A REVIEW OF ALTERNATIVE RATE DESIGNS

The report evaluates alternative electricity rate designs for mass-market customers, focusing on time-based rates and demand charges. It finds that well-designed time-based rates can significantly reduce peak load (0-50%) and total energy consumption (0-10%) without harming customer acceptance. Key drivers of success include high peak/off-peak price ratios, active enabling technologies, and opt-out enrollment. In contrast, the report notes a significant lack of empirical evidence regarding the impact of mass-market demand charges on peak reduction or customer acceptance, describing current claims as largely speculative. The document provides a framework of design dimensions—such as cost allocation, peak coincidence, and financial mechanisms—to guide utilities and regulators in implementing more sophisticated pricing structures that reflect system costs.

• Time-based rates can lead to a peak load reduction of 0–50% and a reduction in total energy consumption of 0–10%, with customer enrollment rates between 6–98% and retention rates between 63–98%.
• The peak-to-off-peak price (POPP) ratio is a primary predictor of peak load reduction; for basic time-based rates, a 5:1 ratio typically doubles the peak reduction compared to a 2:1 ratio.
• Opt-out (default) enrollment methods result in participation rates 3–5 times higher than opt-in methods, although the per-capita response from these customers is typically lower because they are less engaged.
• Active enabling technologies, such as programmable communicating thermostats, increase peak load reduction by an additional 10–20 percentage points compared to rates without such technology, whereas passive technologies like in-home displays have mixed or negligible impacts.
• Price-based financial mechanisms are more effective at reducing peak load than rebate-based mechanisms; for example, average peak reduction was 21% for critical peak pricing (CPP) versus 11% for critical peak rebates (CPR).
• There is a significant lack of empirical evidence regarding the efficacy of mass-market demand charges on peak consumption, total energy consumption, and customer acceptance, rendering most claims on these outcomes speculative.
• For demand charge rates, the choice of cost components (narrow, broad, or extensive) directly determines the price magnitude, while peak coincidence and ratchet mechanisms influence the customer's ability to respond to the price signal.

APA

Chitkara, A., Cross-Call, D., Li, B., & Sherwood, J. (2016). A REVIEW OF ALTERNATIVE RATE DESIGNS. RMI. https://rmi.org/app/uploads/2017/04/A-Review-of-Alternative-Rate-Designs-2016.pdf

Chicago

Chitkara, Aman, Dan Cross-Call, Becky Li, and James Sherwood. A REVIEW OF ALTERNATIVE RATE DESIGNS. RMI, 2016. https://rmi.org/app/uploads/2017/04/A-Review-of-Alternative-Rate-Designs-2016.pdf.

Wikipedia

{{cite report |last1=Chitkara |first1=Aman |last2=Cross-Call |first2=Dan |last3=Li |first3=Becky |last4=Sherwood |first4=James |title=A REVIEW OF ALTERNATIVE RATE DESIGNS |publisher=RMI |date=May 2016 |url=https://rmi.org/app/uploads/2017/04/A-Review-of-Alternative-Rate-Designs-2016.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{chitkara2016review, author = {Chitkara, Aman and Cross-Call, Dan and Li, Becky and Sherwood, James}, title = {{A REVIEW OF ALTERNATIVE RATE DESIGNS}}, institution = {RMI}, year = {2016}, month = may, url = {https://rmi.org/app/uploads/2017/04/A-Review-of-Alternative-Rate-Designs-2016.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }