2012

TechnoLink

Creating the Foundation for a

Sustainable and Innovative

Electricity Industry

Lee Krevat

Director, Smart Grid and Clean Transportation

Technology Changes Industries: How Will It Disrupt Energy?

4

In the “Old Days” Now

Listening to Music

Watching Movies

Talking to Friends

Reading the News

Playing/Recording Music

• Telephones

• Telegraphy

• Automobile

• Railroads

• Horse drawn vehicles

• Refrigerators

• Ice Storage/sales

• Internet

• U.S. Post Office

• Telephone

• Music/Video Sales

• Newspapers

• Digital Photography

• Traditional film/chemical photography

• Distributed Generation, Renewables, Electric Vehicles, Smart Grid Technologies???

California Has Initiated a Number of Initiatives

Designed to Reduce Emissions and Empower Customers

• AB32 (state GHG emissions at 1990 levels by 2020)

• RPS (33% by 2020)

• CSI

• Net Energy Metering

• SB32 (Feed-in Tariffs)

• Low Carbon Fuel Standard

• SB17

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What changes are required in the energy industry to make this transition achievable in the long term?

Developing a Rate Design for the Future

• Rates are intended to recover the cost of utility investments from customers based on the services customers receive from their utility

• The rapidly growing number of customers with Distributed Generation such as solar use the grid in new ways

• In order to allow for long-term growth in the distributed solar market and other new technologies, it is necessary to update utility rate design

• Accurate price signals are needed to maximize economic efficiency in long-term planning to meet the future energy needs of California

• To the extent clean energy subsidies are necessary to continue CA job growth, they should be clear, transparent and reflect the falling price of solar rather than being hidden in the intricacies of utility rate design

6

7

SDG&E’s Tiered Rate Structure

Residenti, non-CARE summer rates al tiered rate structure

600 kWh

Tier 4 $0.28

400 kWh

Tier 3 $0.26

300 kWh

Tier 2 $0.17

Tier 1 $0.14

Net Energy Metering (NEM) is Supported by Significant but Hidden Cross Subsidies

8

• Currently Tier 3 & 4 rates

average ~26¢/kWh and are

increasing

• The Time of Delivery (TOD)

adjusted value of solar

energy is ~8¢/kWh.

• NEM customers avoid

paying the remaining costs

of grid support, public

programs, etc.

• Those costs are shifted to

remaining Tier 3 & 4

customers

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

NEM Energy Value

Co

st p

er k

Wh

Fixed costs that SDG&E must now recover from other customers even

though this infrastructure continues to be used to provide services to NEM

customers

Actual value of energy

(avoidable cost)

NEM vs. Energy Value

NEM customers are compensated up to $0.276 per kWh for energy,

which is significantly higher than its actual value

The Impact of NEM Growth on Non-NEM Customers without Updated Rate Design Would Be Substantial

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Rate design distortions magnify the impact of cost re-allocation on upper tier

customers

• It takes several years to implement a change in rates for regulated utilities

• Unnecessary delays would be costly

• Subsidies paid by non-NEM customers have increased by 1/3, just over the past year

$MM (Cost Shift)

Non-Solar Tier 3 & 4

Customers Avg. Cost

(2012 Cost Basis - $/Year)

NEM Adoption Level (%)

$-

$20

$40

$60

$80

$100

$120

2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

$-

$50

$100

$150

$200

$250

$300

Accurate (“Real”) Price Signals

• SDG&E’s rates recover costs incurred to provide four general categories of services: – Customer Costs – SDG&E incurs these costs on a fixed basis for each

interconnected customer whether or not the customer uses electricity

– Distribution Demand Costs – SDG&E incurs these on a fixed cost basis to the extent necessary to meet the combined non-coincident (maximum) demand of customers served off of a circuit

– System Capacity/Transmission Costs – SDG&E incurs these on a fixed basis based upon the peak demand of the system

– Commodity Costs – SDG&E incurs these on both a variable and fixed cost basis and the cost depends on the time of delivery

• With accurate price signals, these costs would be recovered from customers on the same basis as they are incurred

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Rate Design Changes for the Near-Term

• Unbundle rates so they are reflective of the services that are available to customers on an unbundled basis

– When customers receive a service they should pay for that service

– We must identify what services customers with new technologies will want from utilities and ensure that they are available and that the customer who receives that service pays for the service they receive

– If customers provide a service/benefit to utilities, they should also be compensated for that service

– If subsidies/incentives are needed, they should be clearly identified, together with a plan for what will happen to that subsidy over time

• Eliminate the rate distortions that are created by tiers

• Move towards recovery of fixed costs on a fixed cost basis

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Rate Design for the Future: Issues

What kind of future do we want to make possible?

What services would be required from utilities in such a world?

When is it time to begin planning for a shift in technologies in the energy market?

Questions?

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Lee Krevat

Director, Smart Grid

LKrevat@semprautilities.com

www.sdge.com/smartgrid/

Twitter @LeeKrevat: https://twitter.com/LeeKrevat

Thank You