Defining the proper tariff level is of particular importance when the tariff risks distorting the optimal choice of technologies and fuels. This level is meant to reflect the socio-economic cost of investment and operation of the power system related to additional electricity consumption. The level acknowledges that new demand can impose costs for investing in and operating the electric transmission and distribution system. At the same time, the marginal cost of introducing new demand will be significantly lower than the average cost of capital and operation for the electric transmission and distribution system.4 A similar issue applies for transmission and distribution tariffs for natural gas.