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Utilities Are Rolling Out TOU Plans in Droves, but Studies Show They Need to Be Monitored

image credit: © Artur Szczybylo | Dreamstime.com

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.

Peter Key's picture

Thank Peter for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Feb 18, 2020 5:26 pm GMT

Really interesting stuff, Peter, and a development to monitor for sure. 

Roger Arnold's picture
Roger Arnold on Feb 21, 2020 7:14 am GMT

I live in California, in PG&E's service area. Three years ago, our son bought a BMW i3 plug-in hybrid. We installed a level 2 charger for it in our garage. As part of the deal, we were given the opportunity to switch to a TOU billing plan. We did, and I suppose it's saved us a bit on our utility bills compared to not having it. But I was decidedly unimpressed with the plan.

Despite all the hype about smart meters and what they could achieve for the efficiency and robustness of the grid, and despite all the money the PG&E spent to replace all the meters in our community, the TOU plan was no smarter than what we had when I was growing up in an unincorporated area west of Denver in the 1950's. We had a large electric water heater that ran at night on off-peak electricity. 65 years later, the fancy TOU plan supported by the high tech smart meters only does the same thing.

The off-peak rate is fixed and governed entirely by time of day. Off-peak hours are the traditional off-peak hours as they have existed for as long as there has been a grid. No allowance for real-time supply and demand, nothing that would help to shift load to periods when there was surplus power from wind and solar resources.

So what's the point? As far as I can tell, the only thing that "smart" meters accomplish is to eliminate the need to employ meter readers.

Matt Chester's picture
Matt Chester on Feb 21, 2020 12:58 pm GMT

Do you know if that's the finality of what they're offering, or is it possible they're slowly rolling out new TOU features that use the smart meters to shift those peak hours based on demand? Definitely seems like a lot to do for little effort if they're still only using fixed hours and not reacting to the grid

Roger Arnold's picture
Roger Arnold on Feb 23, 2020 8:57 pm GMT

I don't know what plans PG&E and state regulatory agencies might have for the future. I don't have much confidence that they know either. It would certainly make sense for them to be moving toward peak shifting and more demand side management.

OTOH, there are some moderately complex signaling protocols and micro-dispatch algorithms that would need to be designed, agreed upon, and implemented by appliance manufacturers before peak shifting by DSM would be workable. There would need to be a well thought out user interface to the system to win customer buy-in. There may be committees somewhere working on those things, but if so I'm not aware of them.

The lack of enabling standards is especially glaring when it comes to electric vehicles. Vehicle-to-grid (V2G) capabilities could potentially deliver great value to to vehicle owners, utilities, and utility ratepayers alike. But only if the system is properly designed and managed. Vehicle owners are not going to just cede control of their home charging systems to a faceless utility company in return for a marginally lower electricity rate.

Vehicle owners will need to feel that they remain in control of a system they understand, or at least trust to be fair and beneficial. A stark choice between opt-in or opt-out won't cut it.  Nor will most tolerate the other extreme of a system that presents a host of control settings that must be navigated and tweaked to fit their plans for the next day. Vehicle owners must have confidence that compensation they receive for V2G opeation will comfortably exceed the cost of accelerated wear on their batteries, and that it will always leave them with enough charge to get them where they need to go in an emergency, or for their morning commute.

I think all that can be done. I think I could even do it myself, if it were my job. But it's not a trivial design challenge. 

Gary Hilberg's picture
Gary Hilberg on Feb 24, 2020 3:28 pm GMT

This is interesting for regulated utilities to make this move and have trouble with pricing.  Pretty much all of Texas has smart meters and in ERCOT retail electricity competition is the standard except for Municipal Utilities.  There are over 100 retail electric providers.  Now several offer customers the ability to pay wholesale prices for their power on 15 minute increments - I have been doing this for over 6 months and see a big drop in rates - we will see how the summer goes!  I have seen pricing from negative to well over $1.5/KWH - but on average pricing is 20-30% less than Texas average.  We pay much more in T&D charges than power - our statements are clear and easy to read and understand.  The technology to invoice on these short increments is there - utilities just have to implement them.   

Peter Key's picture
Peter Key on Feb 27, 2020 5:38 pm GMT

Hi Roger,

In the article I linked to in the post I link to below, the people discussing EVs talk about going beyond V2G to V2X. I think you'll find it interesting.

Peter

https://www.energycentral.com/c/um/evs-will-change-power-industry-say-four-european-execs-who-deal-them

Eric Van Orden's picture
Eric Van Orden on Feb 26, 2020 8:21 pm GMT

At first I took the title to be right up my alley, thinking that it was about energy monitoring for consumers. But, it seems like this is more about regulatory bodies monitoring the design and programming of the rates. Not that I disagree with the sentiment of the post. 

That said, if you'll allow me to pivot a bit. I'd like to elaborate on the consumer side of TOU rates. I'll admit, as a representative of Copper Labs, I'm a little biased. But, before joining Copper, I oversaw Xcel Energy Colorado's time-of-use pilot and peak demand trial.  I was, also, a participant in the peak demand rate at my own house. For various reasons, real-time energy monitoring was not part of the rate pilot design. But, I voluntarily installed a real-time energy monitoring device and app. I don't know how I would have effectively shifted and curtailed my energy usage without it. I have timers set on my EV and smart t-stat. But, there are other devices that I need to consider, like dishwasher, dryer, etc. And even then, sometimes my schedule conflicted with the timers. It was hugely helpful to have the real-time usage insights to make sure I wasn't going over preferred thresholds of kW or kWh. 

Going back to the more macro interpretation of monitoring from the post, in their "Leveraging Advanced Metering Infrastructure to Save Energy" report, ACEEE recently called attention to utilities that are rolling out Advance Metering Infrastructure (AMI), with time-of-use rates a a key component. However, they also not that consumer engagement isn't always a key component of the plan. Should and will regulators look at this more closely as utilities propose TOU rates and/or AMI?

 

Matt Chester's picture
Matt Chester on Feb 26, 2020 10:33 pm GMT

 But, I voluntarily installed a real-time energy monitoring device and app. I don't know how I would have effectively shifted and curtailed my energy usage without it. I have timers set on my EV and smart t-stat.

The technology is available for this, and for energy nuts like yourself (and me, too!) the opportunity is exciting to dive right into. But I think a challenge will be getting people to really engage with these types of opportunities-- it's definitely not impossible, considering the monthly savings that are on the line and the amount people want to go green, but I wonder how much of a lift it will end up being to educate and persuade users that these practices are worth adopting. What are your thoughts on this part of the challenge, Eric? 

Gary Hilberg's picture
Gary Hilberg on Feb 28, 2020 8:27 pm GMT

Matt - unfortunately (or fortunately) energy nerds are a small percentage of the population so for large impacts enage with the bulk of the population will be key.   

Eric Van Orden's picture
Eric Van Orden on Mar 10, 2020 3:45 pm GMT

I tend to agree that not everyone wants to look at their mobile phone or computer for real-time energy usage all day. Eventually I hope we get to automated appliance controls. But, we need to start somewhere. I'd suggest that in between real-time information and automated appliance controls is: 

  • First: Default messaging based on anomoly detection of energy use, periodic summaries of energy usage trends, and specific tips to save (and/or benefit from improved comfort/convenience). 
  • Second: Customized messages based on individual consumer-established parameters for specific real-time and cumulative energy usage, shared understanding of major energy using devices to improve tips (i.e. shift the time of EV charging to save or reminders to charge the EV wasn't plugged in during a time when it usually is plugged in). 
  • Third: Connect these consumer preferences to smart appliances, for automated or manual load managment, through APIs, IFTTT, or more direct coordination/communication/controls. 
Matt Chester's picture
Matt Chester on Mar 10, 2020 4:13 pm GMT

Agree with this pathway, Eric. It's on the utility (or the utility's partners) to make these engaging and easy for the customer. Surely a customer would want to get alerts that their hot water heater is using way more energy in a given month than expected based on past use and weather, thus indicating there might be an equipment issue, but these types of ideas need to be communicated and all friction towards them from the customer side need to be smoothed out as much as possible.

Eager to see utilities move in this direction, and as an energy-focused person I hope I'll get the chance to be an early adopter!

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