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Innovative Rates: Four Customers, Four Solutions

Fortnightly Magazine - January 15 1996

clearly able to serve the load without compromising reliability of supply to primary customers. The utility would not plan the power system on the basis of supplying this load; supply would be cut whenever there was a capacity shortfall on the system. In effect, sales of this power could be considered short term and similar to economy exports to neighboring utilities. As such, the rates needed to collect only production and administrative costs and make a contribution to net income.

A key principle behind this service was that it would apply only to incremental load above a baseline level of use. The baseline for Customer C was its average use in the peak and offpeak periods during the previous year. These values were adjusted to account for process or operational changes that would affect usage. The resulting values determined the minimum peak and offpeak baselines for which Customer C could contract. Only power taken in excess of the baseline was to qualify for the new rate.

This new service/rate was called Surplus Power (SP). Notice of availability of SP would be provided a day ahead, along with a price schedule for the 24 hourly periods. However, the utility had the right to interrupt SP sales when unforeseen circumstances temporarily eliminated the surplus, and when circumstances required capacity purchases or the operation of more expensive generation than had been factored into the prices. Similarly, service was to be interrupted if a higher-profit secondary sales opportunity materialized for the utility. In effect, SP was to be interruptible for economy as well as capacity reasons and was, therefore, less reliable than interruptible power. It would be available a high percentage of the time during periods of surplus generating capacity, but as load grows and the capacity surplus diminishes, its availability would decrease.

The SP rate design consisted of a monthly customer charge to cover administration costs as well as an hourly energy rate that would be based on system marginal costs plus an allowance for losses (the same variable energy costs used in the RTP rate) and a markup for profit. The basic design of the rate is shown in Table 2. In effect, Customer C makes a bid of cost plus the markup for SP. If another utility bids a higher price, power is made available to Customer C only if there is enough to supply both.

The SP rate ideally meets Customer C's energy service requirement. Because Customer C's own generation was meeting a significant portion of its electricity requirements, its baseload line was quite low. As a result, Customer C has been able to take advantage of lower electricity costs in the peak period (and the lack of a demand charge) to run its mechanical pulping equipment. The rate has improved Customer C's competitive position, increasing its sales and expanding its market share. SP has also influenced capital investment decisions. The utility has been able to make sales that would not have been possible before. In the offpeak period when low-cost baseload power is on the margin, Customer C backs down its