A purposeful approach to setting energy prices.
Philip Q Hanser is a principal with The Brattle Group. He acknowledges the contributions of Brattle colleagues Ryan Hledik and Ahmad Faruqui, as well as Ken Costello of the National Regulatory Research Institute. He also acknowledges editorial assistance from Heidi Bishop and Shannon Wentworth at Brattle. The opinions expressed in this article are Hanser’s and don’t represent those of The Brattle Group or its clients.
The design part of rate design is “More honor’d in the breach than the observance.” Save for dynamic pricing, many energy companies’ rate designs are simply inherited from some rate case in the dim, distant past. And with the exception of legacy rates, which were designed to encourage consumption and fell out of fashion many moons ago, and the newer dynamic pricing rates, much of rate design goes little beyond making sure the appropriate level of revenue is collected from each rate class, subject to the constraints of the metering technology at the customer’s site. Sometimes there are arguments made about a customer charge being too high or the appropriate consumption level at which a blocked rate begins or ends, but for the most part those discussions largely lack any content on the actual impacts of such changes, and they certainly don’t relate explicitly to any goals that the proposed rate designs might have.