Rate Design for Distributed Energy
Eric Ackerman
Advanced Rate School
July 25, 2012
“The” Smart Grid
Distributed Energy Resources
EVs
Fossil
DG
DRES
Advanced
Controls
Batteries
DR
Distributed Energy Networks
 Smart grid-enabled:
 Advanced sensors
 Advanced controls (micro, mid-level, D-system wide; AI)
 Real-time communications
 Distributed energy resources – supply and demand-sides
 DENs (aka VPPs) as a supplements to central station /
bulk power supply
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Intelligent Components
 Intelligent communications node
 Perfect Power Controller
 Agent-based control system for fault detection,
location, isolation
 Smart inverters
 Fully automated next-generation substation
 Intelligent universal transformer
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New Capabilities
 Enhanced demand response
 Line voltages managed more effectively
 Enhanced micro-balancing – ability to integrate RES
 Maintenance/customer service automation
 EV charging without overloads
 Avoided transmission, line losses
 Increased reliability, faster /more efficient restoration
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EPRI’s Perspective
 Grid Operating System 1.0 – Generator-based
controls implemented with first Pearl St. generators
 System 2.0 – 1950’s to present – Supervisory Control
and Data Acquisition (SCADA)-based system that has
evolved from manual to computer-based controls,
and more recently, to integrate merchant generators
and ever growing numbers of transactions
 Current system not designed for intermittent
resources
 Oriented to central station resources
EPRI’s Perspective – Con’t
 System 3.0 – Tomorrow’s system must handle two-
way flow of electricity and info, to automate controls
for a widely distributed energy delivery network
 No longer primary dependence on central station
power and one-way flow to power
 Increased dependence on distributed and central
station renewables / storage
Business Challenges
 DENs may be an option for customers and/or 3rd
parties :
 One 3rd party developer was negotiating to build a micro grid to
serve a municipal government center (600 – 1,400 kW load)
pursuant to 20 year contract; would have taken ~ 80% of the
center’s annual electric and thermal load away from EEI
member
 Legal authority for municipalities to create Energy
Improvement Districts, with bonding authority (July, 2007)
 Intended as a model for other municipalities
 Original project is not going forward, but city is talking with
Honeywell
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Generating Capacity: Central
Station vs Distributed
 2009: Central station – 1,120,162 MW
DG -
24,476 MW (2.1%)
 2004 – 2009 CAGR: Central Station – 1.20%
DG -
22.5%
 At these rates, DG ~ 20% of supply by 2020, 50% by
2025
Source: Energy Information Administration, EIA-861 Annual Electric
Power Industry Report
New Exposures
 Legacy rates will produce revenue deficiencies:
 kWh recovery of fixed costs for residential & small business
customers
 Net metering
 Feed in tariffs
 Will legacy policies lock us out of DER markets?
 Restructured utilities can’t own generation
 Regulated utilities can’t provide non-standard premium services
 Are existing interconnection policies up to the task?
 Customers decide when, where, and what to plug in – and
expect it to work
 Implications of EPRI vision: 2-way power flow…
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Policy Priorities?
 Retail rate reform?




Fixed/variable rate design
Preferred net metering
Preferred feed in tariff
Preferred backup & standby rate
 Utility participation?
 Ability to own & operate DER
 Flexibility to offer premium services
 New interconnection standards & procedures?
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Fixed/Variable Rates
Example: MS Power
 Rate Schedule R-50, Residential Service:




$.075/day base charge ($22.50/month), plus :
First 650 kWh $.04524 (summer)
Next 350 kWh $.05878 (summer)
Over 1000 kWh $.0599/kWh (summer)
 Used a Revenue Neutral Adjustment Clause to increase
customer charges over time (Rate Schedule RNA-1)
 “Think of rate design as a risk management function.”
http://www.mississippipower.com/pricing/pdf/R-52.pdf
Fixed/Variable Rates
Example: Rochester Gs & Electric
 Residential Service Classification # 1:





Customer charge - $21.98/month
Electricity supply charge - $.04999/kWh
System benefits charge - $.002318/kWh
RPS charge – $.001917/kWh
Revenue decoupling mechanism - $.000273/kWh
http://www.rge.com/MediaLibrary/2/5/Content%20Management/RGE/
SuppliersPartners/PDFs%20and%20Docs/RGE%20Electric%20Rate
%20Summary.pdf
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Net Metering
Example: MN
 Available to eligible systems < 40 kW
 No utility system limit
 Customers compensated for net excess generation at
(revenue requirements - fixed costs)/kWh
MN Stat Sec. 216B.164; R. 7835.3300; R. 7835.9910
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Net Metering
Example: OH
 Available to eligible customer generation
 Available only until net metered generation reaches 1%
of the utility’s peak load
 Net excess generation credited at the utility’s
unbundled generation rate (customers can ask for
annual true-up)
http://www.puco.ohio.gov/PUCO/Consumer/Information.cfm?id=8510
&terms=net+metering&searchtype=1&fragment=False
Feed-in Tariff
Example: WI – Madison Gas & Electric
 $.25/kWh offered for PV energy delivered to MGE’s system
 Limited offer:
 1 kW to 10 kW systems
 Installed on or after March 6, 2007
 Customers must participate in Green Power Tomorrow program
(i.e., take premium priced green power)
 Program capped at 1 MW
 Customers must have 2 meters (measuring power used,
supplied)
 MGE owns all RES credits, emission allowances
See Madison Gas & Electric, Clean Power Partner Program:
http://www.mge.com/home/rates/cleanpower.htm
Backup & Standby Rates
 Customer charge – fixed costs for customer care,
distribution facilities
 Reservation charge – fixed costs to hold generating
capacity available for use when needed [f(outage rate of DGs,
outage rate of utility’s generators, required reserve margin)]
 Demand charge – fixed cost of generating capacity actually
used
 Energy charge – variable costs of generation used
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Business Strategy?
 Option A - focus on building a “smart” distribution
infrastructure
 Customers and 3rd parties plug DER into our smart infrastructure
 Option B – develop new customer options for
supplementing bulk power supply
 Via affiliates or the regulated incumbent?
 Via new technology partners?
 Via rate base or price caps?
Conclusions
Change is coming!
1. Grid modernization will enable new DER applications,
networks
2. Legacy rates create exposures, reforms urgent
3. Members will face new business challenges:
a. Wires-only?
b. Offer optional DER services?
4. Member will need new regulatory flexibility to offer
non-standard premium services
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