Demand Charges: A Less Equitable and Less Effective Rate Design Than TOU Energy Rates. Jim Lazar Senior Advisor The Regulatory Assistance Project

Transcription

1 May 15, 2018 Demand Charges: A Less Equitable and Less Effective Rate Design Than TOU Energy Rates Jim Lazar Senior Advisor The Regulatory Assistance Project (RAP) Olympia, Washington jlazar@raponline.org United States raponline.org

2 About Jim Lazar First Rate Case: 1974 Expert in > 100 dockets RAP Senior Advisor Author: Electricity Regulation in the US: A Guide Smart Rate Design For A Smart Future Teaching the Duck to Fly 2

3 Genesis of Utility Regulation 3

4 Technologies Affect What is Possible and Necessary Smart Grid Makes Better Rate Design Possible DERs make Better Rate Designs Necessary: Wind and Solar Storage Technologies EVs 4

5 Problems & Solutions Problem #1: Most rates do not align customer rates with system costs Problem #2: Technological change and the emergence of DERs make improvement necessary Solution #1: Non-Coincident Peak Demand Charges are only appropriate for site infrastructure costs Solution #2: Time-of-Use Rate Design reflects system costs better than coincident peak demand charges 5

6 Illustrative So-Called Coincident Peak Demand Charge Rate Summer Winter Customer Charge $ $ Demand: 4 PM - 8 PM $/kw $ $ - Energy Charge: $ 0.08 $ hours/day x 30 days/month x 4 months = 480 hours. 6

7 Rate design should make the choices the customer makes to minimize their own bill consistent with the choices they would make to minimize system costs.

8 Demand Charges: History Commercial demand charges were devised when we could not do interval metering. Customer maximum demand was a proxy for contribution to peak. 8

9 Demand Charges: History When all power sources had about the same cost, this was a reasonable way to assign capacity-related costs. 9

10 We Do Things Differently Now Baseload Thermal Baseload Renewable Peaking Thermal Variable Renewable Demand Response Central Batteries Distributed Batteries Regulatory Assistance Project (RAP) 10

11 We Can Do Better Now 11

12 RAP has described how technological change and the emergence of DERs affect residential rate design. 12

13 Smart Rate Design Principles Principle #1: A customer should be allowed to connect to the grid for no more than the cost of connecting to the grid. Principle #2: Customers should pay for power supply and the grid in proportion to how much they use, and when they use it. Principle #3: Customers delivering power to the grid should receive full and fair value - no more and no less. 13

14 Report prepared at the request of the California PUC 14

15 Bonbright Principles Still Useful 1. Fair 2. Simple 3. Unambiguous 4. Revenue adequacy 5. Proxy for what competition would provide 15

16 Costs to Connect to the Grid Regulatory Assistance Project (RAP) 16

17 Costs that Vary with System TOU Loads: Generation and Bulk Transmission Regulatory Assistance Project (RAP) 17

18 Costs that Vary with Local TOU Loads: Network Transmission and Distribution Regulatory Assistance Project (RAP) 18

19 Diversity 19

20 The System Peak Is What Matters None of the customers peak at the time of the system peak 20

21 High School Stadium Lighting: The Caricature of the Problem CP: None NCP: ~2% Load factor 21

22 Lower Load-Factor Customers Can Share Capacity Morning loads Evening loads 24/7 loads Both CP and NCP rates unfair to shared demand customers 22

23 Load Diversity Between School and Church Hours TOU Period Church School Combined Weekday 4-8 PM On-Peak Weekday 9-4 Mid-Peak Nights Off-Peak Weekend Day Off-Peak Church and School Demands Are Low During System Peak 23

24 Residential Diversity Issues Early and late risers Early and late returners Customer peaks system peaks Apartments 24

25 Individual Load Shapes Vary Customer 3: 38% Load Factor Customer 3 25

26 Utility Sees the Combined Load of Multiple Customers All Three Customers Served Through One Transformer 26

27 Apartments Few people / meter Many customers / transformer Electric water heaters common Utility sees only the combined load 27

28 Apartments: Particularly Illogical Data: 26 Unit Apartment in Los Angeles Area Individual Demand Total Grouped Demand Total The Utility Only Serves the Combined Load 28

29 Water Heaters 29

30 Electric Water Heaters: Particularly Illogical Application 30

31 How Should A Water Heater Be Controlled? To levelize the individual customer demand? Or To shape demand into lowcost hours? 31

32 The Transition From Costs To Rates 32

33 Utility Costs Taxes Return Other Operating Fuel Labor Depreciation Interest Total 33

34 Some are Fixed Most are Variable Taxes Return Other Operating Fuel Labor Depreciation Interest Total Fixed 34

35 As Variable Costs Are Driven From The System, This Distinction Becomes Irrelevant Regulatory Assistance Project (RAP) 35

36 Looking at Costs by Function 36

37 Building a Cost-Based TOU Rate Critical Peak Rate On-Peak Rate Mid-Peak Rate Off-Peak Rate DR $0.75 Peaking Distribution $ 0.22 Peaking Generation $ 0.18 Distribution Augmentation for Mid-Peak $ 0.14 Transmission Augmentation for Mid-Peak $ 0.12 Mid-Merit Generation $ 0.10 Distribution Backbone $ 0.08 Transmission Backbone $ 0.06 Baseload Generation $ Hour of Day $/kwh 37

38 Result: Smart Rates Connect To Grid Customer Charge $/Month $ 4.00 Site Infrastructure $/kw $ 1.00 Usage Off-Peak $/kwh $ 0.08 Mid-Peak $/kwh $ 0.14 On-Peak $/kwh $ 0.22 Critical $/kwh $

39 Cost-Reflective Standard Tariff: Electricite de France 39

40 Cost-Reflective Smart Rate Electricite de France Tempo Rate Circuit Breaker Rating (kva) Monthly Subscription $ Rate Period Rate 9 $ Low-Day Off-Peak $ $ Low-Day On-Peak $ $ Mid-Day Off-Peak $ $ Mid-Day On-Peak $ $ Critical Day Off-Peak $ $ Critical Day On-Peak $

41 Cost-Reflective Smart Rate Electricite de France Tempo Rate Circuit Breaker Rating (kva) Monthly Subscription $ Rate Period Rate 9 $ Low-Day Off-Peak $ $ Low-Day On-Peak $ $ Mid-Day Off-Peak $ $ Mid-Day On-Peak $ $ Critical Day Off-Peak $ $ Critical Day On-Peak $

42 TOU Rates Produce Big Drops in Peak Demand Technology Can Help 42

43 Incentive with Smart Rate Design System Need Minimize load at time of critical peak Shift load to off-peak hours Avoid unnecessary site infrastructure Improve utilization of distribution system Customer Incentive Minimize load at time of critical peak Shift load to off-peak hours Limit size of site infrastructure Improve utilization of distribution system 43

44 Rate design should make the choices the customer makes to minimize their own bill consistent with the choices they would make to minimize system costs.

45 How does this work for a solar customer in Hawaii? 120 Monthly kwh Usage By Hour kwh Solar 700 kwh Usage Hour of the Day Solar Production Customer Usage

46 Non-Solar Customer on Standard Rate kwh Used Rate Amount Customer Charge $ 9.00 First 350 kwh 350 $ $ Next 350 kwh 350 $ $ Over 700 kwh $ Total 700 $

47 Solar Customer Bill with Traditional Net Metering kwh Used kwh Solar Net kwh Rate Amount Customer Charge $ 9.00 First 350 kwh $ $ - Next 350 kwh $ $ - Over 700 kwh $ Total $

48 Hawaiian Electric TOU Rate 48

49 Non-Solar Customer Bill w/tou kwh Rate Amount Customer Charge $ 9.00 Off-Peak 227 $ $ Mid-Peak 267 $ $ On-Peak 206 $ $ Total 700 $

50 Solar Customer Bill with Net-Metering by TOU Period kwh Used Customer Charge Off-Peak 227 Mid-Peak 267 On-Peak 206 kwh Solar Net kwh Rate Amount $ 9.00 $ $ (75.81) $ $ $ $ Total $

51 Genesis of Utility Regulation 51

52 How Do Competitive Industries Recover Fixed Costs? 52

53 We Pay for Other Grids in Volumetric Prices 53

54 And They Are Happy To Have Our Business 54

55 NARUC 1949 Rates Manual Criteria Garfield and Lovejoy Criteria CP Demand Charge NCP Demand Charge TOU Energy Charge All customers should contribute to the recovery of capacity costs N Y Y The longer the period of time that customers pre-empt the use of capacity, the more they should pay for the use of that capacity N N Y Any service making exclusive use of capacity should be assigned 100% of the relevant cost; Y N Y The allocation of capacity costs should change gradually with changes in the pattern of usage; N N Y Allocation of costs to one class should not be affected by how remaining costs are allocated to other classes; N N Y More demand costs should be allocated to usage onpeak than off-peak; Y N Y Interruptible service should be allocated less capacity costs, but still contribute something; Y N Y 55

56 NARUC 1949 Rates Manual Criteria Garfield and Lovejoy Criteria CP Demand Charge NCP Demand Charge TOU Energy Charge All customers should contribute to the recovery of capacity costs N Y Y The longer the period of time that customers pre-empt the use of capacity, the more they should pay for the use of that capacity N N Y Any service making exclusive use of capacity should be assigned 100% of the relevant cost; Y N Y The allocation of capacity costs should change gradually with changes in the pattern of usage; N N Y Allocation of costs to one class should not be affected by how remaining costs are allocated to other classes; N N Y More demand costs should be allocated to usage onpeak than off-peak; Y N Y Interruptible service should be allocated less capacity costs, but still contribute something; Y N Y 56

57 Rate design should make the choices the customer makes to minimize their own bill consistent with the choices they would make to minimize system costs.

58 About RAP The is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future. Learn more about our work at raponline.org Jim Lazar Senior Advisor The Olympia, Washington United States jlazar@raponline.org raponline.org