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Principles of Modern Rate Design

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Although rate design is increasingly intertwined with the growing market-based service opportunities enabled by newer and more advanced metering technology, more than three-quarters (77%) of the ...

Although rate design is increasingly intertwined with the growing market-based service opportunities enabled by newer and more advanced metering technology, more than three-quarters (77%) of the meters in the US are not yet “smart.” Time-tested and sound rate design practices, applicable to both conventional or advanced metering technology, can benefit customers and lead to more
efficient electricity consumption.

Drawing on his recent paper, "Rate Design Where Advanced Metering Infrastructure Has Not Been Fully Deployed", Jim Lazar, RAP senior advisor, highlights five universal pricing principles in this 60-minute webinar:

- Prices ideally should be forward-looking and reflect long-run marginal costs;
- Prices should concentrate on the energy or usage sensitive components of service if they are to encourage the consideration of
economic alternatives to grid-supplied resources--e.g. energy efficiency and customer-sited energy production;
- Rate design must be simple enough for the customer to understand;
- If utility system costs vary by season or time of day, or if a significant portion of utility investment is driven primarily by load in particular months or particular hours of the day, then efficient pricing should reflect these cost drivers; and
- Environmental externalities, not paid by utilities, tend to justify higher-than-average prices for incremental consumption, because it is at the margin where changes in behavior and usage patterns occur.
The webinar is designed for regulators, policymakers, and practitioners seeking an appreciation of the finer points of rate design that can be effective in both advanced metering and conventional metering environments. Participants will gain a deeper understanding of a variety of pricing options. Mr. Lazar will also outline the most common types of pricing, and the methods used to develop these prices.

Mr. Lazar's recent paper complements an earlier RAP report by Ahmad Faruqui, Ryan Hledik, and Jennifer Palmer entitled "Time-Varying and Dynamic Rate Design".

Thanks to the generous support of the Energy Foundation, this webinar was offered at no charge to participants. (1.0 Vermont CLE credit available.)

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