Rate Design Guiding Principles

  1. Ensure safe, reliable, affordable, and environmentally responsible electricity service today and in the future.
  2. Promote economic efficiency over the short and long term.
  3. Enable a fair opportunity for utility cost recovery of prudently incurred costs and revenue stability.
  4. Fairly compensate distributed energy resources for energy services and other attributes provided.
  5. Create a stable and favorable investment climate for least cost investments.
  6. Ensure that all customers have a meaningful and affordable opportunity to manage their consumption of electricity services in ways to maintain stability and affordability of bills.
  7. Equitably allocate costs to classes and design rates to customers reflective of cost causation (without an “undue” level of cross-subsidization)
  8. Be simple, understandable, easy to administer, and transparent to customers.
  9. Ratepayers must be able to understand significant reforms and have a basis on which to respond and manage bills.
  10. Where changes to rates are contemplated, apply principles of gradualism and continuity.
  11. Promote policy goals (e.g. environmental, energy diversity, low income energy security/burden, power/data security).

Recommendations to Structure Discussion on Rate Design for Docket 4600

Step 1: Common understanding of current rate design and net metering

  • Electric bills for residential customers in Rhode Island combine a low fixed monthly charge with flat rate for electricity consumed and delivered charged on a per kWh basis.[1]
  • Commercial bills are a combination of fixed monthly charges, demand rates charged on a kW basis[2], and flat rates for delivery charged on a per kWh basis.
  • Net metering: DG customers are generally compensated at the retail electricity rate for net generation.[3]

Step 2: What are the benefits and limitations of the current rate design and net metering structure? (What problem are we solving and what opportunities are we seeking to create?)

  • What does the current rate structure do well?
  • Simple mechanism to recover utility costs[4]
  • Promotes investments in energy efficiency
  • Protects low-income customers
  • Retail rate net metering is simple, easy to understand, and supports distributed generation.
  • Where is the current rate structure insufficient?
  • Traditional rate design is static and inflexible, resulting in inadequate incentives for customers to manage generation and consumption to optimize grid performance and efficiency.[5]
  • Potential current or future cost shifts/under-recovery from DER customers[6]

Step 3: What functionalities/potential do we want rate design to support?

  • Increasing adoption of distributed energy resources, including distributed generation (i.e., requirements of RIGL §39-26.6-24)
  • Price signals that enable a range of technologies and strategies to manage generation and load(and storage) to reduce peak demand, to use generation capacity more effectively, and utilize grid resources more efficiently. Rate design should empower all customers to benefit from customer-side energy resources and improved time of use
  • Equitable access to clean energy
  • Protection of low-income ratepayers.
  • Strategic electrification (electric vehicles; heat pumps) including electric technologies’ ability to use distributed generation to strategic advantage[7]
  • Equitable recovery of costs for use of the distribution grid, and support for its evolution as a platform, facilitator and coordinator of distributed resources.
  • Utility facilitation that can lower both energy and system costs for long term.

Step 4: Identify Short-Term and Long-Term Options

  • Scope: Enabling technologies
  • Implementation of long-term rate reforms to achieve the functionalities described above will require advanced metering, energy management technology that is affordable for small customers, and significant customer education efforts.
  • Short-term steps must advance the functionalities described above and be part of a long-term plan for enabling comprehensive long-term regulatory and rate reforms.
  • Scope: energy; distribution; transmission.
  • Scope: rates paid for energy consumed; value credited to net energy generated
  • Scope: are additional reforms are needed to realize the full potential of rate design reforms?
  • How do existing rate design options line up with functionalities we want rate design to support?
  • New rate design concepts that will provide a rational framework that supports new functionalities and potential real time management capabilities.

[1] The LIHEAP enhancement charge and RE Growth Program Charge are also fixed monthly charges. All other residential charges are flat and collected on a per kWh basis.

[2] National Grid’s commercial demand charges are based on non-coincident peak demand. The pros and cons of demand charges based on coincident and non-coincident peak demand should be discussed.

[3] Generation from net metering systems up to 100% of onsite consumption receives the ‘renewable net metering credit’ rate, which is the sum of standard offer service, distribution, transmission, and transition charges. Generation in excess of 100% of onsite consumption (and below 125% of consumption) is credited at the ‘Excess Renewable Net Metering Credit,’ which includes the standard offer service charge rate alone. Importantly, both net metering credits exclude the Renewable Energy Distribution Charge (including net-metering and long-term contracting charges), the REGrowth charge, the LIHEAP Enhancement Charge, and the Energy Efficiency Program Charge. A more detailed discussion on the structure of net metering in Rhode Island is important to a full discussion of rate design.

[4] Rhode Island’s electric and natural gas revenue decoupling mechanism allows the utility to recover its revenue requirement.

[5] Rate design that reflects variations in supply and delivery prices by time and location may enable greater value from dynamic load management and targeted deployment of DG.too.

[6]Size of and concerns about cross-subsidies to DG customers must account for the full range of costs and benefits. They should also be evaluated in context of other long-standing cross-subsidies and potential new uses of electricity (e.g., electric vehicles).

[7] Active load management of heat pumps and electric vehicles could absorb excess distributed generation, at high production times, as well as effectively reducing demand during peak consumption times. They might also provide certain ancillary service functions.