IEEE Power & Energy Magazine - May/June 2020 - 84

in my view

Andrew Satchwell, Peter Cappers, and Galen Barbose

retail rate designs
current developments in the industry

R

RETAIL ELECTRICITY PRICING
is evolving in the context of broader
shifts in how electricity customers pay
for grid services and are compensated
for customer-sited generation. These
retail rate reforms are occurring mostly, though not exclusively, among residential customer classes and are driven
by a variety of technology- and policyrelated trends.

Key Drivers
of Retail Rate Reforms
Four particular drivers stand out. First,
many utilities across the United States
have deployed residential advanced
metering infrastructure (AMI), allowing for two-way communication and
a more granular recording of energy
consumption. According to the Edison
Foundation Institute for Electric Innovation, more than 55% of U.S. households now have advanced meters, the
majority of which were installed between 2010 and 2015. One of the key
rationales for justifying AMI deployment has been its potential to enable a
more widespread application of timebased rate designs.
Second, residential and commercial
electricity customers continue to increase their investment in distributed
energy resources (DERs). For example, U.S. residential solar photovoltaic
(PV) capacity has grown by 50% per
year on average since 2010, spurred
by substantial installed-cost declines
Digital Object Identifier 10.1109/MPE.2020.2971844
Date of current version: 17 April 2020

84	

ieee power & energy magazine	

as well as by favorable incentive policies and electric utility rate designs,
such as net energy metering (NEM).
Increased DER adoption has put pressure on regulators and utilities to revise retail rate designs prompted by
NEM program caps and optimize the
size, location, and operation of DERs.
Third, utilities have increasingly
raised concerns about fixed-cost recovery and revenue sufficiency, an issue
partly associated with increased DER
deployment but related more generally
to flat or declining load growth and
compounded by cost increases related
to grid modernization. This motivated
some utilities and states to reexamine
their historically heavy reliance on
volumetric energy charges to cover
both fixed and variable utility costs
and also prompted efforts to revise netmetering tariffs.
Fourth, at the bulk power system
level, utility system planners and operators are experiencing or anticipating significant changes to hourly net
load as a result of the broader deployment of variable renewable energy resources, both utility and smaller scale
distributed resources. In particular,
the surplus generation of electricity
by these resources during the middle
of the day is causing significant declines in energy supply prices. This
creates an opportunity for customers
to capture value in shifting load to
those periods and away from morning and/or afternoon peaks if rate designs reflective of these price profiles
are implemented.

Designing Retail Rates for
a Changing Grid
Although numerous changes to retail
rates have occurred across the United
States in recent years, five particularly
salient trends have emerged, at least
in part, in response to these drivers.
The depth and longevity of experience
across these five rate designs vary significantly, but each represents some
incremental progression from fully
bundled rates based on average utility costs toward rates with a greater
unbundling of electricity services and
temporal differentiation and locational granularity.

The Increased Pursuit of
Residential Time-Based Rates
Despite more than four decades of experience, only roughly 3% of residential electricity customers were on timebased rates in 2017. As AMI deployment
progresses, broader and stronger regulatory support for time-based rate options
is beginning to emerge. The implementation of time-based rates is primarily
motivated by economic efficiency (i.e.,
to better align electricity prices with
marginal system costs) and the need to
lower utility costs by reducing peak demand and improving system load factors by encouraging customers to shift
electricity consumption from peak to
off-peak periods. Recent and notable
examples of this include the Sacramento Municipal Utility District in California, which is transitioning all of its
(continued on p. 81)
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

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