2.2   What Are the Regulatory Issues from Financial and Market Pressures?

2.2.1 Why is Customer Fairness Becoming an Even Larger Issue?

Utility fairness to customers, essentially related to the rates they pay, has come under increasing question. Although regulators try to balance utility rate cases for utility needs against the customer rates, there are an increasing number of issues being raised not only on whether utilities are charging fair rates, but whether some customers benefit more than others from these rates.
Some of the issues that are causing financial mismatches are:

• Customers have been mostly passive in energy management since they typically receive bills and pay without understanding the actual utility costs, such as the time-based cost of energy, any load-based impacts on distribution transformers and feeders, or the impacts of different types of DER systems.
• Customers have no incentive to change their load patterns since they are typically billed by the month at a set rate or tier of rates that are just load-based, not cost-to-utility-based.
• Utilities have no incentives for improving energy efficiency or supporting renewable energy, since they are regulated only to provide electricity reliably and safely to customers. They have no incentive to spend more than they are regulated to for other purposes, such as efficiency, use of renewable energy, or allowing more DER systems to interconnect than mandated by the regulations.
• Third party implementers of DER systems are driven by selling energy, and have no financial interest in providing other services, such as reactive power or frequency smoothing, unless there are incentives to do so.
• Customers with DER systems do not pay for utility “backup power” or other services, since they only pay a typically-small distribution connection fee, but no longer pay for generation. Although this may seem fair on the surface (they are providing their own generation), this shifts the burden of the uncovered utility costs to those customers who do not have DER systems.

This often leads to confrontational situations, where customers may complain if rate structures change or rates increase, while utilities are concerned about operating the distribution system safely and reliably with all the third party implementers demanding to interconnect DER systems. Utilities are also reluctant to undertake the sometimes expensive studies and power system upgrades that would be necessary for some DER installations.

It would be helpful if customers could become more of a partner with utilities in understanding the challenges and the opportunities of efficiently and safely utilizing and generating electricity.  Currently most customers are treated as passive users of energy who are just expected to pay their monthly bills. However, they could become active partners through participating in energy generation and storage as well as benefitting from new tariffs and technologies.

Some of the customer incentives can be provided by new tariffs and market incentives (see 3.10) if customers are also installing DER systems, (see 3.4). Utilities are facing additional challenges as customers implement these DER systems (see 3.3) but utilities and customers can also mutually benefit each other over the long term if utility distribution planning can incorporate new approaches  (see 3.6).