Rate Design Matters: The Intersection of Residential Rate Design and Energy Efficiency

Research Report U1703


Brendon Baatz


Residential electric rates are in a period of change as utilities in many regions of the country are experiencing flattening and declining sales. At the same time, technological advances are driving increased deployment of advanced metering, electric vehicles, and residential rooftop solar. All these changes are causing utilities to propose new rate designs for residential customers that depart substantially from previous offerings. Proposals for higher customer charges, demand charges, and time-varying rates are all on the rise. This report explores how these changes in residential electric rates may alter customer behavior and engagement in energy efficiency programs. We review recent studies on customer response to electric prices and analyze how various rate design proposals could alter payback periods for residential energy efficiency measures. We conclude with recommendations for regulators based on recent evidence of customer response to rate design.