ARISEIA Energy Forum APS Residential Rate Design A Brief History and What s Next for Arizona? November 7, 2015 Leland Snook Director, Rates and Rate Strategy
Arizona Public Service Company Arizona s largest and longest-serving electric utility Customers: 1.2 million (89% residential) Service Territory: - 34,646 square miles - 11 of the 15 Arizona counties 2015 Peak Demand: 7,031 MW - All time high of 7,256 in July 2009 Generation Capacity: Over 6,400 MW of owned or leased capacity (~9,400 MW with long-term contracts) - Including 29.1% interest in Palo Verde Nuclear Generating Station, the largest in the U.S. Transmission & Distribution: 34,937 miles - Transmission: 5,958 miles - Distribution: 28,979 miles 2
APS s TOU & Demand Rate Evolution Mid 1970 s Residential use of central air conditioning (AC) flourishes in the Phoenix area begins to drive system peak demand Late 1970 s APS requests approval of a mandatory residential demand rate for any new home with central air conditioning - charges based on 1) the highest kw demand in a single hour; 2) kwh energy consumed; and 3) a basic service charge Early 1980 s APS implements inclining block and TOU rates and demand rate becomes voluntary Early 1990 s Almost all TOU Adoption is demand based Today Early 2000 s TOU Adoption exceeds 40% and demand adoption ebbs to just over 7% Over 11% (117,000) of residential customers are on a demand rate and TOU adoption is approximately 53% 3
100% APS Historic Customer Count Percentage Standard vs. Time of Use 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Standard TOU - Energy TOU - Demand 4
How did APS reach 53% TOU and 11% demand rate adoption? Point of Sale Leverage the new service process to educate customers on their rate options and the best rate fit Technology Enhancements Initially, residential demand rates were marketed with load control technology that would limit peak demand, for example, by limiting an electric clothes dryer or electric water heater from turning on at the same time as an air conditioning unit Rate Calculator and Customer Lifestyle Average monthly consumption is very different for each rate family: Inclining Block Rate = 700 kwh Energy Only TOU = 1,300 kwh Demand Based TOU = 2,000 kwh 5
Today s Residential TOU-Demand Rate Percent of Monthly Bill Service Charge ($ per Month) All Service Amps $ 16.91 35.0% Demand Charges ($ per kw) 1 Summer $ 13.50 Winter $ 9.30 58.0% Energy Charges ($ per kwh) Peak 2 Off Peak Summer 0.08867 0.04417 Winter 0.05747 0.04107 7.0% Demand Charge Service Charge Energy Charge 1. Demand is based on the highest one-hour kw read during on-peak hours in a billing month. 2. On peak hours are 12 noon to 7 pm, excluding weekends and holidays. 6
Today s Residential TOU-Energy Rate Percent of Monthly Bill 10.0% Service Charge ($ per Month) All Service Amps $ 16.91 Energy Charges ($ per kwh) Peak 1 Off Peak Summer 0.24477 0.06118 Winter 0.19847 0.06116 90.0% 1. On peak hours are 12 noon to 7 pm, excluding weekends and holidays. Service Charge Energy Charge 7
APS TOU & demand lessons learned Should be based on cost Price signals drive behavior - poor price signals will potentially lead to bad results Designs should be adaptable and flexible Update peak periods as peaks shift over time and update price signals as market costs evolve Customers respond to price signals TOU energy customers reduce their peak by 5% on average TOU Demand customers further reduce their peak by 4-5% Demand rates have become more essential Better price signals to customers so they can make informed decisions Technology removes barriers Today s metering devices allow us to more precisely match cost recovery with the costs to provide service 8
Peak Day Load Shapes TOU-Demand, TOU-Energy kw per hour of day, July peak day 12.00 10.00 kw 8.00 6.00 On-peak hours 4.00 TOU-D TOU-E 2.00 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour of Day 9
Cost of Service Results for A Typical Solar Customer $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 $36 Costs Saved due to Solar $67 Fixed Costs Unpaid Each Month $51 Contribution to Fixed Costs by Average Solar Customer $118 How Much it Costs to Serve a Solar Customer After Solar Cost Savings APS had over 27,000 solar customers on energy rates and almost 1,200 on demand rates in 2014 Study includes both the costs and the benefits of rooftop solar Solar customers were only allocated cost for the portion of system they used Study used actual 2014 load and solar production data to analyze how solar systems produced at the time of system and class peaks APS System peaks occurred from 5 to 6 pm, but system peak is broad and persists from 3 to 10 pm Residential customers peak around 7 pm, with a broad class peak that persists from 3 to 10 pm Solar generation energy credit at actual fuel cost for 100% of solar production Solar generation capacity credit based on system and class peaks ~ residential solar offset about 19% of peak demand Transmission allocation/savings based on system peak Distribution allocation/savings based on class peaks 10
On August 15, 2015 the temperature in Phoenix reached 115 degrees. APS customers hit their peak demand, using more than 7,300 megawatts of electricity at approximately 5 PM. How did rooftop solar perform? MW 500 450 400 350 300 250 200 150 100 50 0 8000 6,952 6,315 7,362 7000 6000 5000 4000 3000 166 75 2000 1000 0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour Ending Rooftop Output System Load At noon, when customer demand is still increasing, rooftop solar peaks and begins to decline. By 5 PM, when customer demand peaked, rooftop units had declined to only 38% of their power. At 7 PM, rooftop output dropped to zero, but customers still needed 6,900 MW of power. 11
140% APS Customer Classes % of Cost to Serve 120% 116% 100% 99% 99% 91% 87% 91% 87% 86% 80% 72% 60% 40% 36% 20% 0% Total Company ACC Jurisdiction All Other Total General Service Total Residential Residential Energy Standard Residential Energy TOU Residential Demand TOU Residential Energy Solar Residential Demand Solar 12
Where is APS headed in residential rate design? The evolving grid with two-way power flows is driving the need for updated pricing structures Today s metering technology has enabled a new level of sophisticated rate offerings Residential demand charges can work APS started in 1981 and today, over 117,000 customers have voluntarily selected the rate Residential demand charges can be understood by residential customers APS helps customers select the best rate at the time of new service or through website rate comparison tool Residential demand charges can reduce a customer s peak demand and result in a win for both the customer and the utility Technology can help simplify the customer experience and improve results Such as smart thermostats, load control technology and battery storage 13
Where is APS headed in residential rate design? APS wants to provide meaningful rate choices and will streamline its residential rate offerings Replace current offerings with a new suite of offerings rather than freezing current rate plans Need to be thoughtful in developing new rates for a relatively smooth transition APS is evaluating kw demand rates broadly for residential customers to modernize residential rate design Better align rate offerings with costs and provide better price signals to customers Demand measured over the on-peak period, even for non-tou rates Update on-peak and off-peak time periods Update energy pricing Inclining block rates - less tiers and more modest incline TOU rates - reduced on-peak to off-peak ratio New suite of rates will likely include: Inclining block option with demand One or more TOU options with demand A transitional extra-small customer rate without demand Need thoughtful consideration of grandfathering for existing solar customers 14
Where is APS headed in residential rate design how would demand rates affect solar adoption? Demand rates would create opportunities Shift the focus from energy savings to a combination of demand and energy savings Expand the opportunities for suites of solutions, resulting in a more sustainable energy future Demand rates would drive a more holistic approach to behind-themeter technology (BTM) and energy efficiency Depending on customer lifestyle, it may require additional strategies to manage energy and demand (e.g. pairing pool pump run time with solar production) Load management (technology to manage when energy is used by major appliances and air conditioning) Pre-cooling strategy to manage early evening peak demand (smart thermostats) Demand rates would stimulate other innovative BTM technology Energy storage Smart appliances Apps that manage the home in tandem with meaningful price signals 15