Skip to Main Content
April 07, 2015
Article Authored by Brattle Consultants on Impacts of Inclining Block Rates on Energy Consumption Featured in Public Utilities Fortnightly

Brattle consultants have authored an article for the April 2015 issue of Public Utilities Fortnightly that examines whether the implementation of inclining block rates (IBRs) on energy prices leads to energy conservation. Overall, their analysis finds that there is no general rule that IBRs will promote energy conservation.

The article, “The Paradox of Inclining Block Rates,” follows up to a 2008 paper that illustrated how IBRs – in which the price of electricity rises with increasing usage – could be used to promote energy efficiency by reducing energy consumption. The original analysis found that for all four of the two-tiered IBRs examined, aggregate consumption went down. In their most recent article, the authors provide case studies for two California utilities, and simulate the impact of this rate change under a variety of assumptions about the price elasticity of electricity consumption and using three different methodologies for modeling customer response to price changes: average price, marginal price and tier-specific price.

Their analysis reveals that the effects of flattening rates on consumption is very small, ranging from an increase in consumption of 1 percent to a decrease of 1 percent, and the reason for this paradoxical result is that consumption in the lower tiers faces a higher price and consumption in the higher tiers faces a lower price. The authors conclude that whether or not an IBR encourages consumption will depend on the distribution of customer usage across the tiers and the magnitude of the price changes across tiers.

The article is authored by principals Ahmad Faruqui and Ryan Hledik, and research analyst Wade Davis. It’s available to read on Public Utilities Fortnightly’s website.