For more than 30 years, CFC’s Regulatory Affairs team has worked with member cooperatives on all facets of the rate design process. Recently, as the electric utility industry has adapted to new technologies, regulations and economic realities, so, too, has rate design. Today, CFC is helping members develop new approaches to rate design to respond to evolving issues such as electric vehicles (EVs), renewable and distributed generation, climate change policy and consumer interest and preferences in better managing their electricity usage.
“We’re progressing through a period of assisting members in ‘modernizing’ tariffs, rate designs and the accompanying service provisions to address a shifting paradigm within the industry,” CFC Vice President of Regulatory Affairs Jason Strong said. “Because of overarching policy and public opinion, the industry is moving toward a greener future—less fossil fuels, fewer gasoline-powered vehicles. And electric utilities are front and center—in some cases a lightning rod for decision making—which has a huge impact on the industry, and rate design, moving forward.”
Changing Consumer Growth, Energy Usage and Self-Generation Can Put Volumetric Energy Charges at Risk
For example, many current rates are configured such that a high percentage of revenue is recovered through the volumetric energy charge. But the risk associated with this method is that reductions in usage—driven by reduced customer growth, energy efficiency or even consumer self-generation—can result in under-recovery of cooperative costs, Strong added.
Additionally, the historic approach to rate design has been essentially two-pronged: recoup costs and do it in a fair and equitable manner. But today, the complexities of rate design necessitate a multi-pronged approach, taking into account economic efficiency, distributional equity and various public policy decisions surrounding renewables, distributed generation and EVs, as well as consumer preferences, all while trying to achieve an equitable balance of cost distribution and rate recovery.
As a result, several priorities have emerged in designing rates that are more aligned with cost incurrence, Strong said, such as fixed-cost recovery, including higher customer and residential demand charges; providing price signals, like time-of-use pricing; and taking into account consumer preferences on emerging issues, such as specialty rates for EVs or renewable energy.
“Challenges remain in designing rates that are reflective of underlying costs, but at the same time being fair, equitable and non-discriminatory in pricing of new technologies, such as residential solar or distributed generation resources behind the meter,” Strong explained. “This has led to a philosophical policy debate within the industry with regard to what ‘rate designs of the future’ should look like. Where certain rate designs better ensure operating revenue stability and are more closely aligned with the underlying system cost drivers, some would argue that certain fixed cost recovery rate designs can compromise the value proposition for distributed energy resources like rooftop solar and could decelerate market growth opportunities.”
Rural Electric Cooperatives Lead the Industry in AMI Usage and Provide Rate Design Options
Another thing that makes rate design today very different from that of years past is the broader availability of advanced metering infrastructure (AMI) data and the rate design options that then become available for consideration. This has allowed for better evaluation and rate design options as transformation occurs with a smarter and more dynamic-interactive electric grid.
“AMI data has been one of biggest advancements over the last decade. We are now able to utilize data analytics and predictive modeling to better understand usage characteristics and apply economic pricing theory, ultimately to design rates that are more cost-reflective using time-of-use rates and other price-signaling measures,” Strong said. “However, the other philosophical debate within the industry is whether consumers ultimately want this level of complexity and decision-making ability in rate design or whether consumers would prefer subscription pricing models (i.e., fixed bills coupled with varying levels of ‘services’) akin to where other network and capital-intensive industries, like telecom and internet service, have moved.”
Ultimately, there is no one-size-fits-all solutions in rate design, Strong said. Each cooperative will have unique underlying cost structures, technology and policy considerations.
“When working with our members, the Regulatory Affairs team begins the process with Director and/or management strategy sessions to discuss broader ratemaking priorities, set up goals and objectives, prioritize those goals and base a rate design approach on those priorities,” Strong said. “Rate design should be aligned with a co-op’s strategy and rate policy, rooted in the preferences of their members.”
EV Program Development Is Driving Rate Design Initiatives
One of the busiest areas of rate design consulting today involves developing EV programs and the associated charging rates.
“It is widely known that the continued adoption of EVs will bring some unique opportunities and challenges for the grid,” Strong said. “The electrification of transportation creates a real prospect for increased kilowatt-hour (kWh) sales, which can help to bring costs down for all members and may also provide an opportunity to add EV kWh demand at off-peak times when costs may be lower. However, it also requires that distribution cooperatives help to shape their members’ usage patterns to avoid overloading transformers, circuits and feeders, and to avoid potentially higher power costs during peak times.”
Three Rate Design Case Studies Are in the Works
The CFC Regulatory Affairs team is working on three case studies covering the rate design process and designing member-centric EV programs. The studies will include Cobb Electric Membership Corporation in Georgia; Roanoke Electric Cooperative in North Carolina; and Boone Electric Cooperative in Missouri.
Cobb EMC: In 2018, Cobb EMC requested that CFC’s Regulatory Affairs team conduct a cost-of-service study analysis and assist in an updated rate design process for the cooperative’s residential members. In particular, Cobb was looking to implement a new NiteFlex time-of-use rate for EV owners on their system along with offering members lifestyle rate choices. In other words, offering members a rate option to align with how they use power. Regarding the NiteFlex rate, CFC worked collaboratively with Cobb’s team to design a time-of-use rate that incentivized EV charging during the overnight period when costs were lower. Recently, CFC was asked to conduct a follow-up cost-of-service study to evaluate the performance of the lifestyle rate offerings, including Niteflex, and whether the designed rates had the intended effect and whether the cost to serve was aligned with revenue collection.
Roanoke EC: CFC’s Regulatory Affairs team began working with Roanoke in 2019 when the cooperative indicated interest in designing an EV program to include a specialty rate for EV charging. CFC was initially asked to design a time-of-use rate, but upon further analysis, evaluation and discussion with Roanoke, CFC developed an alternative approach by designing an EV “subscription” rate. This rate option and EV program will allow Roanoke to own the meter-grade level 2 charger and actively manage the EV load and charging times, while providing simplicity in allowing members to pay a flat rate to charge during certain periods, up to a specified kWh amount each month.
Boone EC: CFC’s Regulatory Affairs team is currently working to complete a new time-of-use EV rate for the cooperative. Members with EVs would choose between the default residential rate or opt in to a time-of-use rate that provides price signals throughout the day and not only allows members to decide how and when to charge their EV, but also offers the potential for cost savings as usage is altered within the home.
CFC’s Regulatory Affairs Team Supports Members’ Needs Through a Variety of Services
CFC’s Regulatory Affairs team works with approximately 50 members annually—including both distribution and generation and transmission cooperatives. Work includes providing electric utility ratemaking, policy and advisory consulting services. The team also provides expert testimony in ratemaking proceedings, where necessary, before federal and state regulatory or legislative bodies.
The team has assisted members in emerging areas of rate design in designing residential demand charges, electric vehicle charging and energy and demand time-of-use rates. In addition, the team is working within the industry to address and affect pricing theory utilizing AMI metering data coupled with advanced data analytics capabilities.
The team brings decades of electric utility experience from federal and state regulatory commissions, investor-owned utilities, private consulting practices and from within the cooperative network with expertise in areas of regulatory accounting, economics, data analytics and engineering—specific to the electric utility industry and to the cooperative business model. The team also retains the services of several outside consultants and legal counsel.
Contact your CFC regional vice president to discuss whether our Regulatory Affairs team can help your cooperative today.