Should Utilities Shift Rate Structures – and Customer Communications – to Meet Industry Changes Like Distributed Generation?

By Richard Huntley

Is residential distributed generation an idea whose time has finally come? Solar panel pricing appears to be dropping; feed in tariffs are starting to appear; and in some areas, utility-led financing can sweeten the pot even more.  In addition to the cost benefits, the idea of being more self sufficient and “green” is appealing to many consumers.

The positive effects of this are generally clear. However, a question is looming on the horizon that needs to be considered. Is the structure of utility rates fundamentally inadequate to deal with this? Even as decoupling and the possibility of allowing utilities to earn a rate of return on avoided consumption take hold, most distribution assets are billed on a method largely based on volumetric consumption.

As I look out of the window from my office in Vermont, I notice several poles and the accompanying wires that deliver electricity to my house. My local utility does an excellent job of maintaining this infrastructure, including trimming the surrounding trees. They are compensated for this work by a per KWH charge for distribution that I pay. This is supplemented by a typically modest customer charge.

However, what happens if photovoltaic (PV) solar, possibly coupled with affordable batteries, becomes an attractive option to me? Will I, in effect, be able to take myself mostly off the grid for a large portion of time? Under the current rate structure, if I do this, the amount my utility will bill me drops significantly. In essence, my utility company is providing me with a backup service that I use as needed. Will they still be able to maintain the infrastructure specific to my location under this scenario?

.

Logic Doesn't Always Win 

I hear the cries that distributed generation penetration will be such a small amount in the foreseeable future that these scenarios will be covered similar to the current variations in consumptions that occur. However, as we have seen with press coverage of smart meter deployments in California and Texas, logic does not always triumph.

• What happens when a member of the media decides to do a story mentioning that Mr. and Mrs. Big-House-On-The-Hill with PV, six poles and 500 yards of wire are paying only perhaps $25 per month for the utility to be there in times of need?

• Even more sensational, what if the view is taken that this customer is being subsidized by those customers that rely on the utility for everything and live closely together in more efficiently serviced areas?  

This could create a situation perceived as the less well off subsidizing the more affluent.  A public outcry causing a resulting change in the billing structure is reasonable to expect.  But do you want to let it get this far?

As these contrasts in the cost to serve compared to the revenue earned become incrementally larger in certain circumstances, will pressure increase to develop rates that truly reflect these new models? Should the person using the utility just as occasional backup have to start paying for the cost to do this? Perhaps what is needed is a customer charge that better reflects the right to use and a consumption charge that reflects what is used. 

There is no clear answer at this point, but it is certainly something utilities need to be thinking about now as the industry enters this time of significant change.  Further, it reinforces the need for utilities to shift behaviors to become more proactive when it comes to customer communications and care.  

Communicating any changes clearly and proactively, before concerns are raised, can help to reduce the potential negative impact of these changes – both to the customers and the utilities.

Richard Huntley, practice leader, energy efficiency and demand response at Vertex Business Services, has been working in the utilities industry for many years to help bring about transformational change in how utilities interact with their customers and how their customers use energy and resources. Getting utility consumers to embrace and participate in energy efficiency and demand management programs, and for this to translate into better customer service and shareholder returns, is what he is passionate about. 

 .

You might also be interested in …

California Powers Up Solar, Doubles Rooftop Array Buy Back Cap

Electric Markets and De-Regulation: A Crash Course at Penn State

Why Utilities and Regulators are Tussling Over Forward-looking Projections vs. Backward-looking Reporting

A Smart Grid Safety Net? Putting Energy Equity on the To-Do List

Why Today's Utilities May Soon Be Obsolete (and What May Replace Them)

Related SGN channels …

Distributed Generation and Renewables

Smart Grid Policy & Regulation

Markets and Pricing

Smart Grid Strategy

Stay connected with SGN …

Smart Grid Discussions: Get LinkedIn with Jesse

Smart Grid on Facebook

Follow Us on Twitter

Try our RSS feed

Get our email digest