Symposium - October 1997 by HC111211094146

VIEWS: 7 PAGES: 42

									Indiana Industrial Energy Consumers, Inc.
                (INDIEC)



          Rate Design
                     presented by

                  Nick Phillips
              Brubaker & Associates, Inc.
Overview
 • Major rate design criteria
 • Basic rate components
 • Demand and energy charge
  variations
 • Other rate design features
 • Adjustment clauses
 • Alternatives to firm service
Major Rate Design Criteria
 • Reflect cost causation
   – Equity                                     $

                                                $
   – Revenue stability                          $


 • Send appropriate price signals
   – Control or reduce system costs
   – Promote efficient use of existing assets
Basic Rate Components
 • Customer charge
 • Facilities charge
 • Demand charge
 • Energy charge
Customer and Facilities Charges
 • Customer Charge
   – Flat fee per month
   – Covers typical service drop, metering,
     billing
 • Facilities Charge
   – Per kW monthly charge
   – Sometimes used to recover distribution
     plant costs
Demand Charge
 • Recovers fixed costs
   – Investment in plant
   – Return on investment
   – Carrying costs
 • Assessed per kW (electric)
Energy Charge
 • Recovers variable costs
   – Fuel costs
   – Variable plant operation and
     maintenance costs
 • Sometimes used to recover fixed costs
 • Assessed per kWh or per MWh
   (electric)
Demand Charge Variations
 • Flat
 • Declining block
 • Seasonally differentiated
 • Demand ratchet
Rate Design to Collect
Class Revenues
         Total Class Revenues to be Collected

    e.g., Industrial Class Revenue Requirement =
                      $175.4 million



   Recover Variable    Recover Fixed   Recover Customer
    Costs through      Costs through     Costs through
    Energy Charge     Demand Charge    Customer Charge
       ($/kWh)            ($/kW)           ($/month)
Rate Design to Collect
Class Revenues - Unbundled
         Total Class Revenues to be Collected
   Production $        Transmission $     Distribution $



     Recover Fixed        Recover Fixed   Recover Customer
     Costs through        Costs through     Costs through
    Demand Charge        Demand Charge    Customer Charge
        ($/kW)               ($/kW)           ($/month)


    Recover Variable                        Recover Fixed
     Costs through                          Costs through
     Energy Charge                         Demand Charge
        ($/kWh)                                ($/kW)
Demand By Month
  MW

   20
        Annual Billing Demand = 150,000 kW           Customer 1


   10



   0
        J    F    M    A    M    J     J     A   S    O   N   D
  MW
        Annual Billing Demand = 240,000 kW           Customer 2
   20



   10



    0
Declining Block Demand Charges
Customer 1
                     Demand     Rate   Annual Cost

 Flat Rate:           150,000   $8.20 $ 1,230,000

 Multiple Block
 Demand
   1st 10,000 kW      120,000   $9.00 $ 1,080,000
   Add'l kW            30,000   $6.15     184,000
    Total             150,000         $ 1,264,000

                  Cost above flat rate $   34,000
Declining Block Demand Charges
Customer 2
                    Demand     Rate    Annual Cost

 Flat Rate:          240,000   $8.20   $ 1,968,000

 Multiple Block
  Demand:
   1st 10,000 kW     120,000   $9.00   $ 1,080,000
   Add'l kW          120,000   $6.15       738,000
     Total           240,000           $ 1,818,000

        Savings compared to flat rate $    150,000
Seasonal Demand Charges

                     Summer      Winter
                     June-Sept   Oct-May


   First 10,000 kW   $10.00      $8.20


   Additional kW      $8.00      $6.26
Seasonal Demand Charges
Customer 1
                        Demand        Rate    Annual Cost

   Non-Seasonal Flat Rate                         $ 1,230,000
   Seasonal:
    Summer
      1st 10,000 kW          40,000 $10.00 $         400,000
      Add'l kW               22,000 $8.00            176,000
    Winter
      1st 10,000 kW          80,000   $8.20           656,000
      Add'l kW                8,000   $6.26            50,080
       Total                150,000           $     1,282,080
          Cost above non-seasonal flat rate $         52,080
Seasonal Demand Charges
Customer 2
                        Demand      Rate     Annual Cost

  Non-Seasonal Flat Rate                     $ 1,968,000
  Seasonal:
   Summer
     1st 10,000 kW         40,000   $10.00   $   400,000
     Add'l kW              40,000    $8.00       320,000
   Winter
     1st 10,000 kW       80,000     $8.20        656,000
     Add'l kW            80,000     $6.26        500,800
      Total             240,000              $ 1,876,800
  Savings compared to non-seasonal flat rate$     91,200
Demand Ratchet

    Establishes a minimum
    level of kW demand based
    on demand established in a
    prior period
Demand Ratchets
Format
 A. 60% Ratchet                            Rate
 60% of highest kW last 12 months          $7.68
 60% of highest summer kW last 12 months    7.93
 60% of highest summer kW last 36 months    7.42

 B. 90% Ratchet                            Rate
 90% of highest kW last 12 months          $6.84
 90% of highest summer kW last 12 months    7.04
 90% of highest summer kW last 36 months    6.67
 Impact of 60% Summer
 Demand RatchetCustomer 3
     30
     25
     20
                   Ratcheted Demand = 15 MW
MW




     15
     10
      5
      0
           Prior      J   F    M    A   M     J   J   A   S   O   N   D
          Summer
                                    Customer 4
     30
     25
                   Ratcheted Demand = 12 MW
     20
MW




     15
     10
      5
      0
           Prior      J   F    M    A   M     J   J   A   S   O   N   D
          Summer
Impact of Demand Ratchet
                    Demand    Rate   Annual Cost
Customer 3
 No ratchet         189,000   $8.20 $ 1,549,800
 60% ratchet        209,000   $7.93   1,657,700
  Additional Cost                   $ 107,900
Customer 4
 No ratchet         240,000   $8.20 $ 1,968,000
 60% ratchet        240,000   $7.93   1,903,200
  Benefit                           $    64,800
Energy Charge Variations
    Formats           Base Rate       FCA*      Total
 Option A:
 All Fuel in FCA        0.543         1.457¢    2.000¢
                        ¢
 Option B:
 With 1.5¢ of           2.043¢        -0.043¢   2.000¢
 Fuel Embedded
  Option C:
  No FCA                 2.000¢        ----     2.000¢

              *Fuel Cost Adjustment
Other Rate Design Features
 • Voltage Differentiated Rates
 • Time Differentiated Rates
 • Coincident Peak Rates
Voltage Differentiated Rates

 Separate Rates                   One Rate
Secondary       $12.00      Demand Charge $12.00
                           Delivery Voltage
Primary          $ 9.00
                        OR Credits:
Subtransmission/            Primary           $3.00
 Transmission    $ 6.37     Transmission      $5.63
Time Differentiated Rates
 • Typical demand charges are based on
   non-coincident peak demands
 • Utilities size shared facilities to meet
   the maximum system demand
   – Generation
   – Bulk transmission
 • On-peak use is a better price signal
Time Differentiated Rates
Demand Charges
    Non-TOU             Time-of-Use
                    $8.77 per kW of On-Pk
                            Demand
  $8.20 per kW of       - - - - - OR - - - - -
        Maximum     $5.96 per kW of On-Pk
        Demand            Demand
                               +
                    $2.63 per kW of Max
                          Demand
TOU Demand Charges
Assumed Operating Demand
         Customer 3                  Customer 4
  kW                         kW
12,000                     12,000
10,000                     10,000
 8,000                      8,000

 4,000                      4,000



         Peak   Off-Peak            Peak   Off-Peak
TOU Demand Charges
Customer Impacts
                     Demand    Rate    Annual Cost
 Customer 3
  Non-TOU Charge     120,000   $8.20   $   984,000
  TOU Charge         120,000   $8.77     1,052,400
   Additional Cost                     $    68,400
 Customer 4
  Non-TOU Charge     144,000   $8.20   $ 1,180,800
  TOU Charge         120,000   $8.77     1,052,400
   Savings                             $ 128,400
Time Differentiated Rates
Energy Charges
    Non-TOU             Time-of-Use
0.543¢ per kWh of   0.600¢ per kWh of
       Metered             On-Pk Energy
       Energy
                    0.484¢ per kWh of
                           Off-Pk
                           Energy
Coincident Peak
Demand Charges
 • Coincident peak = customer demand
  at the time of the utility’s system peak
 • Refinement of on-peak pricing
 • Requires advanced metering
 • Used for unbundled transmission
  service
Adjustment Clauses
 • Track cost changes
 • Monthly, semi-annually,
  annually
 • Avoid frequent base rate
  cases
 • Automatic vs. non-automatic
 • May vary between rate schedules
Examples of Adjustment Clauses
 • Fuel and purchased power
 • Environmental cost recovery
 • Capacity cost recovery (CCR or
   PCRF)
 • Conservation
Regulated Alternatives to “Plain
Vanilla” Firm Service
 • Interruptible Service
 • Real Time Pricing
Interruptible Service
Salient Characteristics
  • Lower quality of service
  • Curtailment may be controlled by a
    third party (e.g., RTO, utility or
    supplier)
  • No production capacity required
  • No production capacity costs
  • Number, duration and annual
    hours of interruption usually limited
Interruptible Service
Conditions Requiring Interruption
 • Inadequate generation
   capacity
 • Underfrequency problems
 • Economics
Interruptible Service
Benefits
 • Planning reserves
 • Operating reserves (10 minute
   response)
 • Spinning reserves (instantaneous
   response)
 • Market opportunities            OFF
Interruptible Rates
Pricing
                          Firm          Interruptible

 Energy Charge/kWh        2.500¢           2.500¢

 Demand Charge/kW*        $6.37            $3.18
 or
                                       Incremental + 10%
 Energy Charge/kWh*       2.500¢            Energy

 Demand Charge/kW*        $6.37            $0.00

           *Subtransmission delivery
Valuing Interruptibility
Example of Calculation Method
  • Relies on the utility’s avoided cost of
   a peaking unit
  • Demand charge reduction based on
   the peaking unit’s levelized
   investment cost, including carrying
   costs
  • More hours available for interruption
   yields a larger rate reduction
Interruptible Rates
Terms and Conditions
 • Varying amounts of notice
   – Day-ahead
   – 30-minute notice
   – 10 minute notice
   – Instantaneous
 • Greater rate reductions for
   less notice
Interruptible Rates
Terms and Conditions
 • Annual interruption hours are often
   limited
 • Notice period to convert to firm
   service
 • Noncompliance penalty
 • Buy-through provision
Real Time Pricing
How Is It Different?
 • Traditional firm rates recover
   average embedded cost of
   service
  • RTP prices vary by hour to
   reflect current/projected
   marginal system costs
  • Simulates competitive market
Real Time Pricing
Considerations
 • Price volatility
    – Hourly RTP prices are often
      tied to market clearing power prices (natural
      gas costs)
    – Large adders for shortage costs in critical peak
      periods
 • Customer bears more price risk
 • Customer must respond effectively to
   price signals
Real Time Pricing
Energy Policy Act of 2005
 • By mid-2007, state regulators
   must consider a requirement
   that utilities offer time-based
   rates to each customer class
 • Time-based rates include RTP

								
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