Electric Utility Rate Design Study: an evaluation of reconciliation procedures for the design of marginal-cost-based time-of-use rates

Technical Report · Wed Nov 07 04:00:00 EST 1979

OSTI ID:5650708

The primary justification for pricing electricity at marginal cost is that this will further the goal of economic efficiency. This premise is based on the argument that if consumers are charged the costs to society of the economic resources needed to provide them with additional electricity, they will individually make economically rational trade-offs between the consumption of electricity and the purchase of other goods. The aggregate of these decisions can be shown to result in an optimal allocation of scarce resources if the marginal requirements for efficient resource allocation are met elsewhere in the economy. This report does not address the question as to whether marginal costs are appropriate for use in developing electric-utility rates. It takes as a given that marginal costs are to be used as the starting point for the design of time-of-use (TOU) rates. This, in turn, implies that economic efficiency is considered to be an important goal of rate-making. This study reviews and evaluates a number of methods that have already been proposed for reconciling the difference between revenues with rates set at marginal costs and those revenues that would result from the prescribed accounting procedures. It addresses two distinct but related reconciliation problems. The first relates to how the overall revenue difference is spread across customer classes, while the second relates to how marginal costs are used to design rates that match the revenue target for each class.

• Research Organization: Gordian Associates, Inc., New York (USA); Electric Power Research Inst., Palo Alto, CA (USA)
• OSTI ID: 5650708
• Report Number(s): NP-25581
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
296000* -- Energy Planning & Policy-- Electric Power
COMMERCIAL SECTOR
ELECTRIC POWER
ELECTRIC UTILITIES
INCOME
INDUSTRY
MARGINAL-COST PRICING
POWER
PRICES
PUBLIC UTILITIES
RATE STRUCTURE
RESIDENTIAL SECTOR
TIME-OF-USE PRICING