Will the country’s first mandatory residential demand charge slow the Massachusetts solar boom?
Environmental and DER advocates strongly objected to the new rate design. Acadia Center argued it is “inconsistent” with “rate design principles of efficiency and fairness.” The New England Clean Energy Center (NECEC) argued it will cause “arbitrary” and “extraordinary and unreasonable” bill impacts. Both Massachusetts’ Attorney General (AG) and Department of Energy Resources (DOER) concurred.
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Acadia Center Attorney Mark Lebel told Utility Dive the approval of the non-coincident demand charge and the separate rate for DER owners was unexpected because they were unprecedented. “Most students of rate design generally tend to find those two things not the best kind of ratemaking.”
A non-coincident demand charge applies a per-kW charge for the customer’s highest 15 minutes of usage, whether that 15 minutes coincides or does not coincide with the system peak demand. It is considered poor ratemaking because the customer’s reduced usage, in response to the price signal, does nothing to reduce the system’s peak like it would if the demand charge coincided with the system’s peak.
“Acadia Center proposed a distribution reliability charge that could be implemented more gradually with current metering,” LeBel said. “It would be a variation on a three-part rate where the third part, instead of a demand charge, would be a rolling 12-month average of kWh consumption.”
It deals with Eversource’s displaced distribution revenues by not counting months “in which exported generation exceeded imported electricity,” he added. “It addresses the cost shift as effectively as this non-coincident demand charge. A coincident demand charge should be on the table when we have the right advanced metering technology and customer education,” he said.
The argument by Eversource and the commission that DER owners will figure out how to avoid running major appliances at the same time is harder than it sounds, he added. And the DPU order on customer education highlights “how unprepared Massachusetts residential customers are for the complications of a demand charge.”
Good and bad demand charges
The Acadia Center, along with NECEC, Vote Solar and others argued in their filings that a customer’s non-coincident peak “fails to track the peak demand that drives system costs.” The result is that “customers whose demand peaks outside of system peak periods would pay too much, and customers whose individual peaks coincide with system peaks may pay too little.”
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But the DPU ruling does not say the customer education program must be executed ahead of the rate implementation, LeBel noted.
DPU rulings are often appealed to the Massachusetts Supreme Judicial Court (SJC) and the attorney general, who acts as a ratepayer advocate, is already contesting parts of the November decision, he added. “You could reasonably expect an appeal of the rate design at the SJC and a judgment before the end of the year.”
Addressing the DPU ruling will also likely “rise to the shortlist of priorities for clean energy advocates at the state legislature,” LeBel said. Eversource is politically influential, but “the message that this is a threatening precedent will resonate with a lot of Massachusetts legislators.”
The legislature could enact a prohibition on demand charges for residential customers, he suggested. Lawmakers could also provide more specific guidance about the MMRC that prevents using it in this way.
“The problem is the legislature didn’t define MMRC and there is no pre-existing policy definition, which gave discretion to the DPU, which it used,” Lebel said. “This is an opportunity to clean all that up and there’s nothing like a really bad proposal to unite stakeholders around a remedy.”
Read the full article from Utility Dive here.