Advanced metering and demand charges give efficient and equitable price signals to customers.
Ross C. Hemphill is currently an independent consultant with over thirty-seven years of experience on regulatory and energy policy issues. Most recently, he was vice president of regulatory policy and strategy for ComEd in Chicago. Ken Costello serves as principal researcher for energy and environment at the National Regulatory Research Institute. Contact him at kcostello@nrri.org.
The wide deployment of smart meters gives regulatory policy-makers a rare opportunity to change residential rate design. This can be done in a way that improves economic efficiency, and utility consumer and shareholder equity. And that improves the long-term economics of technologies transforming the electric utility industry.
"Residential customers have been billed predominantly volumetrically when the predominant part of distribution system costs is fixed." – Ross Hemphill
It can be done through the replacement of highly volumetric charges. That is, per kilowatt-hour charges. Replacing them with demand-based charges. That is, per kilowatt charges.
The topic of residential rate design for distribution services is getting increased attention across the nation. Filings have been made in a number of jurisdictions to change the design for residential customers in order to improve recovery of fixed costs. And there are now many papers, articles and whole conferences devoted to this topic, as well as sessions covering it at NARUC meetings.
This is all being prompted by this transformation taking place in the industry with distributed resources, and other alternatives becoming available for customers to enhance their usage of electricity.