Utility Rates

State Policy Resources

Utility Rate Resources

The Utility Rates Fact Sheet outlines appropriate rate design to allow both utility cost recovery and the expansion of clean energy DG. Download a PDF version (4 pp, 125K, About PDF) to print and share.
EPA Clean Energy-Environment Guide to Action, Chapter 6, Section 6.3 (PDF) (11 pp, 431K, About PDF) reviews methods for removing unintended utility rate barriers to DG. Among other issues, it outlines utility ratemaking and revenue requirements, revised standby rate structures, and natural gas rates for CHP.

Benefits
Summer 2007 Standby Rate Research
State Examples
Resources

A state's Public Utility Commission, in setting appropriately designed electric and natural gas rates, can support clean distributed generation (DG) projects and remove unintended barriers, while also providing appropriate cost recovery for utility services on which consumers depend. Some of the specific rate issues states are addressing are standby rates, backup rates, exit fees, and natural gas rates for combined heat and power (CHP).

Benefits

Appropriately designed rates can promote the development of CHP and other clean DG, which leads to enhanced system reliability, state economic development, and reduced environmental impacts while protecting utility ratepayers from excessive costs.

Summer 2007 Standby Rate Research

In the summer of 2007, EPA completed a research project to characterize standby rates and their impact on CHP/DG economics. The map below shows which states have standby rates in place that value the costs and benefits of DG, which states have actions pending, and which states have a utility with an unfavorable standby rate in place.

Utility Standby Rates that Value the Costs and Benefits of Distributed Generation, September 2007
Image of US map with highlighted states showing states that have a utility standby rates policy in place, states that have one utility with a favorable standby rate policy in place, and one state with action that is possible or pending.

Policy in place:
CA, CT

Action is pending/possible:
HI

One utility with favorable standby rate policy in place:
ME, NJ, NY, OR, DC

Policy not in place:
AK, AL, AR, AZ, CT, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, MS, MT, NC, ND, NE, NH, NM, NV, OH, OK, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY

Research Approach

EPA's research project set out to:

Characterize standby rates and their impact on DG economics.
Research standby rates for the two largest utilities in each state (according to EIA data).
Evaluate the effectiveness of standby rates in states with a statewide policy (i.e., California, Connecticut, and New York).
Determine if standby rates value the costs and benefits of DG in states without a statewide policy.

To complete the research, EPA:

Reviewed the standby rate listed explicitly in many utilities' rate schedules.
Called and questioned utilities with no standby rate listed in their rate schedule as to how they charge customers with on-site generation.
Calculated hypothetical electric bills across each utility for one example on-site generator with a set outage profile.

Standby Rates Evaluation

EPA rated the effectiveness of standby rates according to set criteria:

An effective state policy or the implementation of rates that value the costs and benefits of DG by the two largest utilities was categorized as "Policy in place."
States with only one utility that values the costs and benefits of DG were categorized as such.
States that are currently considering favorable standby rates are categorized as "Action is pending/possible."
States with two utilities that only have conflicting rates or negative rates were categorized as "Policy not in place."

EPA evaluated 91 utilities (82 investor-owned utilities [IOUs] and 9 publicly owned utilities). Of these utilities:

82% have explicit standby rates. Of these:
- 51% have a primarily demand-based standby rate
- 4% have a primarily energy-based standby rate
- 45% have a mixed demand- and energy-based standby rate
- 43% include demand ratchets (37% of the IOUs; 22% of the public utilities)
18% do not have a standard standby rate (customers with on-site generation must enter into an individual contract with the utility)

State Examples

Exit Fees - In Illinois, a utility could assess exit fees until December 31, 2006. The rule was fairly stringent and specific about the instances that trigger this fee. The rule does, however, provide an exemption for DG and CHP. A departing customer's DG source must be sized to meet their thermal and electrical needs with all production used on site. For an example, see the Illinois Public Utilities Act, Article XVI. Electric Service Customer Choice and Rate Relief Law of 1997 .
Standby Rates - In 2004, the Oregon Public Utilities Commission approved a settlement regarding Portland General Electric Company's (PGE) tariffs for partial requirements customers. The load served by the onsite generation is treated in the same manner as any other load on the system, which under Oregon rules is obligated to have (or contract for) its share of contingency reserves. The onsite generation is, in effect, both contributing to and deriving benefits from the system's overall reserve margin. Under the new rates, the partial requirements customer must pay or contract for contingency reserves equal to 7 percent (3.5 percent each for spinning and supplemental reserves) of the "reserve capacity" (i.e., either the nameplate capacity of the onsite unit or the amount of load it does not want to lose in case of an unscheduled outage; if the customer is able to shed load at the time its unit goes down, then it will be able to reduce the amount of contingency reserves it must carry). A similar pricing package has been adopted by PacifiCorp.
Natural Gas Rates for DG Customers - The New York State Public Service Commission directed electric utilities to consider DG as an alternative to traditional electric distribution system improvement projects (see the Commission's Order (PDF) (7 pp, 12K, About PDF) ). The commission also recognized that increased gas use for DG can create positive rate effects for gas consumers by providing increased coverage of fixed costs. They therefore ordered natural gas companies to create a rate class specifically for DG users. The ceilings for these rates are frozen until at least the end of 2007 to enable the emerging DG industry to predict gas rates for an initial period of time.

Resources

Utility Rates Fact Sheet, also available in PDF (4 pp, 125K, About PDF), outlines appropriate rate design to allow both utility cost recovery and the expansion of clean energy DG.
EPA Clean Energy-Environment Guide to Action, Chapter 6, Section 6.3 (PDF) (11 pp, 431K, About PDF) reviews methods for removing unintended utility rate barriers to DG. Among other issues, it outlines utility ratemaking and revenue requirements, revised standby rate structures, and natural gas rates for CHP.
Regulatory Assistance Project (RAP) is a nonprofit organization that provides research, analysis, and educational assistance to public officials on electric utility regulation.

If you would like additional assistance, please contact Katrina Pielli (pielli.katrina@epa.gov).

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