Many ELCON member companies self-generate some of their power needs, usually by means of combined heat and power (CHP) systems.  CHP systems are especially suitable for manufacturing processes in which steam or other forms of thermal energy is the primary driver. Appropriately determined CHP standby rates[1] support the economic viability of the following steam/thermal-driven industrial sectors:   Agricultural Products, Building Materials, Chemicals, Food Processing, Glass, Mining, Motor Vehicles, Oil & Natural Gas, Paper & Forest Products, Pharmaceuticals, Rubber, Steel, and Textiles.

CHP provides significant economic, environmental, reliability, and other operational benefits that help preserve and potentially expand the nation’s manufacturing base. ELCON member companies weigh a number of different factors when deciding how to operate and plan their business. Transparent, efficient, and fair standby rates are a key factor and State PUCs’ decisions on the future structure of standby rates will have a direct influence on their choices.

Standby service tariffs should be reviewed to ensure equitable revenue allocation among ratepayer classes and rates that are correlated with cost-of-service principles.  Such rates should also be transparent and designed to send a clear price signal to ensure the efficient utilization of both the utility and standby customer’s resources.

We also recommend the following:

• Standby Service Rate Class—Standby service customers should be placed in their own separate rate class recognizing the very low load and coincidence factors of these customers as a whole. Revenue should be allocated to this customer class consistent with a class cost-of-service study or using reasonable proxy data if there is insufficient normalized data. Where the utility is providing standby service from the wholesale market, the basis of the revenue requirement for the rate should be based on the cost to the utility of purchased capacity from that market.
• Reservation Charges—Reservation charges should not be used. Consistent with efficient price signals, power supply costs should be recovered through daily, or on-peak daily, demand charges applied to a customer’s actual daily, or on-peak daily, standby service demand.
• Daily, or On-Peak Daily, Standby Service Demand Charges—These demand charges should be consistent with FERC PURPA rules for standby service and the principles of good rate design. The design of these rates should not assume that forced outages or other reductions in electric output occur simultaneously, or at the time of system peak, or both.  Standby service demand charges should also take into account the extent to which scheduled outages of customer generation can be coordinated with scheduled outages of the utility’s facilities.
• Interaction Between Standby and Supplemental Services—It is important that when a customer’s daily, or on-peak daily, demand is determined that it account for the amount of supplemental service the customer is taking at the time to ensure that the two rates do not lead to the over-recovery of costs by the utility. It is also important to avoid a possibility of over-recovery of delivery service charges when a customer is taking both standby service and supplemental service. For the supplemental service, the customer will be paying a delivery service demand charge for the highest supplemental service demand during the month. To this end, delivery service demand charges should only be assessed on the basis of the largest net demand the customer places on the system.

Customer Charges—A customer taking both standby service and supplemental service should not be required to pay the same customer charge twice.

[1] Standby rates is generally a catch-all term for one or more of the following services: Backup Power, Maintenance Power, Supplemental Power, Economic Replacement Power, and Delivery.

Recommended Resource:

Regulatory Assistance Project, Standby Rates for Combined Heat and Power Systems, February 2014.