1. Electricity Standby Rates for Today and Tomorrow Public Utilities Commission of Ohio CHP & Standby Rates Workshop September 13, 2012 – Columbus, OH Tom Stanton, Principal Researcher for Renewable Resources and Energy Efficiency National Regulatory Research Institute tstanton@nrri.orgtstanton@nrri.org – 301-588-5385

2. Outline of presentation Brief summary of recent NRRI research paper – Reasons to care about standby rates now – Major goals for standby rate design Major goal for the total DG policy toolkit: Achieving the “right” growth rate Forward-looking challenges for standby rates September 2012© NRRI and T. Stanton2 See NRRI research paper, Electric Utility Standby Rates: Updates for Today and Tomorrow, at http://www.nrri.org/documents/317330/94c186ab-4f16-4a69-8e8c-ece658e752b1 http://www.nrri.org/documents/317330/94c186ab-4f16-4a69-8e8c-ece658e752b1

3. It all depends… Standby costs and benefits to the utility and customers depend on: – expected operations of distributed generation, – specifics of the grid location, – time of use, and – overall rate design Modeling and analysis should include effects on individual standby customers, and on multiple standby customers, as a rate class September 2012© NRRI and T. Stanton3

4. Why care now about standby rates? Increased energy efficiency with DG (roughly doubled or tripled with CHP) Low-cost natural gas Tightening environmental standards Improving DG efficiency, reliability, and economics Supporting other DG-promoting policies Achieving smarter-grid benefits September 2012© NRRI and T. Stanton4

5. Major goals for standby rate design Economic efficiency – based on cost causation – neither a barrier nor a subsidy be Fairness – just and reasonable to both customer and utility – symmetry in benefits and costs – fairness in the total rates paid for all services, including standby Simplicity and transparency – easy to administer and understand – prospective users can accurately estimate costs and benefits Promoting efficiency and reliability – reward customers for good operating practices – use other policies to “tilt” DG economics (e.g., tax & incentive policies, not standby rates) Standardizing markets – similar to full-service rates – in RTO; in state September 2012© NRRI and T. Stanton5

6. Finding the “right” growth rate September 2012© NRRI and T. Stanton6 Source: C. Wilson, Dec 2010, Growth dynamics of energy technologies, UK Centre for Climate Change, Working Paper No. 42, http://eprints.lse.ac.uk/37602/.http://eprints.lse.ac.uk/37602/

7. Finding the “right” growth rate September 2012© NRRI and T. Stanton7 Source: C. Wilson, Dec 2010, Growth dynamics of energy technologies, UK Centre for Climate Change, Working Paper No. 42, http://eprints.lse.ac.uk/37602/.http://eprints.lse.ac.uk/37602/

8. Forward-looking Issues Modeling & analyzing costs for individual standby customers and standby customer class(es) – Separating costs for generation vs distribution standby – Using localized IRP to determine distribution system costs and benefits – Designing rates that encourage users to produce system benefits CHP for campuses of multiple customers and facilities, using multiple technologies Electric microgrid operations in safe-island mode September 2012© NRRI and T. Stanton8

9. Most important take-aways There are many pressing reasons for supporting accurate standby rates – Economy – Efficiency – Environment Achieving accuracy requires modeling & analyzing costs – for individual standby customers – for standby customer class(es) Separate costs for generation vs distribution standby – Generation standby quickly approaches zero cost – Distribution standby raises universal ratemaking issues about how to pay for capacity vs energy, variable vs fixed costs (fixed for the time being, that is) September 2012© NRRI and T. Stanton9