This paper considers the design of electricity tariffs to guide an ind
ividual consumer to select the tariff designed for his/her consumption
pattern. In our model, the utility maximizes the weighted sum of indi
vidual consumers' benefits of electricity consumption subject to the u
tility's revenue requirement constraints, The consumers' free choice o
f tariffs is ensured with the so-called 'self-selection constraints'.
We analyze the relationship between the consumers' optimal choice of t
ariffs and the weights in the aggregated consumers' benefit function.
If such weights exist, then they will guarantee the consumers' optimal
choice of tariffs and the efficient consumption patterns. We also ana
lyze the welfare effects, by using demand parameters estimated from a
Finnish dynamic pricing experiment. The results indicate that it is po
ssible to design an efficient tariff menu with the welfare losses caus
ed by the self-selection constraints being small compared with the cos
ts created when some consumers choose tariffs other than those assigne
d for them.