Alliance to Save Energy proposes changes in electricity pricing structures
The Alliance to Save Energy (ASE) published a white paper this week that concludes modernizing the electric grid will require changes in the pricing structures electric utilities use, including moving beyond a traditional two-part rate.
The paper, Forging a Path to the Modern Grid: Energy-Efficient Opportunities in Utility Rate Design, is the product of the Rate Design Initiative, a two-year effort led by ASE and involving representatives from utilities, technology companies, regulatory experts, environmental groups, consumer advocates and other industry leaders.
The initiative sought to identify themes and opportunities related to rate designs that incentivize energy efficiency and other environmental and social objectives, while also enabling adequate cost recovery for utilities.
“Developing utility rates that are fair to all stakeholders is a perennial challenge, but the dramatic shifts happening in our power systems are forcing us to think more creatively,” Natasha Vidangos, director for research at ASE, said. “The old-fashioned cost recovery and rate design models we’ve traditionally used simply don’t match tomorrow’s needs. As an organization that works closely with the wide spectrum of utility sector stakeholders, we took this on to try to identify areas of agreement, opportunity and lessons learned. In rate design, there are rarely simple solutions, but the potential benefits are extraordinary if we get it right.”
The white paper recommends that analyses and pilot programs be used to gain insight into how customers will respond to rate changes as well as that rate design policy be tested against energy efficiency, environmental and societal benefits.
ASE also suggests that customer-education programs precede the deployment of new rate designs. A jurisdiction that doesn’t have smart meters, the paper says, should explore their deployment and consider rate structures that incorporate a customer charge and a Time of Use (TOU) volumetric rate to provide clearer price signals to users.
Where smart meters are fully deployed, ASE recommended a three-part rate design that includes a customer charge, a demand charge and a time-varying volumetric charge, which would require careful customization to local context as well as extensive piloting and consumer education programs.
“Changes to traditional ratemaking procedures, as suggested by this report, are absolutely vital to ensuring that emerging efficiency technologies can work as effectively as possible, saving both consumers and utilities money and enabling a more modern grid,” Bruce Edelston, vice president for energy policy at Southern Company and an initiative participant, said. “Of course each state will need to adapt the proposed rate design to its individual circumstances, but the paper concludes that incorporating demand charges into residential rates is an important consideration in our nation’s continuing efforts to use energy more efficiently. We hope the dialogue among all of the disparate groups that contributed to this report continues on these critical issues.”
