Electric Cost Allocation and Rate Design in a New Era


For more than 100 years, the electric industry has forecast load, and then dispatched generation to meet that load.  With the advent of low-cost wind and solar energy, on-site energy storage, and sophisticated digital controls, this is changing.  In the future, utilities will forecast generation, and manage load.  The allocation of costs between functions, customer classes, and individual customers must change.  The design of rates must also change, so that consumers can effectively respond to changing circumstances.
In the past we thought of costs as being related to “demand” or “energy” or “customer.”  In the future, costs will be assigned to the specific hours in which the associated costs provide service, and rates will be designed to change as often as hourly to track those costs.  Traditional rate design tools, including demand charges, need to be revisited.

This session will discuss cost allocation changes that are needed to adapt to a high-renewable energy portfolio, and rate design changes needed to convey these changed circumstances to individual customers.  Two key publications from the Regulatory Assistance Project will be discussed:  The Cost Allocation Manual for a New Era, and Smart Rate Design for a Smart Future.



Jim Lazar
Senior Advisor
Regulatory Assistance Project 

Based in Olympia, WA, Jim Lazar is an economist with long experience in electric and natural gas utility ratemaking and resource planning since 1982.
His clients have included municipal and cooperative electric utilities, natural gas utilities, regulatory commissions, state consumer advocates, and public interest organizations in the United States and Canada. Mr. Lazar is the principal author of handbooks and articles on rate design, renewable energy integration, consumer participation in electric utility planning, integrated resource planning, and incentive regulation. He has served on the Washington State Building Code Council TAG, the Regional Technical Forum, and the Conservation Resources Advisory Committee.  He has assisted RAP since 1998, working on projects in the U.S., Brazil, China, India, Indonesia, Israel, the Philippines, Poland, Hungary, Mauritius, Mozambique, Namibia, and Samoa.