Lincoln’s barely spinning the meter when it comes to growing peak demand for electricity and electric sales, even as the city steadily grows and its population relies on more electronic gadgets.
Lincoln Electric System says customer use patterns have fundamentally shifted, forcing the utility to adjust its growth projections and to shift how it charges customers.
LES, in adjusting this year to the changing trends, dialed back already modest growth forecasts for both peak demand and future energy sales.
“As an industry, a lot of us missed this dramatic drop in demand growth," LES Vice President of Power Supply Jason Fortik said during a recent interview. "It wasn’t just an LES thing…
“As the utility industry, we’re out incenting people to be more efficient and place less demand on our system. I suppose we shouldn’t be surprised when it actually starts to occur.”
Drop in demand
Demand is expected to remain flat for the next five years, LES said in a report to credit rating agencies earlier this year. That might come as a surprise to those who notice new housing and commercial buildings popping up across Lincoln. In the past decade, the utility’s customer base has grown by 10 percent, going from 124,600 in 2006 to nearly 136,700 this year.
But hidden in those new homes and buildings are updated construction codes aimed at efficiency, old houses are being weatherized, and families’ biggest power-using appliances -- air conditioners, refrigerators, heat pumps -- are being replaced with newer models that use less electricity.
A typical Lincoln household’s average monthly electric use peaked in 2010 at 906 kilowatt hours. By last year, it had declined to 829 kwh.
Meanwhile, more customers are making their own electricity by installing solar panels. It’s a trend LES closely monitors and has encouraged.
Fixed rate increasing
Including all customers, the small growth rate that LES expects to see is on par for the industry, said two analysts who follow the utility, Chris Hessenthaler, senior director at Fitch Ratings, and Jeff Panger, a director at Standard & Poors.
LES remains a low-risk bet for investors looking to purchase bonds due to its comparatively low electricity rates, which gives it room to respond to shifting use patterns, they said.
“Utilities are finally coming around to the notion that the days of more robust growth are just not what’s happening right now,” Hessenthaler said.
“The trend, in respect to Lincoln, is one that is entirely applicable to the power sector in general through conservation efforts, technology, change in behavior. We are seeing demand either stagnate or even decline in some places. It’s not uncommon at all.”
Panger said the credit rating agencies will continue to watch LES and the electric industry to see how they weather the situation.
Currently, officials estimate that 75 percent of the cost associated with producing and providing electricity includes fixed costs -- like power lines and salaries -- but only 6 percent of those costs are collected through a fixed charge paid by customers.
LES, like many electric utilities, plans to gradually increase the fixed amount customers pay each month and decrease the rate it charges for each kwh used.
The shift is revenue neutral for LES. But for customers, it means they’ll save less money by turning off lights and buying more efficient appliances.
LES started with a modest shift this year, increasing its fixed residential rate from $11.15 to $13.40 a month. The utility has said it plans to continue shifting costs, but has not offered details of how far the shift will go or at what speed.
Consumer watchdogs and environmental advocates have criticized the billing shift saying it hurts low energy users, many of whom are cash strapped, and that it could harm efforts to reduce carbon emissions because people will have less incentive to turn off their lights and computers when they leave the room.
It also makes the installation of end-user generation, like solar panels, less attractive because people will be saving less money and it will take longer to see a return on their investment.
Adjusting the projections
LES recently revised its projected energy sales growth through 2020 down from an already modest 0.84 percent to 0.78 percent.
In terms of peak demand -- the time when customers are using the most energy at once -- LES this year revised its 20-year growth forecast from 1.3 percent down to 0.6 percent.
At the same time, many electric utilities across the country are adjusting growth projections that were too ambitious.
In a recent annual report, the Nebraska Power Association dropped its statewide peak demand forecasts from growth of 0.75 percent to 0.29 percent through 2035.
Nebraska Public Power District lowered its peak demand growth projection from 0.5 percent to 0.1 percent, and Omaha Public Power District went from 0.9 percent growth to expecting a 0.3 percent decline.
Those projections are important because if the utility is not equipped to meet peak demand, the lights go out, but it doesn’t have to generate that much electricity around the clock. People use much less power in the middle of the night, for example, than they do at 2 p.m. on a summer day when air conditioners and computers are humming. That means utilities can idle older, often more expensive, generators when they’re not needed.
If demand is growing, utilities have two main ways to meet the need -- build up to generate more electricity or incentivize customers to use less.
LES launched its Sustainable Energy Program in 2009, offering financial incentives to help reduce summer peak demand. The goal was to avoid having to build a new power plant, and the utility offered its customers a variety of programs, including help with sealing and insulating homes, buying high efficiency heat pumps and air conditioning units, recycling old appliances, and replacing commercial and industrial lights.
And it worked.
“Our resource mix doesn’t need to have anything done to it to meet our capacity requirements for a very long time, which for the customers that is a good thing,” LES's Fortik said.
“That doesn’t mean we’re going to be stagnant here. We’re going to keep looking at new technologies and what is happening in the sustainable energy front and the renewable sources front.”
Statewide, Nebraska has plenty of power generation to serve its residents through 2035, although new environmental restrictions could force the closure of older fossil fuel run generators.
More changes ahead
Power use continues to change with technology.
America’s power usage could be on its way to another metamorphosis similar to the one that happened in the 1970s with the advent of the air conditioning, said Mike Hyland, Senior Vice President of Engineering Services for the American Public Power Association.
Advances in batteries and solar power could let homeowners make and store all their own electricity while the electric car, which would charge as their owners sleep, has the potential to create a whole new night-time peak demand.
With power grids getting smarter, Hyland said, utilities someday could begin to dramatically change the way they charge customers based on use. Lights that create a constant predictable demand could be charged at one rate while sump pump motors that cause demand spikes could be charged at a higher rate.