future electric u,lity regulaon series report #5: future ...€¢ unique point-counterpoint approach...
TRANSCRIPT
Future Electric Utility Regulation Advisory
Group Meeting
March27,2014
FutureElectricU,lityRegula,onSeriesReport#5:RecoveryofU4lityFixedCosts:U4lity,Consumer,
EnvironmentalandEconomistPerspec4vesJuly8,2016
LisaWood,Ins4tuteforElectricInnova4onandTheEdisonFounda4onRossHemphill,RCHemphillSolu4ons
JohnHowat,Na4onalConsumerLawCenterRalphCavanagh,NaturalResourcesDefenseCouncilSeverinBorenstein,UniversityofCalifornia,Berkeley
LisaSchwartz,BerkeleyLab,ProjectManager
Agenda
• Abouttheseries• Webinarhousekeepingitems• Fourperspec,vesonfixedu,litycosts(15min.each)
– U,lityperspec,ve–WoodandHemphill– Consumerperspec,ve–Howat– Environmentalperspec,ve–Cavanagh– Economistperspec,ve–Borenstein
• Q&A(25min.)
2EnergyAnalysisandEnvironmentalImpactsDivision
Future Electric Utility Regulation Series • A new series of reports from Lawrence Berkeley National Laboratory taps
leading thinkers to grapple with complex regulatory issues for electricity • Unique point-counterpoint approach highlights different views on the future of
electric utility regulation and business models and achieving a reliable, affordable and flexible power system
• Primary funder: DOE Office of Electricity Delivery and Energy Reliability, National Electricity Delivery Division
• Primary funder for report #5: DOE Office of Energy Policy & Systems Analysis • Reports published or underway:
1. Distributed Energy Resources (DERs), Industry Structure and Regulatory Responses 2. Distribution Systems in a High DER Future: Planning, Market Design, Operation and
Oversight 3. Performance-Based Regulation in a High DER Future 4. Distribution System Pricing With DERs 5. Recovery of Utility Fixed Costs: Utility, Consumer, Environmental and Economist
Perspectives – Today’s topic 6. The Future of Electricity Resource Planning (draft under review)
• Additional reports forthcoming: feur.lbl.gov• Expert advisory group (next slide) provides
guidance and review EnergyAnalysisandEnvironmentalImpactsDivision 3
AdvisoryGroup
4
• JaniceBeecher,Ins,tuteofPublicU,li,es,MichiganStateUniversity• AshleyBrown,HarvardElectricityPolicyGroup• PaulaCarmody,MarylandOfficeofPeople’sCounsel• RalphCavanagh,NaturalResourcesDefenseCouncil• CommissionerMichaelChampley,HawaiiPublicU,li,esCommission• SteveCorneli,independentadviser• CommissionerMikeFlorio,CaliforniaPublicU,li,esCommission• PeterFox-Penner,BostonUniversityQuestromSchoolofBusiness• Sco^Hempling,a^orney• ValJensen,CommonwealthEdison• SteveKihm,Seventhwave• CommissionerNancyLange,MinnesotaPublicU,li,esCommission• SergejMahnovski,ConsolidatedEdison• KrisMayes,ArizonaStateUniversityCollegeofLaw/U,lityoftheFutureCenter• JayMorrison,Na,onalRuralElectricCoopera,veAssocia,on• AllenMosher,AmericanPublicPowerAssocia,on• SonnyPopowsky,FormerconsumeradvocateofPennsylvania• KarlRábago,PaceEnergy&ClimateCenter,PaceUniversitySchoolofLaw• RichSedano,RegulatoryAssistanceProject• ChairAudreyZibelman,NewYorkStatePublicServiceCommission• PeterZschokke,Na,onalGrid
EnergyAnalysisandEnvironmentalImpactsDivision
Webinar Housekeeping Items
5EnergyAnalysisandEnvironmentalImpactsDivision
• We’re recording the webinar and will post it on our web site. • Because of the large number of participants, everyone is in
listen mode only. • Please use the chat box to send us your questions and
comments any time during the webinar. You may want to direct your question to a specific author.
• The report authors will each have 15 minutes to present.
• Moderated Q&A will follow, with the report authors
responding to questions typed in the chat box. • The report and webinar slides are posted at feur.lbl.gov
AbouttheAuthors(inorderofpresenta,on)
LisaWoodisVicePresidentofTheEdisonFounda,onandExecu,veDirectoroftheIns,tuteforElectricInnova,on.Previously,WoodwasaPrincipalwithTheBra^leGroup,aPrincipalwithPHBHaglerBailly,andaProgramDirectoratRTIInterna,onal.RossC.Hemphillisanindependentconsultantonregulatoryandenergypolicyissues.Hiscareerovermorethan35yearshasbeendevotedtoenergyandregulatorypolicywithaprimaryfocusonratemakingtheoryandprac,ce.Hemphillhasworkedforu,li,es,researchins,tu,onsandregulatoryagencies,bothdirectlyandasaconsultant.Mostrecently,hewasvicepresidentofRegulatoryPolicy&StrategyforCommonwealthEdison.JohnHowathasbeeninvolvedwithenergyprogramsandpoliciessince1981,includingthepast17yearsatNa,onalConsumerLawCenter.Previously,heservedasResearchDirectoroftheMassachuse^sJointLegisla,veCommi^eeonEnergy,EconomistwiththeElectricPowerDivisionoftheMassachuse^sDepartmentofPublicU,li,es,andDirectoroftheAssocia,onofMassachuse^sLocalEnergyOfficials.RalphCavanaghisco-directorofNaturalResourcesDefenseCouncil’senergyprogram,whichhejoinedin1979.CavanaghhasbeenaVisi,ngProfessorofLawatStanfordandUniversityofCalifornia-BerkeleyLawSchoolandaLectureronLawatHarvardLawSchool.HealsohasbeenafacultymemberfortheUniversityofIdaho’sU,lityExecu,vesCourseformorethan20years.From1993to2003heservedontheU.S.SecretaryofEnergy’sAdvisoryBoard.SeverinBorensteinisE.T.GretherProfessorofBusinessAdministra,onandPublicPolicyattheHaasSchoolofBusinessandaResearchAssociateoftheEnergyIns,tuteatHaas.HealsoisDirectoremeritusoftheUniversityofCaliforniaEnergyIns,tute(1994-2014)andtheEnergyIns,tuteatHaas(2009-2014).Hisresearchfocusesonbusinesscompe,,on,strategyandregula,on.Hehasservedonnumerouscommi^eesandboardsforstateandfederalgovernments.JeffDeasonandLisaSchwartzwrotetheliteraturereview(chapter5)inthereport,notcoveredinthiswebinar.
6EnergyAnalysisandEnvironmentalImpactsDivision
FourPerspec4vesonFixedCostRecovery Wood/Hemphill
(utility)Howat
(consumer)Cavanagh
(environmental)Borenstein(economist)
Higherfixedcharges 8 0 0 91
Minimumbills 0 4 4 0
Demandcharges 8 0 82 0
Time-varyingrates 0 4 4 43
Tieredrates 0 4 4 0
Revenuedecoupling 0 44 45 0
Frequentratecases 86 9 0 0
Formularateplans 4 87 8 0
Lostrevenueadjustmentmechanisms
0 0 0 0
0 Poor 9Better 8 Good 4 Preferred
1Firstsetvolumetricpricetoreflectactualsocialmarginalcosts,includingcostsofexternalitieswhetherornottheutilityhastopaythosecosts.2Linkedtoperiodsofcoincidentpeakandsubjecttonegotiatedresolutionofimportanttechnicalissues. 3Reflectingfullsocialmarginalcost,withtheremainingrevenuerequirementbalancedbetweenhighervolumetricratesandhigherfixedcharges.4Assuminganumberofsafeguardsareimplemented(seereport).5Necessarybutnotsufficient.6Incombinationwithaformularateplanandonlyforsettingrevenuerequirement;ratedesignissuestobeaddressedlessfrequently(e.g.,everythreeyears).7Implementationofformularatesshouldnotdenyutilitycustomersandotherstakeholderstheabilitytoperiodicallyreviewandlitigateautility’scoststructure.
7
8EnergyAnalysisandEnvironmentalImpactsDivision
Please use the chat box to send us your questions and comments any time during the webinar. You may want to direct your question to a specific author. We’ll address as many questions as we can following the presentation. The report and webinar slides are posted at feur.lbl.gov
ProvidingaRegulatoryPathfortheTransforma4on
oftheElectricU4lityIndustry
LisaWood,Execu4veDirectorIns4tuteforElectricInnova4on
RossHemphillRCHemphillSolu4onsLLC
9
Threekeytrendsinelectricpowerindustryareimportanttoday!
• Majortransi,ontocleanenergyo U.S.carbonemissionsare20%below2005levelsasofEOY2015o U.S.carbonemissionswere15%below2005levelsasofEOY2014
• Moredigitalanddistributedpowergrido Digi,za,onofthepowerindustryiswellunderwayo Distributedenergyresourcesaregrowingexponen,allyo Bigdata:howaredatabeingusedtogeneratevalue?
• Individualiza,onofcustomerserviceso Fromlargecorpora,onswithsustainabilitygoalstoresiden,alcustomerswho
wanttobuyintosolarormanagetheirenergyo “Asaservice”businesses
10
Trend1.Majortransi,ontocleanerenergyin10yearsinU.S.genera,onmix(EIA)
U.S. Electricity Generation Mix 2005
U.S. Electricity Generation Mix 2015
11
Trend2.Powergridbecomingmoredigitalandcomplexandintegra,ngmoredistributedenergyresources
Note: Industry capex $103.3 billion in 2015
12
Trend3.Individualiza,onofcustomerservices
• Largecorpora,onswithsustainabilitygoals–increasinglysigningcontractswithu,li,esfor100%renewableenergy.MorethanRECso energy+RECso Statepolicyissue:aretheresourcesand
tariffsinplacetooffertheseservices?
• Residen,alsolarop,ons:privateandu,lity-offeredsolaro Statepolicyissue:whocanofferwhich
typesofsolartocustomers?• Newbusinessesofferingservices
o EdisonEnergy-Energyasaservicemodelo Current-GE’snewenergybusiness
13
Regula,onsandpolicieswillfacilitateorblockthepaceofchangeintheseareas
• Aswetransi,ontoacleanenergyfuture,howistheu,litybusinessmodelchanging?
• Asthepowergridbecomesincreasinglydigitalanddistributedo Howdowevalue&pricethepowergrid?o Howdowevalue&pricedistributedenergyresources?
• Ascustomersdemandmoreindividualiza,onofservices,howmustregula,onchangetoallowflexibilityinofferingservices?o Atminimum,cri,caltobegintopricegridservicesappropriately
14
Guidelinesforpricinggridservices
• Approacheswerecommendandwhyo Formularatemakingapproacheso Appropriatecost-basedapproaches
§ Fixedcharges§ Demandcharges
• Approacheswedon’trecommendandwhyo Decouplingo Lostrevenueadjustmentmechanism(LRAM)o Minimumbill
15
Recommended:Formularatemaking
• Anapproachtosevngtheappropriatelevelofrevenuerecoveryonanannualbasisthroughastreamlinedregulatoryprocess.UsingIllinoisasanexample:
It
• Itisstreamlinedduetothreecomponentsoftheprocess:1. Allowedreturnonequityisasimplearithme,ccalcula,onusingknownand
transparentinputs;2. Costalloca,onandratedesignarenotpartoftheprocess;and3. Determina,onofanumberofissuesfrequentlyli,gatedisse^ledbylaw.
16
FormularatemakingII
• IllinoisApproach:Simpleandmethodicalo U,li,esrequiredtomakefilingseachyearbyMay1tosetratesstar,ngJanuary1offollowingcalendaryear
o Forexample,filingMay1,2016,willbeforrateyearstar,ngJanuary1,2017
o Commissionhas240daystomakedecisiono AllstepsinanormalratecasetakeplacepriortoCommissiondecision
• Updatedcostinforma,oneachyearusingFERCForm1
• Reconcilia,onofpreviouslyapprovedrevenuerequirementusingupdatedinforma,on
• Illinoisisinthe5thyearofthisformulaprocess17
FormularatemakingIII
• Howhasthisworked?Resultsayer5yearsinIllinois:o Cri,calinfrastructureinvestmentsarebeingmadeo Reliabilityandcustomerserviceperformanceareathistorichighs
o Customersa,sfac,oncon,nuestoclimbo Total(all-in)electricratesremainatorbelowinfla,onrate
• AMIdeploymentisaheadofscheduleo Over20millionmanualmeterreadshavebeeneliminatedthusfar–andsmartmeterdeploymenthasjustexceeded50%.
o Becauseoftheformula,thesesavingsflowbacktothecustomerseveryyearwiththeannualfiling.
18
Recommendedcost-basedpricingapproaches
• FixedCharges–onecost-basedapproacho Transparencyinpricinggridservices:Movetowardfixedandvariablechargesthatarecommensuratewithfixedandvariablecosts
o Currentfixedcharges(e.g.,customercharges)arefarbelowleveloffixedcostsincurredbyu,li,es§ Forexample,fixedcostsforComEdarealmost50%ofcustomerbillyetmostofthisiscollectedviavolumetriccharge(notcustomercharge)
§ Somestakeholdersareopposedtochargingdirectlyforfixedcosts.
• DemandCharges–anothercost-basedapproacho C&Icustomershavehaddemandchargesinplaceforlong,me
§ Rewardshigherloadfactorconsump,onbehavior§ Incen,vizesdemandresponseandenergyefficiencyascustomersrespondtopricesignalstoreducetheirbills
§ But,maybeverydifficulttocommunicatetoresiden,alcustomers19
Approachesnotrecommended
• Revenuedecoupling&LRAMapproaches• Expostadjustment(ortrue-upmechanism)thatassuresfixedcostrecoverywhenenergysalesdecline(e.g.,typicallyusedforenergyefficiency)
• AlthoughdecouplingworksforEE,thecostshiyforDGismuchgreaterpercustomer.Hence,decouplingexacerbatesthewell-knownDGcostshiyingissue!
• Minimumbill• Fixed-variablepricesignalsremainthesamebutthecustomerpaysaminimumbilleachmonth
• Nottransparenttocustomer(e.g.,fullcostofgridservicesnotshown)
• Quitesimilartocurrentcustomerchargewithsameissuessinceminimumbillamountunlikelytorecoverfullcostofgridservices
20
Finalthoughts• Electricu,litycompaniesprovidebothgridservicesandenergy
servicestodayo Yet,greatreluctancetochargeforgridservicesdirectly!
• Whatisthewayforward?o Adopttransparencyinpricingforgridservicesandenergyo Manyop,onsandapproaches–wedescribedafew
§ Formularatemaking(e.g.,Illinois)§ Chargingdirectlyforfixedcosts(e.g.,increasecustomercharge)§ Demandcharges
• Whyisthisimportantnow?o Asnumberofdistributedenergyresourcescon,nuestogrow,powergridisincreasinglyimportantastheintegratorandenablerofDERs
o Cri,caltopricegridservicesright!21
EnergyAnalysisandEnvironmentalImpactsDivision
Formoreinforma,on
22
LisaWood
VicePresident,EdisonFounda,onExecu,veDirector,Ins,tuteforElectricInnova,onlwood@edisonfounda,on.netwww.edisonfounda,on.netRossHemphillPresident,RCHemphillSolu,onsFormerVP,RegulatoryPolicy&Strategy,[email protected]
23EnergyAnalysisandEnvironmentalImpactsDivision
Please use the chat box to send us your questions and comments any time during the webinar. You may want to direct your question to a specific author. We’ll address as many questions as we can following the presentation. The report and webinar slides are posted at feur.lbl.gov
AConsumerAdvocate’sPerspec4veonElectricU4lityRateDesignOp4ons
forRecoveringFixedCostsinanEnvironmentofFlatorDeclining
Demand
JohnHowatNa4onalConsumerLawCenter
24
TheU,lityIndustryinTransi,on:Themorethingschange…
• Genera,onandend-usetechnologiesandeconomics
• Advancedcommunica,oncapabili,es
• Flatordecliningsales
• U,litybusinessmodelassump,ons
• Regulatorymodelsandassump,ons?
25
…themoretheystaythesame
• Homeenergyserviceremainsabasicnecessityoflife– Enduses
o Hea,ngo Coolingo Ligh,ngo Refrigera,ono Communica,on
– Uninterruptedaccessrequiredtoensurehealth,safety,andeffec,vesocietalpar,cipa,on
• Homeenergycostsandbenefitsareregressivelydistributed
26
UnderlyingAssump,onsandBiases
• Toensureuninterruptedaccesstoaffordablehomeenergyservice:– Retaineffec,veregulatoryoversightofu,lity
o Procuremento Pricingo Termsofserviceo Billingo Customerserviceo Creditandcollec,ons
Effective regulatory consumer protections
Control costs affecting rates and bills
27
UnderlyingAssump,onsandBiases(cont.)
• Toensureuninterruptedaccesstoaffordablehomeenergyservice:– Preservethelong-termviabilityofu,litydistribu,oncompaniesthatretaintheobliga,ontoserveallcustomers
• Energyefficiencyistheleast-cost,premiumenergyresource
• Theu,lity“throughputincen,ve”iscounterproduc,vetoimplementa,onofeffec,veenergyefficiencyprogramming.
28
IncreasedFixedCustomerCharges
• Since2014electricu,li,esinatleast34stateshaveproposedtoshiyrecoveryofrevenuerequirementsfromvolumetricchargestomonthlyfixed,customercharges.
• Intra-classcostshiy– Shiyscostswithinarateclassfromhigh-volumeconsumerstolow-volumeconsumerswithinarateclass
– DatademonstratesthatinnearlyallregionsoftheUSelectricityusageisbelowtheresiden,alclassaveragefor:o Low-incomehouseholdso Elderhouseholdso Householdsofcolor
• Diminishedefficiencyincen,veandcustomercontroloverthebill
29
MadisonGas&ElectricCompany-Compara,veBillImpact:Low,AverageandHigh-VolumeResiden,alGeneralServiceCustomers
Low-volumeCustomer Average-volumeCustomer High-volumeCustomer
MonthlyUsage(KWH) 450 900 1400
Ini,alMonthlyCustomerCharge $10.44 $10.44 $10.44
RevisedMonthlyCustomerCharge+GridConnec,onCharge $19.00 $19.00 $19.00
Ini,alVolumetricCharge $0.13992 $0.13992 $0.13992
RevisedVolumetricCharge $0.12986 $0.12986 $0.12986
Ini,alMonthlyBill $73.40 $136.37 $206.33
RevisedMonthlyBill $77.44 $135.87 $200.80
$Increase $4.03 ($0.49) ($5.52)
%Increase 5.5% -0.4% -2.7%
30
3,964
6,186
7,368
8,201
9,956
3,794
4,806
5,814 6,043
9,731
<$25,000 $25,000-$49,999
$50,000-$74,999
$75,000-$99,999
>=$100,000 <$25,000 $25,000-$49,999
$50,000-$74,999
$75,000-$99,999
>=$100,000
Connec4cut,Maine,NewHampshire,RhodeIsland,Vermont Massachusees
Median2009Residen4alElectricityUsage(KHW)byIncomeCategory:MAandCT/ME/NH/RI/VT
31
4,702
7,464
4,224
6,056
<=150%FPL Over150%FPL <=150%FPL Over150%FPL
Connec4cut,Maine,NewHampshire,RhodeIsland,Vermont Massachusees
Median2009Residen4alElectricityUsage(KHW)by150%PovertyStatus:MAandCT/ME/NH/RI/VT
32
5,277
7,377
4,526
6,030
65orMore Lessthan65 65orMore Lessthan65
Connec4cut,Maine,NewHampshire,RhodeIsland,Vermont Massachusees
Median2009Residen4alElectricityUsage(KHW)byAgeofHouseholder:MAandCT/ME/NH/RI/VT
33
3,831
5,988
7,265
4,6634,343
5,890
AsianAlone BlackorAfrican-AmericanAlone
WhiteAlone AsianAlone BlackorAfrican-AmericanAlone
WhiteAlone
Connec4cut,Maine,NewHampshire,RhodeIsland,Vermont Massachusees
Median2009Residen4alElectricityUsage(KHW)byRaceofHouseholder:MAandCT/ME/NH/RI/VT
34
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Conn
ec,cut,M
aine
,New
Ham
pshire,R
hode
Island
,
Massachuse^
s
New
York
New
Jersey
Penn
sylvania
Illinois
Indiana,Ohio
Michigan
Wisc
onsin
Iowa,M
inne
sota,N
orthDakota,Sou
thDakota
Kansas,N
ebraska
Missou
ri
Virginia
Delaware,Districto
fColum
bia,M
aryland,W
est
Georgia
NorthCarolina,Sou
thCarolina
Florida
Alabam
a,Ken
tucky,M
ississippi
Tenn
essee
Arkansas,Lou
isiana,Oklahom
a
Texas
Colorado
Idaho,M
ontana,U
tah,W
yoming
Arizo
na
Nevada,New
Mexico
California
Alaska,H
awaii,Oregon,W
ashington
Total
Average2009HouseholdElectricityUsage(KWH)byStatusAboveorBelow150%ofPoverty
Income+150%FPL
Income<=150%FPL
Source: U.S. Energy Information Administration, 2009 Residential Energy Consumption Survey
National Consumer Law Center, June 2014
35
RevenueDecoupling-AbridgedCatalogofConsumerAdvocateObjec,onsandConcerns
• Lossofabilitytoli,gateau,lity’scoststructure– Tracker/riderapproachtoregula,on– Revenuesdonotnecessarilytrackcosts
• U,lityriskmi,ga,onwithnocommensuratebenefittoconsumers
• Increasedpricevola,lity• Proposedasmechanismtopromoteenergyefficiency– Nodirectlinktou,lityEEinvestmentlevel– EEmandatedbystatuteinmanystatessononeedfordecoupling
• Increasedcustomerconfusion(“ThelessIusethemoreIpay?”)
36
DecouplingDesignElementstoProtectConsumersandAddressAdvocates’Concerns• Regulatoryreviewofu,litycoststructuretoresettherevenuebaseline
– Incorporateappropriatemechanismtoaccountformodifiedu,lityriskprofile
– Timingandapproachcontroversial– Regulartrue-upofundepreciatedvalueofu,litycapitalinvestments– Fullratecaseevery3years?
• Cap/collaronupwardpriceadjustments• Limitcostadjustmentsbetweenratecases
– #customers– O&M
• CommitmentsregardingtargetedEEinvestmentandimplementa,on– Commitmentsaboveandbeyondpre-exis,ngmandates– e.g.,hardtoreachresiden,alcustomers,whole-house,deepresiden,al
retrofits• Combinewithproposaltoimplementincliningblockratestructure
– Surchargetotailblock– Surcredittoini,alblock
37
Time-varyingrates
• IFPROPERLYDESIGNEDANDIMPLEMENTED,mayallowsomeindividualcustomerstoreduceenergybills– Poten,alforadverseimpactsonconsumerswithlessabilitytoshiyusageo Applianceinventoryo Usageneedsandpa^ernso Accesstoenergyefficiency,genera,onandmanagementresources
• In2015,52Mresiden,alsmartmetersamong123MUShouseholds
• AbsentARRAfunding,newAMIdeploymenthasslowedconsiderably
38
TVRVariantsandResiden,alConsumers
• Time-of-Use(TOU)– Presetintariff,varypredictablyby,meofdayorseasono Mostpredictable
• Cri,calpeakpricing(CPP)– Pre-setpricingforspecified#ofdaysorhoursduringpeakmonthso Lesspredictable
• Real-,mepricing(RTP)– Tiedtowholesalepowermarkets
o Leastpredictable39
AMIEssen,alConsumerProtec,ons
• Costs– Smartmeterproposalsmustbecost-effec,ve– U,li,esmustsharetherisksassociatedwithinvestmentsinnew
technologies• PlanningFramework
– Considerfullrangeofalterna,vesavailabletomeetpredeterminedpolicygoalsandobjec,veso e.g.,regulatorsshouldassessforcost-effec,venessallalterna,vestoAMItomeet
systempeakreduc,ongoals,suchasdirectloadcontrolprograms• Pricing
– Time-basedordynamicpricingmustnotbemademandatory–opt-in– Anynewdynamicpricingstructureshouldberolledoutwith“shadow
billing”andlow-income“holdharmless”provisions– Pre-paidserviceshouldnotbeallowed–especiallyinlow-income
households• See“AddiConalSlides”atendofwebinarslidedeck
40
OtherRateDesignOp,ons
• MinimumBills– Minimumconsump,onlevel– Minimumbillamount
• Residen,alDemandCharges– Consumercontrol/response– Coincident–non-coincidentcharges– See,me-varyingratesconcerns
• FormulaRates– Performancestandards– Doesnotmi,gateconsumerinterestinperiodicallyli,ga,ngu,litycoststructure
41
Since1969,thenonprofitNa4onalConsumerLawCenter®(NCLC®)hasworkedforconsumerjus,ceandeconomicsecurityforlow-incomeandotherdisadvantagedpeople,includingolderadults,intheU.S.throughitsexper,seinpolicyanalysisandadvocacy,publica,ons,li,ga,on,expertwitnessservices,andtraining.www.nclc.org
42John Howat: [email protected]
43EnergyAnalysisandEnvironmentalImpactsDivision
Please use the chat box to send us your questions and comments any time during the webinar. You may want to direct your question to a specific author. We’ll address as many questions as we can following the presentation. The report and webinar slides are posted at feur.lbl.gov
EnvironmentallyPreferredApproachesforRecoveringElectric
U4li4es’AuthorizedCostsofServices:Op4onsforSekngandAdjus4ng
ElectricityRates
RalphCavanaghNaturalResourcesDefenseCouncil
44
Figure2.PeakandEnergyImpactsbyLevelizedCostBundlefor2035–NorthwestPowerandConserva@onCouncil
46NorthwestPowerandConserva,onCouncil,SeventhNorthwestConserva,onandElectricPowerPlan,Chapter12:Conserva,onResources,p.12-6,h^ps://www.nwcouncil.org/media/7149675/7thplandray_chap12_consvres_20151020.pdf
47EnergyAnalysisandEnvironmentalImpactsDivision
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TheEconomicsofFixedCostRecoverybyElectricU4li4es
SeverinBorenstein
HaasSchoolofBusinessandEnergyIns4tuteatHaasUniversityofCalifornia,Berkeley
48
Why is there a Cost Recovery Problem? n Because prices matter
q For Economic Efficiency – prices that deviate from full social marginal cost create deadweight loss, i.e., reduce the total wealth created in the economy
q For Equity – particularly the sense that fairness suggests large-quantity consumers should pay more towards recovering a revenue shortfall than small-quantity consumers
q For Income Distribution – with concern about a widening income inequality, desire to assure that low-income households can afford basic necessities such as energy
n As supply and energy efficiency options grow q tariff policy can no longer focus only on equity and distribution q volumetric sales decline, making existing tariffs less sustainable
49
Why we care about efficient pricing: setting price equal to social marginal cost n Departures from efficient pricing cause behavior
that reduces economic value creation n Price greater than social marginal cost
discourages consumption that creates value q If SMC=$0.10, but utility charges P=$0.20, discourages
consumption that creates value n Makes cost of charging an electric vehicle gasoline equivalent price
of $3.15/gallon rather than $1.58/gallon n Or discourages outdoor lighting that improves safety
n Price below SMC encourages overuse q Setting P<SMC encourages insufficient energy efficiency and
wasteful use
50
So, start from setting volumetric price to reflect social marginal cost n Social => includes costs of externalities whether
or not the utility has to pay those costs q If utility doesn’t have to pay, pricing externalities is still efficient,
and it raises additional revenue
n Marginal cost => q Short-run MC: electricity price is time-varying q Does not include costs that are sunk or fixed at that time q But that DOES NOT mean that setting p=SMC generates no
revenue towards paying fixed and sunk costs
51
Efficient pricing will generate revenue towards fixed and sunk costs
Demand
Marginal Cost
P
Q
Revenue in Excess of Marginal Cost
52
More so if externalities are not paid by utility, but still priced in electricity
Demand
Marginal Cost
P
Q
Social Marginal Cost
Additional revenue from pricing externalities
Revenue in Excess of Marginal Cost
53
But for most utilities, efficient pricing will still yield revenue shortfall n Because much of distribution costs are fixed
relative to quantity of electricity consumed n Because utility revenue covers many other costs
that are not marginal q Low-income, DG and EE programs. Expensive past contracts.
n Because reduced quantity means low SMC n Plus declining demand due to DG and EE
makes the revenue shortfall greater q Because price is set above MC, so decline in quantity reduces
net revenue
54
Options for Recovering Revenue Above Efficient Time-Varying Pricing
n Average Cost Pricing q Recover all additional revenue from flat volumetric adder
n Fixed Charge (independent of quantity consumed) n Tiered Pricing
q Increasing-block or Decreasing-block pricing
n Minimum Bills n Demand Charges
q Traditional definition: customer non-coincident peak usage q New usage: customer non-coincident usage during peak period
n Frequent rate cases or Decoupling
55
Fixed Charges
n Very attractive on efficiency grounds because almost no elasticity of connection in response
n But real issues of equity q Should my home’s fixed charge be the same as Google’s? q Distinction based on usage means it’s not a fixed charge
n Concern about impact on low-income consumers n Claim that “Fixed costs should be recovered with
fixed charges” has no basis in economics
56
Tiered Pricing n Possible to combine with time-varying pricing,
but tariff can be complex q e.g., time-varying energy pricing combined with tiered adder price
n Increasing-block redistributes income, but q Very poorly targeted way of helping low-income q Equity issue when no adjustments for number of occupants q Some customers’ prices deviate greatly from SMC
n Decreasing-block q A midpoint between fixed charge and flat volumetric pricing q Possibly viewed as more equitable than fixed charge q Can make efficiency sense if SMC is lower than P needed to
meet revenue requirement
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Minimum Bill is never the best option n A minimum bill is identical to a fixed charge plus
free electricity P=$0.10/kWh and minimum bill=$8 is identical to Fixed Charge=$8, 80 kWh free, then P=$0.10
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Alternative to Minimum Bill n Lower fixed charge, marginal price that reflects the
full marginal cost (including pollution externalities) Instead, if SMC=$0.06, set F=$3.20 P=$0.06 for first 80kWh P=$0.10 for more kWh => Exact same bill amount for anyone consuming more than 80kWh, slightly lower for less than 80kWh => Or, F=$8 and lower marginal price towards efficient level 59
Demand Charges n Old “demand charge” – non-coincident peak –
had only cost basis in customer’s service level q Why not charge directly for service level?
n New “demand charge” – for customer peak usage during peak period q An inefficient and more-volatile version of dynamic pricing
n Even peak-period demand charge fails to address actual level of system stress
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Frequent Rate Cases or Decoupling
n May be potential cause of A revenue shortfall, but not cause of THIS revenue shortfall
n Cost recovery when P=social marginal cost raises insufficient revenue is not a problem of regulatory lag q and wouldn’t go away if lag did
n Very important to identify what problem we are trying to solve
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Conclusion n There is no perfect answer to meeting the
revenue shortfall from efficient pricing n But some answers are a lot better than others n Fixed charges should play a role, possibly based
in part on service levels n Marginal prices should have to meet real social
marginal cost test, not vague goals n Some old tariff designs – demand charges and
minimum bills – may be comfortable, but don’t meet the cost-based test
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Ques,ons?
?
63EnergyAnalysisandEnvironmentalImpactsDivision
Please use the chat box to send us your questions and comments. You may want to direct your question to a specific author. The report and webinar slides are posted at feur.lbl.gov
ElectricityConsump,onGraphsandTables
• Websitedetailingelectricityconsump,onby– Incomecategory– Raceofhouseholder– Ageofhouseholder
• h^p://www.nclc.org/energy-u,li,es-communica,ons/u,lity-rate-design.htmlorGoogle“NCLCratedesign”
• U.S.EnergyInforma,onAdministra,on–Residen,alEnergyConsump,onSurvey
• 27“ReportableDomains”• ClickonstateorregiononUSmap
65
4,785
7,119
4,764
5,827
La4no/Hispanic NotLa4no/Hispanic La4no/Hispanic NotLa4no/Hispanic
Connec4cut,Maine,NewHampshire,RhodeIsland,Vermont Massachusees
Median2009Residen4alElectricityUsage(KHW)byEthnicityofHouseholder:MAandCT/ME/NH/RI/VT
66
AMI:ConsumerAdvocateQues,onsandConcerns
• Cost– Isfulldeploymentofsmartmetersandrelatedcommunica,on
infrastructuretheleast-costmeansofachievingloadreduc,onandsystemopera,onspolicyobjec,ves?
– WhoassumesthecostriskofAMIinvestment?Whopaysifan,cipatedu,litysystembenefitsdonotmaterialize?
• Dynamicpricingwinnersandlosers– Willconsumerslessabletorespondto“pricesignals”bepenalized?
• Remotedisconnec,on– Willthenewabilitytoshutcustomers’serviceoffremotelyincreaserates
oflow-incomehouseholdservicedisconnec,on?
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AMIEssen,alConsumerProtec,ons
• Nodegrada,onofexis,ngconsumerprotec,onsrelatedtodisconnec,ons,no,fica,onbymailofdisconnec,ons,etc.
• ConsumerEduca,on– Includecomprehensiveconsumereduca,onandbillprotec,onprogramsinanyevalua,onorimplementa,onofsmartmeters
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ForMoreInforma,onontheSeries
69
LisaSchwartzElectricityMarketsandPolicyGroup
LawrenceBerkeleyNa,onalLaboratory(510)486-6315
EnergyAnalysisandEnvironmentalImpactsDivision