Rate Design & Cost Allocation

Rate Design

Synapse supports the development and implementation of rate designs that provide efficient price signals, advance energy policy goals, and protect customers. Our expertise encompasses time-varying rates, demand charges, electric-vehicle rates, distributed energy resource tariffs, and rates for data centers and other large loads.

We review rate proposals to determine whether they reflect cost causation, align with the timing and nature of system costs, and satisfy widely-accepted rate design principles. We also assess whether proposed rates are likely to encourage customer participation, improve consumption patterns, and ultimately reduce system costs and customer bills.

Our analyses are grounded in data on electric system costs, customer load curves, and cost causation. We also analyze bill impacts across customer types, with particular attention to low-income customers and other customers who may be disproportionately affected.

Synapse evaluates utility rate design and cost allocation proposals with a focus on:

• The reasonableness of cost allocation methodologies in embedded and marginal cost-of-service studies;
• The economic efficiency of price signals, including whether a proposed rate provides customers with actionable information that can support efficient consumption and investment decisions, reduce customer bills, and lower long-run system costs;
• The fairness of the proposed rate design and its impacts on different groups of customers, particularly low-income customers;
• Conformance with the principles of gradualism, simplicity, stability, and understandability; and
• Appropriate protections against cost shifting, including safeguards to prevent existing customers from bearing the costs and risks associated with data centers and other new large loads.
  
   

Electric Vehicle Rate Design

Electrifying the transportation sector will be necessary to achieve large-scale greenhouse gas reductions. As electric-vehicle adoption increases, however, unmanaged charging during peak periods could exacerbate grid constraints and increase costs. Certain rate structures—particularly high demand charges—can also create financial barriers for EV owners and public charging providers, potentially slowing transportation electrification.

Well-designed rates can encourage customers to charge during lower-cost periods, support efficient use of the electric system, and improve the financial viability of public charging stations. Synapse regularly advises clients on EV rate design issues, including time-varying rates for residential charging, demand charges for public fast-charging stations, and alternative rate structures that reflect system costs while supporting transportation decarbonization.

Distributed Energy Resource Tariffs

Jurisdictions have adopted a wide range of approaches to compensating distributed energy resources for the benefits they provide to the electric system. Compensation mechanisms for distributed generation include net metering, value-of-solar tariffs, feed-in tariffs, and solar renewable energy certificates.

Synapse helps clients evaluate these tariffs based on their ability to achieve policy goals, their impacts on participating and nonparticipating customers, and the net benefits they provide to the electric system. Our work considers both near-term rate impacts and the long-term value of distributed resources, including avoided generation, transmission, distribution, and environmental costs.
 

Large Load Tariffs

Data centers and other large, energy-intensive customers often require substantial investments in generation, transmission, and distribution infrastructure, often amid uncertainty regarding when proposed loads will materialize, how quickly they will ramp up, and how long they will remain on the system. Synapse evaluates tariffs and cost allocation methodologies to help ensure existing customers do not bear the costs and risks created by new large loads.

Our work addresses:

• Whether large-load customers are assigned an appropriate share of generation, transmission, distribution, and other system costs.
• Minimum demand and minimum-bill requirements that reflect the infrastructure and resources procured to serve a customer.
• Contract terms, including appropriate contract lengths, notice requirements, and provisions addressing delayed or unrealized load.
• Exit fees, collateral requirements, and other financial protections that reduce the risk of stranded costs.
• Upfront contributions, direct assignment, and other approaches to recovering customer-specific infrastructure costs.
• Load-ramp assumptions, capacity commitments, and the treatment of interruptible or flexible load.
• Clean-energy options and the allocation of costs and benefits associated with customer-specific generation or renewable-energy commitments.
• Transparency, reporting, and Commission oversight necessary to evaluate large-load proposals and protect other customers.