Designing Tariffs for Distributed Generation Customers
Ever since the introduction of retail competition in the late 1990s, the traditional regulatory paradigm that guided the last century has been evolving to adapt to the emergence of new energy technologies and the consumers’ appetite to have more control over their energy usage. As happens with many new technologies, consumer adoption of rooftop photovoltaic (PV) arrays has brought down the unit cost, making it more affordable to more consumers than just five years ago. Greater penetration of distributed generation (DG) provides many opportunities for utilities and their customers. However, with this greater penetration, it will be important to anticipate and adequately manage the effects of growing DG with prescient regulatory policies.
This paper explores these potential challenges from a customer rate perspective and from a competitive energy market perspective, with attention focused on the economic true costs of the services provided and received. As a starting point, authors Janine Migden-Ostrander and John Shenot propose rate design principles that can be considered when structuring tariffs for DG customers. They also describe a variety of rate designs that are being applied in various jurisdictions, along with case examples and analysis of how these rate designs comport with the regulatory principles enunciated herein. The rate designs they reviewed include net metering, high customer charges, minimum bills, time-of-use rates, monthly demand charges, demand charges for large houses, subscription demand charges, bi-directional rates, fees imposed on DG customers, feed-in tariffs, and value of solar tariffs. This paper notes circumstances and examples that may help guide regulators, advocates, and other interested parties in determining which rate design is most appropriate for each jurisdiction.