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NARUC releases rate design report

The National Association of Regulatory Utility Commissioners (NARUC) recently released its "Distributed Energy Resources Rate Design and Compensation" report. Its stated purpose is to "assist commissions in considering appropriate rate design and compensation policies for distributed energy resources (DER)."

The manual and its associated subcommittee on rate design within NARUC were born at the 2015 annual convention. 

In explaining why both the subcommittee and the manual were necessary, the manual authors write: "The growth of DER across jurisdictions poses unique challenges to the status quo for regulators. The traditional way of electricity delivery from large power plants over transmission and distribution wires to the customer is increasingly being challenged, in part due to the growth of DER and changing technologies. DER are resources located on the distribution grid, often on or close to the customer’s premises, and are capable of providing many services to the customer and the grid. DER such as rooftop solar generation can offset the premise’s consumption and deliver excess generation into the distribution grid. DER, like demand response, can allow the demand on the system to re- spond to system prices and conditions. DER are not simply supply or demand, as traditionally thought, but can be multiple types of resources, such as storage or advanced technology paired with a resource, capable of providing a variety of benefits and services to the customer and the grid."

It continues: "Furthermore, traditional utility and regulatory models built on the assumption of the utility providing enough electricity to meet the entire needs of its service territory are under pressure by DER. New investments may be needed to effectuate the two-way flow of electricity, new ways of allowing the utility to recover its costs may be needed, and new assumptions regarding the forecasting of customer demand will be necessary to meet this challenge. A jurisdiction will need to identify its current status regarding DER and what role it expects DER to have in the future, understand the nature of DER adop- tion rates, and identify necessary policy developments or rate design modifica- tions to accommodate that future."

Before talking about the changes that NARUC suggests to rate design, the manual begins by dismantling the status quo rate design process, including flat rates, block rates, time-variant rates and three-part rates/demand charges. The manual also gives props to the authors who have taken this road before, including James Bonbright's "Principles of Public Utility Rates," which describes the ideal rate structure as one that is practical, simple, feasible and accepted by the public--and one free from controversy over interpretation.

Other factors discussed in the manual include: vertically integrated vs. restructured jurisdictions, revenue decoupling, rate design as social policy, low-income needs and wholesale markets. 

The manual also defines distributed energy resources (DER)---mostly by admitting that there isn't a real solid single definition of DER---and types of associated tech: solar PV, combined heat and power, wind, energy storage, microgrids, demand response, energy efficiency and electric vehicles. 

The authors add: "The economic pressures that DER may put on the utility and non-DER customers within a rate class is one of the most challenging issues facing regulators today. These economic issues include revenue erosion and cost recovery issues as well as inter-class cost shifting apparent in traditional utility rate design and NEM discussions. These issues have been driving most of the investigations into NEM policies and searches for alternate ways to treat DER in rate making."

To get more details, including an answer to the burning question "Does DER avoid utility infrastructure costs?" read the report here. 

The response to the manual has been positive, especially from solar advocates.

“It’s no secret, distributed energy is proliferating in America and in this new energy paradigm having well thought-out guidance and regulations in place is critical to maintaining that forward momentum. Today, the NARUC Board of Directors adopted a manual that was significantly improved due to their willingness to be open to input from stakeholders and we expect that process to continue as new data becomes available that may warrant revisions and updates to the manual," said Sean Gallagher, vice president of state affairs for the Solar Energy Industries Association (SEIA).

“Time and again, state public utility commissions and independent researchers have found that distributed solar provides a net benefit to all consumers and we’re happy to see this more adequately and accurately represented in the final version of this manual. Rate design is not a simple task and it has far-reaching impacts. The manual recognizes that hard data and evidence is needed before imposing new rate structures on customers, and that imposing class-wide rate design changes when DER penetration rates are low ‘would most likely be a disproportional response.’

“This manual was a huge undertaking and we applaud the NARUC staff for their due diligence and the effort that went into this work product. SEIA looks forward to working with NARUC and the individual state commissions to move beyond utility responses that see DERs as a problem to be solved, and into a sustainable future that utilizes careful planning to unlock the full value of DERs.”

"The manual contains a helpful balance between long and short term views, an open and more collaborative regulatory process, and a more expansive view of distributed energy resources, which actually include a broad and exciting range of clean technologies that can be deployed to add stability, control and reliability to the electric grid," added Rick Gilliam, DG Regulatory Policy Program Director for Vote Solar.

"We are especially pleased to see the manual acknowledge the economic opportunities that solar and other distributed energy resources can bring to all customers if managed properly by the regulators and look forward to working with state leaders across the country to achieve that promise."





Kathleen Wolf Davis's picture

Thank Kathleen for the Post!

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