Why Tiered Rates
In the recently concluded Idaho Power rate case (IPC-E-08-10, Order No. 30722), the Commission approved a tiered-rate structure, which assesses customers higher rates as consumption increases.
Some customers, especially those residing in all-electric homes, question the fairness of the new rate structure. Some are confused as to how tiered-rates work. We’ve prepared a brief Question and Answer document below that we hope will help. There are two very important items to understand about tiered rates:
1) You don’t pay the higher rate on all your use. You pay one rate for use up to 800 kWh per month, a slightly higher rate for use from 801 kWh up to 2000 kWh, and the highest rate for use above 2000 kWh. For example, if your total monthly consumption is 2050 kWh, only the last 50 kWh is priced at the highest rate. Your first 800 kWh will be billed at the lowest rate, which is actually lower than the rate you paid before Feb. 1. Then, your next 1200 kWh will be billed at the second-tier rate. Only your use of more than 2000 kWh is billed at the highest tier.
2) While it’s true you will pay more the more you consume, we believe that all customers will save in the long-run. The reduced use of electricity that will happen throughout Idaho Power's territory will eventually mean lower costs for all customers in the future, even those in all-electric homes. When Idaho Power cannot produce enough electricity to serve customers with its lower-cost hydro and coal plants, it must either start up its more expensive gas-fired turbines or buy electricity on the market. This results in higher rates for all customers. Further, less consumption will delay the need for Idaho Power to build costly new generating facilities. That also saves all customers considerable expense.
Tiered rates seek to lower overall energy use, thereby delaying the need for highly capital-intensive projects to increase baseload facilities.
Here are some frequently asked questions.
- How does a 3-tier rate system work?
- A tiered-rate structure charges different rates per kWh depending on how much energy you use. In this case, the first 800 kWh of energy is priced at the lowest rate. The next 1200 kWh are priced a bit more, and energy over 2000 kWh has the highest rate.
- If you would like to see more on how your bill will be calculated under the 3-tier design, there is an interactive table (Excel format) CLICK HERE in which you can put in your total energy consumption for the month and see a line by line billing example.
- Why did the Commission want to institute tiered rates?
- There are many reasons why tiered rates are instituted, but two main reasons are to reflect the higher cost to produce greater amounts of electricity and encourage efficient energy use by customers.
- How do tiered rates reflect higher costs to produce electricity?
- In the short term, if Idaho Power cannot produce enough electricity to serve customers with its low-cost hydro and coal plants, it must either run its expensive gas-fired turbines or buy electricity on the market. In this case, the costs to provide that additional power can be rather expensive.
- Looking at it from a longer perspective, if people respond to the price signal in the higher tier blocks, then Idaho Power may be able to prolong having to make investments in new generation facilities, which saves everyone money.
- How do tiered rates encourage efficient energy use by customers?