This proposal describes the work performed in response to the Demand Response Research Center’s Research Opportunity Notice DRRC RON-02, “Incentives and Rate Design for Energy Efficiency and Demand Response.” A research team led by Energy and Environmental Economics, Inc. (E3) creates, and validates as a proof of concept, an analytical framework for evaluating incentives and rate design for demand response. The framework consists of a number of screens that evaluate different aspects of DR rate design performance. The assessment includes economic efficiency and fit with the California emerging market structure, potential for significant load reduction, value to the system and customers, potential bill savings, and customer acceptance. Taken together, the screening steps should help to ensure that a DR rate design that scores highly against these criteria would be implementable within the California market, regulatory, and policy context. The E3 team then evaluates illustrative DR rate designs with the evaluation framework as a proof of concept. The analysis, which is completed without input from stakeholders, uses only readily available or proxy data, and therefore the results are not necessarily meaningful beyond a validation of the concept. In Phase 2, the research team proposes further refinement of the analytical process through collaboration with all of the major stakeholders (customers, California ISO, utilities, 3rd party DR providers, and regulators) in the further development of demand response incentive and rate designs.