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PUC Issues Proposed Policy Statement On Alternative Ratemaking

The Public Utility Commission Thursday issued for comment a proposed policy statement inviting fixed utilities to explore alternative ratemaking methodologies in distribution base rate proceedings which further promote federal and state policy objectives, provide incentives to improve system efficiency and ensure that fixed utilities receive adequate revenue to maintain safe and reliable service.

The Commission voted 5-0 to adopt a motion by Vice Chairman Andrew G. Place that presents utilities with a broad range of considerations in developing future rate designs-- including but not limited to performance-based incentives; various levels of decoupling; and variations of demand-based and time-of-use pricing options, such as critical peak pricing.

“Given the evolution of energy markets, I believe it is vital to also evolve approaches to rate design that particularly address energy efficiency trends, as well as increasing demand for electric vehicles, distributed energy resources, such as solar and combined heat and power, and microgrids,” Vice Chairman Place stated. “Future rate designs should anticipate and support utility technological and economic efficiencies while minimizing long term rates for customers.”

In his motion, Vice Chairman Place highlighted that the changing energy landscape necessitates rate designs that avoid a “one-size-fits all” approach, and are based on the following first-order principles:

-- Policies must support the continued efficient use of all energy resources.

-- The evolution of a distributed energy environment requires substantial and well-targeted investment in distribution infrastructure.

-- Policies must encourage least-cost solutions, with cost recovery based on long-term cost causation.

-- Rate design should embrace, where feasible, the additional capabilities enabled by smart meter deployment.

As noted by the Office of Consumer Advocate (OCA), “costs are variable in the long run.” Therefore, it may be appropriate for energy utilities to design rates in a manner that minimizes the long-term costs of serving existing and new loads.

Given the substantial and ongoing Long-Term Infrastructure Improvement Plan (LTIIP) spending by the electric and natural gas utilities, a long-term approach to rate design may be appropriate.

“Today the Commission takes its next step in deliberating the future of utility rates,” added Chairman Gladys M. Brown in a supportive statement. “The utility landscape is evolving rapidly, none more rapidly than the electricity industry. I am interested in consideration of rates by our electric utilities which can work to increase distribution system capacity utilization in an effort to foster system efficiency, and, insulate customers from rate increases.”

Chairman Brown further noted that in exploring alternative ratemaking policies, the electricity industry may utilize new technologies - such as advanced metering, advanced grid monitoring, energy efficiency, demand response and smart thermostats - to better accommodate the evolving demand profiles created by the new energy landscape.

Interested parties have 60 days from the date of publication of the proposed policy statement in the Pennsylvania Bulletin to file written comments referencing Docket No. M-2015-2518883 with the Public Utility Commission, Attn: Secretary Rosemary Chiavetta, Commonwealth Keystone Building, Second Floor 400 North Street, Harrisburg, PA 17120. Comments may also be filed electronically through the Commission’s e-File System.

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