Issue

Line losses are the difference between the sum of kWh delivered into the power grid ó net of exports ó and the sum of all metered deliveries to end users. Physically, line losses include transmission-level losses, distribution-level losses, and energy used by customers but not metered (theft). Losses occur through resistive heat losses in transformers, circuits, and line connectors; reactive power flows caused by motors and other end devices with a power factor of less than unity; and leakage to the ground caused by poor grounds or losses through failing insulation in underground electrical circuits. Line losses vary significantly by distance traveled and time of day, being much higher for long distances, peak hours, and hot weather and lower for short distances, off-peak hours, and cool weather. Line losses also vary significantly with voltage levels; the higher the voltage, the lower the losses.

The issue for Direct Access has to do with the allocation of the costs of line losses to electricity retailers or other industry participants. In California, and the U.S., line losses in aggregate average approximately seven percent of total kWh produced; in Californiaís nearly $20 billion per year electricity market, these losses have an economic value of approximately $1.4 billion annually. It is these dollars that are at stake in the allocation of line losses.

Allocating Line Losses

Line losses can be allocated in two steps. The first is to subtract ìknownî losses from total losses. These are losses occurring between two points with hourly meters, such as a generating station and a single end customer taking the total output of the station, or a generating station and multiple distribution substations. Transmission-level losses are included in these ìknownî losses and are handled by WEPEX protocols. The second step is to allocate the remaining losses, ìunmetered kWh,î to customers who, by definition, are not covered by hourly metering, whether individually or via an upstream meter.

For any suppliers/aggregators, including UDCs, who do not have hourly metering on 100 percent of their customers, some allocation will be required. The allocation formula for the unmetered kWh is the key issue for Team B. Many options exist to allocate these losses. The following options exist, with the major pros and cons of each:

1. UDC is responsible for all unmetered kWh.
   Cons: unfair, as those responsible for the losses do not bear the costs; costs are shifted unfairly to UDC customers.

2. Total unmetered kWh allocated to all users equally on a per kWh basis.
   Pros: simple, no cost shifting to UDC customers.
   Cons: unfair, as those responsible for the losses do not bear their actual share of the costs.

3. Use UDC-provided loss factors based on line loss engineering studies to allocate losses considering individual customer factors.
   (This is the model used in the U.K. U.K. regional electricity companies develop loss factors based on individual customer characteristics, including voltage levels, power factor, peak demand, distance, and other items. The loss factors range from 3 percent to 15 percent, almost one-sixth of the total bill for some customers.)
   Pros: more equitable, since it considers individual customer characteristics.
   Cons: more complex (adds additional cost to process of calculating distribution service costs and adds slight cost to billing process; however, these costs are low); loss factors can be (and in the U.K. often are) disputed and cannot be proved without metering; still unfair to the extent energy theft is occurring and the cost of that theft is being borne by other customers (the Edison Electric Institute estimates theft to be 1 percent of total energy produced, which would total about $200 million pe in California).

4. Use CPUC-authorized engineering formulas to develop loss factors considering individual customer characteristics.
   Pros: more equitable (than Nos. 1 and 2); consistent approach across the state (in the U.K., each regional electricity company uses its own method of developing loss factors).
   Cons: same as for No. 3.