Modern Rate Design in the Northeast: Unlocking Efficiency, Affordability, and Electrification
Executive Summary
The Northeast and Mid-Atlantic regions face some of the highest energy costs and energy burdens in the country. Regionally, energy costs are rising, just as they are nationally, due to growing demand from data centers, rising gas and electricity supply costs, and increasing utility expenditures on transmission and distribution infrastructure. Meanwhile, spiking electricity demand, shifting and increasing system peaks, and the evolution of technology—such as advanced metering infrastructure (AMI), heat pumps, and electric vehicles—create opportunities to align electricity rates with changing consumption patterns. While some utilities have advanced time varying and technology-specific rates, most customer bills still consist of a traditional two-part rate and have not evolved to help meet these emerging challenges. Modern rate design enables utilities to lower electricity costs for customers, reduce demand when needed, support states’ electrification goals, and save customers money.
Utilities and regulators have long used rates to drive energy efficiency. Today, emerging priorities often compete with other objectives, including aligning prices with electrification, optimizing grid use, and ensuring affordability. Modernizing rates can accomplish these priorities and optimize the way we use electricity. This paper provides a framework for regulators, state policy officials, utilities, and other stakeholders to examine four key priorities when designing modern rates:
- Ensuring rates continue to drive energy efficiency
- Aligning rates with new usage patterns for electric technologies
- Using rates to encourage demand flexibility
- Aligning rates with goals of equity and affordability
Conclusion
Rising electricity prices affect an increasing number of customers’ ability to pay their bills and increase energy burdens. With many competing policy priorities, evolution of technology, and affordability concerns, now is the time for regulators and utilities to modernize rates and ensure customers’ bills reflect the true costs of the energy system and provide incentives to lower consumption as well as reduce peak demand. Modern rate design can work in combination with other policies to use the existing electric grid in the most energy efficient way, while minimizing the need for investment in costly new infrastructure.