Changing the Peak Window to Benefit the Grid of the Future

in January 12th, 2025

By Emmett Burns, Associate Manager of Analytics

As we finally begin to hunker down for what feels like the first bout of true winter cold – which comes with its own energy implications – I cannot help but think ahead to the summer with some notable changes in store for Maine’s medium and large electricity customers.

Utility rate changes can be thought of as a negotiation between the utility, the utility regulator –which in this instance is the Maine Public Utilities Commission (PUC) – and the public. Each participant must consider historical trends, the principles of rate design and, most importantly, the impacts on the ratepayer. The changes set to be implemented this year by Central Maine Power (CMP) are significant and worth paying close attention to. On June 6, 2023, the PUC approved a long-term rate plan, and a significant part of that plan is shifting the window of time over which demand charges are assessed for medium and large commercial and industrial customers. This change was initially set to occur on January 1, 2025, but is now expected by July 1, 2025.

Smaller residential and commercial electricity customers are charged solely based upon the number of kilowatt-hours (kWh) they consume via a volumetric ($/kwh) rate. On the other hand, a large electricity customer is likely to be charged both a volumetric rate and a demand rate. Demand is the quantity of power a customer requires from the grid at a given moment in time, and demand charges are typically assessed on the maximum demand a customer puts on the electricity grid during a designated window of time.

Medium and large CMP customers have historically been assessed their peak demand charges between 7:00 a.m. – 12:00 p.m. and 4:00 p.m. – 8:00 p.m. This used to be an economically sound approach back when the grid was most stressed by people getting ready for work in the morning and arriving home in the evening. Over the last ten or so years, however, distributed solar generation has increased alongside the adoption of electric cooling technology to compensate for increasingly hot summers. This tends to push the period of maximum grid stress into the evening as solar generation begins to subside, but people leave their air conditioners cranked to achieve a chilly solace from that harsh summer heat. Because of this shift, the peak demand window has been straying further and further away from sending a meaningful price signal to customers that discourages excessive electricity consumption when the grid is most stressed. To account for this, the on peak demand window will shift to a smaller 5:00 p.m. –  9:00 p.m. window.

In addition to the changes to the peak demand period, the summer on peak distribution rate for large customers jumps from $5.08/kW to $29.85/kW, a 488% increase. For medium-sized customers, it’s a smaller, albeit still notable, jump from $3.02/kW to $13.66/kW representing a 352% increase. Despite the concern that a 488% increase to an electric rate might present at face value, it is important to put it in context and consider its impact over the long term. While the summer (July & August) onpeak distribution rate is increasing, the non-summer (September – June) rate is decreasing and being broken out into separate winter (December – February) and shoulder season (March – June and September – November) rates. For large customers the non-summer rate of $4.24/kW is will decrease to $1.88/kW for the winter and $1.19/kW for the shoulder season. Medium customers will similarly experience a decrease from $2.52/kW to $1.86/kW for the winter and $1.65/kW for the shoulder season. In addition, the new rate design sends a more efficient price signal for the future of the Maine grid. It is widely understood that the utility’s job is to provide safe and consistent electricity to its customers at all times, especially those hot, high-demand summer afternoons when the annual peak demand is typically set. What’s not quite as obvious is that a sizeable chunk of a utility’s expenses are incurred by building out the grid to handle those few hours when the grid is most stressed. By discouraging use during the window of peak stress on the grid and encouraging a shift in usage to other hours of the day and months of the year, the utility is, in essence, incentivizing its customers to help reduce infrastructure costs designed to handle future peaks. In theory, this results in lower costs for the utility overtime and lower rates for customers.

In essence, this is why this rate design, if done correctly, can be so impactful. Rather than simply calculating costs and passing them along to the customer under the status quo, the act of changing the peak window considers historical trends and how to utilize those to the benefit of the grid’s future.

Photo by Panuwat Dangsungnoe

 

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