Electricity Standby Rates for Today and Tomorrow

Public Utilities Commission of OhioCHP & Standby Rates Workshop

September 13, 2012 – Columbus, OH

Tom Stanton, Principal Researcher for Renewable Resources and Energy Efficiency

National Regulatory Research Institutetstanton@nrri.org – 301-588-5385

© NRRI and T. Stanton 2

Outline of presentation• Brief summary of recent NRRI research paper– Reasons to care about standby rates now– Major goals for standby rate design

• Major goal for the total DG policy toolkit: Achieving the “right” growth rate

• Forward-looking challenges for standby rates

September 2012

See NRRI research paper, Electric Utility Standby Rates: Updates for Today and Tomorrow, at http://www.nrri.org/documents/317330/94c186ab-4f16-4a69-8e8c-ece658e752b1

© NRRI and T. Stanton 3

It all depends…• Standby costs and benefits to the utility and

customers depend on: – expected operations of distributed generation, – specifics of the grid location, – time of use, and– overall rate design

• Modeling and analysis should include effects on individual standby customers, and on multiple standby customers, as a rate class

September 2012

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Why care now about standby rates?

• Increased energy efficiency with DG (roughly doubled or tripled with CHP)

• Low-cost natural gas• Tightening environmental standards• Improving DG efficiency, reliability, and

economics• Supporting other DG-promoting policies• Achieving smarter-grid benefits

September 2012

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Major goals for standby rate design• Economic efficiency

– based on cost causation– neither a barrier nor a subsidy be

• Fairness – just and reasonable to both customer and utility– symmetry in benefits and costs– fairness in the total rates paid for all services, including standby

• Simplicity and transparency– easy to administer and understand– prospective users can accurately estimate

costs and benefits

• Promoting efficiency and reliability– reward customers for good operating practices– use other policies to “tilt” DG economics (e.g., tax & incentive policies,

not standby rates)

• Standardizing markets– similar to full-service rates– in RTO; in state

September 2012

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Finding the “right” growth rate

September 2012

Source: C. Wilson, Dec 2010, Growth dynamics of energy technologies, UK Centre for Climate Change, Working Paper No. 42, http://eprints.lse.ac.uk/37602/.

© NRRI and T. Stanton 7

Finding the “right” growth rate

September 2012

Source: C. Wilson, Dec 2010, Growth dynamics of energy technologies, UK Centre for Climate Change, Working Paper No. 42, http://eprints.lse.ac.uk/37602/.

© NRRI and T. Stanton 8

Forward-looking Issues

• Modeling & analyzing costs for individual standby customers and standby customer class(es)– Separating costs for generation vs distribution standby– Using localized IRP

to determine distribution system costs and benefits – Designing rates that encourage users

to produce system benefits• CHP for campuses of multiple customers and facilities,

using multiple technologies• Electric microgrid operations in safe-island mode

September 2012

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Most important take-aways• There are many pressing reasons

for supporting accurate standby rates– Economy– Efficiency– Environment

• Achieving accuracy requires modeling & analyzing costs – for individual standby customers – for standby customer class(es)

• Separate costs for generation vs distribution standby– Generation standby quickly approaches zero cost– Distribution standby raises universal ratemaking issues

about how to pay for capacity vs energy, variable vs fixed costs (fixed for the time being, that is)

September 2012