Full Title: Competing Perspectives on Demand Charges
Author(s): Ryan Hledik & Ahmad Faruqui
Publisher(s): Public Utilities Fortnightly
Publication Date: September 1, 2016
Full Text: Download Resource
Description (excerpt):
Consider industry developments such as growth in the adoption of distributed generation and the
arrival of Wi-Fi thermostats, digital appliances and smart meters. Consider also the growing interest
in promoting price-based demand response. Both have recently exposed defi ciencies in the standard
non-dynamic volumetric residential rate off erings of most electric utilities.
One defi ciency in particular has persisted for decades. Th e under-representation of the cost of
generating and delivering power during peak times of day has been exacerbated by these developments. Similarly,
off -peak costs have been overstated.
As a result, residential rate reform has emerged as a pivotal issue. Th ere is a challenge facing the industry. Flat and
largely volumetric rates do not suffi ciently refl ect time-diff erentiation in underlying resource costs. Nor do they suffi
ciently refl ect the peak demand-driven nature of infrastructure investments that the rates are intended to recover.
Th is leads to under-recovery of costs from some customers who use the power grid heavily, or who otherwise rely
on it as a form of backup power. Th ose costs are recovered from other customers who pay more than their fair share of
the grid, raising concerns about fairness and equity.