This is Part Two of a two-part blog series on design of utility renewable energy tariffs. Part One (last week) addressed the needs of participating corporate customers, and Part Two considers the needs of nonparticipating customers.
Last week, we dug into the topic of renewable energy tariffs from the lens of prospective participants, listing out some of the considerations that make the difference between success and failure when it comes to customer uptake. In this post, we turn the tables and look at the same programs from a different perspective—that of nonparticipating customers. This post draws from the lessons offered by AEE Institute’s recent paper, Making Corporate Renewable Energy Purchasing Work for All Utility Customers, which looked at case studies of eight programs across seven states.
The underlying premise of AEE Institute’s paper is that nonparticipating customers shouldn’t have to worry about absorbing any of the costs or risks of new tariff structures or renewable energy purchases made by their utility on behalf of customers electing to purchase renewable energy. This basic requirement is one that is important to prospective participants as well, and it’s also one that is achievable with careful program design.
Looking at case studies of existing programs in seven states, AEE Institute identifies eight design principles that voluntary renewable energy tariffs should follow to ensure that nonparticipants will not be adversely impacted by these offerings to corporate customers. These principles revolve around the need to fairly assess the costs and benefits of renewable energy procured and delivered through renewable energy tariffs, then direct the costs as well as the benefits to participating customers.
Specifically, AEE Institute recommends that such programs:
- Charge participants the actual cost of serving them. While the best approach will vary by program type, participating customers should pay for the cost of the resources, including purchased power, integration and balancing fees, and continue to pay any system costs needed to serve them, such as transmission and distribution fees. Just as they should bear these costs, participants should also reap the benefits of new resources brought online, such as capacity benefits and avoided fuel costs.
- Pass renewable energy certificates (REC) and their cost to participants. To meet clearly delineated customer needs, voluntary programs should allow for RECs to be transferred to participants or retired on their behalf. To ensure fair treatment of nonparticipants, the cost of RECs should also be passed through to participants.
- Charge transparent, cost-based administrative and program fees. To the extent that there are other costs to the utility associated with administering and running a voluntary renewable energy program, these costs should be charged to participating customers. Because these fees can add up quickly and dissuade companies from participating at all, it’s important to calculate fees through a comprehensive, transparent analysis.
- Set fair termination requirements. The risk of a customer leaving the state, shutting down, defaulting, or deciding to exit the program is not one that other utility customers should be shouldered with, so it’s important to put in place termination requirements to guard against this eventuality. At the same time, overly burdensome termination requirements increase the cost for customers and discourage participation; options such as allowing participants to transfer their obligation to another customer can help strike a balance.
- Consider the impact of costs and benefits outside the scope of the program. There are several benefits of renewable energy tariffs that may go overlooked and undervalued if not considered in the program design process. These include helping a state to attract and retain businesses with renewable energy targets, boosting the state’s renewable energy sector, and diversifying the state’s energy mix—benefits that go to all customers. They should be taken into account.
- Enable participation by both new and existing customers. Meeting the needs of all prospective participants means allowing participation by existing customers, not just those coming into the state or expanding operations there. Avoiding impacts on nonparticipants involves assessing of the risk of stranded utility costs as existing customers switch to the renewable energy offering, and may require fees or adjustments to account for any cost shifts that result.
- Allow flexibility in the program to address unique needs and circumstances. Individual customers may have specific requirements that justify a higher cost or bring specific benefits that result in cost savings. Such variations cannot be accounted for in a standard one-size-fits-most program offering, so some flexibility and optionality is important to ensure overall fairness.
- Set a regular schedule for program review. Good program design can only do so much. Because in many cases these new offerings are uncharted territory, a regular and comprehensive review of program implementation is key to long-term program success.
As more utilities move to introduce new renewable energy tariffs, and as utilities continue to iterate on their existing offerings, the question of how to best balance the needs of participating customers and the rights of nonparticipating ratepayers is not going anywhere. Past programs provide the basis for a detailed roadmap to ensure that nonparticipating ratepayers have nothing to fear from a well designed renewable energy tariff that is also attractive to corporate renewable energy seekers. If the track record for innovation in renewable energy tariffs is an indication of progress ahead, new solutions will continue to emerge to enhance and better capture the benefits of these programs while protecting nonparticipating ratepayers from adverse impacts.