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Time is on your side: Transitioning rates to better prepare for a DER future

In my 15+ years in the electric power sector, I’ve learned that (1) Change doesn’t necessarily have to happen overnight, but, rest assured, it will happen eventually; and, (2) Everything’s negotiable.  These tenets were put to the test during my “Rethinking Rate Design” panel at SEPA’s recent Grid Evolution Summit: A National Town Meeting in Washington, DC. This panel was intended to tee up how rate design should evolve to better accommodate distributed energy resources (DERs) and in keeping with the interactive nature of the conference, we chose to challenge the audience to do it themselves.

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The challenge was this: over a three-step, long-term time frame, design a rate reform transition plan.  Setting the stage for the challenge were three expert speakers, each providing a brief overview of rate reform initiatives being pursued nationally:

  • Jan Ahlen, Senior Regulatory Affairs Manager, NRECA discussed the cooperative utility perspective on opportunities and risks from new technologies, evolving consumer preferences, and the need for multiple outcomes, reminding the audience that there is no one-size-fits-all rate solution.
  • Doug Benevento, Vice President of Public Affairs, Xcel Energy provided an update on Xcel’s time-of-use (TOU) pilots with and without demand charges, efforts to educate consumers on how to save under different rate designs, and the design principles that guided Xcel’s rate transformation process.
  • David Littell, Principle, RAP covered ratemaking foundational topics such as dynamic pricing, coincident versus non-coincident demand charges, and innovative electric vehicle rates to show the audience how cutting edge rate design can work in concert with new technologies.

From there, we provided the participants with a hypothetical utility. The key elements were that:

  • They represented a vertically integrated utility
  • 60 percent of the utility’s costs were fixed and 40 percent variable
  • Current residential rates featured a low fixed charge and no demand charge
  • TOU rates have not yet been deployed
  • While DERs were not yet widespread, they were certainly coming
  • Each group could self-define the current deployment of AMI

From there, each group spent a half hour discussing and debating how to transition rates to better prepare for a future of high DER penetration.  Groups were given the ability to first define their overarching rate design guiding principles.  Some groups targeted sustainable cost recovery, while others focused on simplicity in rate design.  Many identified equity and fairness across all parties.

With those principles as a basis for their rate transformation, each group then buckled down to the hard part.  The biggest piece of advice we offered?  Know where you’re going, and then figure out how to get there.  Here are samples of what different groups produced from this initiative.


Group 1


Group 2


Group 3


Group 4


Group 5


Group 6


Looking back at these and many of the others created during our brief exercise, it is striking how each one leverages TOU rates during the transition – often as the very first change initiated.  And from this initial launch of TOU, more complex rate reforms are realized.  One group goes from opt-in TOU to opt-out, to full scale dynamic pricing.  Another incorporates location-based price differentiation.  Several introduce residential demand charges.  The end points differ in most cases, but the paths taken have enough similarities that they can be informative for jurisdictions trying to launch just these types of conversations.

Based on past experience in facilitating stakeholder processes, it is paramount to identify areas of commonality early on so that, as differences occur, they can be discussed from a basis of prior agreement and consensus.

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The viability of thinking several steps ahead with regards to major transformations such as this was hammered home earlier this year during a SEPA webinar on the stakeholder process initiated by NorthWestern Energy in Montana.  This stakeholder initiative was designed to solicit pilot program ideas from NorthWestern’s broad stakeholder community.  As part of that initiative, the CEO, Bob Rowe, asked each stakeholder to come and discuss what they hoped the utility would look like 10 years into the future.  A wide array of ideas were presented, including the advancement of DERs, TOU rate alternatives, support for low income customers, and a focus on innovation.

What was Bob Rowe’s response to those 10-year visions at the end of that stakeholder meeting? He agreed with 80% or more of what had been presented and the other 20% could easily be worked out given enough time.  On the SEPA webinar, he expanded on that thought: “In the near-term, differences seem often very large and tough to get around…. In the long-term, often those differences don’t seem as significant.”  During the final meeting of that process, stakeholders collaborated together on the design of two new pilot initiatives, and NorthWestern Energy has been actively pursuing the completion of the first, with plans to then move on to the final pilot project.

At SEPA, we encourage all stakeholders to think like Bob Rowe did, and to collaborate like those that attended our panel at the Grid Evolution Summit.  Identify directionally where you need to head and work on the incremental phases to get there.  You’ll find that agreements are much easier to come by when sufficient time is provided and strategic vision laid out in advance.  Because, all else being equal: (1) Change doesn’t necessarily have to happen overnight, but, rest assured, it will happen eventually; and, (2) Everything’s negotiable.

Editor’s note: For those interested in completing this exercise themselves, we have provided the worksheet from the conference. If you think you’ve created a better rate transition for a DER future, or would like to learn more about SEPA’s stakeholder facilitation experiences, please email [email protected].