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June 11, 2020
Working Paper Highlights the Benefits of New Approach to Electricity Fixed Billing

“FixedBill+” approach could reduce customers’ electricity costs while increasing electricity providers’ earnings, all while benefiting the environment

Fixed billing – also known as subscription pricing – has recently garnered interest as a residential electricity rate design option. While convenient, conventional fixed billing removes the incentive for customers to conserve energy. A new working paper authored by consultants at The Brattle Group and Energy Impact Partners (EIP) introduces a concept called FixedBill+, an innovative approach that combines the simplicity of a fixed bill with the benefits of energy efficiency (EE) and demand response (DR) programs. Overall, adopting a FixedBill+ approach could provide system flexibility and environmental benefits, as well as cost savings to consumers and improved earnings to electricity providers.

Fixed billing offers customers the simplicity of a set monthly bill rather than charging based on the amount of electricity consumed each month. Forces at play in the electricity market – both on the supply and demand sides – have propelled arguments in support of fixed bills. However, the working paper reasons that standard fixed bills may reduce consumers’ awareness about their overall, often increased, electricity usage.

Under the proposed FixedBill+ approach enrollment would be contingent on customer acceptance of certain DR and/or EE measures.  This could reduce customer bills relative to today’s typical residential rates, while improving electricity service providers’ profit margins due to system cost savings resulting from EE and DR measures. Under the illustrative example in the working paper, FixedBill+ would lower customers’ annual bills by 3% (around $37) relative to their standard rates, and by 6% (around $95) relative to a conventional fixed bill.

Average Annual Customer Bill

“The attractiveness of the FixedBill+ concept is that it packages energy efficiency and load flexibility improvements with something customers really want – a totally predictable electricity bill,” noted Ryan Hledik, a study coauthor and Brattle principal. “This concept is prime for exploration, with key questions to be answered in the areas of market research, regulatory innovation, implementation, and pilot design in order to ensure that FixedBill+ works for consumers.”

The working paper also outlines several benefits of FixedBill+ for electricity service providers and the environment:

  • Electricity service providers could share in some of the cost savings achieved through EE and DR measures.
  • An illustrative example in the whitepaper shows that 100,000 participants in a FixedBill+ offering could reduce their energy use by over one million MWh. For a largely natural gas-based electricity system, that is the carbon equivalent of more than 100,000 gasoline-powered cars being taken off the road for a year.

While the potential benefits of FixedBill+ are broadly applicable, it could be particularly relevant in the current COVID-19 environment by providing customers with electricity bill affordability and stability during a highly unpredictable time. The EE and DR features of FixedBill+ could also help electricity providers manage the related spike in residential electricity demand, and the potential for improved profits from a FixedBill+ offering could be a useful tool for utilities that are anticipating slumping earnings.

“Changes in the utility sector, energy technologies and customer expectations have created an attractive environment for exploring a FixedBill+ approach,” said Andy Lubershane, senior director of research at EIP and study co-author. “From our standpoint as technology investors, all of the necessary components have aligned for utilities and other load serving entities to deploy this offering.”

FixedBill+: Making Rate Design Innovation Work for Consumers, Electricity Providers, and the Environment, is also coauthored by Peter Fox-Penner, Chief Strategy Officer at Energy Impact Partners and a Professor of Practice at the Questrom School of Business at Boston University, and Andy Lubershane, a Senior Director of Research for Energy Impact Partners.