Bills and Rates

Rate designs: What's best for you?

Public power utilities aim to set rates that are fair to all customers. However, each type of rate design option can affect customers differently. Here’s a quick look at some of the pros and cons of different rate designs.

Rate Design Option Pros Cons
  • Easy for customers to understand
  • Requires minimal customer education to explain
  • Might result in cross-customer subsidies for customers with solar, storage, or other distributed energy resources
Net metering/Billing
  • Simple structure that is easy to bill for/explain 
  • Doesn’t require special metering
  • Incentivizes distributed generation
  • Because solar generation is credited at full retail rate, customers without solar effectively subsidize customers with solar
Value of solar
  • Credit for solar generation reflects actual value of the generation to the system
  • Doesn’t require systemwide meter upgrade; only solar customers receive new meters
  • Complex to calculate
  • Uses some subjective values (e.g., estimated environmental value)
Buy-all, sell-all
  • All electricity generated and consumed by customers with solar is accounted for
  • Separate meters for DG customers allow for easy monitoring of bill and credits due
  • May be a disincentive for customers to deploy DG
Residential demand charge
  • Allows utilities to more easily recover fixed costs from customers
  • Gives customers control
  • Reduces cross-customer subsidies for DG
  • Can be difficult for customers to understand
  • Disproportionately affects customers who cannot control/adjust when they use energy
Fixed/Customer charges
  • A relatively simple way for utilities to recoup fixed costs
  • Easy to explain
  • Provides a steady, reliable revenue stream for the utility
  • Disproportionately affects those customers who use the least amount of energy
  • May be a disincentive for energy efficiency
Time of use
  • Greater equity between the price of electricity and the actual cost of delivering service
  • Excess generation from DG customers credited at rate closer to actual value
  • Typically increases savings for DG customers
  • Customers who cannot adjust energy use are not able to take advantage of savings
  • Not feasible without smart meters
  • Could pose cost recovery issues if customers reduce peak demand more than anticipated

For more information about these rate design options and how they affect customers and utilities managing distributed energy resources, see Distributed Energy Resources and Public Power, a new report from the American Public Power Association.