Brattle economists have authored a paper examining the rationale for offering three-part rates to all residential customers.

The authors explain that offering three-part rates will encourage smarter use of energy, improve the utilization of grid capacity, minimize cross-subsidies between customers, and foster adoption of advanced customer-side technologies such as smart thermostats, digitally controlled appliances and battery storage. The paper also states that bringing demand charges to residential rates will also bring greater uniformity in rate designs across customer classes, which may reduce regulatory costs.

The topics discussed in the paper were also highlighted in the Electricity Policy article, “Re-thinking rate-making: Is it time to begin again and return to basic principles?” authored by Robert Marritz. The article points out that Brattle’s paper meticulously examines the front-and-center issues of rate-making.

“Beginning with a description of how we got to where we are today, and a review of the bedrock principles of rate-setting, they address the various inequities and deficiencies of today’s most common rate structures and build an argument for a three-part structure as being more equitable to customers overall,” notes Marritz.

The paper, “Curating the Future of Rate Design for Residential Customers,” was authored by Brattle Principal Ahmad Faruqui and Research Analyst Wade Davis, with contributions by Associate Josephine Duh and Research Analyst Cody Warner. The views expressed in the paper are those of the authors and do not represent the views of The Brattle Group. The paper is available for download below.

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Curating the Future of Rate Design for Residential Customers