Category: Rate Design and Valuing Distributed Energy Resources
Volumetric rates are the most prevalent rate structure in the utility industry in the United States. Under the rapid emergence of Behind-the-Meter (BTM) technologies such as rooftop solar, storage, electric vehicles, etc., this rate structure is widely found to be incapable of supporting and sustaining the power and utility business model. Many studies have suggested that in absence of rapid electric rate reform efforts, volumetric rates will lead to inaccurate compensation of technologies, unfair cost shifts between electric customers, and could create complicated grid challenges and reliability issues.
Three-part rates—rates with demand charges—have been identified as one of the most promising option to overcome these challenges. However, there are concerns regarding the impact on customer bill and costumer acceptability of these rates.
In this study we have evaluated the impact of three-part electric rates on (1) customer bills and (2) low-income customers. In addition, we evaluate the (3) competitiveness of various emerging technologies under three-part rates.
To understand the impact of three-part rates, we designed multiple three-part rate constructs with varying level of energy, demand, and fixed charges based on the projected utility cost structure in 2030. To further understand the implications of three-part rates, we are testing these rates against multiple criteria.
First, we are studying the impact of these rates on ~2 million residential customer bills with smart electric meters to understand (1) how significant these bill impacts are, and (2) which customer groups will be most/least affected by these rates.
Second, given the importance of impact on low-income customers for any rate proposal, we isolated the low-income customers from the rest of population to thoroughly evaluate the impact of three-part rates on this group.
Third, we are going to select a representative sample of residential customers, identified based on energy use, monthly peak demand, and their daily energy use profile, to study the competitiveness of various technology scenarios under these proposed rates.
Currently there are dozens of active rate cases around the US focused on finding promising rate structures. As the utility industry and emerging technology advocates explore the entire set of rate design options, we expect studies like this to lay the foundation for future decisions and inform the rapidly evolving landscape of rate design. Based on our preliminary findings; we expect this study to be informative for utility companies, solar and storage developers, and energy policy experts.
Mohammad Golrokhian– Senior Business Analyst, DTE Energy