Policy makers and utility company executives have put out a call for more sophisticated rate designs to address the growing disconnect between the evolving grid and traditional residential and commercial rate structures. With the growing adoption of Distributed Energy Resources (DERs), regulators and utility companies are faced with taking a more creative approach to electricity pricing.
Customers who install, for example, roof-top solar panels to serve a portion or all of their electric usage become “partial requirements customers.” What is not fully appreciated is that those same customers, by remaining connected to the grid to meet their additional energy needs, continue to be served by the same generation, transmission, distribution, and customer service resources as other customers. Traditional pricing structures, with their “net metering” provisions, do not fully account for the cost of serving partial requirements customers who choose to deploy DERs. Proponents of rate design changes contend that serving customers who have deployed DERs under current rates shifts the cost of service to other customers and is unreasonably discriminatory.
In a report published by the Rocky Mountain Institute, aligning the financial interests of both customers and utility customers will require a transition from volumetric block rates to more granular pricing. Pricing adjustments that more accurately account for the costs and benefits of DERs must be considered. Several utility executives have also noted that because of absent rate design changes, non-DER customers will bear a larger percentage of the overall cost to serve in the future.
Rocky Mountain Institute, “Rate Design for the Distribution Edge: Electricity Pricing for a Distributed Resource Future”: http://www.rmi.org/elab_rate_design
SNL News Article: http://www.snl.com/InteractiveX/article.aspx?ID=28990344&KPLT=4
SNL News Article: http://www.snl.com/InteractiveX/article.aspx?ID=28978605
This report is part of the Regulatory Minute series. To view all featured Minutes, please click here.
Sussex Economic Advisors is now part of ScottMadden. We invite you to learn more about our expanded firm. Please use the Contact Us form to request additional information.