  Distributed renewable resources owned by prosumers can be an effective way of
fortifying grid resilience and enhancing sustainability. However, prosumers
serve their own interests and their objectives are unlikely to align with that
of society. This paper develops a bilevel model to study the optimal design of
retail electricity tariffs considering the balance between economic efficiency
and energy equity. The retail tariff entails a fixed charge and a volumetric
charge tied to electricity usage to recover utilities' fixed costs. We analyze
solution properties of the bilevel problem and prove an optimal rate design,
which is to use fixed charges to recover fixed costs and to balance energy
equity among different income groups. This suggests that programs similar to
CARE (California Alternative Rate of Energy), which offer lower retail rates to
low-income households, are unlikely to be efficient, even if they are
politically appealing.
