ORIGINAL REPORTING: Rate Design As A Solution

2022 Outlook: A new recognition is coming of rate design's critical role in the energy transition; New rate design price signals target reducing customer bills and easing system peak demand.

Herman K. Trabish, January 19, 2022 (Utility Dive)

Editor’s note: This story is an object lesson for all those who think they know what is coming. Most of the big changes predicted in this piece have been waylaid by the unexpected impacts of the Ukraine war and its attendant inflation, supply chain shortages, and the energy crisis it is brought to Europe.

New regulations and legislation in 2022 will continue seeking rate designs with price signals that shift customer electricity usage to more effectively benefit both customers and the power system, utility and other analysts said.

The growing roles of variable generation in the power supply and distributed energy resources (DER) in meeting demand make effective price signals to customers critical, the analysts agreed. The emerging consensus is toward rates with signals that will reduce costly system demand peaks and lower customer bills, recognize the value of DER in doing that, and increase access to new technologies and cost savings.

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Utility and regulatory leaders have realized new power system dynamics require “prices to be smarter,” Brattle Group Principal Sanem Sergici said. They are increasingly aware that effective price signals to customers are necessary “for utilities serious about load flexibility, decarbonization, electrification and reliability.”

Similar new multi-part rate designs approved in last year’s settlements with clean energy advocates for Duke Energy in North and South Carolina typify that realization. “The power system is changing dramatically, but traditional rate design is limited to balancing historic and future cost recovery,” Duke Energy Vice President, Rate Design and Strategic Solutions, Lon Huber said. “These new designs resolve that tension by addressing system cost to serve but offering dynamic incentives for emerging technologies that meet future system needs like peak demand or reliability.”

Beyond policy work on rate design objectives, there are new rate design implementations, and they are leading to better insights into the value of price signals for utilities and customers, the utility and independent analysts said. Many of the resulting new proposals about rate design may shape DER and smart technology uses toward a cleaner, more affordable, more reliable power system, the analysts added.

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Beyond routine rate cases, there were over 150 rate design policy initiatives in 2021 addressing new time-of-use (TOU) or time-varying rate (TVR) structures, or DER and electric vehicle charging, according to Autumn Proudlove, North Carolina Clean Energy Technology Center (NCCETC) senior policy program director. Innovative rate designs are part of policymakers’ efforts to keep up with technology as the U.S. power system transitions into “an interconnected web” of DER-owning customers, NCCETC’s Q3 2021 grid modernization policy update said.

“TOU rate designs are being developed that give customers price signals to adopt new technologies that serve changing system demand,” Proudlove said. The rate designs may also include an incentive, like a rebate for a new technology, that saves the utility “more than the cost of the rebate” if the customer makes the investment, she added. Managing electric vehicle charging with TOU rates that encourage off-peak charging is an emerging national trend, she added. Some states, like Hawaii and Minnesota, have proposed three-part TOU designs with on-peak and off-peak periods and a super off-peak very low rate after midnight, or a very high critical peak rate for charging during reliability challenges… click here for more

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