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Regulators, utilities wrestle with getting electricity rates right

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Regulators, utilities wrestle with getting electricity rates right

As states and utilities move aggressively to decarbonize their power generation systems, appropriate rate structures are critical to facilitating and accelerating that transition, and ill-designed electricity rates could hold back that shift, policymakers and utility executives said.

"We have to get the rate design right," Arizona Public Service Co. President Jeff Guldner said Oct. 17 at the Advanced Energy Now – West conference in Phoenix. "There's all this cool stuff happening on the customer side with technology, but it could be held back if we don't figure out how to manage it properly through our rate structures."

As electric grids integrate more renewables and more customers adopt electric vehicles, it will be critical for regulators and utilities to encourage power consumption at times when wind and solar resources are at their most productive, conference speakers said.

Unless peak loads are shifted to when the power is available and inexpensive, "this will never happen because the sun not going to start shining at night," said Yoav Lurie, president and COO of Uplight Inc., a provider of demand-side software for utilities.

Efficient rates and effective customer incentives are especially critical to expanding the market for electric vehicles. A May report from the Smart Electric Power Alliance found that regulators, lawmakers, utilities and product developers must collaborate to manage EV charging in a way that makes vehicles valuable assets of the electric grid in order to support the introduction of millions of battery-powered vehicles over the next decade. Otherwise, "we may look back in a decade and wonder what went wrong," said Erika Myers, principal of transportation electrification at the nonprofit research group.

"In five years' time, when the adoption rate is much higher, what happens to the grid?" said Prasanna Venkatesan, CEO of the Americas division of Landis+Gyr Group AG, which provides smart meters and software solutions to utilities and developers of EV charging infrastructure. "You'll have two-way load flows, and all these peaks and valleys these create, that's where the intersection of all these technologies comes into play. How are you going to manage all these loads?"

After complaints, improving outreach

Arizona Public Service has already shown what can happen when new rate structures are flawed or rolled out ineffectively. The Pinnacle West Capital Corp. subsidiary is due to file a new rate case with the Arizona Corporation Commission by Oct. 31, after hundreds of customers complained that their bills had increased well beyond the average 4.54% hike approved in August 2017. That was when the utility shifted to time-of-use rates to encourage lower electricity consumption during peak use hours by raising rates at those times.

A report from ACC staff found that while the state's largest utility did nothing illegal or contrary to commission regulations, its customer education and outreach program related to the rate design changes was flawed. The program "should have included more personal customer contact or outreach efforts" pertaining to the changes and provided more assistance to help customers select an optimal rate plan.

Moving forward, the utility should provide supplemental educational materials to ratepayers, form a stakeholder group to better educate customers on rate design changes and grant customers greater flexibility in switching rate plans, the report said.

"The transition of moving customers onto more advanced rate designs is challenging," Guldner, who will take over as CEO of Arizona Public Service on Nov. 15, acknowledged in an interview during the Phoenix conference. "Now, we're going to continue to work with customers to educate them and improve our communications and outreach program."

Pointing out that Arizona Public Service has deployed 15,000 smart thermostats in homes across its service territory, Guldner said, "We do see customers responding to the new rates."

California slows expansion of new rate plans

Mindful of the challenges associated with moving to advanced rate designs, the California Public Utilities Commission in May 2018 delayed the full roll-out of time-of-use rates for the state's investor-owned utilities until fall 2020, with the exception of Sempra Energy subsidiary San Diego Gas & Electric Co., which made the shift in spring 2019.

With the highest installations of solar generating capacity in the country, California has wrestled with the so-called duck curve problem, where excess capacity at midday gives way to shortfalls later in the day when residential customers come home from work and run their TVs and charge their EVs. Edison International subsidiary Southern California Edison Co. and PG&E Corp. subsidiary Pacific Gas and Electric Co. have completed advanced-rate pilot projects involving hundreds of thousands of customers, but the regulator determined that the bulk of the state was not yet ready to move to a full time-of-use rate structure.

Such delays in themselves could slow the energy transition that is critical to reducing carbon emissions in both the power and the transportation sectors, Lurie said.

"We must enable the rate changes without going through the standard ratemaking process. Because we don't have the time."