Technology creates demand to update rate design again

May 12, 2016

APS originally developed residential demand rates in response to our customers’ widespread adoption of a home technology – central air conditioning – in the 1970s.

The increasing popularity of another technology, private rooftop solar, is making demand rates relevant again as a way to ensure fairness in rate design and encourage customers to manage their peak usage, according to rates experts Leland Snook and Meghan Grabel.

In a recent feature for energy trade publication Public Utilities Fortnightly, Snook and Grabel chronicled how APS executive Paul Hart proposed demand rates to address customers installing central AC, which more than doubled overall peak demand within 10 years. The Arizona Corporation Commission eventually approved a residential demand rate requested by APS in 1980.

Today technologies, including private rooftop solar, and outdated rate design have created a misalignment in how customers are charged for the energy services they use. Demand rates can help solve the pricing problem, the co-authors wrote.

“Similar to air conditioning at the tail of the last century, today’s new technology innovations installed on the customer side of the electric meter have changed not only how people use electricity, but how they use the electric grid, making the residential demand rate a more important regulatory tool than ever.”

They also concluded that demand rates create more opportunities for customers to adopt technologies that lead to more efficient and cost-effective use of the grid.

“Another key benefit of the residential demand rate comes from the price signals it sends, encouraging innovation in customer-sided technologies. … Imagine the load management potential that accompanies more sophisticated technologies, such as “smart” thermostats, electric vehicles, and battery storage.”

Snook is Director of Rates and Rate Strategy for APS. Grabel is a partner in the administrative law group of the Phoenix law firm Osborn Maledon and previously served as General Manager of Rates, Pricing and Revenue at APS.