RATE DESIGN FOR THE DISTRIBUTION EDGE

The report advocates for transitioning from traditional bundled, volumetric block rates to more granular pricing to incentivize the efficient deployment and operation of distributed energy resources (DERs). It proposes a pathway of incremental sophistication across three continuums: attribute unbundling, temporal granularity, and locational granularity. The document outlines six evolutionary pricing options, ranging from near-term possibilities like Time-of-Use pricing to longer-term, sophisticated models such as Distribution Locational Marginal Pricing, suggesting that technology and third-party providers 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 offer the most benefit, leading to inefficient asset use and lost cost-reduction opportunities.
• To successfully integrate DERs, the report proposes increasing rate sophistication along three specific continuums: unbundling attributes (separating energy, capacity, and ancillary services), increasing temporal granularity (differentiating value by time), and increasing locational granularity (providing geographically differentiated incentives).
• The document identifies six evolutionary pricing options categorized by their implementation timeframe and sophistication: near-term options include Time-of-Use Pricing and Energy + Capacity Pricing (demand charges), while longer-term, more sophisticated options include Real-Time Pricing, Attribute-Based Pricing, Distribution "Hot Spot" Credits, and Distribution Locational Marginal Pricing.
• While sophisticated pricing increases technical complexity, the customer experience can remain simple through the use of energy management software, smart thermostats, and third-party aggregators 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} }