Tacoma Power Residential Rate Design Analysis Ray Johnson, Rates - - PowerPoint PPT Presentation

Tacoma Power Residential Rate Design Analysis

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Ray Johnson, Rates & Energy Risk Manager Rachel Gardner Clark, Senior Utilities Economist

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About Tacoma Power

Introduction

​Basic Stats

 180 square miles of service area  155,000 residential customers  18,000 commercial customers  Average use per household ≈ 11,000 kWh per year  Relatively high share low-income  Predominantly single-family residences

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Residential Rate Design Study

Introduction

​Timeline

• 1. Tacoma Power increased the customer charge in the previous

rate process from $5.50 to 10.50 per customer per month

• 2. Staff had concerns about the impact of rate design on low-

income customers

• 3. Wanted 2017-18 policy recommendations to be based on

rigorous analysis

• 4. Convened team of staff experts to conduct study to

understand impact of rate design on various demographics

• 5. Led to recommendation of putting 100% of increase into

customer charge

What is the best rate design for Tacoma Power’s residential customers?

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Rationale

Introduction Spread rate increases evenly across customers & months

1.

• 1. Mitigat

igates es the wor

• rst

st imp mpac acts ts of a rate e increase

• ase. Spreads

the bill increase evenly across customers and months rather than saddling some customers with large bill increases. 2.

• 2. Enhan

anced d finan ancia ial l stabili

• ability. Increasing the customer

charge achieves better alignment between fixed costs and fixed revenues.

$39.39 $39.39 $39.39 $34.16 $34.16 $34.16 $10.50 $15.25 $20.00

$- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100

Current 2017 2018 Cost per Month Energy Delivery Customer Charge 5

Put 100% of Increase into Customer Charge

Introduction

$4.75 $4.75 $84.05 $88.80 $93.55

Usage based on 992 kWh/Month

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Bill Assistance: Key Part of Proposal

Introduction

​Bill Assistance Change Complements Rate Design

 Tacoma Power highlighted changes to our bill assistance program as part of the residential rate proposal to the board  Changing to a monthly distribution: complements increase to customer charge  Increased benefit  Assistance increase fully offsets ts the proposed rate increase in 2017  Assistance increase partially tially offsets the cumulative increase in 2018

Changes to Tacoma Power’s bill assistance program significantly mitigate impacts to many low-income customers

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​Objective: Determine what rate design will minimize the negative impacts of upcoming rate increase

 Special focus on low income customers

​Approach: Home value as proxy for income

 Supplemented with data from Tacoma Power survey & Census

​Key Findings

 There is no “silver bullet” rate design that insulates low income customers from a rate increase  Increasing the fixed charge mitigates the worst impacts of a rate increase

Introduction

Study Overview

Finding 1

There is no silver bullet

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Two contradictory stories about low-income customers

Finding 1: There is no silver bullet

​Low-income = high-use:

 Low-income are more likely to be electrically heated  Older, draftier homes  Older appliances  More likely to rent and face split incentives

​Low-income = low-use:

 More likely to live in apartments & smaller homes  Engage in more “behavioral conservation”

Implies higher er fixed ed, lower volumetric is better for low income Implies lower fixed, higher er volume metric tric is better for low income

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Low-income customer consume less on average

Finding 1: There is no silver bullet

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But the relationship is very weak

Finding 1: There is no silver bullet

98% of the variation in consumption cannot be explained by income

Correlation = 0.16

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Implications for rate design

Finding 1: There is no silver bullet

​Rate design is not a good tool for helping low-income customers

• 1. Lack of relationship between consumption and income means we cannot

use rates to minimize impacts on low-income

• 2. No matter what the design, many low-income will be better off and many will

be worse off

Finding 2

Increasing fixed charge mitigates the worst impacts

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Avoids large bill increase for some

Finding 2: Increasing fixed charge mitigates the worst impacts of rate increase

Increasing the per-kWh charge puts many customers at risk of large bill increases Increasing the customer charge limits bill increases

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Another View: Risk Tradeoff

Finding 2: Increasing fixed charge mitigates the worst impacts of rate increase

Some customer pay slightly more under fixed charge Fixed charge avoids the long tail of high bills

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Avoids concentrating increases in winter

Finding 2: Increasing fixed charge mitigates the worst impacts of rate increase

Most customers’ bills increase more in winter if we raise per-kWh charge

75th percentile 25th percentile Average

Conclusion

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Final Thoughts

Conclusion

• 1. Increasing customer charge does not

systematically help or harm low-income customers but does avoid concentrating the burden

• 2. Averages are not the whole story
• 3. All service areas are not the same
• 4. Combining skillsets
• 5. We are happy to provide additional detail

Questions?

Rachel l Gardn dner Clark Energy Conservation Evaluator Tacoma Power (253) 502-8291 rclark2@cityoftacoma.org Ray Johnson son Manager, Rates & Energy Risk Tacoma Power (253) 441-4935 crjohnson@cityoftacoma.org