Brattle Experts Author Whitepaper for ESIG Examining the Impacts of Large Loads on Electricity Rates

Electricity demand is growing at its fastest pace in decades, fueled by data centers, building electrification, electric vehicles, and the expansion of domestic manufacturing. This surge comes as the power grid already requires significant investment to maintain reliability, replace aging infrastructure, and meet clean energy goals – raising important questions about how the costs of serving large new customers should be shared.

In “Impacts of Large Loads on Electricity Rates: A Primer,” a whitepaper prepared for the Energy Systems Integration Group (ESIG), Brattle energy experts outline how electricity rates are set under established ratemaking principles and what determines whether new large loads increase or decrease costs for existing customers. Sound ratemaking aims to ensure utilities recover their costs, allocate those costs to the customers who drive them, and design rates that reflect how electricity is produced and delivered.

Key analysis in the whitepaper includes:

• System Headroom: Spare capacity allows new large customers to be served with little new investment, helping spread fixed costs and potentially lower rates.
• Incremental vs. Average Cost: If new infrastructure costs less than the existing system, rates may fall; if new infrastructure is more expensive, rates may rise unless costs are assigned to the new customer.
• Market Exposure: Sudden load growth can temporarily increase capacity and energy prices, especially in constrained markets, affecting customers without price protections.
• Forecast Accuracy: If expected demand doesn’t materialize, existing customers may bear the cost of unused or stranded assets.
• Tariff Design: Tools like minimum bills and upfront contributions can ensure large customers cover their costs and limit risk to others.

The whitepaper emphasizes that the rate impact of large loads is not predetermined in either direction. In general, if the incremental revenue collected from a new large customer exceeds the incremental cost to serve that customer, rates for existing customers tend to decrease, and vice versa. The balance depends on local system conditions, prevailing market dynamics, regulatory frameworks, and the design of tariffs and utility contracts used to serve large customers.

The whitepaper, fact sheet, and press release are available on ESIG’s website below.