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The Efficiency and Distributional Effects of Alternative Residential Electricity Rate Designs

Scott P. Burger, Christopher R. Knittel, Ignacio J. Perez-Arriaga, Ian Schneider, and Frederik vom Scheidt

Year: 2020
Volume: Volume 41
Number: Number 1
DOI: 10.5547/01956574.41.1.sbur
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Abstract:
Electricity tariffs typically charge residential users a volumetric rate that covers the bulk of energy, transmission, and distribution costs. The resulting prices, charged per unit of electricity consumed, do not reflect marginal costs and vary little across time and space. The emergence of distributed energy resources - such as solar photovoltaics and energy storage - has sparked interest among regulators and utilities in reforming electricity tariffs to enable more efficient utilization of these resources. The economic pressure to redesign electricity rates is countered by concerns of how more efficient rate structures might impact different socioeconomic groups. We analyze the bill impacts of alternative rate plans using interval metering data for more than 100,000 customers in the Chicago, Illinois area. We combine these data with granular Census data to assess the incidence of bill changes across different socioeconomic groups. We find that low-income customers would face bill increases on average in a transition to more economically efficient electricity tariffs. However, we demonstrate that simple changes to fixed charges in two-part tariffs can mitigate these disparities while preserving all, or the vast majority, of the efficiency gains. These designs rely exclusively on observable information and could be replicated by utilities in many geographies across the U.S.



Least-cost Distribution Network Tariff Design in Theory and Practice

Tim Schittekatte and Leonardo Meeus

Year: 2020
Volume: Volume 41
Number: Number 5
DOI: 10.5547/01956574.41.5.tsch
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Abstract:
In this paper a game-theoretical model with self-interest pursuing consumers is introduced in order to assess how to design a least-cost distribution tariff under two constraints that regulators typically face. The first constraint is related to difficulties regarding the implementation of cost-reflective tariffs. In practice, so-called cost-reflective tariffs are only a proxy for the actual cost driver(s) in distribution grids. The second constraint has to do with fairness. There is a fear that active consumers investing in distributed energy resources (DER) might benefit at the expense of passive consumers. We find that both constraints have a significant impact on the least-cost network tariff design, and the results depend on the state of the grid. If most of the grid investments still have to be made, passive and active consumers can both benefit from cost-reflective tariffs, while this is not the case for passive consumers if the costs are mostly sunk.



Unlocking Flexible Electric Vehicle Charging via New Rate Design

Icaro Silvestre Freitas Gomes, Adam F. Abdin, Jakob Puchinger, and Yannick Perez

Year: 2024
Volume: Volume 45
Number: Number 3
DOI: 10.5547/01956574.45.3.igom
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Abstract:
A high penetration of electric vehicles (EVs) will deeply impact the management of electric power systems. The risk of not providing adapted EV pricing signals can lead to inefficient investments in grid infrastructure. To avoid costly grid reinforcements and to ensure proper guidance for EV charging, a solution allowing customers to access EV-only rates without installing a separate meter, which we refer to as submetering, is an attractive option for EV owners and grid operators. We develop a game-theoretical model expressed and treated as a mathematical program with equilibrium constraints (MPEC) to capture the interaction between a national regulatory authority (NRA) designing these tariffs and heterogeneous agents. This framework represents a stylized regulatory setup applicable to several European countries. First, we analyse the conditions in which EV-only tariffs can be applied for domestic charging by comparing different energy profiles. Second, we study the impact of EV charging on different tariff structures to identify the most efficient way of recovering network costs. We found that the adoption of submetering under a pure volumetric tariff can bring yearly gains varying from $64 to $125 to consumers with EV. Finally, we derive policy implications from the results.





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