Full Title: Demand Charges: What Are They Good For?
Author(s): Mark LeBel, Frederick Weston, Ronny Sandoval
Publisher(s): The Regulatory Assistance Project (RAP)
Publication Date: November 5, 2020
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Description (excerpt):
Demand charges have existed since nearly the beginning of the electric industry. Although utilities often favor them, economists have continually questioned whether these rates — applied to an individual customer’s maximum short-term usage in a billing period — are an efficient form of pricing. This paper does a deep dive on demand charges and cost causation. Like many analysts from the past, the authors find that charges have made sense only as a proxy and are not a general solution for shared capacity costs. Furthermore, the changes occurring with a modern grid are undermining the conditions that made such a proxy reasonable.