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Pricing Reform for the Local Disco: Setting Rates That Will Support Distributed Generation

The Proposed Distribution Tariff
Fortnightly Magazine - July 1 2000

of 0.5 ( (1,429 kWh - 810 kWh) ( (7.94 cents - 4.5 cents) = $10.63. The total consumer gain from the reduction in the volumetric charge is $38.47 (see the table). This amount is offset by the $27.84 increase in the customer charge, which leaves the net welfare gain of $10.63.

11 U.S. distribution costs in 1996 totaled about $40 billion-$12 billion for O&M, plus my estimate of $28 billion in carrying costs (on $163 billion of distribution assets). Joskow (, p. 30) estimates annual metering and billing costs at $81 per customer, or about $7 billion, which is only 17 percent of total distribution costs.

12 For further discussion of the DA concept as distinguished from bulk generation, see Albert H. Benson, Oct. 18 memo to Hugh Saussy, director of the DOE's Boston office.

13 Under a single price cap, the UDC would be free to trade off between access and throughput charges, so these may not be truly cost-based. Although such pricing flexibility will be important, regulators may want to limit it by specifying separate price caps or "baskets" for access and throughput.

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