The Case for Charging for Distributed Generation

Many Kansas residents can expect to see electricity rates increase soon. The Kansas Corporation Commission (KCC)will soon be deciding on Westar's request to raise rates on all residential customers, another Westar rate increase that will effect only customers with Distributed Power Generation (DG) such as solar panels. If that wasn't enough- Wichita's KMUW reported this morning that the Kansas State Legislature will begin discussing adding a $3.00 charge on every residential electric bill to help fund Kansas's public schools. In this post I intend to cover what it could possibly mean to see the additional rate applied to owners of distributed generators.

According to Westar, there is a problem with DG that starts with the way customers are billed. As illustrated in figure 3 which was taken from Westar's appeal to the KCC, while a customer's bill is based primarily on the customer's energy consumption, the utility's costs of delivering energy to the customer don't fluctuate much with use. In other words, it may cost $100 to be ready to provide you energy rather you use $20 worth or $150 worth of energy.

The demand cost is a large portion because Westar, as a regulated utility, has to provide you with exactly as much energy as you need the instant you need it. This requires a lot of analysis and planning. DG power sources complicate this because they produce power based on natural and semi-unstable forces, and they are not controlled by the utility. Westar cannot turn off a home's solar collector when the demand is low, and that solar collector produces it's peak amount of energy at noon when most people in the neighborhood are either at work or asleep and energy use is minimal. The instability caused by wind gusts and cloud cover make it impossible to predict moment-by-moment power generation from these sources.

The more solar panels a neighborhood has, the worse the problem is for any utility. Figure 2 below, also taken from Westar's appeal to the KCC, demonstrates how a solar panel changes the very nature of the customer's energy use. What makes solar hard to deal with is the curve in the Net Load Profile. The steeper that curve the more the demand portion of the cost increases in figure 3 above. The grade of the curve is increased by more powerful solar panels which decreases the variable (and over all) bill for the customer in figure 3. This is one reason rates increase for all customers. Essentially, we all subsidize the utility bills of those who own DG devices.

What Westar wants to do about this is decrease the variable portion of customers' bills that pertain to energy consumption from about 11.4 cents per kilowatt hour (kWh) to about 8.1 cents per kWh. The cost will be made up by applying a new charge based on the highest amount of sustained power consumption during any (presumably) 15 minute period each month. The rate during the summer would be $10 per kilowatt (kW). Given the rate of consumption above that would add about $25 to this consumer's bill. Westar is selling this as a populist solution that will shift the price of fixing the demand costs to the people who are causing the bulk of the issue. Once again, Table 2 was taken from Westar's appeal to the KCC.

What is the problem with this? Theoretically, this could work. But theory doesn't account for human influences. Here is what I think is wrong with this approach:

1.) This extra expense does not solve the imbalance of fixed and variable costs with the fixed and variable charges. It simply adds another layer.

2.) In Figure 3 the assumption is that the customer is only paying for the price of service. We know that Westar is allowed to overcharge for their services. They have left this portion out of the bill as indicated above.

3.) The new charge is tied to an individual's maximum consumption regardless of how often they consume energy at that rate. It also pays no heed to the size of the DG and how much power it is delivering so individuals with small solar arrays who have little impact will pay a similar fee as those who can afford to cover their entire rooftop.

4.) Charging for peak consumption can lead to enormous and disproportionately sized bills. An air conditioner can momentarily use up to 14.4 kilowatts. That would be an extra $144.00 on your energy bill each month during the summer even if you only run the AC once all month.


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