Dive Brief:

• Montana Dakota Utilities (MDU) has withdrawn its request to the Montana Public Service Commission for a demand charge for residential customers with distributed solar or other distributed energy resources (DERs), the Billings Gazette reports. The demand charge proposal was withdrawn after outcry from renewable energy companies and advocates. 
• The $1.50/kW demand charge was proposed as part of MDU’s June 2015 rate case. In that filing, the utility also proposed a 21% rate increase in volumetric charges and a fixed charge increase from $5.40 per month to $7.50 per month for all residential customers, neither of which it withdrew. 
• The fixed charge and volumetric rate increases are necessary, according to MDU, for costs of power plant retrofits to meet federal clean air standards. The Commission is expected to make its decision on the proposal by March 2016.

Dive Insight:

MDU’s justification for the demand charge to DERs owners echoes requests to regulators being lodged by utilities across the country. Like MDU, utilities say stagnant load growth and proliferation of DERs is compromising their ability to recover infrastructure costs normally financed through volumetric (per kWh) energy charges. 

MDU and other utilities argue in this context that the cost for grid upkeep is being shifted to customers without DERs, because those with their own generation pay less into the system. Over the past few years, power companies have sought to correct that cost shift by increasing fixed charges, a move that regulators have reacted to largely with apprehension, even when the proposals are approved. 

A recent review of proposed fixed charge increases by Renew Wisconsin found 35 utility requests in 2014 and 2015. 14 were denied by regulators outright and 18 utilities were allowed scaled-back increases of between $0.01 and $4.30 per month. Only in three cases observed by the clean energy non-profit were the fixed charge increases approved in full. 

While U.S. utilities continue to file fixed charge increases across the country, strong opposition to the charges from renewable energy advocates and companies is increasingly pushing regulators for more balanced approaches to rate design. At a recent regulatory conference in Texas, officials from the Edison Electric Institute and Regulatory Assistance Project stressed the need for rate designs that encourage the proliferation of DERs while also accounting for infrastructure costs. 

Much like the recent rate design reform in California, RAP envisions a three-part residential rate: A low fixed charge, time-of-use pricing, and inclining block rates.

In addition to the three-part design, RAP researchers would include a residential demand charge and a critical peak pricing component “for the 10 or so times a year when the grid is really stressed.” Those demand charges, like the one withdrawn by MDU, can encourage the deployment of customer-sited storage, but should be implemented carefully as a part of a larger rate design reform, RAP analysts said. 

The difference between a good and a bad rate design can be significant for utilities. When taking into account expected increases in electricity consumption from poorly designed rates, the RAP team estimates that “the difference between good and bad rate design can mean a 15% difference in customer usage.”