The Great Standby Rate Debate: Analysis of a Key Barrier to the Influx of Needed New Alternative Energy Sources

By Hurd, John V. | Suffolk University Law Review, Fall 2009 | Go to article overview

The Great Standby Rate Debate: Analysis of a Key Barrier to the Influx of Needed New Alternative Energy Sources


Hurd, John V., Suffolk University Law Review


I. INTRODUCTION

The standby rate structure that a state adopts will have a significant impact on the development of new distributed generation. (6) Distributed generation refers to alternative consumer-owned power sources--such as wind turbines or solar power--that a consumer uses to satisfy his energy demand instead of relying on a utility company. (7) If standby rates are too high, then new distributed generation projects will prove uneconomical. (8) If utility companies do not hold distributed generation owners accountable for costs incurred, however, then these costs will be passed on to non-distributed generation ratepayers. (9)

Standby customers cannot be charged according to the volumetric rate schedule, through which customers pay according to usage, of non-standby customers because of their irregular load shapes. (10) Distributed generation customers often do not consume any electricity and would have no monthly charge under the volumetric schedule, though they still impose costs on the utility companies. (11) Without a separate standby rate, distributed generation customers would unfairly impose costs on the utilities that will invariably be passed on to non-distributed generation customers. (12)

The parties to the standby rate debate include distributed generation owners and developers and the regulated utilities who speak on behalf of the non-distributed generation ratepayers. (13) Some distributed generation advocates argue that standby customers should be charged under the traditional volumetric rate structure. (14) Yet most parties agree that there should be a standby rate structure based on cost causation principles, meaning the rate should allow the utilities to recover all costs that the distributed generation customers impose on the system but nothing more. (15) There is considerable disagreement, however, as to what costs and benefits the distributed generation project actually imposes on the distribution system. (16) Also, the parties dispute how and to what extent such costs and benefits should be incorporated into the standby rate structure. (17)

This Note will examine the costs and benefits that a distributed generation back-up customer imposes on the distribution system. (18) Also, it will outline the arguments for and against including such costs and benefits in the standby rate structure. (19) Thereafter, this Note will discuss the early development of standby rates. (20) It will briefly state the federal requirements for standby rate structure and discuss a case following the enactment of such requirements. (21) Further, this Note will explore the development and structure of standby rate policy in the leading state, California. (22) Lastly, this Note will analyze the components of each policy and determine the most effective policy in accordance with cost causation. (23)

II. HISTORY

A. An Overview of the Standby Rate Debate

There are numerous factors that a state must consider in order to develop a standby rate structure that accurately recovers costs imposed on the distribution system by distributed generation while also accounting for benefits to the distribution system and society as a whole. (24) Utility providers and distributed generation advocates vastly disagree over the factors that should be included in the standby rates. (25) Each state's public utility commission must look at the costs and benefits and determine which factors should be included to create a rate that conforms with cost causation. (26)

The fixed costs that utilities incur to keep a customer connected to the distribution system are the first factor to consider. (27) Electric utilities spend billions of dollars on line maintenance and transistor and substation improvements, recovering these costs through the volumetric rate charged to customers. (28) The unique load patterns of distributed generation customers, however, can lead to under-recovery of a utility's fixed costs. …

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