Loading...
HomeMy WebLinkAboutMemo - Mail Packet - 7/2/2019 - Memorandum From Kevin Gertig Re: American Public Power Association (Appa) - Time-Of-Day (Tod) Rates RecognitionUtilities Executive Director electric  stormwater  wastewater water 222 Laporte Avenue PO Box 580 Fort Collins, CO 80522 970.221.6702 V/TDD: 711 utilities@fcgov.com fcgov.com/utilities M E M O R A N D U M TO: Mayor Troxell and City Councilmembers THROUGH: Darin Atteberry, City Manager Jeff Mihelich, Deputy City Manager FROM: Kevin R. Gertig, Utilities Executive Director DATE: June 27, 2019 RE: American Public Power Association (APPA) – Time-of-Day (TOD) Rates Recognition Fort Collins Utilities was recognized in a recent publication by APPA titled Leadership in Rate Design. The publication is a series of essays that present perspectives from thought leaders in rate design, supplemented by examples, of how public power utilities are reshaping their rate design strategies to keep up with the changing times and technologies. The link to the entire publication is at https://www.publicpower.org/resource/leadership-rate-design. The essay in which Fort Collins was mentioned, authored by Jim Lazar, Senior Advisor, Regulatory Assistance Project, is titled Implementing the Three Principles of Smart Rate Design and attached for your information. I want to highlight that, on page 22 of the article, Fort Collins Utilities was recognized as highlighted below. In addition, many organizations are reaching out to Fort Collins to understand our communications and outreach campaign tactics. “The public power utility of Fort Collins, Colorado, has been a national leader in innovative technology and pricing. It has what we consider the most creative and effective rate design in the U.S. today." Utilities staff plans to present to City Council the results of the time-of-day rates (TOD) in the first quarter of 2020. This will allow Council to review the results of the TOD pilot compared to the results after one full year of implementation. The American Public Power Association (APPA) is the service organization for the more than 2,000 U.S. community-owned electric utilities that serve more than 47 million Americans. APPA was created in September 1940 to represent the common interests of these utilities. Randy Reuscher, Fort Collins Utility Rate Analyst, will present this rate design at the APPA Fall Business and Financial Conference this September in Minneapolis. CC: Lance Smith, Utilities Strategic Finance Director Lisa Rosintoski, Deputy Director, Customer Connections Attachment DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF LEADERSHIP IN RATE DESIGN 17 Implementing the Three Principles of Smart Rate Design BY JIM LAZAR, SENIOR ADVISOR, REGULATORY ASSISTANCE PROJECT T he Regulatory Assistance Project is a global nonprofit nongovernmental organization that works with utility regulators and policymakers in the transition to a clean and reliable power future. RAP sets out three guiding principles for smart rate design in its handbook for rate analysts and utility oversight bodies:i 1. Customers should be able to connect to the grid for no more than the cost of connecting to the grid. 2. Customers should pay for grid services and power supply costs based on how much power they use and when they use it. 3. Customers supplying power or grid services to the utility should receive full and fair compensation, no more and no less. What do these principles mean in practice? DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF PUBLIC POWER / MAY – JUNE, 2019 18 Customer-specific costs only Customers should be able to connect to the grid for no more than the cost of connecting to the grid. The first principle of smart rate design tells us that customers should be able to connect to the grid for no more than the customer-specific costs of connection — up to, but not including, any components of the system that serve multiple cus- tomers. This usually includes the service drop to their home or business, plus the costs of metering and billing. On typical urban/suburban power systems, shared distribution system components such as poles, conductors, and transformers generally should not be included in the monthly fixed charge, as these costs will not change if the number of customers changes unless their combined usage changes. The resulting analysis generally pro- duces a per-month cost of about $5 for typical municipal utilities billing water, sew- er, and other services on a single bill. It can run up to $10 per month for utilities billing for a single service, because the costs of billing and collection are not spread across multiple services. A cost study that produces customer costs above this level likely includes shared distribution costs, in violation of the first principle of smart rate design. Volume and time of use Customers should pay for grid services and power supply costs based on how much power they use and when they use it. The second principle of smart rate design tells us that rates should recover costs based on the volume of usage, differenti- ated by season, usage level, and time of use (where advanced metering is in place). Seasonal rates and time-of-use rates di- rectly concentrate cost recovery on users during high-cost periods. Inclining block rates approximate the effect of TOU rates, because high-use customers tend to be electric heating and cooling users, and these end-uses are concentrated in the high-cost periods for most utilities.ii Inclining block rates are a good second-best solution where ad- vanced metering is not in place. In addi- tion, many utilities use inclining block rates to allocate a limited low-cost resource, such as hydro, equitably to all customers. LEADERSHIP IN RATE DESIGN 19 From Principles to Practice Many consumer-owned and inves- tor-owned utilities have rates that reflect these principles. We share examples of several public power utilities scattered across the United States that have imple- mented rates consistent with the three smart rate design principles. Each of these utilities has done so in a manner appropri- ate to local circumstances. In a few cases, we have simplified the tariff rates to help understand the principles we are illustrat- ing. Inclining block rates An inclining block rate is a simple rate that does not require advanced metering. A higher rate is imposed on higher levels of usage, recognizing a well-understood (but not perfect) relationship between high levels of usage and high levels of peak orientation of loads, and between low lev- els of usage and closely-spaced dwelling units (apartments and multiplex units). All residential customers have lights and appliances, typically consuming 200–400 kilowatt-hours per month. On a system- wide basis, these are highly diversified year-round loads, with load factors as high as 70%–80%. As a result, the first block of usage is relatively cheap to serve. Water heating is a year-round load, averaging about 300 kWh/month, but is concen- trated in the morning and evening hours, when most utilities experience higher de- mand. Space heating and cooling, typically reflected in usage above 700 kWh/month, is both seasonal and peak oriented for winter-peaking utilities (heating) and sum- mer-peaking utilities (air-conditioning). This leads to less efficient use of utility genera- tion, transmission, and distribution capac- ity, for which some costs are incurred all year, but some of the investment is only needed for peak periods. Apartments tend to have few residents per unit, but multiple units served by a single connection to grid. This reduces the cost per customer of distribution service. While some utilities reflect this lower cost of service in a separate (lower) rate for apartments, an inclining block rate design provides a similar benefit without the need for a separate rate. With just this information, we can de- velop an inclining block based on a typical commercial demand charge rate. Com- mercial customers typically pay a separate PUBLIC POWER / MAY – JUNE, 2019 20 City of Palo Alto Palo Alto is a California utility that provides both electricity and natural gas (plus water and sewer) through an efficient combina- tion of services. As it bills multiple utility services together and its customer billing costs are low for each service, it has elect- ed to have no fixed monthly charge for electricity. Palo Alto Customer Charge None Minimum Bill $9.12 First 330 kWh $0.129 Over 330 kWh $0.193 Burlington Eelectric Department Burlington Electric Department in Vermont serves the largest urbanized area in an oth- erwise rural state. It has a historical alloca- tion of low-cost hydropower from projects built a century ago and gets much of the rest of its power in the relatively expensive New England ISO market. The rate design recognizes a per-customer allocation of the low-cost hydropower. Customer Charge $8.21 First 100 kWh $0.118 Over 100 kWh $0.157 Rates that vary by customer connection size A few utilities have explicitly recognized that small and multi-family dwellings are less expensive to serve than larger homes. For small and multi-family homes, more customers are served per service connec- tion line, and line transformers are sized based on an estimate of diversified load rather than the customer-specific load that drives rural and ex-urban system design. We use the example of Burbank, California. Burbank Water and Power Burbank is a small utility in the Los An- geles area. Half of its customers live in multi-family dwelling units. Many live in large, single-family homes with central air conditioning, swimming pools, and other high-usage electric appliances. Burbank Water and Power Customer Charge $8.61 Service Size Charge 100 Amp $1.36 200 Amp $2.73 Over 200 Amp $8.19 First 300 kWh $0.112 Over 300 kWh $0.163 TOU rates are particularly attractive to customers with energy storage capabilities. Electric water heaters on timer control or active utility control are common. LEADERSHIP IN RATE DESIGN 21 Rates for compensating solar customers Many utilities are seeing an increasing numbers of customers install residential and small business solar photovoltaic systems. Most of these utilities are offering simple net metering, an infant industry approach that works well up to about 5% penetration, as the impacts on oth- er customers are very small. Once solar becomes common, a more cost-based solution might be appropriate. Austin Energy Austin Energy has been a leader in solar compensation, with an innovative “value of solar” approach that has been adopted in other states. The VOS method carefully evaluates all components of the benefits to the society that solar produces, not just the short-term benefits to the utility. These benefits in- clude generation, transmission, and distri- bution capacity; energy costs; and appro- Time-of-use rates Increasingly, utilities can measure cus- tomer usage by time period and can apply TOU rates to reflect generation, trans- mission, and distribution costs that are properly assigned to on-peak, mid-peak, and off-peak usage rather than the less accurate demand and energy classification methods commonly used in rate studies in the previous century. While many utilities offer optional TOU rates, only a few have moved all customers to a default or man- datory TOU rate form, but that is changing. TOU rates are particularly attractive to customers with energy storage capabilities. Electric water heaters on timer control or active utility control are common. Electric vehicle owners can easily control when they charge their vehicles, and some utili- ties offer rates tailored to EV owners. Tallahassee, Florida Tallahassee has a simple, flat default rate design and a relatively simple optional TOU rate. Tallahassee Standard Rate Customer Charge $7.77 All Energy $0.101 Optional TOU Rate Customer Charge $7.77 Off-Peak Energy $0.056 On-Peak Energy $0.213 One negative aspect of the Tallahassee rate is that the on-peak period runs from 7 a.m. to 7 p.m. This very long interval limits PUBLIC POWER / MAY – JUNE, 2019 22 Implementing All Three Smart Rate Design Principles The public power utility of Fort Collins, Colorado, has been a national leader in innovative technology and pricing. It has what we consider the most creative and effective rate design in the U.S. today. Fort Collins Fort Collins recently concluded a multi- year pilot program and deployed universal TOU rates for residential customers. A “tier charge” on all usage over 700 kWh/ month retains the effect of an inclining block rate within the framework of a TOU rate (electric heat customers pay a slightly higher base rate and are exempt from the tier charge). This rate design applies all three smart rate design principles, with the following characteristics: l A customer charge that recovers only customer-specific costs (i.e., a custom- er can connect to the grid for no more than the cost of connecting to the grid). l All other costs are in a TOU rate (i.e., all network and power supply costs are recovered on the basis of how much a customer uses, and when the customer uses it). l Customers with on-site solar pay the standard rate for power consumed but get a slightly different credit than the re- tail rate for power delivered to the utility (i.e., customers supplying power to the grid are fully and fairly compensated). Among the many good features of the Fort Collins rate are the narrow periods in which the on-peak rates apply — only five hours per day in summer and four hours per day in the non-summer months. Cus- tomers can more easily shift loads such as laundry, dishes, and water heating into the low-cost hours when the on-peak period is relatively short. The Fort Collins off-peak rate, under $0.07/kWh, provides electric vehicle charging at the equivalent of less than a dollar per gallon of gasoline. Coupled with the Colorado and federal tax cred- its for electric vehicles, an EV is no more expensive to buy, and is much cheaper to operate, than an equivalent new gaso- line-powered vehicle in Fort Collins. For customers with solar PV systems, Fort Collins provides a rate credit for power flowed to the utility that is also time-differ- entiated and slightly lower than the retail rate for utility power consumed by the LEADERSHIP IN RATE DESIGN 23 Rates directed at EV charging While any TOU rate can provide lower-cost energy for any load that can be controlled in a limited time period, many public utilities have gone a step further, offering a specific rate for electric vehicle customers. Some of these are “whole-house” rates, which require an EV for eligibility, while others are “second-meter” rates for the EV charging load alone. Burbank Water and Power Burbank is planning to extend TOU rates to all customers, but until that decision is made by its board and the city council, customers with EVs have access to a rate that provides an attractive charging price. The customer pays this rate for all usage but must have an EV to qualify for the rate. The key characteristic is the off-peak rate that is about half of the standard rate. Unlike standard rate customers, EV rate customers are not subject to the higher second-tier rate for usage over 300 kWh/ month (an EV typically uses 200–300 kWh/month by itself). The standard in- clining block rate, without a TOU element, would be a potential barrier to EV deploy- ment. The Burbank EV TOU rate has the same fixed charge as other residential customers and the same service-size charge. Only the per-kWh rate is different. At $0.08/kWh, Burbank’s off-peak EV rate is equivalent to about a dollar per gallon of gasoline. Rates for small commercial customers Small non-residential customers generally are served with rates that do not include demand charges, and most would not understand a separate demand charge. This recognizes that individual small users have somewhat erratic usage as major appliances are turned on and off, but that the class of customers, as a whole, has fairly diverse and predictable usage. A demand charge for this class of customers would unfairly shift costs to customers with intermittent usage who can share system capacity with other customers with complementary usage patterns. A TOU energy charge is more equitable, ensuring that customers with continuous usage in high-cost periods pay a larger share of system capacity costs. We return to Burbank as an example of a smart rate for small commercial custom- PUBLIC POWER / MAY – JUNE, 2019 24 This rate is easy for customers to under- stand. It incorporates most system capac- ity costs into the on-peak and mid-peak rates. The 2:1 ratio between on-peak and off-peak prices provides these customers a strong incentive to install ice-storage air conditioning or other load-shifting technol- ogy. The short three-hour on-peak period provides customers a reasonable opportu- nity to curtail load that can be deferred. Rates for large commercial customers Large commercial customers such as su- permarkets, big box stores, and large office buildings have very diverse usage patterns. Most have been served with three-part rates for decades, with separately stat- ed demand charges. In the past, these demand charges have generally applied to the customer’s highest demand when- ever it occurs (called the non-coincident demand). Today, with wind, solar, storage and oth- er options available to both the utility and the customer, traditional non-coincident demand rates make little sense. Neither generation nor network distribution capac- ity is planned or built based on non-coin- cident peak demand. Typically, these large customers have dedicated transformers sized to their individual demand — but nothing upstream of the final line trans- former is.iv A high demand charge provides com- mercial customers an incentive to curtail usage or add batteries to shave demand charges in the customers’ highest-use hours. But the customers’ highest-usage hours may not occur during the same hours that are most important for the grid. The hotel chain Extended Stay-America has installed battery systems at nearly all of its California properties, providing cus- tomer savings but not system savings.v Sacramento Municipal Utility District has taken a significant step toward mak- ing rates for large commercial customers reflect today’s cost realities. SMUD offers these customers a clear set of signals on how to modify their loads to minimize their bills and help minimize system costs. This rate imposes a “site infrastructure” demand charge, based on the highest an- nual usage, to fully recover the site-specif- ic distribution capacity cost. But this charge is less than $3 per kW per month, far lower than most utility demand charges, reflect- ing only local customer-specific infrastruc- LEADERSHIP IN RATE DESIGN 25 Keeping Rates Competitive The most important lesson is that one common rate design approach used by some utilities to reflect “fixed” distribution costs in fixed charges is NOT a part of smart rate design. Most state utility regula- tors have rejected cost allocation and rate design methods that include shared dis- tribution costs (poles, conductors, and line transformers) in the category of “custom- er-related” costs, and fixed charges for ma- jor private electric utilities are in the $5–$10 per month range. The pioneering treatise on rate design, James C. Bonbright’s Principles of Public Utility Rates, rejected including shared distribution costs in the category of “consumer-related” costs.vi Simply stated, there is no economic ba- sis for recovery of fixed costs through fixed charges. The smart rates discussed above respect this economic principle. Most business enterprises exist to invest capital and employ labor and other resources to produce products and ser- vices that their customers purchase on a volumetric basis. Whether this is farmers growing broccoli, oil refineries produc- ing gasoline, or supermarkets selling a wide variety of products, the principle is the same — fixed and variable costs are recovered in the unit prices for the prod- ucts sold. Competitive businesses do not charge their customers a fixed fee to cover any portion of their infrastructure costs. If they did so, they would risk losing their smaller-usage customers to competitors. The same effect is being observed now in the electric industry, where very small- use electric customers are leaving the utili- ty grid. As an example, pedestrian crossing signals are increasingly solar-powered, primarily to avoid electric utility fixed charges that apply even to very small loads. These signals are usually adjacent to the grid serving schools, so there would be no additional distribution system expansion needed to serve them, but often, utility rate design — imposing a fixed charge of $10–$20 per month — makes it uneco- nomical to connect to the grid. Today, these off-grid solar systems are economical for loads of a few kWh per month. With declining costs for solar and storage, they might soon be attractive for customers using a few hundred kWh per month. Utilities risk alienating and losing millions of customers, and the associated revenue, if they attempt to assign signifi- cant portions of distribution system cost on a per-customer basis. One of the primary purposes for es- tablishing utility regulation, including the statutory obligation of governing boards of consumer-owned utilities in most states, is to prevent the exercise of monopoly power in pricing. Utility prices should general- ly not vary from the kinds of pricing that would emerge under competition in com- petitive industries. The smart rate design principles meet this standard. As the U.S. Supreme Court ruled in the landmark Market Street Railway case, “Even monopolies must sell their services in a market where there is competition for the consumer’s dollar and the price of a commodity affects its demand and use.”viii Smart utilities employing smart rate design principles will not run afoul of this guid- ance. About the Author Jim Lazar is an economist with more than 40 years of experience in electricity rate-making. He has appeared as an expert before many different regulatory and governing bodies. He is the author of Smart Rate Design for a Smart Future, Smart Non-Residential Rate Design, and Distribution System Pricing with Distributed Energy Resources, in addition to many other utility resource planning and pricing guidebooks. i Lazar and Gonzalez, Smart Rate Design for A Smart Future, Regulatory Assistance Project, 2015, available for free download at: https://www.raponline.org/knowl- edge-center/smart-rate-design-for-a-smart-future/ ii See Faruqui, A., “Inclining Towards Efficiency,” Public Utilities Fortnightly, August 2008. iii For a more detailed discussion of this opportunity and options for fair compensation, see Hledik, R. and Lazar, J., Distribution System Pricing With Distributed Energy Resources, Lawrence Berkeley National Laboratory, 2016, and Linvill, Shenot, and Lazar, Designing Distrib- uted Generation Tariffs Well, Regulatory Assistance Project, 2013. iv For a more detailed discussion of smart non-residen- tial rates, see Linvill et. al., Smart Non-Residential Rate Design, Regulatory Assistance Project, 2017, available for free download at https://www.raponline.org/knowl- edge-center/smart-non-residential-rate-design/ v See Extended Stay America to Deploy Stem Systems Across 68 California Locations, at https://www.stem. com/extended-stay-america-to-deploy-stem-sys- tems-across-68-california-locations/ (accessed 1/21/2019) vi Bonbright, Principles of Public Utility Rates, 1969, at pp. 347-349 vii Photo by Dave Dugdale: Solar Powered School Traffic Light at Flickr (Source), CC BY-SA 2.0, https://commons. wikimedia.org/w/index.php?curid=49212163 viii Market St. Ry. Co. vs Railroad Commission of State of California, 324 US 58, 1945. Solar pedestrian crossing signalvii DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF ture costs. And it has a summer super- on-peak charge to recover the cost of additional peaking capacity that the utility needs for summer afternoons. But all other costs are properly built into the volumetric TOU energy charges. SMUD TOU-GS2 (500kW - 1,000 kW) Secondary Voltage Customer Charge $/mo $109.05 Site Infrastructure $/kW/mo $2.88 Summer Non-Summer Super Peak Demand $/kW $7.05 None Energy Charge Off-Peak $0.104 $0.082 Mid-Peak $0.136 $0.104 On-Peak Summer 4-7 PM $0.197 $0.104 Today, with wind, solar, storage, and other options available to both the utility and the customer, traditional non-coincident demand rates make little sense. DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF ers: Burbank Schedule C Customer Charge (single-phase) $9.78 Energy Charge Off-Peak $0.127 Mid-Peak $0.158 On-Peak Summer 4-7 PM $0.254 Burbank EV Rate Customer Charge $8.61 Service Size Charge 100 Amp $1.36 200 Amp $2.73 Over 200 Amp $8.19 Energy Charge Off-Peak $0.081 Mid-Peak $0.162 On-Peak $0.244 …small users have somewhat erratic usage as major appliances are turned on and off, but that the class of customers, as a whole, has fairly diverse and predictable usage. DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF customer. This reflects the unique usage characteristics of solar customers. Fort Collins Standard Residential Rate Customer Charge $6.78 Summer Winter Off-Peak $0.069 $0.067 On-Peak $0.241 $0.216 Tier Charge (Over 700 kWh) + $.0194 / kWh Fort Collins Solar Net Metering Rate Credits Summer Winter Off-Peak $(0.065) $(0.636) On-Peak $(0.227) $(0.204) 5 PM 9 PM O F F - P E A K H O U R S ( A P P X . 7 ¢ / K W H ) NON-SUMMER OCTOBER–APRIL WEEKDAYS ONLY O N P E A K H O U R S ( A P P X . 2 2 ¢ / K W H ) 2 PM 7 PM O F F - P E A K H O U R S ( A P P X . 7 ¢ / K W H ) SUMMER MAY-SEPTEMBER WEEKDAYS ONLY O N P E A K H O U R S ( A P P X . 2 4 ¢ / K W H ) DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF customers’ ability to shift load to respond. Better TOU design limits the high-cost on- peak rate to the minimum number of hours needed. priate environmental and social values. A rolling five-year average is used to smooth volatile values. The resulting VOS credit for residential customers is $0.097, of which less than one-third represents the variable energy cost avoided by the utility. Austin has an inclining block residen- tial rate. Without the VOS approach, solar customers would not see the benefit of the low-cost initial blocks of power, as their solar system might entirely displace these purchases. Instead, Austin has a fixed price that it pays for all solar generation, and then it supplies all power used by the cus- tomer under the inclining block rate. The rate below shows the effect, after including various rate adders: Solar customers receive a VOS credit of $0.097 per kWh for all output from their PV systems. For customers with usage under 500 kWh/month, the solar credit more than offsets the utility per-kWh rate, but for larger users, the solar credit is only a portion of the rate they pay for incremental usage. Austin Energy Base Tariff Adders Effective Rate Customer Charge $10.00 First 500 kWh $0.028 $0.049 $0.077 501 - 1000 kWh $0.058 $0.049 $0.107 1,001 - 1,500 kWh $0.078 $0.049 $0.127 1,501 - 2500 kWh $0.093 $0.049 $0.142 Over 2,500 kWh $0.108 $0.049 $0.157 DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF Burbank has divided its rate into a customer charge for billing, collection, and customer service costs; a “service size charge” for location-specific distri- bution capacity (final line transformers and the secondary service lines); and an energy charge for all distribution network and power supply costs. The service size charge is tied to the customer electri- cal panel capacity, recorded in the city’s building records. The result is a rate that recognizes the lower cost of service for smaller customers and the higher cost of service for larger users. The 100-amp service panel is common for apartments; most single-family homes have 200-amp panels, and large homes sometimes have 400-amp panels. The utility also retains an inclining block rate form reflecting California’s long-standing commitment to encouraging energy efficiency. DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF demand charge that recovers a portion of the shared system costs needed to meet peak demands. Many utilities use inclining block rates — in fact, this is the most common residen- tial rate form globally. In India, Indonesia, China, Mexico and many other countries, inclining block rates have been in place for decades. We see these from coast to Commercial rate Demand Charge $10 kW Energy Charge $0.10 kWh Residential Rate Based on Commercial Rate Usage Load Factor Demand Costs Energy Costs Total Rate Lights and Appliances First 400 70% $0.020 $0.100 $0.120 Water Heat Next 300 40% $0.035 $0.100 $0.135 Space Conditioning >700 20% $0.069 $0.100 $0.169 coast in the U.S. for both consumer-owned and investor-owned utilities. Three public power utility examples follow. Seattle City Light Seattle City Light is a hydropower-rich util- ity, with a winter-peaking residential load. Power costs in the Western interconnec- tion are highest in summer, and the utility is nearly always a buyer or seller in this market. Its rate design reflects the limited hydro and seasonal cost structure. Seattle City Light Customer Charge $5.90 First 300 kWh summer $0.097 First 480 kWh winter $0.097 Additional Usage $0.142 Seattle also has a slightly higher rate that applies to service outside the city limits, reflecting the higher cost of ser- vice in suburban areas. This addresses a common element of utility rates: urban and multi-family customers, whose cost of service is lower, paying the same rates as single-family and ex-urban customers for whom the cost of service is higher. The inclining block rate in Seattle primarily ben- efits apartments, and the separate, higher suburban rate benefits urban consumers. Example inclining block rate DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF Full and fair compensation Customers supplying power or grid services to the utility should receive full and fair compensation; no more and no less. The third principle of smart rate design recognizes that many customers are now providing power and other grid services back to utilities. This began with solar pho- tovoltaic systems and demand response providing surplus energy and peak load reduction. Today’s customers — with smart inverters, smart electric vehicle char- gers, and customer-side batteries — may provide a wider range of ancillary services, such as voltage support and frequency regulation. These system benefits are increasingly recognized by value-based compensation frameworks.iii Many utilities use inclining block rates — in fact, this is the most common residential rate form globally. In India, Indonesia, China, Mexico and many other countries, inclining block rates have been in place for decades. DocuSign Envelope ID: E5ADDDA5-8E4F-4056-BA16-3BDE920355AF