Principles of Modern Rate Design - Webinar

Although rate design is increasingly intertwined with the growing market-based service opportunities enabled by newer and more advanced metering technology, more than three-quarters (77%) of the meters in the US are not yet “smart.” Time-tested and sound rate design practices, applicable to both conventional or advanced metering technology, can benefit customers and lead to more efficient electricity consumption.

Drawing on his recent paper, "Rate Design Where Advanced Metering Infrastructure Has Not Been Fully Deployed", Jim Lazar, RAP senior advisor, will highlight five universal pricing principles:

1. Prices ideally should be forward-looking and reflect long-run marginal costs;
2. Prices should concentrate on the energy or usage sensitive components of service if they are to encourage the consideration of economic alternatives to grid-supplied resources, e.g. energy efficiency and customer-sited energy production;
3. Rate design must be simple enough for the customer to understand;
4. If utility system costs vary by season or time of day, or if a significant portion of utility investment is driven primarily by load in particular months or particular hours of the day, then efficient pricing should reflect these cost drivers; and
5. Environmental externalities, not paid by utilities, tend to justify higher-than-average prices for incremental consumption, because it is at the margin where changes in behavior and usage patterns occur.