Consider industry developments such as growth in the adoption of distributed generation and the arrival of Wi-Fi thermostats, digital appliances and smart meters. Consider also the growing interest in promoting price-based demand response. Both have recently exposed defi ciencies in the standard non-dynamic volumetric residential rate offerings of most electric utilities.
One deficiency in particular has persisted for decades. The under-representation of the cost of generating and delivering power during peak times of day has been exacerbated by these developments. Similarly, off -peak costs have been overstated.
As a result, residential rate reform has emerged as a pivotal issue. There is a challenge facing the industry. Flat and largely volumetric rates do not sufficiently reflect time-differentiation in underlying resource costs. Nor do they sufficiently reflect the peak demand-driven nature of infrastructure investments that the rates are intended to recover.
This leads to under-recovery of costs from some customers who use the power grid heavily, or who otherwise rely on it as a form of backup power. Those costs are recovered from other customers who pay more than their fair share of the grid, raising concerns about fairness and equity.