In his 1938 book, Costs and Tariffs in Electricity Supply, the British analyst D. J. Bolton penned these immortal words: “There is general agreement that appropriate tariffs are essential to any rapid development of electricity supply, and there is complete disagreement as to what constitutes an appropriate tariff.” His admonition is even more relevant today, and not just in Britain but throughout the world.
Yet, tariffs must be designed and implemented by electric utilities, under the tutelage of regulators. The process is invariably contentious. Yet, there are ways to find common ground among stakeholders. The process of designing tariffs must begin by addressing three fundamental questions.
First, what do we hope to achieve with tariffs? For example, economic efficiency, reduction in peak demand, load flexibility, carbon mitigation, electrification, bill stability, equity and affordability.
Second, what tariffs exist to meet those objectives? For example: flat rates, seasonal rates, time-of-day rates, dynamic pricing rates, subscription plans.
And third, to what extent do each of these tariffs meet those objectives?
Time-varying rates will help promote load flexibility while subscription plans will promote bill stability.
To find common ground on tariffs, it is necessary to identify the stakeholders who will either be involved in tariff design or who will be affected by tariffs: utilities, regulators, governments, legislators, energy suppliers and, of course, customers. Each is likely to answer the three questions differently.
Thus, the way to find common ground is, initially, to give each stakeholder a chance to voice their views on each question, then for the moderator to write them down so that everyone can see them and ask clarifying questions, but without critiquing them. This is known as the “nominal group technique.”
Once all the answers have been aired, then the group needs to engage in a moderated conversation. The moderator must be credible to all parties and should use consider using a “scorekeeping method.” For example, each stakeholder could be given a hundred points to rank order the objectives. Then a collective ranking will emerge as the points are aggregated across stakeholders, by objective. Once that is done, and everyone has seen the aggregated ranking, group discussion should take place to find common ground.
The process should be repeated for the second question: what tariffs should be designed and implemented? Examples include seasonal tariffs, time-of-day tariffs, critical-peak pricing tariffs, hourly pricing tariffs, subscription plans and combinations of these tariffs. A group discussion should take place to ensure that everyone’s favorite tariff is included in the list.
Finally, the process should be repeated for the third question: how well do each of the tariffs meet each of the objectives? Each stakeholder should score each tariff against each objective. Then the scores should be aggregated across all stakeholders, and a collective discussion should take to find common ground.
I have acted as the moderator several times and applied this method in a variety of states and provinces in the United States, Canada and also in a few Asian countries. An example from the province of New Brunswick in Canada is attached. In that province, I was selected to be the moderator by the staff of the provincial regulator, the Energy and Utilities Board. Three stakeholder workshops were held in 2019. Based on these workshops, I submitted my findings to the board in 2020. Later, I testified before the board.
