• What Does Trend Towards Residential Demand Charges Mean for Overall Rate Design?
  • July 21, 2016 | Author: Phyllis J. Kessler
  • Law Firm: Duane Morris LLP - New York Office
  • In several states, utilities have been moving toward incorporating demand charges into residential rates. In June, Arizona Public Service Company filed a rate case, which included a proposal for three alternative demand charge rates for residential customers, while proposing to reduce volumetric (kwh) rates. Last year, Salt River Project, also in Arizona, added inclining demand charges for residential solar customers. In Illinois this year, Commonwealth Edison Company supported a bill in the legislature that failed to pass, seeking to impose demand charges on residential customers. Other states, such as Georgia, Colorado, Alabama and North Carolina, have adopted opt-in residential demand charges.

    Much of the pressure for residential demand charges has come from reductions in utility revenues and changed residential usage patterns due to new technology, such as battery storage, LED lighting, programmable thermostats, rooftop solar and electric vehicles. Utilities cite concerns about equity among customers, in particular where some residential customers that reduce their load with distributed resources ("DR") impose demand on the grid during hours when their DR is insufficient for meeting their energy needs. Moreover, as states, such as New York,[1] move towards further disaggregating energy supply in an effort to hold down costs associated with adding utility-owned distribution facilities and development of expensive, large-scale generation and reduce deleterious impacts of fossil fuels on the environment, the impact may be exacerbated. Predictably, consumer advocates are fighting back, especially on behalf of low-income customers.

    As DR proliferates, making deeper inroads into utility revenues, we can anticipate an increasing focus on rate design, including for commercial and industrial customers, at a level that has not been seen for several years as utilities work to retain their revenue base.

    [1] See Duane Morris Alert, "New York Public Service Commission Energy Market Restructuring May Be Framework for Changes Nationwide," June 3, 2016.