Rate Design: Basics and What s Possible

Transcription

1 Rate Design: Basics and What s Possible Northeast Regional Meeting National Association of State Energy Officials April 12, 2018

2 Synapse Energy Economics Founded in 1996 by CEO Bruce Biewald Based in Cambridge, MA Leader for public interest and government clients in providing rigorous analysis of the electric power sector Staff includes experts in energy and environmental economics and environmental compliance 1

3 What Are Rates For? Collecting appropriate revenue Allow utilities to recoup the costs of providing their energy services Average costs: the total cost divided by the number of units produced/required Sending signals to customers about the costs of their actions Marginal costs: the change in total cost when an additional unit is produced/required 2

4 The Electric System: Types of Costs and Services Provided Costs: Capital Generators, wires, poles, meters Fuel Operations & maintenance Customer service & billing Energy efficiency programs & state policy implementation costs Services provided: Energy Capacity Ancillary services Most grid costs align with more than one service. Costs may or may not vary with the amount of service provided (or vary on longer or shorter timescales). 3

5 Rates Should Reflect Marginal Costs Utility regulation exists to replicate the outcomes of a competitive market where there is a natural monopoly In an ideal competitive market, the customer price is the marginal cost of production of the last unit produced Also, fairness: we want customers who consume more to cover the costs they create But: Marginal costs to whom? Direct utility costs? Societal or environmental costs? 4

6 Rate Components: The Toolbox 1. Customer Charge 2. Energy Charge 3. Demand Charge Note: These may vary with time, day, or season Example residential rate structure: Rate Maximum Customer Charge Energy Charge Demand Schedule Demand (kw) ($/month) ($/kwh) Charge ($/kw) RES-9 15 $11.50 $0.12 $2.41 5

7 Why time-varying prices? Economic Efficiency If marginal costs vary based on time, then efficient rates should, too. Effects: Reduce overall system costs Reduce cost-shifting between generating and consuming customers Encourage off-peak charging of EVs Higher demand creates higher costs run the more costly generator, build with a larger transformer, etc. Times of higher demand are correlated to the work day, the season, and the weather Each of which are correlated in turn with the time of day and day of the week The highest peaks drive some costs, but their time and day may not be known far in advance 6

8 Time-Varying Rate (TVR) Menu Types of TVRs: Time-of-use (TOU) TOU with super peak Critical peak pricing (CPP) TOU with CPP Peak time rebate (PTR) Real time pricing (energy) Critical peak RTP (energy and capacity) 7

9 Increasing Reward Risk-Reward Tradeoff Potential Reward Reward (Discount from (Discount Flat from Rate) Flat Rate) 10% Less Risk, Lower Reward More Risk, Higher Reward RTP 5% PTR TOU CPP Super Peak TOU VPP Seasonal Rate Inclining Block Rate Flat Rate 0.5 Increasing Risk 1 Risk (Variance in Price) Asa Hopkins. PhD 8

10 Opt-In vs. Opt-Out The question of opt-in vs. opt-out TVRs is one of customer and political acceptance trading off with potential impact and savings. Opt-In: Easier acceptance Lower participation Selection bias Opt-out: Higher participation Resistance to being forced More equal treatment 9

11 DC NV ME GA OK CA MI VT AZ TX AL MD ID DE KS PA IL FL TN OR SD MS KY NC MO AR AK WI ND WY SC NH MT IN CO VA OH LA MN NE CT IA NM WA UT HI MA WV NJ NY RI TVRs Require Smart Meters The future is here it s just not evenly distributed yet: 100% Residential AMI Meters as % of Total Residential Meters 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10

12 A case for demand charges T&D systems are built to handle various demand peaks For large customers (namely commercial and industrial customers), customer-specific demand peaks can drive traceable costs further into the network Demand charges can serve as an incentive for large customers to reduce their peak demand Rewards flat load shapes/high load factors (efficient utilization of the grid) Time-resolved demand charges (e.g. peak demand between 1 and 6pm in summer) or demand charges that average over multiple days are somewhere between TOU energy rates and pure customer-peak demand charges. 11

13 A case against demand charges Customer acceptance: certain customers may not approve of the inclusion of demand charges, particularly customers with generally low energy use but occasional spikes in demand Which peak? System or circuit peak? Coincident or non-coincident? There is no effective difference between measuring coincident peak load with a 1-hour peak and calling a Critical Peak event for that one hour. 12

14 Rate Design and Net Metering Rates that perfectly represent long-term marginal costs of consumption at that time and place should be just as fair for generation injection at the same time and place. But perfect rates are not implementable (and no-one can agree on what perfect means anyway), so there are cross-subsidies. Net metering exacerbates and illuminates these subsidies because it changes load shapes and net load more dramatically than other customer actions (like energy efficiency). State policies to promote distributed generation can adapt to the underlying rate design. 13

15 Contact Info: Asa S. Hopkins, PhD Synapse Energy Economics Inc. All rights reserved. 14

16 Bonbright: Criteria of a Desirable Rate Structure (1961) 1. The related practical attributes of simplicity, understandability, public acceptability, and feasibility of application 2. Freedom from controversies as to proper application 3. Effectiveness in yielding total revenue requirements under the fair return standard 4. Revenue stability from year to year 5. Stability of the rates themselves, with a minimum of unexpected changes seriously adverse to existing customers ( the best tax is an old tax ) 6. Fairness of the specific rates in the apportionment of total costs of service among the different consumers 7. Avoidance of undue discrimination in rate relationships 8. Efficiency of the rate classes and rate blocks in discouraging wasteful use of service while promoting all justified types and amounts of use: 1. In the control of the total amounts of service supplied by the company 2. In the control of the relative uses of alternative types of service (on-peak versus off-peak electricity, etc.) Source: James Bonbright. Principles of Public Utility Rates, Available at Synapse Energy Economics Inc. All rights reserved. 15

17 Lazar and Gonzalez: Smart Rate Design for a Smart Future Three Principles: 1. A customer should be able to connect to the grid for no more than the cost of connecting to the grid. 2. Customers should pay for grid services and power supply in proportion to how much they use these services, and how much power they consume. 3. Customers that supply power to the grid should be fairly compensated for the full value of the power they supply. Source: Lazar, J. and Gonzalez, W. (2015). Smart Rate Design for a Smart Future. Montpelier, VT: Regulatory Assistance Project. Available at: Synapse Energy Economics Inc. All rights reserved. 16

18 Electricity Price (cents/kwh) TVRs: Time of Use (TOU) Time of Use (TOU) Pricing Flat Rate TOU Rate 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM Customers pay different prices depending on the time of the day Prices are fixed and are based on the season, weekend/weekday, and the time of day On-peak prices are higher than flat rates and off-peak prices are lower than flat rates Note: some TOU rate structures include intermediate periods and rates Synapse Energy Economics Inc. All rights reserved. 17

19 Electricity Price (cents/kwh) TVRs: TOU with Super Peak Time of Use (TOU) Pricing with Super Peak Flat Rate TOU Rate 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM The same principles as a TOU rate structure, but several hours are deemed super peak hours and are given a higher super peak price than the on-peak prices The super peak hours should correspond to periods of peak demand Synapse Energy Economics Inc. All rights reserved. 18

20 Electricity Price (cents/kwh) TVRs: Critical Peak Price (CPP) Critical Peak Pricing (CPP) Flat Rate Critical Peak Pricing 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM Several days in a year are deemed event days, i.e. days with significantly higher demand (usually related to extreme temperatures and weather) Prices during the event hours are significantly higher than the flat rate Most CPP programs have a limit to the number of events that are allowed in a year Synapse Energy Economics Inc. All rights reserved. 19

21 Electricity Price (cents/kwh) TVRs: TOU with CPP Time of Use (TOU) Pricing with CPP Peak Hour On Event Day Flat Rate TOU Rate 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM A combination of TOU and CPP principles Predetermined and fixed on-peak / off-peak rates are established Several events occur throughout the year in which prices are significantly higher to reflect the system loads during the critical peak hours Synapse Energy Economics Inc. All rights reserved. 20

22 Demand (kw) TVRs: Peak Time Rebate (PTR) Peak Time Rebate (PTR) Standard Demand PTR Demand 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM Provides a rebate to customers who effectively reduce their load during peak times Customers who do not reduce their load during peak times are charged their standard rate Customers are generally notified about peak time events the day before via or text message Most programs have a limit to the number of PTR events that are allowed in a year Synapse Energy Economics Inc. All rights reserved. 21

23 Electricity Price (cents/kwh) TVRs: Real Time Pricing (RTP) Hourly Pricing Flat Rate RTP 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM Prices are updated hourly to reflect current wholesale market prices Consumers require significant pricing information and updates to effectively adjust their usage in response to the hourly changes in pricing Synapse Energy Economics Inc. All rights reserved. 22

24 TVRs: Critical Peak RTP A combination of CPP and RTP During event days and hours, the typical real time price receives a critical peak adder to account for the cost of system capacity Critical peak RTP programs generally limit the number of event days in a year Synapse Energy Economics Inc. All rights reserved. 23