The Rate Exchange: May 2025

The Rate Exchange is Brattle’s newsletter on the latest innovations in electricity rate design. Our aim is to deliver concise insights from our recent work in this area as well as our commentary on emerging rate design developments.

In this special issue, we focus exclusively on one of the hottest topics in the power industry: rate design for data centers and other large loads. Utility activity in this area has accelerated rapidly over the past 12 months, as seen in the figure below. We expect that trend to continue.

This issue discusses tariff mechanisms to mitigate cost shifts from large loads and, conversely, strategies for using rate design to attract new loads. We then preview themes from existing large load rate offerings based on a paper we recently coauthored with Berkeley Lab, and lay out an approach for relieving a level of rate pressure that most utilities haven’t faced for decades. As always, we conclude with a few personal notes of interest.

Reeling in the Risk: Utility Tariff Mechanisms to Mitigate Cost Shifts from New Large Loads

By Jadon Grove and Long Lam 

As data centers and other large customers hanker to connect to the grid, a big question looms: how should utilities accommodate these new customers without driving up costs for everyone else? Legislators and regulators across the country are grappling with this issue, as evident in a data center report from Virginia’s Joint Legislative Audit and Review Commission (JLARC), a new Georgia Public Service Commission rule, and in discussions from the NARUC Winter Policy Summit.

A look at recently proposed and approved tariffs reveals that utilities are taking a range of approaches to minimize cost shifts and mitigate risks for existing customers. These include:

• Minimum charge: Utilities are embracing minimum demand charges and minimum bills to ensure that large customers contribute to grid costs, even when their usage fluctuates. For example, AEP Indiana’s recently approved tariff features a demand charge based on the higher of 80% of customer-contracted capacity or 80% of their highest billing demand from the previous year. The minimum charge level is higher in AEP’s proposed tariff in Kentucky (90%) and in AEP’s proposed settlement in Ohio (85%).
• Long-term contracts: Many utilities are pairing minimum charges with extended contract terms to provide greater revenue certainty. Evergy’s proposed LLPS tariff in Kansas and Missouri combines an 80% minimum demand charge with a 15-year contract term.
• Collateral requirements: To protect against financial risks if a large customer suddenly scales back operations or exits the market, utilities are requiring large customers to post large collateral. Customers with a good credit rating and sufficient liquidity may qualify for reduced collateral requirements.
• Early termination fees: Utilities may include stipulations that provide large customers with the flexibility to terminate service early in exchange for a fee. NV Energy’s recently approved Clean Transition Tariff includes an exit fee if a customer ends the contract before its full term.

In addition, utilities are considering other tools to minimize cost shifts and risks. For example, PacifiCorp will assess an excess demand charge when a large customer’s actual electricity usage does not meet forecasts. PG&E has proposed requiring large customers to pay for electric facilities in advance of their construction (transmission upgrade costs are excluded).

Meanwhile, Evergy introduced a system support rider to recover from new large customers’ costs associated with the acceleration of investments into resources needed to serve them, as well as transmission congestion costs caused by these large energy users.

Recent developments also indicate that utilities are shifting away from one-off special contracts and toward standardized rate schedules that apply broadly across large customers.

We expect continued adoption of these rate design elements – along with the introduction and experimentation of new ones – as utilities, regulators, and stakeholders work to balance the economic benefits of attracting data centers with the need to allocate system costs fairly.

Bring It On: Rate Design as a Strategy to Attract Large Loads

By Ryan Hledik 

The early focus of rate design for new large loads – particularly data centers – has been on preventing a cost shift (see “Reeling in the Risk” for further discussion). However, some utilities are beginning to ask an additional, different question: How can we design our rates to attract new large loads – and their associated economic benefits – to our service territory?

The traditional approach to attracting new large customers has been to offer an “economic development rate” – in other words, a discount. The prevailing view among regulators and stakeholders, however, is that rate discounts are not necessary to attract data centers, given how dramatically their demand for power is currently outstripping supply. In fact, the hyperscalers themselves are generally prioritizing other objectives over bill minimization. While price matters, discounts do not appear to be a viable or prudent strategy for attracting new data center load in most jurisdictions.

Instead, some utilities are beginning to introduce innovative rate design features that align with the top priorities of their prospective customers. Those priorities include speed to market, a high level of reliability, and decarbonization.

Evergy’s recently proposed Large Load Power Service (LLPS) rate in Kansas and Missouri is one compelling example of this strategy in action. The LLPS rate includes six voluntary riders that can help to relieve capacity constraints on the system and facilitate the achievement of corporate sustainability goals:

• Customer Capacity Rider: Credits customers for using existing, accredited capacity – e.g., owned or contracted through a purchase power agreement (PPA).
• Demand Response Generation Rider: Provides a bill credit to customers who use load flexibility or on-site generation to provide demand response services.
• Clean Energy Choice Rider: Provides customers with the option to pay for the incremental cost of new clean generation resources that are additive to Evergy’s baseline integrated resource planning (IRP) portfolio.
• Renewable Energy Credit Riders: Three different riders that allow customers to procure the clean energy attributes of various generation resources.

An important aspect of these rate design features is that they can attract new customers without introducing the risk of a cost shift, meaning they are in the interest of all customers, not just data centers.

We expect to see continued innovation along these lines. Areas that may be worthy of further exploration include tariff features that prioritize the accelerated connection of customers with firm, dependable flexibility, or options for large customers to create headroom in the system by paying for an expansion of demand response capabilities across the service territory.

Rethinking Rate Design: How Utilities and Regulators are Responding to Rising Demand

By Sanem Sergici and Goksin Kavlak

As the US faces unprecedented electricity demand growth from large-load customers, how are regulators and utilities rethinking rate design? What factors are considered when designing rates that enable load growth while minimizing financial and operational risks? A recent technical brief Brattle coauthored with Berkeley Lab, “Electricity Rate Designs for Large Loads: Evolving Practices and Opportunities,” aims to answer these questions by providing an overview of electricity rate designs for large loads, featuring examples from proposed and approved tariffs.

Regulators, utilities, and large-load customers are exploring tariffs – including rate structures, electric service agreements, and special contracts – that achieve the objectives of reliable and affordable power, mitigating financial risks to ratepayers, and supporting clean energy and infrastructure deployment. The brief identifies the key issues that have emerged as utilities and regulators explore these tariffs:

• Fair allocation of electricity system costs to large load customers without unfair shifting of costs to other customers
• Mitigation of the financial risks associated with stranded assets from underutilized system investments if the forecasted electricity demand fails to materialize
• Mitigation of operational and resource adequacy risks if electricity demand exceeds supply or if voltage and power fluctuate because of large-load customers
• Appropriate risk-sharing in commercializing newer electricity technologies such as advanced geothermal, carbon capture, small modular reactors, and long-duration energy storage that may be needed to scale quickly to meet near-term demand growth
• Accommodating the diverse needs of large-load customers, such as having access to low-carbon resources or using onsite generation to meet energy needs

Currently, there is no industry-standard approach to tariff design for large loads; instead, regulators and utilities develop tariffs to ensure revenue sufficiency, prevent discrimination and cost-shifting, and support broader state policy goals. Real-world examples from across the country offer valuable insights and lessons that can inform future rate design efforts.

The brief provides examples of proposed and approved tariffs and describes how different tariff elements (such as eligibility, contract size, and contract duration) aim to mitigate financial and operational risks while supporting broader power system goals. Utilities, regulators, customers, and other stakeholders can use this brief as a foundation when evaluating large load tariffs.

Clean Capital Efficiency: Relieving Rate Pressure During the Power Industry’s Turbulent Next Decade

By Peter Fox-Penner, Ryan Hledik, Shannon Paulson, and Xander Bartone

For the past two decades, the utility industry has enjoyed stability with low demand growth, inflation, and interest rates, allowing it to reliably serve customers, build out low-cost renewable energy resources, and maintain reasonable rates while providing solid financial returns.

However, this era appears to be over. Utility rates have risen significantly, driven by inflation, higher interest rates, rising materials costs, supply chain constraints, and aging infrastructure. Looking forward, credit stress and the ongoing need for major infrastructure investment are expected to lead many utilities to continue seeking annual rate base increases.

Despite these pressures, the coming era presents a unique opportunity to redirect resources toward a cleaner, more efficient, and cheaper system. There is a path through the roiling waters that can upgrade system architecture, improve financial performance, and relieve at least some of the escalating concerns over rates and affordability. Specifically, the industry can focus on maximizing system throughput while building towards rapid decarbonization.

We refer to this approach as “Clean Capital Efficiency” (CCE). Key elements of CCE include:

• Energy efficiency (EE): In the past few years, utility efforts have diverged sharply between beneficial electrification and traditional EE. It is worth considering whether utility ownership of behind-the-meter efficiency assets should expand.
• Demand flexibility: A critical feature of demand flexibility is the speed at which its capacity can be added to the system, since it is not subject to interconnection delays. Relatedly, demand flexibility provides optionality in the pace at which it scales.
• Optimizing distributed energy resources: Beyond demand flexibility, there may be other opportunities to improve distribution system design and operation. For example, advanced distribution control systems can sometimes significantly increase the ability of circuits to host distributed solar or electric vehicle (EV) chargers on a heavily loaded circuit.
• Advanced transmission and distribution (T&D) technologies: An expanding suite of low-capital technologies is becoming better established as a means of increasing throughput on transmission and distribution systems. These technologies include dynamic line ratings (DLRs), advanced AC load controls, grid topology optimization, and other similar measures, as well as advanced or high-performance conductor (HPC) transmission cables.

Successfully implementing CCE is nuanced and will need to be tailored to the regulatory, market, and financial conditions of any individual utility. For further discussion, see our new paper on the topic, which can be accessed here.

Updates from the Team

• Struggling to navigate the role of rate design in an increasingly policy-driven environment? Our new interactive web tool – developed with Berkeley Lab – may be a helpful resource. It’s titled “Deliberate Design: Creating Electricity Rates with a Purpose,” and you can access it here.
• Several members of our team recently contributed a chapter to a book that explores electrification in an increasingly decentralized grid. The book includes several chapters on rate design. Electrification and the Future of Decentralized Electricity Supply will be published this summer – you can find more information here.

Brattle’s Ratemaking Capabilities

Over the past 15 years, we have worked with more than 60 clients on over 100 studies on retail ratemaking issues across a range of jurisdictions throughout North America and abroad. During that time, Brattle consultants have testified or submitted regulatory filings on ratemaking issues in more than 15 states or provinces and have appeared before various legislative bodies and regulatory commissions. As a result, we bring on-the-ground experience, perspective, and lessons learned from a broad range of regulatory and market environments.

Our ratemaking services include cost-of-service studies, pilot design, rate design, system impact analysis, bill impact analysis, consumer preference assessment, benchmarking, transition strategy, and regulatory and stakeholder support.

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