It's high time to transition away from volumetric distribution rates: Why not a 3-part tariff?

摘要

© 2022 Elsevier Inc.This essay attempts to contribute to the ongoing debate about the design of electricity rates for residential customers. The debate has centered on fixed versus volumetric charges, and then later about introducing demand charges. The interest in demand charges has sprung largely from fundamental flaws in the prevailing rate design for residential electric service, especially as those flaws have magnified under a continuously evolved market and public-policy environment. This essay argues that demand charges are worthy of study by regulators because of their superior features compared with prominent alternatives, namely, volumetric and straight-fixed variable rates. But it can be a long road before they become commonly accepted. This will only happen when the political cost of the prevailing rate structure becomes prohibitively high. In the meantime, regulators should begin the process of moving away from volumetric rates, for the sake of both efficiency and equity.