Electricity ratemaking: overview

by Jan Paul Acton


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An overview of findings from recent RAND research on electricity rate structures. Accurate pricing of electricity can help to conserve important resources. Such prices will reflect the true cost of providing the service. This requires peak-load or time-of-day rates that reflect the daily and seasonal variations in the cost of generation and supply. Some significant findings: (1) U.S. industry can respond to peak-load pricing of electricity, thereby lowering its own electricity bill as well as the operating costs of the utility companies. (2) The expected savings to U.S. utilities from peak-load pricing are significant. (3) For residential and small commercial customers, there is uncertainty about response to peak-load pricing, and additional information is needed before such a policy is implemented. (4) Peak-load pricing of electricity will require equipment and administrative changes, but is not more difficult to implement and administer than traditional rate structures.

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