Introduction to Pricing and Rate Design

We are facing a changing marketing place of exploding technology in metering, demand and energy control, efficiency, smart homes, smart appliances, distributed energy resource (DERs), and customers looking for greater control and more effective customer interfaces through apps, social media, and other innovations. Understanding pricing of electricity and how it fits into this new world, the basis for existing pricing, and how it needs to change to meet the new realities of a competitive environment at the distribution level is more critical than ever. This 2-day course lays the foundation for understanding the fundamental principles of rate design and pricing, now and going forward. We start by examining fundamentals of the generation system and how it works, types of generation and costs, and how units are dispatched. We then look at how these costs are categorized and assigned to demand, energy, and other costs for pricing purposes. Next we look into how rates are designed to recover these costs while meeting a number of pricing goals and objectives. This includes an examination of goals and objectives, determining costs and revenue requirements, costing by season and time-of-use, coming up with billing determinants, and designing rates by revising existing rates and creating new rates. We also look at pricing challenges created by DER (such as solar) and other alternatives to the traditional grid and how we are responding. We then examine and discuss actual wholesale and retail rates, and how these were designed in light of the goals and objectives to be met, and where we go from here. The course also includes an Appendix with terminology and acronyms that we use in the industry, as well as other pertinent information for reference.