A REVIEW OF ALTERNATIVE RATE DESIGNS

This RMI report evaluates time-based and demand charge electricity rates for mass-market customers. It finds that well-designed time-based rates (especially those with high peak/off-peak price ratios and active enabling technology) can significantly reduce peak load and total energy use without harming customer acceptance. In contrast, the report highlights a critical lack of empirical evidence for mass-market demand charges, noting that while they may aid utility cost recovery, their impact on customer behavior remains largely speculative.

• Time-based rates can effectively reduce peak load by 0–50% and total energy consumption by 0–10%, with customer enrollment rates ranging from 6–98% and retention from 63–98%.
• The Peak/Off-Peak Price (POPP) ratio is a primary driver of peak load reduction; for basic time-based rates, a 5:1 ratio typically doubles the peak reduction compared to a 2:1 ratio.
• Enrollment methods significantly impact participation levels, with opt-out (default) rates achieving enrollment 3–5 times higher than opt-in rates, although per-capita response is often lower for opt-out participants.
• 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 show mixed or negligible results.
• Price-based financial mechanisms are more effective at reducing peak load than rebate-based mechanisms, with DOE data showing average peak reductions of 21% for critical peak pricing (CPP) versus 11% for critical peak rebates (CPR).
• There is limited empirical evidence regarding the efficacy of mass-market demand charge rates on peak load reduction or total energy consumption beyond cost recovery, leaving most claims about their behavioral impacts speculative.
• Demand charge design is influenced by four key dimensions: cost components and allocation (which determine price magnitude), peak coincidence, ratchet mechanisms, and enabling technology.
• Existing residential demand charge rates in the U.S. primarily use noncoincident peak demand (66%) or ex ante coincident peak (33%), with most utilizing a 15, 30, or 60-minute measurement interval.
• Ratchet mechanisms, common in commercial and industrial rates to stabilize revenue, are used in only 5 out of 24 residential programs and may theoretically disincentivize customers from reducing peak load.

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} }