A growing number of electric distribution utilities are offering their residential customers billing plans that, rather than charge them a flat rate for power, have them pay different rates for electricity consumed at different times.
The plans are both meant to better enable utilities to manage their grids to account for relatively new technologies, such as distributed energy resources and electric vehicles, and made possible by new technologies — most notably, advanced metering infrastructure, which gives utilities much more granular information about residential customers’ energy consumption than they could get previously.
But whether the plans will have the desired effects still isn’t clear, with one study showing that consumers weren’t flocking to them when they were offered as an option rather than mandated, and another showing they weren’t understood and could hurt elderly and disabled consumers.
California is on the leading edge of the move to time of use rates. The California Public Utilities Commission in 2015 required the state’s three large investor-owned utilities, Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric, to move their residential customers to time of use rate plans, which they are in the process of doing.
IOUs elsewhere also are moving to variable rate plans. Ameren, for example, offers its Missouri customers a TOU plan and its Illinois customers an hourly pricing program based on day-ahead power prices in the Midcontinent Independent System Operator. Xcel and PSEG offer TOU plans and Dominion wants to roll one out.
TOU pricing got a push toward the start of the last decade from the Department of Energy’s Smart Grid Investment Grant program. As the DOE noted, many of the utilities whose smart meter projects were funded by the program chose “to introduce various forms of time-based rate programs to their customers.”
While AMI makes TOU pricing possible, DERs and EVs are causing more utilities to turn to it for purposes other than shifting residential load off of peak hours on hot days.
DERs are causing utilities to consider TOU plans not to avoid potential power shortages, but to deal with excess generation capacity. In California, for example, solar generation can produce more power than is needed on sunny days. In Texas, meanwhile, wind power can produce more power than is needed at night, which is when the wind is strongest in some parts of the Lone Star State.
EVs have utilities considering TOU plans for the traditional reason — to avoid capacity strains, but the strains often are due to the capacity of individual portions of their grids, such as circuits and transformers, rather than generation capacity.
Utilities also can use TOU plans to encourage customers to help them take advantage of the ability of EVs to act as storage batteries. A study performed last year for Southern California Edison found that drawing power from EVs just after the evening commute and managing how they recharge overnight could enable utilities to shave the current residential demand peak and avoid a new nighttime peak with just 10 percent EV penetration.
“Rate design is one way to minimize any unintentional impacts to the grid and instead maximize benefits associated with this flexible new load, including through implementing time of use rates,” the National Association of Regulatory Utility Commissioners said in a white paper on EVs it put out last year.
So how many utilities offer TOU plans? Fourteen percent of all U.S. utilities and roughly half of all investor-owned utilities in November 2017, when the Brattle Group issued “The National Landscape of Residential TOU Rates,” and the number almost certainly has grown since then.
IOUs served 72 percent of the country’s electricity customers at the time, according to the Energy Information Administration, so the number of residential customers who could opt for a TOU plan was probably closer to 50 percent than it was to 14 percent, and that almost certainly has grown since then, too.
Despite their prevalence, Brattle found that TOU plans weren’t too popular, with an average of only 3 percent of customers being enrolled in one where they were available. Plans at the time weren’t too complex — 74 percent only had two pricing periods — but around half of the utilities that offered them had more than one. They also seemed to be accomplishing their objectives — Brattle said pilots of TOU plans “consistently find that customers shift consumption from peak periods to off-peak periods.”
That would seem to indicate that consumers understand how the plans work and are changing their electric consumption in the way the plans incent them to. In reality, however, consumers’ perception of the savings a TOU plan provides them may be more important than the savings it actually provides them.
A study by Ohio State researchers published in the journal Nature Energy in December 2018 found that customers in a TOU program run by a large utility in the Southwest decided whether to stay in it based on their perception of how much they were saving as opposed to how much they were actually saving.
“Our study seems to indicate that many consumers have a faulty impression about their savings, and that the faulty impression is prompting them to stick with the program,” Nicole Sintov, the assistant professor who wrote the study, told Ohio State News.
In fact, the study found that the more consumers understood the actual rate structure, the less likely they were to want to stay in the program. On the other hand, the more they thought they understood the rates, regardless of how much they actually understood them, the more inclined they were to remain in the program.
The study was conducted from July to September, so all participants in the program saw their bills increase, but elderly consumers saw their bills increase the most. That’s because they turned off their air conditioning less than other consumers, which makes sense, as older people are more likely to incur heat-related health problems than the rest of the population.
Disabled people in the TOU program, meanwhile, were more likely to seek medical attention due to the heat than their counterparts not in the program, an indication that they may have been trying to save money by turning down their air conditioners even though doing so was bad for their health.
Combined, that finding and the Brattle Group's finding that TOU plans had a low enrollment rate indicate that utilities need to monitor the plans and tweak them as needed to make sure the plans are producing good results for both utilities and their customers.