Options for change: Restructuring California's residential inclining rates for a better electricity future

Local distribution companies (LDCs) regulated by the California Public Utilities Commission use mandatory inclining rates (MIR) to bill their residential electricity customers. However, MIR hinder the California electricity industry's provision of clean and reliable service at affordable rates. Hence, we consider the following options to restructure MIR: (1) adopting a flat energy rate and revised customer charges; (2) replacing the flat rate in (1) with time-of-use (TOU) rates; (3) replacing the TOU rates in (2) with real-time pricing; (4) replacing (3) with a Hopkinson tariff with reliability differentiation. Our assessment of these options recommends sequential implementation (1), (2) and (4), thus lessening the potentially large and adverse bill impacts on some residential end-users caused by a drastic rate design change. Our recommended implementation sequence is (2) and (4) when the potentially large bill impacts of TOU pricing on the small and poor end-users with relatively high peak kWh consumption are to be mitigated by income-based customer charges.