Time-of-Use is a Better Reform
Dr. Cicchetti was Chair of the Public Service Commission of Wisconsin. He taught energy and environmental economics the University of Wisconsin, Harvard’s John F. Kennedy School of Government, and the University of Southern California. His most recent book is “Going Green and Getting Regulation Right.”
An increasing number of utilities propose to add demand charges to rooftop solar customers’ tariffs. Other jurisdictions are considering applying demand charges to all residential customers.
This discussion is limited to the effect of residential demand charges for rooftop solar. Nevertheless, any residential demand charges would sharply reduce the economic incentive for all customers to purchase energy efficient appliances and devices for the home.
Demand charges would significantly increase the amount rooftop solar customers pay.
Existing rooftop customers would pay twice for capacity. First, for the cost of installing renewable electricity generation. Second, for a new assessment built into the tariff to collect capacity fees for the utility.
Utilities argue that because capacity costs are rolled into the basic energy charge, rooftop solar customers avoid paying their fair share of capacity costs when they reduce the amount of electricity they purchase from the utilities. But the utilities go too far in their proposals to recover capacity costs from rooftop solar customers who self-generate. Customers who self-generate cause the utility to buy less peak period energy or postpone new generation investments to meet future peak demand.