Fair, Equitable, and Efficient Tariffs in the Presence of Distributed Energy Resources

Scott P. Burger, Ian Schneider, Audun Botterud, and Ignacio Pérez-Arriaga

August 2018

Distributed energy resources (DERs) hold the potential to deliver substantial benefits to the power system. However, under traditional tariff schemes, DERs may increase inequities already present in the power system. This chapter explores key equity considerations with respect to rate design and outlines distinct methods for improving economic efficiency without sacrificing equity. This chapter demonstrates that economically efficient tariffs always improve certain concepts of equity relative to temporally and geographically invariant (“flat”), volumetric tariffs. However, without intervention, efficient tariffs may violate certain definitions of social justice or fairness. This chapter highlights how well designed interventions can improve distributional equity without sacrificing economic efficiency. In addition, this chapter outlines mechanisms to mitigate the customer bill impacts of transitioning from today’s tariffs to more efficient designs without unduly harming equity and efficiency.

The following is a pre-publication draft of a chapter of the upcoming book: Consumers, Prosumers, Prosumagers: How service innovations will disrupt the utility business model. Edited by Fereidoon P. Sioshansi. Published by Academic Press.

Keywords: Fairness, equity, dynamic pricing, efficient pricing, rate design, tariff design, distributed energy resources, volumetric tariffs