RATE DESIGN FOR THE DISTRIBUTION EDGE

This RMI research paper argues that traditional bundled, volumetric electricity rates are inadequate for a grid with increasing distributed energy resources (DERs). It proposes a transition toward more sophisticated pricing across three dimensions: attribute unbundling, temporal granularity (e.g., real-time pricing), and locational granularity (e.g., 'hot spot' credits). The authors recommend a staged implementation using default and opt-in rates, supported by third-party technologies to maintain a simple customer experience, and call for greater data transparency and improved valuation methodologies for regulators.

• Traditional electricity pricing for residential and small commercial customers—primarily bundled, volumetric block rates—fails to provide incentives for the deployment and operation of distributed energy resources (DERs) at the times and locations where they offer the most benefit to the system.
• The report proposes a transition to more sophisticated pricing along three continuums: attribute unbundling (separating energy, capacity, and ancillary services), temporal granularity (shifting from flat rates to time-based value, such as hourly pricing), and locational granularity (providing geographically differentiated incentives).
• Six evolutionary pricing options are identified for consideration: Time-of-Use Pricing, Real-Time Pricing, Energy + Capacity Pricing (demand charges), Attribute-Based Pricing, Distribution "Hot Spot" Credits, and Distribution Locational Marginal Pricing.
• Distribution "Hot Spot" pricing targets specific locations on the grid suffering from congestion to encourage DER installation that can defer expensive infrastructure upgrades, such as new substations.
• Distribution Locational Marginal Pricing (Distribution LMP) is the most granular locational approach, providing hourly or sub-hourly price signals at specific nodes, though it faces challenges regarding public perception of charging different rates based on location.
• To manage the transition, regulators are encouraged to implement a multi-stage approach using defaults and alternatives, allowing customers to opt in to more sophisticated rates before they become the default.
• The report suggests that the complexity of sophisticated rates can be managed for the end-user through third-party aggregators, energy management software, and smart technologies that optimize performance automatically.
• The growth of rooftop solar is creating a "duck curve" effect, where net demand on central generation drops during the day and ramps up steeply in the late afternoon, increasing the value of resources that can smooth this curve.
• Regulators should improve the rate design process by increasing the transparency and quality of electricity system data, enhancing valuation methodologies, and determining how to handle non-monetized attributes like carbon emissions.

APA

Glick, D., Lehrman, M., & Smith, O. (2014). RATE DESIGN FOR THE DISTRIBUTION EDGE. RMI. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-25_eLab-RateDesignfortheDistributionEdge-Full-highres.pdf

Chicago

Glick, Devi, Matt Lehrman, and Owen Smith. RATE DESIGN FOR THE DISTRIBUTION EDGE. RMI, 2014. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-25_eLab-RateDesignfortheDistributionEdge-Full-highres.pdf.

Wikipedia

{{cite report |last1=Glick |first1=Devi |last2=Lehrman |first2=Matt |last3=Smith |first3=Owen |title=RATE DESIGN FOR THE DISTRIBUTION EDGE |publisher=RMI |date=August 2014 |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-25_eLab-RateDesignfortheDistributionEdge-Full-highres.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{glick2014rate, author = {Glick, Devi and Lehrman, Matt and Smith, Owen}, title = {{RATE DESIGN FOR THE DISTRIBUTION EDGE}}, institution = {RMI}, year = {2014}, month = aug, url = {https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-25_eLab-RateDesignfortheDistributionEdge-Full-highres.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }