Rate structures, DERs and the crossroads energy can't ignore

The controversy around how to integrate renewables and balance costs has been muddled with missteps so far. Utilities and regulators are struggling to find the right mix of rules that doesn’t punish one group of stakeholders for the choices of another.

Bundled vs. unbundled rate designs for distributed energy resources is an increasingly polarizing issue among the IOU crowd. Breaking out delivery charges or—in the case of solar, applying distribution interconnection charges in integrated/IOU utility environments—is hotly contested. Witness: SolarCity suit in Nevada.

Regulators largely dislike this idea of breaking out distribution charges in most integrated/IOU territories because of the perception that it shifts a burden of overall cost to lower consuming, often lower income, customers. If IOU regulators deploy flat delivery charges many consumer advocates will balk. Yet, if they leave volumetric/coupled rate designs in place absent any fees for solar/DER interconnection and net metering or absent fixed delivery charges, the overall costs will have to be spread across fewer customers. Those not reducing their volumetric consumption will see their KWh rates rise to cover the base costs and the base revenue requirement as more people dump grid power for premise-based solar and solar/storage.

One answer that many utilities are exploring is the deployment of DERs in community solar projects. These spread the benefit of DERs across the customer base without unfairly shifting costs, thereby allowing all customers to participate with the added benefit of utility coordination of PV placement to maximize system-wide value against location constraints. PSEG speaks of their solar program in this regard, and Georgia Power likewise grounds their rapidly growing distributed solar capacity in GA using the same approach.

As it relates to DERs and the emerging energy "prosumer" movement, distribution rate designs need a careful review and, depending on circumstances, an overhaul. Look for lawyers and power system economists to chime in, in the coming months and years as the industry continues to adjust.

To find what promises to be a complex solution, utility engineers and other stakeholders must start monitoring and quantifying the buried costs of DERs that may or may not be measured and broken out today such as lost tariffs, possible thermal effects, the costs of added protection, etc. This opens a veritable Pandora’s box for regulatory staff at many utilities, but represents a necessary step forward as technology continues to evolve and necessitate widespread change.

The energy prosumer movement is here, the box is wide open, so the industry must change systems, strategies and regulation to keep pace. Keeping things safe and equitable along the way just makes for a more interesting path. This is—after all—the key role of regulators.

Looking for more on prosumers? Read more about them here.

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