Energize Weekly, March 4, 2020
Time-of-use electricity rates are increasingly being seen as a valuable tool in reducing peak demand and managing renewable energy generation – but concerns are being voiced over their impact on low-income and elderly customers.
Xcel Energy is seeking to shift all of its 1.2 million Colorado residential customers to summer time-of-use rates and the move has prompted consumer advocates to intervene in the case before the Colorado Public Utilities Commission (CPUC).
Among those intervenors is the Colorado Office of Consumer Counsel (OCC). “The OCC supports time-of-use rates,” Cindy Schonhaut, the office’s executive director, said. “We just don’t want to see harm come to low-income users from time-of-use rates.”
Some utilities such as San Diego Gas & Electric (SDG&E), Arizona Public Service and the municipal utility in Fort Collins, Colo. offer opt-outs, hold-harmless programs or subsidies for low-income customers.
Under the Xcel rate plan customers would be charged more for electricity during peak demand periods and a rate half as much at the lower demand period in an effort to reduce peak summer loads.
The June-to-September rates would charge customers 11.1 cents a kilowatt-hour (kWh) for electricity during the peak 3 p.m. to 7 p.m. period, 8.3 cents for the “shoulder” periods of 11 a.m. to 3 p.m. and 7 p.m. to 10 p.m. and 5.5 cents a kWh of the off-peak, 10 p.m. to 11 a.m., period.
“We are providing more control to our customers over their energy usage and bills,” said Jerome Davis, an Xcel regional vice president.
Most time-of-use rate plans in the U.S. are using a 2-to-1 or 3-to-1 differential in peak/off-peak rates to shift demand, according to Ryan Hledik, a principal with the Brattle Group, an energy and economics consulting firm.
“We’ve seen meaningful customer response” at these rates, Hledik said. Going much beyond that yields smaller and smaller reductions. “It looks like you reach a point where they are out of things they can do in terms of behavior,” Hledik said.
The question of the impact of time-of-use rates has been raised in other states, notably in California where all the major utilities are moving to time-of-use rates.
“There is always the potential that some people can’t reduce peak,” said Marcel Hawiger, an attorney with The Utility Reform Network (TURN), a San Francisco-based nonprofit. “Is jacking up rates making them pay more the best way to reduce peak?”
“We’ve been against time-of-use when we look at low-income people living in the [Central] Valley where homes are hard to insulate,” Hawiger said.
Still, time-of-use rates are a valuable tool in a rapidly evolving electric grid with growing wind and solar generation, particularly with more home rooftop solar and electric vehicles (EVs) plugging into the grid.
“EV and rooftop solar are creating a more urgent need for better rate design,” Hledik said. “We can’t have everyone plug their EVs into a Level 2 charger in the evening when there are other electric demands. A lot of the technology drives toward time-of-use rates.”
Meeting peak demand is one of the great expenses utilities face as it requires extra generating and transmission capacities in the system and sometimes the purchase of expensive wholesale electricity to meet system needs.
The rates are also seen as a way to better match electricity demand with renewable energy supplies.
“The goal in the past has been dealing with peak load but at the same time as we need to know how to tap dance with renewable energy,” said James Fine, an economist with the Environmental Defense Fund.
In California there is an abundance of cheap solar in the middle of the day and in Texas an excess of wind powered electricity at night, Fine said. “Rate design is critical,” he said. “We need to give the right price signals.”
A Berkeley National Laboratory study estimated that if Californians could shift 20 percent of their demand out of the peak period to the early afternoon when there is ample solar generation, they could save $700 million a year by 2025.
To be sure, households can save under time-of-use rates. In Fort Collins, which put its 67,000 residential customers on time-of-use rates in 2018, 65 percent of have seen a reduction in their bills with another 33 percent having a $1 to $5 increase, according to the city. The rest had increases of more than $5.
Lisa Ferreira participated in Xcel’s Colorado time-of-use pilot between 2017 and 2019 and by taking steps such as switching clothes and dishwashing to late evening or early morning, setting timers on thermostats and the hot tub – she said she was able to reduce her monthly electric bill by $60.
The concern of consumer advocates is that some low-income households can’t be that flexible.
“It isn’t that we are against the rate design in general,” ,” said Andrew Bennett, director of advocacy at Energy Outreach Colorado (EOC), which helps low-income families pay their utility bills. “For a lot of these families the consumption isn’t discretionary. They don’t have the ability to adapt.”
AARP, which represents retirees and older citizens, has also intervened in the Xcel Colorado case. “People who are going to be penalized by this are people who are home more, those who work at home, the elderly, those on disability,” said Bill Levis, the former executive director of the Colorado OCC and consultant for AARP. “They have to think this out better.”
In Illinois, the Citizens Utility Board, a non-profit representing residential utility customers, found that 70 percent to 75 percent of low-income households benefited from timed rates while the rest saw a bill increase, according to David Kolata, the board’s executive director.
“Not every low-income customer should be on a TOU [time-of-use] rate, those folks should be held harmless, to shift load you don’t need everyone to be on the rate,” Kolata said.
Fort Collins assayed that three-quarters of its low-income households did better under the time-of-use rates. The other quarter saw their bills rise. “These are low-income customers with higher than average consumption that may not have the means to invest in energy efficient measures,” according to a city analysis.
Families below 165 percent of the federal poverty level ($43,230 for a family of four), who are enrolled in the Colorado Low-income Energy Assistance Program, qualify for a 23 percent discount on time-of-use rates.
As a result, all low-income customers in the program have reduced their bills, according to Lisa Rosintoski, the city’s deputy director of utilities.
San Diego Gas & Electric is moving all of its 1.2 million residential accounts onto a time-of-use rate as the utility’s default rate, with a peak rate charge of about 42 cents a kWh and off-peak charge of 21 cents a kWh, company spokesman Wes Jones said.
Customers, however, can opt-out and there is a hold harmless provision so that after a year if a customer would have saved more money on traditional rates the utility offers a credit for the difference.
“It’s a good way for customers to have that assurance that they are saving on these plans,” Jones said. Customers who live in desert area, where air conditioning is essential, are exempt from the time-of-use rates.
About 60 percent of residential customers served by Arizona Public Service (APS) have adopted a voluntary time-of-use program, according to Leland Snook, the company’s director of rates and strategy. The peak rate is about 24 cents a kWh and the off-peak is 10 to 11 cents a kWh.
Households with low electricity consumption – 600 kWh a month or less – can opt for a flat rate of 11 cents a KWh plus a $10 monthly service charge.
When the program started in 2017 the peak period was noon to 7 p.m. but a surge in mid-day solar generation it has shifted to 3 p.m. to 8 p.m. There are 500 megawatts (MW) of utility-scale solar and 104,000 residential solar arrays on the APS grid.
Snook said APS is now analyzing how much of a shift in demand the utility is seeing, but said that there is a clear 40 to 60 megawatt bump in use just before the peak and just after it.
Steven Wishart, Xcel manager of pricing in planning, said that while there could be impacts on low-income customers in Colorado, those should be addressed not in the rates themselves but with other aid programs. In the pilot the average increase in bills was about $4, Wishart said.
Xcel executives and energy economists underscore that under flat rates customers who consume large quantities of electricity at peak periods are being subsidized by those who do not.
“We want to ensure the residential class as a whole would benefit,” said Brooke Trammel, Xcel regional vice president for rates and regulation. “This is a robust process at the commission and I am sure there will be a dialogue on all the issues.”
The CPUC is set to hold public hearings in April and evidentiary hearings in June.