ORIGINAL REPORTING: Rates That Can Move Electricity Customers To New Energy (California)

Could rate design help California's struggle with flat demand? The commercial and industrial sector could be the front line for rate design experimentation

Herman K. Trabish, Dec. 27, 2017 (Utility Dive)

Editor’s note: This is not a sexy subject but it could be how New Energy triumphs in the marketplace.

With demand for electricity flat, utilities and regulators must cover the costs for delivering electricity as sales diminish. One solution they are testing is new rate design options for residential and commercial and industrial (C&I) consumers that add value by using customer load for grid services. California is leading these efforts. Its C&I sector makes up two-thirds of the state's power demand, which means the right rate design could unlock the potential for significant benefits for its grid. The California Public Utilities Commission is seeking to answer two overarching questions: What is the rate design utilities will support? And what will it take to get customer buy-in for that rate design?

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Four fundamental economic goals compose rate design, Severin Borenstein, an energy economist at the University of California at Berkeley said at a recent forum on rate design in California. The first is to motivate customers to use electricity only when “it is valued more than the full additional cost to society,” he said. That is called “economic efficiency of consumption.” Distributing costs fairly, based on “societal views of fairness” and enabling equal access to electricity are the second and third goals. And the fourth one allows power providers to recover all costs. Inefficient rates can result in higher power prices and unwanted outcomes. As the marginal cost of electricity goes up, demand for it should go down, according to economic theory. Where they cross is the efficient price of electricity. But, for most utilities, that efficient price yields a revenue shortfall and the potential for declining revenue because much of their distribution system costs do not drop with demand…click here for more

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