A recent article in The Wall Street Journal tells of the effect that solar energy use is having on the nation’s power grid. The issue is that the power grid maintenance is paid for by fees on power use. As more people are using solar panels and otherwise reducing the amount of energy that they consume from the power companies, the per kilowatt-hour charges that the power companies are collecting are decreasing to the point where they may not be able to maintain the power grid.
Before you say,”Good riddance, who needs the power grid if we have solar energy,” realize that the only way that solar panels are viable is if they are attached to the power grid. When the sun is shining, you produce more than you consume and sell power to the grid. When it is not, you pull power from the grid. Without being attached to the grid, consumers with solar panels would need to have big batteries that they would charge and discharge. Anyone who has ever dealt with batteries can tell you what an expensive maintenance headache that is.
Power companies, looking for a way to get the money needed while the amount of power use continues to decline, may first try to raise rates per kilowatt-hour to make up for the lost revenue due to those not consuming power. Because those using solar power or simply using less power are still using the grid (or at least the availability of the grid), but are using fewer kilowatt-hours, those who are left end up paying more since they are picking up their share of the grid maintenance plus that of those who are not paying. This makes some of those who are left start to conserve power or buy solar panels, which causes the prices to go up still more for those who are left. This results in a death spiral.
To avoid this, power companies are looking to charge a flat fee for the maintenance of the grid, plus a cost per kilowatt-hour. For example, everyone would pay $60 per month, plus a lower charge per kilowatt-hour than they were paying before. This has those who installed solar panels upset because it would take them a lot longer to get enough savings from their power bills to make up for the cost of the solar panels.
And this is the issue with conservation. There are fixed costs such as buildings and manpower that a utility must bear. If people use less of the utility, the utility must raise the cost per unit sold or charge a base fee to pay for these fixed costs. This means that everyone ends up paying more for less. People have also discovered this when trying to conserve water. At first their water bill went down as they used less water, but if enough people cut their water use, the utility raised rates to pay for their fixed costs. You now have a brown lawn but are paying just as much as you were when you had a green lawn because you were using a lot more water but paying less per gallon. Really the best thing for consumers is to use a lot of power or water since that makes their standard of living go up. You just need a way to make power that is relatively limitless and have enough rain falling to cover usage.
Another area seeing this issue is the national highways. For years the maintenance of the highways has been done through a gas tax. This made sense because the more gas you bought, the more you drove and used the highways, and therefore the bigger the portion of the maintenance costs you should pay. In recent years, however, people have started to drive hybrid cars, which use a lot less gas, and coal powered cars (plug-in electric cars that use electricity, which is primarily generated by coal, are therefore coal-powered). This means that less money is being collected for road maintenance.
This case is even worse because at least in the case of the electrical and water utility, people were using less electricity and water so the utility didn’t need to spend as much on fuel to generate electricity and power to clean and pump water. With hybrid and coal powered cars, people are still using the highways just as much (more, in fact, in the case of hybrids since they are paying less for gas and therefore driving more), but they are not paying for that use. For this reason, now that we have seen a dip in gasoline prices, politicians want to raise the gas taxes so that they can pay for highway maintenance. Again, those with normal cars would be subsidizing those who were wealthy enough to buy hybrid cars or foolish enough to buy electric cars.
Clearly what would make sense in this case would be for the owners of hybrid cars and electric vehicles to pay an extra tax, either a flat yearly rate or based on the mileage driven, to make up for the money they are not paying to maintain the roads. An alternative would be to simply go from a gas tax to a toll on all roads, but this would be very expensive since we’d either need to hire lots of toll collectors or install all sorts of automated systems to detect use. It would probably be easier to simply charge a flat vehicle licensing fee, although that would be very difficult for a lot of people to pay since they would need to pay it all at once instead of once per fill-up as it is now collected. Few people could afford to pay a couple of thousand dollars each year at vehicle registration time It looks like the tax on electric and hybrid vehicles is the easiest option that affects the fewest number of people.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
