Standby Rates Issue is More Nuanced than Authors Let On
14 November 2003
By Dr. Hethie Parmesano
While there is growing support for distributed generation (DG), controversy remains regarding certain issues of its implementation, particularly pricing of the electricity services required by these facilities. In "Standby Service to Distributed Generation Projects: The Wrong Tool for Subsidies," in the October 2003 issue of the Electricity Journal, NERA Special Consultant Dr. Hethie Parmesano explained that the costs and benefits of DG are project-specific, and that subsidizing all DG by underpricing standby service is not the way to ensure that the good projects are built and that the bad projects die on the drawing board.
In the same issue, two other authors addressed related issues in separate articles. In this Letter to the Editor in the November 2003 issue, Dr. Parmesano points out some of the flaws in these authors' arguments. Most importantly, she states that on the issue of the level of reserves necessary to provide standby service to DG, both authors fall into the trap of failing to distinguish adequately the very different effects of DG on generation and high-voltage transmission from their effects on local delivery facilities.
Dr. Parmesano reaffirms her point that without the type of rate structure overhaul for full-service she describes in her October article, standby service will require a separate rate to avoid cross subsidies. As she explains in that article, the standby service rate should charge customers every month for local facilities that have to be sized to handle full DG standby loads, but should charge for generation and other elements of delivery only when the DG customer actually uses these components of the system.
This abstract is republished with permission from the Electricity Journal, Volume 16, Issue 9, November 2003, Copyright (c) 2003 Elsevier Science, Inc., http://www.elsevier.com/locate/tej. All rights reserved.
