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March 27th, 2014

Central Maine Power??s Proposed Standby Rate Would Be Costly For Solar PV And Other Distributed Generation

by Andrew Price, President & COO

Central Maine Power, Co, (CMP) the electric transmission and distribution utility for southern and western Maine, has proposed a “Standby Rate” that would be damaging to new solar PV and other forms of onsite electric generation. CMP joins a long list of electric utilities, stretching from California to Maine, that are struggling with how to adapt to the growing adoption of small distributed generators like solar PV.

CMP’s proposed Standby Rate discourages solar by increasing non-bypassable fixed monthly charges and demand charges for all consumers with “behind-the-meter” distributed generation. CMP’s argument is that it must be ready to serve 100% of every customer’s electric load at all times. Therefore, CMP argues, it should charge based on possible usage, not on actual usage. Others have equated this proposal to ordering just coffee at a restaurant but getting charged for a full meal. The restaurant, like CMP, was prepared to serve you anything on the menu and so you should pay for this “standby” capacity.

Although the restaurant example is an oversimplification – electricity distribution is a complex and resource intensive undertaking and loss of service can cost money and endanger lives – CMP’s Standby Rate proposal is not efficient. Efficient rate design is based on principals of marginal cost. If you charge consumers the cost of providing a marginal unit of electricity, the consumer has the proper price signal to decide whether or not to use that next unit. True marginal cost pricing is difficult to implement for many reasons. Efficient rate design, however, must at least approximate marginal cost principles.

CMP’s delivery costs are largely tied to peak system – or coincident – demand. The electricity transmission and distribution grid has to be built to serve the one hour of peak demand each year. For CMP this hour occurs on one of the hottest afternoons of the summer. For much of the rest of the year, the electricity transmission and distribution infrastructure sits underutilized. An efficient rate structure would incentivize customers to minimize their contribution to this coincident peak demand, and therefore reduce the need for costly infrastructure investments. The Standby Rate demand charges, however, are not based on a user’s contribution to the coincident peak demand, but on the individual’s peak usage, whenever it occurs during the year. Using the electric distribution system during periods of very low demand imposes much lower costs, compared to using the distribution system during periods of very high demand. CMP’s standby rate ignores marginal cost principles by charging the same monthly and demand rates, regardless of when a customer is using the distribution system. 

Solar PV is typically generating, and therefore reducing load on the electric grid, during hot summer afternoons when the electricity grid is strained. Because the Standby Rate will deter investment in solar PV it could actually increase costs and spur the need for additional transmission and distribution infrastructure. Maine and New England have many programs, such as Demand Response programs offered by ISO-NE and energy efficiency incentives offered by the Efficiency Maine Trust, that are designed to encourage consumers to reduce electricity usage during hours of peak system demand. The proposed Standby Rate would offset gains made by these other programs by discouraging adoption of new solar and the associated reduction in peak demand.

CMP’s proposed standby tariff has garnered an impressive list of opponents. The opposition to the Standby Rate is impressive for both its size and diversity. This list includes Maine Colleges and Universities, the Ski Industry, the Governor’s office, the Maine Public Advocate’s Office, environmental groups, renewable energy companies, industrials and anyone with an existing onsite generator who would face significantly higher costs if the Standby Rate is approved.

Opponents have argued convincingly that CMP’s Standby Rate would prevent consumers in Maine from making investments that will directly reduce both operating costs and emissions. This would make Maine less competitive and less attractive for business relative to other states. Opponents have also made the case that Standby Rates would decimate new investment in onsite renewables and distributed generation and reduce the inventive to limit load growth during peak demand hours.

Public Testimony on CMP’s full rate case, including the proposed Standby Charge, is scheduled for April 2nd in the Worster Room of the Maine Public Utility Commission's Offices at 101 Second Street, Hallowell, Maine at 7:00 p.m. A second Public Witness Hearing will be held in Room 109/110 of the Abromson Center, University of Southern Maine, 88 Bedford Street, Portland, Maine at 7:00 p.m. on April 3.

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