Why rate design matters for energy efficiency
Today, most American households pay for electric service via a two-part electric rate. This typically consists of a small, fixed customer charge ($ per month) and an energy rate applied per unit of electricity ($ per kilowatt hour). There are some variations on this model, including energy rates that vary based on time of day or total monthly consumption, but the basic structure of residential rates hasn’t changed much over time. In recent years, utilities have proposed significant departures to this format to address the changing dynamics of the electric utility industry.
Some of these changes have the potential to disrupt the economics of customer efficiency investments and may drive customers to use more electricity. In our new report, Rate Design Matters: The Intersection of Residential Rate Design and Energy Efficiency, we examine the relationship between the changes in residential electric rates and customer engagement in energy efficiency.
New Trends in Residential Rates
Under two-part rates, the first part is typically a monthly customer charge also known as a service fee or fixed charge. This charge collects costs associated with customer service, billing, and the meter and is typically less than $8 a month.
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