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August 07, 2014
Brattle Consultants Author Article on the Adoption of Time-Varying Rates for Public Utilities Fortnightly

Brattle principal Ahmad Faruqui, senior associate Ryan Hledik, and associate Neil Lessem have recently authored an article for the August 2014 issue of Public Utilities Fortnightly. The article, “Smart By Default,” argues that the use of time-varying rates (TVR), if offered on a default basis by utilities, would significantly increase by customers with smart meters as a way to purchase energy.

Nearly one-third of U.S. households are receiving electric service through smart meters, but only two percent of those consumers are buying the energy portion of their electric bill on a TVR. The authors discuss that the adoption of smart meters will continue to grow, but the number of customers on TVRs will likely continue to remain flat. Although the economic case for TVRs is well-known, the authors point out that this projected trend is due to the regulatory uncertainty surrounding the adoption of TVRs to replace the default flat rates most commonly used currently.

In the article, the authors argue that if all the customers from a single utility were transitioned to a TVR with the option to switch to a different, non-time-varying rate design, enrollment in the TVR would be three-to-five times higher than if it were just offered on an opt-in basis. Because of this, major cross-subsidies that are embedded in today’s flat rates would be eliminated, utilization of generation resources would be improved, the total cost of supplying and delivering electricity would be reduced, and a customer's freedom to choose from a diverse array of rate offerings would still be preserved.

To read the article in its entirety, please visit Public Utilities Fortnightly’s website.