Pricing the transition: Empirical evidence on the evolution of electricity rate structures in North America

Abstract

Over recent years, utilities supplying the residential electricity sector have struggled with a growing discrepancy between revenues and costs. The increasing share of fixed costs became difficult to recover through traditional rate structures, based on volumetric pricing. This trend is exacerbated by the increase in distributed and intermittent generation from renewable sources, and by changes in demand profiles. This study asks whether utilities across North America are adapting to these changes and taking advantage of dynamic pricing tools and demand response technologies, by taking stock of common tariffing practices to see if utilities do implement rates better tailored to support these transformations. We look at the U.S. Energy Information Administration's national survey, and then refine our analysis with 31 cases across North America. By looking at utilities’ current rate practices with regard to dynamic pricing, distributed generation, the integration of new technologies, demand response possibilities, as well as electric vehicle recharge, this exploration makes it clear that a large majority are not ready for these challenges and must innovate rapidly. Moreover, regulatory agencies must ensure that utilities do have the option of designing rates that move away from volume-based pricing and allow for the deployment of sophisticated demand response management.