Editor's Note: The following is a guest post written by Brett Feldman, senior research analyst with Navigant Research, contributing to the Smart Utilities program.
It seems that certain states and utilities are competing to take the lead in utility transformation, with many fancy monikers being used. California is planning “bifurcation” of its demand response (DR) programs, where some DR resources will sit on the supply side and others on the demand side of the energy market. Baltimore Gas and Electric is rolling out a default peak time rebate (PTR) rate for all of its customers who have smart meters. New York has its Reforming the Energy Vision proceeding looking to overhaul the role of the distribution utility. Sacramento Municipal Utility District plans on putting all customers on a default time-of-use (TOU) rate by 2018. Hawaii is acting as the canary in the coal mine in dealing with the “Nessie Curve” – which displays in graphic form the challenge of integrating intermittent renewable energy, particular solar, that may overproduce during the day and quickly dissipate in the evening.
The Massachusetts Department of Public Utilities (MADPU) unveiled the latest toppers in the form of two orders covering general grid modernization and time-of-use pricing specifically. The grid modernization order requires each utility to submit a 10-year grid modernization plan (“GMP“) outlining how the company proposes to make measureable progress towards the following objectives: 1) reducing the effects of outages; 2) optimizing demand, which includes reducing system and customer costs; 3) integrating distributed resources; and 4) improving workforce and asset management. Utilities must include a 5-year short-term investment plan (“STIP”) with an approach to achieving advanced metering functionality within 5 years of the department’s approval of the GMP.
Shifting Usage
As for the tricky issue of customers who are wary of supposed health risks from advanced metering radio frequency waves, the department concluded that the best balance of these factors is to allow utilities to include the broad deployment of advanced meters, but to require them to provide customers with an option to opt out of the installation of advanced meters.
Regarding TOU, the Massachusetts regulators found that basic service (i.e., the default electricity supply provided by the utility) should include time varying rates (TVR) for all rate classes following the deployment of advanced metering. TVR supports the state’s energy and environmental policies and more closely aligns retail prices with wholesale costs. The department expects TVR to minimize the subsidies to basic service customers who over-consume during peak periods and lead to a reduction in bills for customers who consume more of their electricity during off-peak times.
Consumers are accustomed to TVR for a variety of purchases, such as hotel reservations and airplane tickets, and they are likely to adapt to it for electricity service, as well. TVR and the attendant shifting of electricity usage under such a rate structure should reduce the cost of electricity for everyone in the long term, even for those who do not respond to price signals, by reducing peak load and the attendant costs.
Driving DR
Utilities will continue to be basic service providers, and will offer two basic options: 1) a default product with a time of use (TOU) pricing structure that includes a critical peak pricing component; and 2) a flat rate with a peak time rebate option. The latter option will more closely approximate the existing basic service product for customers who prefer the status quo offering. Basic service TVR, the regulators believe, is likely to benefit to the competitive market by enabling utilities to offer other innovative products to further reduce electricity bills.
As discussed in Navigant Research’s Demand Response report, these developments at the retail level will act as important drivers for demand response (DR), especially if the US Court of Appeals upholds its overturn of the Federal Energy Regulatory Commission’s Order 745 on DR compensation. The recent EPA draft rule on regulating carbon emissions furthers the value of these state actions. New York will release its next round of reports later this summer, but perhaps a new player will enter the arena in the meantime and up the ante once again.