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Pricing Reform for the Local Disco: Setting Rates That Will Support Distributed Generation

The Proposed Distribution Tariff
Fortnightly Magazine - July 1 2000

demands, makes the access charge more attractive to consumer advocates and others who traditionally have opposed cost-based fixed customer charges.

2. Throughput Charge (Volumetric). This relatively small volumetric fee, which is in addition to the volumetric energy charge, applies only to transactions for which energy actually is delivered. 2 Under PCR regimes, this charge therefore would induce the UDC to increase its throughput off-peak, when costs are lowest. That yields better asset utilization, which is notoriously low in the distribution business-perhaps on the order of 35 percent across all hours of the year.

The volumetric charge induces the UDC to enhance energy throughput, in part by devising services that increase usage or enhance reliability. Some environmentalists and consumer advocates oppose the promotion of electricity usage, even though, when properly priced to include societal costs, electricity usage is not "bad." We do not help anyone in society by arbitrarily limiting the use of this resource by pricing it too high. 3 To the contrary, such policies distort appropriate resource utilization by promoting unnecessary (i.e., cost-ineffective) consumer outlays on energy efficiency measures. The throughput charge induces the UDC to improve utilization and invest in new capacity or capacity-augmenting technology.

3. Congestion Charge. 4 Although distribution systems are underutilized in general, certain lines may be congested during certain periods. One response is to use a practical, transparent congestion charge to encourage DG and ration existing capacity until enhancements can be made. The charge helps manage congestion, but the revenues it produces should not accrue to the UDC. Rather, they should be returned to retail customers (loads) in the form of lower future access charges. The congestion charge therefore induces the firm to invest optimally in new capacity, thereby converting congestion charges-from which it does not benefit-into access and throughput revenues-from which it does. The congestion charge does not affect the principal issues of this article and is not included in the subsequent illustration of the model.

 

Grid Enhancement Can gen resources defer new investment? It all depends.

In its Rulemaking Docket R.99-10-025, the California Public Utilities Commission is developing regulatory policy on distributed generation. And in comments filed in that case on April 12, San Diego Gas & Electric Co. showed that it is not always easy to determine whether DG makes a valuable contribution to the operation of the distribution grid: "For DG to replace a planned distribution system upgrade, the required capacity of DG must be incorporated into the planning process far enough in advance that the [UDC] can defer its plans to make the upgrade that would have otherwise been made.

SDG&E proposed that utilities should not own DG on the customer's side of the meter. "We are not a generation company," it explained.

The utility added in its comments that by bowing out of this side of the DG market, it would simplify the PUC's task: "Under SDG&E's recommendations, the utility would not own such generation Accordingly, the perceived need for regulatory intervention does not apply." -B.W.R.

Source: Prepared testimony of San Diego Gas & Elec. Co., Calif. PUC Docket

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