Listen to Bonbright, Kahn, and Behavioral Economists
David Boonin is president of TBG Consulting and has over forty years of experience as a public utility economist synchronizing the interests of utilities, regulators and other stakeholders in the electric, gas, water and transit industries. Boonin served as a principal for the National Regulatory Research Institute, member of the Philadelphia Gas Commission, chief economist at the Pennsylvania Public Commission, and corporate economist for United Illuminating.
The time for rate design reform is right. Utilities, regulators and others recognize that pricing is a vastly untapped source of demand-side resources with the ability to alter both consumption and peak demand.
Changes in the utility industry such as competitive commodity markets; increased emphasis on green, decentralized and intermittent resources; and improved information systems including smart grids and meters make rate design the ready-to-pick low-hanging fruit in utility resource planning.
Rate design reform is needed because of decades of pricing driven by accounting over economic principles and the fear of rate shock. The use of accounting allocations to set prices rather than to allocate cost responsibilities has created inefficient pricing paradigms more akin to average cost pricing than market-based marginal cost pricing.
This accounting-based approach, coupled with a predisposition for the concept of gradualism has left consumers with inferior price signals, contributing to the existence of inefficient power systems with low demand factors and higher-than-needed bills and consumers with grid-friendly consumption patterns subsidizing other consumers.