Building on the first webinar of the series “Fundamentals of Rate Design,” Jim Lazar and Janine Migden-Ostrander introduced the finer points of cost allocation and dynamic pricing, as well as net metering and alternatives. Because cost allocation is an inexact science, regulators often conduct multiple studies, using either embedded or marginal cost methods to allocate costs to different customer classes. Mr. Lazar provides a detailed comparison of the different approaches to cost allocation and the impact these choices have on how costs are allocated among customer classes.

In this second rate design discussion, Mr. Lazar shares examples of dynamic rate designs and evaluates the risk and reward to customers paying for electricity based on these rates. Experience has shown that customers respond to advanced pricing methods, and modern technology can help boost their effectiveness. A net-metered customer’s bill is calculated by subtracting the customer’s delivery of excess power to the grid from their usage of grid power within a given billing period, often resulting in a bill for only the customer charge. Some argue that net metering allows the customer to use the grid to store electricity and draw on backup and supplemental service without contributing to grid costs. Mr. Lazar demonstrates that, depending on how solar resources are valued and the prevailing retail rate, net metering can be fair or unfair to both the utility and the customer. He presents six alternatives to net metering to address this concern.