Residential Demand Charges: An Obsolete Concept
In an era of increased customer generation, utilities are faced with the conundrum of trying to recover fixed costs despite lower consumption and lower revenues. At EUCI’s Residential Demand Charge Summit in Denver, Jim Lazar addressed how demand charges, while common for commercial customers, are inappropriate for residential customers. There are many ways to recover fixed generation and distribution costs, but not all methods are created equal. The telecommunications and cable companies learned the hard way that high fixed charges can rapidly erode a customer base. Equitable electric rate design takes into account the different consumption habits of individual residential customers by following three basic principles. Customers should be able to connect to the grid for no more than the actual cost of connecting to the grid. They should pay for grid services and power supply in proportion to how much and when they use them. Finally, customers supplying power to the grid should be compensated fairly for the value of the power they supply. Mr. Lazar highlights approaches for recovering customer-specific capacity costs, while using time-varying rates to recover shared distribution and generation costs.