Rethinking Rate Design

Deck: 

Berkeley Lab’s Discussion with Five Experts

Fortnightly Magazine - November 2016
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In a changing power system, how should utilities recover their costs? The evolution of the power system, driven by technological innovation, shifting loads, changing policies and new customer expectations is raising some fundamental questions about utility regulation.

Many utility investments, such as poles and wires, are fixed costs, at least over the short term. Most of their revenues, however, vary based on how much energy customers use, that is, kilowatt-hours.

If customers buy less energy, whether due to less energy-intensive industries, greater efficiency, or self-generation, utility revenues decline. And growth in U.S. electricity use has gradually slowed each decade since the 1950s.

This trend has spurred new thinking about ways to charge customers for electricity services. Most utilities charge residential customers a fixed monthly fee, plus an amount based on energy consumption. Increasing the fixed charge is one way to ensure utilities have more stable revenues to cover fixed costs, and fixed charges have increased over time.

Raising fixed charges is also a response to concerns about revenue loss from higher levels of distributed energy resources, particularly customer-owned solar power systems. In 2015, utilities in about half the states proposed significant increases in fixed charges for all customers, or in some cases just for customers with onsite distributed generation.

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