NRRI 15-08 Rate Design for DER

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In many electric utility service territories, rapid growth in distributed generation, especially rooftop solar, is triggering both legislative and regulatory proposals for changes in rate designs. This paper reviews, summarizes, and catalogs over a hundred pending proposals and recently adopted changes, in 43 states and the District of Columbia. The four major types of proposals include, singly or in combinations: (1) higher fixed charges; (2) demand-charges for residential and small commercial customers; (3) higher minimum monthly bills; and (4) changes in the terms and conditions for net metering. Some proposals also include time-differentiated rates, changes in standby charges, tiered- or block-rate structures, and various alternatives to net metering, such as feed-in tariffs, two-way rates, or value-of-solar tariffs, possibly combined with value-of-service rates. Some of the regulatory proposals fall in the context of general rate cases, while others are being heard in single-purpose hearings. This paper lists and classifies the many different types of rate design proposals, including:
ï‚· A total of 25 states have seen proposals for fixed-charge increases, either for all customers, for solar photovoltaic (PV) self-generators only, for all distributed generation (DG) customers only, or for net metering customers only;
ï‚· Over a dozen states have recently-enacted changes to net metering policies, and 17 states are currently reviewing changes to net metering rules and standards, or considering possible successors to net metering;
ï‚· Eleven states have recently completed or ongoing studies of net metering, and in four of those states the efforts are explicitly intended to identify new program designs or replacements for net metering.
ï‚· Broader dockets about policies affecting all distributed energy resources have been recently decided in two states and are underway in ten others; and,
ï‚· Six states have recently enacted provisions and nine states and the District of Columbia have open dockets on community-shared solar.
Included is a brief review of several factors that are combining now to provide the impetus for so many proposals. The factors include: (1) aging utility infrastructure in need of replacement; (2) further tightening of federal environmental protections and the likelihood of greenhouse gas regulations; (3) flat or declining loads and load factors resulting from greater energy efficiency and the widespread slow-growing economy; (4) requirements for grid modernization; (5) declining costs and rapidly growing markets for distributed energy resources, particularly solar PV and battery storage; (6) state and utility net metering programs nearing or exceeding existing caps, thus triggering policy reviews, and (7) strong interest on the part of growing numbers of large corporate and institutional buyers and municipalities engaging in community-choice aggregation, that want to take more control of energy purchases and obtain more or all of their electricity from renewable and low- or zero-emissions energy resources.
In addition, the paper reviews some early efforts to analyze rate design proposals, to understand the ranges of expected effects on different customer segments, on distributed energy resources (DER) businesses, and on utilities. The paper includes guidance about how best to model rate design effects on small, medium, and large energy users in different rate classes with and without: (a) higher fixed charges; (b) demand charges; and (c) small, medium, and large on-site DG or other DER. Techniques described include using actual customer data to identify billing determinants and then analyze the effects of changes on different customer groups, including analysis based on customer income levels. A technique is also reviewed, which uses simplified, pro-forma financial modeling for evaluating effects on utilities. Plus, financial analysis of PV system economics under different rate structures can be used to estimate effects on PV market growth and on the possibilities for customer load- and grid-defection.
While the need for redesigning network charges is real, that work should be approached thoughtfully, in light of multiple regulatory objectives. A major finding of this paper is a need for additional efforts to model the effects of rate design changes on different customer types and to understand more thoroughly ongoing DER market changes, prior to making major rate design changes. Also described are needs for: (a) coordinated, multi-stakeholder infrastructure planning and co-optimizing multiple network infrastructures such as systems for grid modernization and smart city services, plus natural gas, electric, and water utilities; and (b) additional modeling of policy changes for better understanding the economic impacts on utilities and their service territories, including feedback loops and spin-off effects.