Flat rate pricing in electricity is a pricing scheme where the consumer is being charged by utility at

the same amount of money per kWh all the time throughout or month or the year, no matter when
demand and utilitys cost are high. This type of pricing is the most common pricing scheme especially in
the country that only has one utility company that monopoly all the electricity industry. However,
typically the price is different for residential, commercial, business, public services, governmental office,
and etc. Historically, all flat pricing schemes is brought by the utility and with the government (market
operator) approval offer the flat-price product, while the consumer are completely passive. The utilities
gain the revenue by fine-tuning the flat rate price covering both fixed and variable cost [1].

Disadvantages
1. Flat rate form low awareness to the consumer about their electricity consumption
2. High total electricity consumption due to the low awareness and passive consumer. A Study in [2]
founds that flat rate pricing makes the consumer consume more electricity, as shown in figure
below.



3. High-risk premium to compensate the utility for bearing the risk associated in making flat price
commitment or supplier but low risk to the consumer, as shown in figure below.
4. High peak demand, due to there are no incentive to the consumer to reduce their energy
consumption.
5. Hence, it requires high investment to meet the peak demand.
6. The consumer will not get any benefit from any fall in energy price





7. Not the cheapest option, because consumer lost opportunity to get incentive to manage the
demand, and gain the price reduction when the energy price reduced and must pay the cost that
associated with the risk premium for the security.



Advantages
1. Knowing Exactly how much to pay, with flat rate pricing scheme the costumer already know the
future billing from the flat rate contact. Any surcharges for excess energy use also already known.
Hence it can help the consumer plan for the spending budget.
2. Simplest pricing scheme, do not need any sophisticated metering system.
3. Reduced the billing cycle
4. Precision pricing scheme
5. Its easy to understand by the consumer
6. Give the security and assurance to the consumer that the price will not increase during the
contract





[1] B. Bremdal, "The Impact of Prosumers in a Smart Grid based Energy Market," August 2013.
[2] J. E. Cochell, P. M. Schwarz, T. N. Taylor, J. E. Cochell, P. M. Schwarz, and T. N. Taylor, "Using
real-time electricity data to estimate response to time-of-use and flat rates: an application to
emissions," J. Regul. Econ., vol. 42, pp. 135-158, 2012.