Rate Design & Cost Allocation

When it comes to cost recovery, deciding who pays for what and when makes a big difference in how well utilities manage their operations, and in customer behavior and equity. We assess and develop rate designs to help support policy goals and ensure ratepayers pay only what's fair.

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Rate Design

Synapse supports the development and implementation of rate designs that provide efficient price signals, help achieve energy policy goals, and protect customers. Our expertise includes advanced rate design issues such as time-varying rates, demand charges, and electric-vehicle-specific rates.

We frequently review rate proposals to determine whether the rates are consistent with the temporal nature of costs imposed on the system and whether they satisfy widely accepted rate design principles. We assess rate design proposals to determine whether they are likely to achieve key goals of customer adoption, improvements in customer consumption patterns, and ultimately reduced costs. Our analysis is grounded in data regarding system costs, customer usage, and cost causation. In some cases, Synapse conducts production cost modeling to examine patterns of marginal costs and their alignment with proposed time-of-use periods. We also analyze rate design impacts by customer type to the extent possible.

Synapse evaluates utility rate design proposals with a focus on the following key issues:

  • Reasonableness of cost assignments and allocations in utility-embedded and marginal cost of service studies, paying particular attention to those categories of costs whose causation is a matter of debate.
  • Economic efficiency of price signals. That is, whether the proposed rate design conveys actionable information to help customers make efficient consumption and investment decisions that will help reduce electric bills while also reducing long-run system costs.
  • Fairness of the proposed rate design and its impact on various utility customers, particularly low-income and low-usage customers.
  • Conformance with the principles of gradualism, simplicity, and understandability.

Electric Vehicle Rate Design

Electrifying the transportation sector will be necessary to achieve large‐scale greenhouse gas reductions. However, managing peak demand is a key challenge for electric utilities. As the penetration of electric vehicles (EVs) increases, charging EVs during times of peak demand could exacerbate grid constraints and increase costs for customers. Further, certain electric rate structures can pose financial barriers to potential EV customers and owners of public EV charging stations, which could slow the transition to the cleaner transportation system necessary to meet state goals. To avoid these pitfalls, electric utilities should provide EV customers with clear electricity price signals to encourage charging off‐peak. Further, well-designed electricity pricing can help encourage the adoption of EVs and support the financial viability of public EV charging stations. 

Synapse regularly consults on electric vehicle rate design issues, including time-varying rates for residential charging, demand charges for public fast-charging stations, and alternative rate designs that accurately reflect costs imposed on the system while supporting transportation decarbonization.

Distributed Energy Resource Tariffs

Jurisdictions have adopted a myriad of approaches to compensating distributed energy resources for the value they provide to the grid. Compensation mechanisms for distributed generation include net-metering, value-of-solar tariffs, feed-in tariffs, and solar renewable energy certificates. Synapse supports our clients in evaluating these tariffs in terms of their effectiveness of achieving policy goals, impacts on customers, and net benefits to the grid.