RATE DESIGN FOR THE DISTRIBUTION EDGE

The document argues that traditional bundled, volumetric electricity pricing is outdated and fails to incentivize the efficient deployment of distributed energy resources (DERs). It proposes a transition toward more sophisticated pricing based on attribute unbundling, temporal granularity, and locational granularity. Six evolutionary pricing options are suggested, ranging from Time-of-Use pricing to Distribution Locational Marginal Pricing, noting that technology can manage the resulting complexity for the end customer.

• Current electricity pricing for residential and small commercial customers, typically consisting of bundled, volumetric block rates, fails to provide incentives for deploying and operating distributed energy resources (DERs) where they would offer the most benefit. This misalignment leads to inefficient asset utilization and missed opportunities for cost reduction as DERs become more cost-effective.
• To better integrate DERs into the grid, the report proposes a pathway to increase rate sophistication across three specific continuums: attribute unbundling (separating energy, capacity, and ancillary services), temporal granularity (differentiating value by time, such as peak vs. off-peak), and locational granularity (providing geographically differentiated incentives).
• The report identifies six evolutionary pricing options that can be implemented as near-term defaults or opt-ins, or as longer-term sophisticated structures. These include Time-of-Use Pricing, Real-Time Pricing, Energy + Capacity Pricing (demand charges), Attribute-Based Pricing, Distribution "Hot Spot" Credits, and Distribution Locational Marginal Pricing.
• While sophisticated pricing may increase complexity, the customer experience can remain simple through the use of third-party aggregators, smart thermostats, and energy management software that optimize performance automatically.

APA

RMI (2014). RATE DESIGN FOR THE DISTRIBUTION EDGE. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-26_eLab-RateDesignfortheDistributionEdge-ExecSum-highres.pdf

Chicago

RMI. RATE DESIGN FOR THE DISTRIBUTION EDGE. 2014. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-26_eLab-RateDesignfortheDistributionEdge-ExecSum-highres.pdf.

Wikipedia

{{cite report |author=RMI |title=RATE DESIGN FOR THE DISTRIBUTION EDGE |date=August 2014 |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2014-26_eLab-RateDesignfortheDistributionEdge-ExecSum-highres.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2014rate, author = {{RMI}}, 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_2014-26_eLab-RateDesignfortheDistributionEdge-ExecSum-highres.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }