IEEE Power & Energy Magazine - May/June 2020 - 22

table 2. Rate-design options.
Rate Design

Definition

GB

Customers pay the same bill every month, regardless of usage.

Flat rate

A uniform US$/kWh rate is applied to all usage.

Demand charge

Customers are charged based on peak electricity consumption, typically over a span of 15, 30, or 60 min.

TOU

The day is divided into time periods, which define peak and off-peak hours. Prices are higher during the
peak-period hours to reflect the higher cost of supplying energy during that period.

CPP

Customers pay higher prices during critical events when system costs are highest or the power grid is severely
stressed.

IBR

Customers are charged a higher rate for each incremental block of consumption.

PTR

Customers are paid for load reductions on critical days, estimated relative to a forecast of what they would
have otherwise consumed (their baseline).

VPP

During predefined peak periods, customers pay a rate that varies by utility to reflect the actual cost of
electricity.

DSS

Customers subscribe to a kilowatt demand level based on the size of their connected load. If they exceed
their subscribed level, they must reduce their demand to restore electrical service.

TE

Customers subscribe to a baseline load shape based on their typical usage patterns and then buy or sell
deviations from their baseline.

RTP

Customers pay prices that vary by the hour to reflect the actual cost of electricity.

GB: guaranteed bill; IBR: inclining block rate; PTR: peak-time rebates; DSS: demand subscription service; TE: transactive energy.

Reward (Bill Savings)

The efficient pricing frontier reflects Bonbright's criterion of equity in that, while it is good to offer choices to customers, each rate must still recover the cost of serving each
customer correctly to avoid creating intercustomer subsidies.
As a result, to capture the impact of customer load volatility on wholesale prices, low-risk rates should yield lower
potential savings than higher-risk rates that better reflect the
time-varying cost of energy. For instance, the average price
implicit in a standard tariff should be higher than the average price implicit in a TOU rate, under which a customer is

CPP
TOU
Demand Charge

PTR

VPP

DSS

Standard Tariff
Higher FC
GB With DR
GB Bill
Risk (Bill Volatility)

figure 2. Efficient pricing frontier. FC: fixed charge.
22	

ieee power & energy magazine	

TE

charged more in peak hours when the cost of energy is high.
Figure 2 illustrates this tradeoff.
This tradeoff applies to all customers, including those
who are disadvantaged or have a low income. In fact, lowincome customers tend to have flatter load profiles and thus
are likely to benefit from rates that charge higher prices in
peak hours. On the other hand, critics of dynamic new rates
argue that disadvantaged and low-income customers generally have more difficulty responding to new rates, either due
to physical or flexibility constraints.
Such apprehension about customer reactions largely explains
why the adoption of smart rates has
not kept up with the adoption of
smart meters. As important as economic efficiency may be, it remains
only one of Bonbright's key criteria, and concerns about customer
RTP
satisfaction can immediately
halt any changes to the pricing
structure. However, as described in
more detail later in this article, protections can be applied for vulnerable customers to mitigate risk and
ease the transition.
Another concern surrounding
three-part tariffs is that, by reducing the volumetric portion of customers' bills, they may discourage
energy efficiency. However, costreflective tariffs are the best way
to simultaneously promote equity
may/june 2020



IEEE Power & Energy Magazine - May/June 2020

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