Getting rate design right is important to the clean energy transition because it will help determine the best resource mix and ensure customers have opportunities to cut their bills with demand response and distributed resources, experts said at the National Association of Regulatory Utility Commissioners’ Winter Policy Summit this week.
“The reason that I think there’s no more exciting topic than rate design is because it truly sits at that intersection of every other aspect of the energy system: affordability, reliability; all of the conversations we’re having around grid modernization, integration of different resources, customer choice,” said former Virginia State Corporation Commissioner Angela Navarro, now head of state regulatory affairs for Richmond-based climate technology company Arcadia. “All of those things are central to determinations on rates.”
Smart meters are on most homes in the country now, while rooftop solar and electric vehicles are becoming increasingly common; how those resources impact rates is very important, Navarro said. Storage has huge potential, but that can only be harnessed with the right rate design that informs its owners when to charge and discharge.
On the other side, the right rate design can help avoid negative impacts on the grid, such as by encouraging customers to charge their EVs during off-peak hours, she added.
Supply is going to be more variable in the future because of the growth of intermittent renewables and more common extreme weather, said Lon Huber, Duke Energy vice president of pricing and customer solutions.
“But fortunately, with technology, we have an increasing number of tools to use to start shaping load to match the more variable supply out there,” Huber said.
Sending those price signals far and wide requires approval from regulators and the right technology; it cannot happen overnight, he added. On top of smart meters, utilities need field area networks, data management systems and updated billing systems that can take years to put in place.
Smart meters have been rolled out to 75% of the nation’s customers and despite being in place for years in many jurisdictions, their use rarely matches their potential, said Travis Kavulla, NRG Energy vice president of regulatory affairs.
“We’re still talking about single-digit percentages of those smart meters that are used to do anything to actually interact with customers in terms of sending a price signal or any other incentive to flex demand,” Kavulla said.
Kavulla recently wrote a paper for an Energy Systems Integration Group effort looking into how retail pricing could be used to get customers to respond to grid needs, called “Why is the Smart Grid So Dumb? Missing Incentives in Regulatory Policy for an Active Demand Side in the Electricity Sector.” It has been a more than a decade since federal stimulus dollars gave most states the push to install advanced metering, and despite soaring rhetoric from that time, the investment has done little to make demand an active part of the electric industry, he argues.
“My basic proposition is this: that someone somewhere has to face the clear price incentives to accurately manage demand in order for it to happen,” Kavulla said. “And all too often in our regulatory schema that we set up for ourselves, regulated utilities themselves lack clear incentives to do so. And even for competitive retailers like NRG, we face an incomplete set of incentives to make these kinds of investments in demand flexibility.”
Getting the rate signals right could mean huge savings, with New York state estimating it could cut the cost of compliance with its climate mandates by a third, while PJM identified retail rate design as one of five key focus areas for successfully decarbonizing the grid, he added.
Kavulla would like to see more jurisdictions set up opt-out time-of-use pricing to tap the demand resources that advanced metering has made available. Customer adoption of complex rates under opt-in constructs are too low.
“As much as my inner libertarian would like to avoid this, regulators really cannot escape making solid decisions on behalf of customers in highly regulated industries like these,” Kavulla said.
Opt-in regimes usually produce better responses from customers who affirmatively decide to participate, said Huber. The system works too, with Huber noting Arizona has seen up to 60% participation in time-of-use rate programs.
“I think opt-in in the long run is better, but it takes time,” Huber said. “And it takes a lot of marketing [and] a lot of education to get it done.”
Getting rate design right is important for the solar industry as rooftop panels become increasingly common in many jurisdictions, leading to often thorny debates about how to pay for their excess output going forward, experts said an earlier panel on Sunday.
“Increasingly some of the issues that we’re beginning to tackle are how do we sort of evolve the industry from what has been a traditional approach to behind the meter resources,” Solar Energy Industries Association Senior Director of Utility Regulation and Policy Kevin Lucas said. “And how do we evolve that in a way that’s going to make sure that regulators, policymakers, customers and utilities are getting the most bang for the buck out of the resources that they’re putting onto the grid?”
SEIA is working in Arizona now to get a system in place that encourages more growth of solar-plus-storage than its current “net billing” structure, which does favor storage but incentivizes its use to shave the customer’s own peak rather than the system peak. Customers get paid less for exporting power to the grid than they do shaving their own demand.
SEIA would like to see batteries controlled by utilities in a program where they can be called on up to 30 times a year for up to three hours at a time and they get paid based on response to those signals.
“So, if a customer chooses to participate in a given event, they will export energy, that energy is going to be measured, and at the end of the year, they will get a credit based on how well they perform during these specific calls,” Lucas said.
Some 760,000 customers have solar installations on their homes, but just 47,000 customers around the country have adopted storage, said Sunrun Senior Manager for Public Policy Thad Culley. Most of the customers with storage have bought systems to improve their resilience because they live in areas that experience outages more often.
Expanding that market to a bigger number of customers and getting them to work with the grid is going to take some new rates, Culley said.
“You’re going to need to have some kind of predictable value stream going forward to motivate the customer to want to play nice with the grid and do the types of grid support services that are valuable,” Culley said.
With the right incentives, those customers could even provide more specific services that benefit the local grid, he added.
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