IEEE Power & Energy Magazine - May/June 2020 - 14

guest editorial

Ning Lu and Tao Hong

utility rate making
an intersection of economics and social good

U

UTILITY RATE MAKING IS BECOMing increasingly critical. The high penetration of distributed energy resources
changes not only the landscape of utility operating and planning practices but
also the business models that govern
how utilities recover their service costs.
The objective of power generation and
delivery has changed from considering
only the delivery of reliable and cost-effective energy services to also accounting for sustainability and minimizing
adverse environmental impacts. Today's
energy systems are evolving from traditional highly centralized suppliers to
multiple distributed small suppliers or
even self-suppliers. This evolution could
be further accelerated when major technology breakthroughs in energy storage and photovoltaics (PVs) make these
systems less expensive, more reliable,
and more efficient. All of these electric
system changes greatly affect many traditional rate-making principles, methodologies, and processes.
Many questions must be answered
to address the challenges posed by this
paradigm shift.
✔ ✔ What rate-making principles
need to be abolished, adjusted,
replaced, or added?
✔✔ How can a framework be created
to better connect the wholesale
market with the retail one and
pass price signals to customers
in a timely manner?
✔✔ Should regulators maintain the
status quo in retail rate making
Digital Object Identifier 10.1109/MPE.2020.2972665
Date of current version: 17 April 2020

14	

ieee power & energy magazine	

(considering appropriate government subsidies and policy changes) instead of making aggressive
transitions to new rate systems,
such as establishing blockchain
platforms and real-time retail
markets?
✔✔ What can be done in the policy
paradigm to accelerate changes
in the electric power industry?
✔✔ How can a level playing field be
achieved for existing infrastructures, renewables, energy storage technologies, and customerowned distributed generators to
provide grid services?
✔✔ How can reliability be best factored into rate making?
✔✔ If self-generation becomes a major way of producing electricity,
how should transmission and
distribution be priced?
✔✔ What are the best rate-making
practices for regulated and nonregulated utilities and for marketand nonmarket-based systems?

In This Issue
The articles in this issue of IEEE
Power & Energy Magazine discuss approaches, new trends, and future plans
for understanding how utilities in different countries plan to answer these
questions. Five well-written articles
discuss various aspects of utility rate
making under different operation and
regulation rules worldwide, including
the perspectives of regulated and deregulated utilities in the United States,
China, Europe, and South America.

The electricity bills sent to most
American households today consist of
two parts: a fixed monthly charge and
an energy charge based on the total energy usage of the month measured in
kilowatt-hours. The first article, "The
Tariffs of Tomorrow" by Faruqui and
Bourbonnais, explains the shortcomings of such two-part rates. The authors
also offer an outlook on tomorrow's
tariffs structured in three-part rates
consisting of a fixed monthly charge,
a time-varying charge, and a demand
charge. Moreover, they present many
case studies from U.S. utilities, such
as Arizona Public Service, Oklahoma
Gas and Electric, and Commonwealth
Edison, to illustrate various ways of
implementing the proposed rates.
The United Kingdom's energy regulator is actively reforming network
charges that facilitate a transition to a
low-carbon future. The existing pricing
methodologies reflect only the usage of
network assets by users but downplay
the unused capacity. "Flexible Network
Pricing Encourages Greater Sharing"
by Li et al., the second article in this
issue, highlights the importance of
long-term uncertainty and long-term
network investment in network pricing.
The authors propose new directions in
pricing principles that reward customers who reduce network uncertainties
and network operators who best manage the uncertainties.
"Distribution Network Rate Making in Latin America" by Moreno et al.
discusses the regulatory reforms implemented by various -r egulators in the
may/june 2020



IEEE Power & Energy Magazine - May/June 2020

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - May/June 2020

Contents
IEEE Power & Energy Magazine - May/June 2020 - Cover1
IEEE Power & Energy Magazine - May/June 2020 - Cover2
IEEE Power & Energy Magazine - May/June 2020 - Contents
IEEE Power & Energy Magazine - May/June 2020 - 2
IEEE Power & Energy Magazine - May/June 2020 - 3
IEEE Power & Energy Magazine - May/June 2020 - 4
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IEEE Power & Energy Magazine - May/June 2020 - Cover3
IEEE Power & Energy Magazine - May/June 2020 - Cover4
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