Incentives and Rate Designs for Efficiency and Demand Response

Call Number:

Abstract:

This report develops a conceptual framework for designing retail electricity rate
structures that provide appropriate incentives for energy efficiency and demand
response. The conceptual framework is based upon well-established economic theory of public utility pricing going back at least twenty years, and upon power industry
experience of a similar length of history. The emphasis within this document is on the
proper application of pricing principles in designing a portfolio of products that will
produce the efficient amount of demand response. The report also describes prototype
rate designs that illustrate the types of retail rates that provide these incentives. Finally,
the report includes a proposed plan for a follow-on Phase II effort that will demonstrate
the use of the framework as a tool for long-term research concerning electricity pricing,
and will develop, through a utility case study, specific recommended rate structures for
use by the California utilities.