-strength beer in moderation".
posted by Phanx at 8:27 AM on November 11 [1 favorite]

My area power cooperative just had a new baseline load coal power plant fall through, due to licensing and lawsuit issues. In my opinion, it would have been a good idea to build a new one, since the current one is more than 50 years old (like many around the country), and hardly the state of the art in efficiency and pollution control measures.

I think Confess, Fletch has the right idea here. Any power you use that is outside of their generating capability has to be bought on the open market, which isn't cheap, and raises your rates.
posted by ArgentCorvid at 8:33 AM on November 11

In agreement with jessamyn's points above, I'll also add that in many markets (in Canada at least) the company may be required to have such messaging the same way tobacco companies must also comply with messaging discouraging you from smoking.
posted by Doug Stewart at 8:49 AM on November 11

It might be regulated to assist in energy use reduction. Utilities in the UK are currently subject to a mechanism called the Carbon Emission Reduction Target which compels them to assist consumers in installing energy efficiency improvement and which will cost them an estimated £2.9billion in funds.
posted by biffa at 8:54 AM on November 11

I can't find the article, but I recall reading something that residential power is much more heavily regulated and makes up a relatively small part of the profit earned by power companies.
posted by electroboy at 8:55 AM on November 11

Peak load power tends to be very expensive to produce. The power company may have to fire up the oil powered generators or buy on the open market, just when other companies either do not have power to sell, or are already buying it. The consequence of not being able to provide for the peak load is brown-outs, however. These lead to unhappy customers and regulators.
posted by Midnight Skulker at 9:04 AM on November 11

It's getting harder and harder (due to regulations, availability, expense) to build new power production units. Meanwhile, overall energy demand is going up.

If each customer reduces their energy demand by eliminating waste, the supplier can supply the energy for more customers without the capital expenses inherent in building new generation capacity, thus saving them money. (And they don't have to buy power from outside sources, which always costs more than generating their own.)
posted by jlkr at 9:05 AM on November 11

Kind of like when the hotel says: 'conserve energy and save the environment by using your towels again.' What they really mean: 'save us some money.'
posted by infinitefloatingbrains at 9:09 AM on November 11

It's because of the regulatory structure that many utilities now operate under. Switching the incentives from "sell more power to make more money" to "create efficiencies and share in the savings" creates powerful motivations for utility companies to alter their behavior.

There was an article recently about the guy, in California I think, who pioneered this approach. So simple, but very powerful.
posted by Forktine at 9:16 AM on November 11

Cynicism is warranted, but it is also worth understanding the concept of a "negawatt," a term coined by Armory Lovins. The idea is that it is often less
capital-intensive to save power than it is to generate more.

Saving power is a societal benefit, but as you've noted, it isn't necessarily a good think for an electrical utility, so there has been public policy work to
align it with their interests. There are a range of options to be employed. Just the threat of stiffer regulation will provoke some investment in PR and lobbiests.

There is also the option of tailoring regulation to allow a utility to capture the value of energy savings by rate-payers. For example, say the state utility regulator agrees with the utilities assessment that they will require $400m of additional generating capacity over the next decade. In the past, the regulator
would probably allow them to set power rates that guaranteed a specific return on that investment. Another option is to guarantee a similar return on invested capital, but allow them to invest that money in reducing
demand, rather than increacing supply.

Advertising is one way to lower demand, but it is probably more effective to couple it with incentives to consumers. If there are rebates for CFL, or energy efficient appliances, it may well be the case that these incentives are being paid for by the utility and passed along to ratepayers with a built in profit margin.
posted by Good Brain at 9:21 AM on November 11 [1 favorite]

They are overburdened because of over-population. If everyone cuts back, they save money on replacing burnt out substations and transformers and all of the other equipment that fries when it's overused.
posted by Zambrano at 9:28 AM on November 11

They get to charge you for the privilidge of using less of what they sell as the tradeoff for state laws mandating that power consumption go down. No, really.
posted by a robot made out of meat at 9:40 AM on November 11

As energy usage increases, the company needs to use higher cost fuels to generate power. Residential customers pay the same price per kilowatt no matter what is used to generate the electricity. The company turns on the cheapest fuel plants first and only goes to the expensive fuel options if demand requires it. If your energy company can meet the demand without moving into the next tier of fuel costs, it maximizes their profits.

At the holidays, cold weather and seasonal lighting drive up energy consumption. At maximum capacity the company probably has to crank up the gas fired plants. Those plants can be turned on and off quickly to meet demand, but are horribly expensive per megawatt. Or if your energy company can't meet demand they need to go into the market which is wildly expensive. If demand goes high enough that they need to use the most expensive source they are less profitable - still profitable, but less so.
posted by 26.2 at 9:50 AM on November 11

Governments regulate power companies to a degree that makes them completely not comparable to other companies that manufacture a "product" for sale. There are indeed incentives for decreasing usage. It's kind of a necessity anyhow, since you can't just spin up new power plants easily, and the grid itself is struggling.
posted by scarabic at 9:54 AM on November 11

Scarabic and others get at this, but consider that your energy company is probably a heavily regulated monopoly. They can't just raise their rates whenever they feel like it (like, say, a gas station would). They have to go before a government review board and make a case.

The other problem is that if a petroleum company needs another gallon of crude oil, they can pump one gallon out of the ground (within limits). If your energy company needs another kilowatt of capacity, they need to build a multi-megawatt generator, which is an expensive, multi-year proposition, with arduous permitting, etc. They may decide it's cheaper to effectively get that capacity by reducing demand.
posted by adamrice at 10:18 AM on November 11

Seconding pocams's answer. My understanding is that the power company is obligated to provide power to its local customers first and any additional power (which Manitoba has tonnes of) can then be sold to Americans for a much greater profit. Thus advertising the reduction of power usage locally actually earns them more money. (I'm also from Winnipeg :)
posted by Kippersoft at 10:29 AM on November 11 [1 favorite]

Are power companies in the US monopolies, then? In the UK we have a liberalised energy market so you can shop around amongst the providers to get the best price, etc.

Sorry for the de-rail but I'm surprised to hear that the US, home of the free market, runs its energy market in this way.
posted by Lleyam at 10:32 AM on November 11

This may be a result of utility decoupling.

Traditionally, utility profits are tied to energy use. The more you use, the more they make. Utility decoupling breaks this relationship while preserving profits and providing incentives to promote lower energy use.
posted by ASM at 10:43 AM on November 11

When there are oil shortages, for whatever reason, you will be encouraged to reduce gasoline consumption (it has happened before, like around the time when Katrina hit, and many of the refineries in the Gulf of Mexico were affected, reducing gasoline supplies in all of North America).

With power, the limited supply is more much of an issue, as it is largely static and dependent on the geographical arrangement of power plants and supply lines. Unlike the cases of oil or food, it is a lot harder to say "We have a shortage, let's just get power from some other place and route it here".

If there is sufficient supply, the power company is more than happy to have you use as much energy as you can -- as long as you pay, of course. But if many people are doing that (say, in the case of a heat wave, or a cold snap), eventually the system will not be able to meet demand, and the consequences are much greater: brownouts, or even blackouts, in case where there is any unexpected events (e.g. failure at a plant, etc).

Of course, it is also plausible that energy companies will try to encourage conservation in cheap markets, and not bother in expensive markets, just to increase profits. But all of that assumes that the supply is sufficient to meet the demand.
posted by TheyCallItPeace at 10:47 AM on November 11

My (UK) energy company collects money from me from two sources: a levy per unit of energy that I use and a standing charge for the service of providing me with energy. Don't discount your energy supplier's potential desire to make up for your using less of its energy by charging you more for the privilege of simply having a connection: the latter requires less work on its part. In practice it is probably not allowed to do this by the regulator.
posted by rongorongo at 10:50 AM on November 11

Are power companies in the US monopolies, then? In the UK we have a liberalised energy market so you can shop around amongst the providers to get the best price, etc.

I never understood how this works in practice. There's not multiple transmission lines for each company on every block, are there? So companies are just forced to share infrastructure and pay each other for the use of the other company's plants and lines?

How is a company held accountable for dumping enough power into the grid to cover their customers' needs?
posted by jstef at 11:03 AM on November 11

So companies are just forced to share infrastructure and pay each other for the use of the other company's plants and lines?

In a way, yes. Think of it like cell phone towers -- you can (usually) connect to any cell phone tower anywhere in order to make your call, because the companies that own and operate the towers have agreed to allow customers to make these connections, and the companies charge each other for the usage. And then your company passes the additional charge to you as a roaming fee.
posted by Cool Papa Bell at 11:10 AM on November 11

midnight skulker and asm have the answer- base load power (the amount of power they have to generate 24x7, and/or is fairly predictable) is cheap to run and profitable. Keep dumping coal or water or uranium into the hopper and off you go. But they have to have other sources of power for when demand rises above what the base load can handle, and to alleviate the peaks and valleys of the demand. Sure, when you turn your TV off, someone else's refrigerator probably kicks on and it evens out, but there are still peaks and valleys for their generation to navigate. When demand goes up and down, there are generators that watch the demand and spin up and down to match it. Those machines are more expensive, and the fuel (nat gas usually, sometimes even diesel) is more expensive.

Further, as asm points out, energy deregulation usually splits the utility into two components. The company that delivers the power, who owns and maintains all the wires and whatnot. This is usually the existing former monopoly. Then there are the generation companies, who produce the power and feed it into the grid. The producer has an incentive to run at 100% all the time, but a big incentive for demand to never go over what they can produce cheaply. So they (economically) want you to use as much as you can, to a point.

But the utility has no incentive (or nearly none) for you to use more. They'd prefer it if you used as little as possible so their wires and transformers don't break down as often.

(Pretty much exactly like the internet- your ISP wants you to use as little as possible, Google wants you to use all you want, as long as they don't run out of servers.)

(This deregulation is one of the things that created Enron, by the way. Because there are now a bunch of different companies producing electricity, a marketplace or trading floor opened up for it. The utility would try to buy the cheapest power they could to meet the demand. The producers wanted to sell theirs for the highest possible price. Enron sat in the middle, and soon they figured out that they could set up phony companies and raise the bidding, and thus their take. So they set up companies that would buy up all the cheap power, and then place it back onto the marketplace. Over and over again. So the price rose, and their take went through the roof, because they got a slice of each transaction. Then they started doing even more bad stuff and it all imploded.)

jstef- they do it the way cool papa bell notes. Picture it like a river with a bunch of tributaries and dams. The utility runs the dams, the producers are the tributaries, and the consumers are the lake it all flows into. The producers make enough so that their banks don't flood, and the utility adjusts the dams to make sure that what goes into the lake matches what the consumers are taking out of it.
posted by gjc at 11:35 AM on November 11

Seconding ASM. I'm not sure where you are, but California has decoupled utility profits to how much electricity they sell - it's a HUGE reason why we're the only state whose per capita energy use has remained stable for the last 2 decades or so. With decoupling, utilities can take a share of any energy savings they help their customers attain. Plus, building new power plants is very expensive.
posted by kookaburra at 12:36 PM on November 11

Unfortunately the robot made out meat is correct, you are probably paying a fee in terms of pennies added to your rate base for the privilege of receiving those color brochures.
posted by RobotVoodooPower at 1:43 PM on November 11

I never understood how this works in practice. There's not multiple transmission lines for each company on every block, are there? So companies are just forced to share infrastructure and pay each other for the use of the other company's plants and lines?

How is a company held accountable for dumping enough power into the grid to cover their customers' needs?

Electricity transmission and distribution is managed centrally by National Grid. Anyone may generate energy and feed it to the Grid. There are a few major players in the energy market (the big ones tend to be foreign (EU) owned) but it is possible to set-up as a micro-generator and sell your excess capacity to the Grid, too. Supply and demand is balanced and settled through these people. So, the transmission and distribution infrastructure is shared amongst providers but consumers have their choice of supplier. In theory this enhances competition and drives down prices. In practice, the bills always go up ;)

Back on topic, the upcoming trend across the EU is the move towards smart metering, which will give households real-time visibility of their energy consumption and spend, allowing a greater degree of control. Overall impact is expected to be a reduction in energy consumption -- good for the wallet and the environment.
posted by Lleyam at 2:20 PM on November 11

Smart metering is getting mixed results in Australia.

Historically, many Australian homes have been fitted with two meters: a peak meter that measures general household use, and a separate off-peak meter connected via a timer, measuring energy supplied overnight to water heaters. Off-peak electricity has historically been sold for about half peak electricity's price per kilowatt-hour.

Various Government incentives have been offered to get Australians to install roof-mounted solar photovoltaic arrays, and run them grid-interactive: that is, any excess power the array generates gets pushed back into the grid. As part of the installation process, households are generally required to replace their old pair of dumb meters with a single smart meter.

Because the smart meter doesn't have a separate timed circuit for off-peak use, many people have been noticing that their water heater elements have been drawing power 24/7 instead of operating only overnight, and that their total electricity bill has in fact risen after installing the PV panels.

Personally, I don't think smart meters are actually going to change people's consumption patterns much. What would help are smart appliances, coupled with real-time variation in the price of energy according to instantaneous demand.

If I could make money by installing a smart battery in my home that charged itself when power was cheap and pushed back onto the grid when power was expensive, why would I not do that?

If I could have an air conditioner that turned energy into frozen water when power was cheap and cooled my home by melting ice when power was expensive, why would I not take advantage of that?

And if everybody was doing that kind of thing, effectively implementing mass-produced though small-scale energy storage all over the grid, why would we still need "base-load" power generation?
posted by flabdablet at 5:51 PM on November 11

In Wisconsin, the Public Service Commission has a hand in a program called Focus on Energy that doles out rebates and tax credits to residential and business customers for installing energy-saving equipment. This was created by state law, and the utilities are required to promote it.
posted by dhartung at 6:31 PM on November 11

Kind of like when the hotel says: 'conserve energy and save the environment by using your towels again.' What they really mean: 'save us some money.'

My wife and I just spent some time at a hotel that actually gave you a $5 coupon each time you elected to not have housekeeping clean your room. Needless to say, our room was a mess but we received $15 in coupons.
posted by Deathalicious at 10:45 AM on November 12

Check out the concept of Least Cost Planning. It's been used in the energy field for at least 30 years.

The basic idea--as some have mentioned above--is there are lots of situations where it saves money (and thus, for the company, is more profitable) to encourage conservation than build new capacity.

Because energy companies are heavily regulated, in many cases the regulators require a look, not just at the individual company's profits in the short term, but at the total cost and benefits of the project in the long term, and even to society as a whole rather than simply to the bottom line of the energy company.

A search on the term Total Cost Accounting would be productive.
posted by flug at 9:24 AM on November 26