In Arizona, demand charges are a way to fairly treat taxpayers for the costs of the electrical grid. Demand charges bill utility customers on the full amount of electricity they use in a defined short time period during each billing cycle. Demand charges allow Arizonans to consume electricity in a more efficient manner and in most cases, lower their utility bill. In particular, demand charges correct severe inequities that can result in low-usage customers subsidizing high-usage customers.
In fact, demand charges are the conservative solution to our energy problems in Arizona. Republicans and Democrats should both accept demand charges as a solution as it is not only a free-market solution, but also the equitable solution for our low income families.
In the solar context, demand charges is the fair way distribute the costs of the grid.
Demand charges can also help to address one of the most vexing debates between utilities, regulators, DER providers, and customers—how to properly charge and compensate distributed generation (DG) customers. Proposals to increase fixed charges or to offer value of solar tariffs remain controversial; there is little agreement on an appropriate value of solar calculation and on which charges are fixed and which charges are variable. This uncertainty creates an unclear value proposition for DG customers, making financing more difficult (and expensive) and constraining the growth of DERs. So while demand charges could be good for all residential customers, they’re especially suited to customers with DERs.
Two utilities recently added demand charges for DG customers. While these charges might slow adoption of solar, or may be too drastic a change all at once, they could potentially unleash new combinations of DERs to help customers better manage the demand, which can bring value to the entire system.
- Salt River Project (SRP) added a seasonal, inclining block demand charge to future net-metered PV customers. One reason for this was to create an incentive for customers to install west-facing PV systems, so that generation better aligns with system peak. SRP also states the demand charge will help customers adopt new technology (e.g., load controllers, smart thermostats, or battery technology), and change their behavior to respond to those price signals.
- In its March 2015 general rate case filing, Westar Energy proposed a choice for residential DG customers. One of the two options entailed a lower fixed customer charge plus a demand charge.
Demand charges can be beneficial for customers without solar as well. At least 14 utilities have implemented demand charge rate options for residential customers with or without solar. For example:
In South Dakota and Wyoming, Black Hills Power offers a demand charge option for all residential customers. To help customers manage their electricity demand, maximize operational benefits to the grid, and minimize their monthly bills, the company promotes a Demand Controller Program. The program connects load control devices to heating and cooling systems, hot water heaters, clothes dryers, and hot tubs to cycle these appliances on and off in 15-minute cycles to help customers manage demand charges. The controller is owned and operated by the customer instead of the utility, leaving ultimate decision making over appliance control to the customer.
Arizonans should embrace demand charges as a way fairly distribute grid costs while simultaneously lowering most families utility bills. It is not only the conservative solution, but fair solution.