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The Times They are a Changin’

image credit: Image recreated from published in May 2020.
James Riley's picture
Partner Appos Advisors

Current Roles:Partner - Appos Advisors - 2020 - PresentWith a passion for helping energy and utility companies survive and thrive against the backdrop of major market disruption, we are a team of...

  • Member since 2014
  • 20 items added with 4,271 views
  • Jun 25, 2020

I just had my electricity changed to a time-of-use (TOU) plan. The price I now pay for my electricity is dependent upon the time when I use it. Sounds simple doesn’t it. But, sadly it really isn’t.

My rate has 3 different time periods with different prices:


These time periods vary by day of the week:

  • From Monday to Friday:
    • 12am to 6am is SUPER OFF-PEAK
    • 6am to 10am is OFF-PEAK
    • 10am to 2pm is SUPER OFF-PEAK
    • 2pm to 4pm is OFF-PEAK
    • 4pm to 9pm is PEAK
    • 9pm to 12am is OFF-PEAK.
  • On weekends and holidays (defined separately):
    • 12am to 2pm is SUPER OFF-PEAK
    • 2pm to 4pm is OFF-PEAK
    • 4pm to 9pm is PEAK
    • 9pm to 12am is OFF-PEAK.

Pricing also varies by season. Winter runs from November 1st to May 31st, the rest of the year is Summer. In Summer, prices are considerably higher than Winter for all time periods, as are the differences between time periods. Did I mention that pricing also varies by tier of consumption? Prices are cheaper up to 130% of baseline, and more expensive above it.

Did you understand all that? I work in the industry and I am not sure that I do!

Doing the Right Thing

The good news is that my electric utility made my life a little bit easier. The change to my rate was communicated well in advance. Just prior to the change, I received estimates of what my electricity bills would be with the new rate compared to my other options. They even guaranteed that, no matter what rate I chose, I would be no worse off at the end of my first year. 

It took me all of one minute to make my decision.

People have strong opinions as to whether or not their utility is trying to do the right thing by them. In my career, I have worked across many industries, and over the last 15 years with many utilities. My overwhelming impression is that utilities try really hard to do the right thing by their customers.

As an industry insider, I know that the large investor-owned electric utilities operating in regulated markets don’t make their money by charging customers more for their electricity. Instead, with agreement from regulators, they can recover the cost of this electricity, reasonable operating costs, and a rate of return on their capital investment - most of which is invested in critical infrastructure.

These utilities have little incentive for customers not to be on their best rate. In fact, assuming that finding the best rate for each and every customer will increase customer satisfaction, they have every incentive to make that happen as demonstrated by JD Power.

It Ain’t Easy

Good news - customers have more rate choices than ever before. Bad news - rates have never been more complicated. Under such circumstances, rate comparison capabilities have never been so important. But why have rates become so complicated?

Utilities are introducing new rates to leverage investments in smart meters, encourage behavioral change, increase solar installations, drive (every pun intended) adoption of electric vehicles, and incentivize participation in energy efficiency and demand response programs. Consequently, we are seeing an increase in the frequency of rate cases, and customers being offered more choice than ever before.

Before offering new rates, utilities must design the new rates and answer multiple questions about them including:

  • What impact will these have on existing revenues?
  • How will these new rates impact different groups of customers?
  • How will these rates impact each individual customer?
  • Which customers are most likely to benefit from the new rates?
  • Which customers will likely not benefit unless they change their behavior?

Existing billing systems struggle to provide the answers to such questions. Utility bill calculations are by their nature data intensive. These systems were designed to bill a subset of customers monthly, on a nightly basis, usually with only a single meter reading per customer. 

With the introduction of smart meters, utilities now have between 720 and 2,880 meter reads per customer per month, and each bill may have ten or more line items. To accurately answer the questions above, a utility must simulate 12 months of billing for each customer. Now imagine doing that for 100,000 customers, each of whom have three rate options. The numbers are staggering.

  • That’s 12 bills each for each customer or 1,200,000 bills.
  • With just ten line items on each bill that would be 12,000,000 line items.
  • Using hourly intervals that would be 8,640 intervals per customer, or 864,000,000 across all customers.
  • Using 15 minute intervals that would be 3,456,000,000 across all customers.

Even if the existing billing system could just about do that, what impact would that have on other day to day responsibilities such as supporting agents in the contact center, managing field service appointments, resolving billing exceptions, processing payments, customer collections and disconnections? It is no surprise that utilities are turning to solutions known as Enterprise Rating Engines (ERE’s).

ERE’s can deliver high speed, accurate, complex rate calculations for individual customers, groups of customers, and whole customer populations. Unlike existing billing systems, they are designed solely with this purpose in mind. By using an ERE, utilities can equip themselves with the capabilities needed to design, get approval for, implement, market and drive adoption of new complex rates without the need to replace their existing billing system, something that typically only happens once every 15-20 years.

In Conclusion

With customer choice expanding, and rates becoming increasingly complex, existing billing systems lack the capabilities needed for comprehensive bill comparison.

Wanting to do the right thing for their customers, utilities are looking to Enterprise Rating Engines to empower customers to choose their best rate.


James Riley's picture
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Matt Chester's picture
Matt Chester on Jun 25, 2020

Did you understand all that? I work in the industry and I am not sure that I do!

This is so relatable-- especially on Energy Central I'll read about great TOU or demand management programs and I'll reach out to my utility to learn if they have options like that. When the answer is 'yes,' I immediately wonder how and why they failed to reach me with that messaging when I'm in the group that would definitely jump at the chance-- and I know the vast majority of customers aren't going out of their way to pester them for these programs. When the answer is 'no,' I can only imagine I'm one of just a handful (optimistically, at that!) who are putting pressure on them for such advancements. 

Utilities need to do as best as they can to reach their entire customer base, especially the ones who can benefit the most, to make their programs evident, available, and easy to understand. Do you have any suggestions as to why that commonly seems not to be the case? 

James Riley's picture
James Riley on Jun 25, 2020

Good question Matt!

Data. It's all about data and how it can be leveraged. A simple approach to how data could be used to answer your questions is as follows...

1. Identify the customers most likely to benefit from a specific program i.e. look for customers with higher than normal usage patterns.

2. Simulate the reduction in usage and more importantly the reduction in cost that each customer could reasonably expect from the program.

3. Overlay a propensity to act score onto thhe target population - some customers are naturally more predisposed to act than others.

4. Target the customers with the biggest savings opportunity and a high propensity to act first. Communicate to each their individual savings opportunity.

You would never guess I am an analytics geek would you!!!!


Eric Van Orden's picture
Eric Van Orden on Jul 1, 2020

I'm on Xcel Energy Colorado's Peak Demand rate, with separate distribution and generation & transmission demand (kW) charges that change each season, plus a small energy (kWh) charge. As an EV driver and one who enjoys sleeping in cool temperatures, I love the low cost of energy at night. I just need to reduce the stacking of larger appliances at one time between 2-6pm. Of course, that's just me and utilities have a lot of different lifestyle, demographic, and housing type considerations to factor in when making rates. 

I'm relatively familiar with the challenges imposed on utility billing systems with these new dynamic rates and increasing DER related rates/credits. They should the system of record for the final billing tally. But, what if another system is used to engage and educate consumers about their energy consumption, potentially in real-time data? With nearly 70% of US households with smart AMI meters, it seems that Home Area Networks (HAN) were built for this purpose and are largely under-utilized. The good news is that more Zigbee enabled home energy/internet of things devices are being deployed every day. These devices, the data, and the associated machine learning and algorithms can play an important role in making dynamic rates simpler. Consumers don't need to know how the sausage is made. But, they can benefit from tools that call attention to key actions to save energy it the home, when it matters most to the grid.  

James Riley's picture
James Riley on Jul 1, 2020

I was recently involved in a coversation about HAN devices and came away from it with a couple of observations.

1. Yes. The technology is there and smart meters can be connected to HAN Devices using Zigbee. This connection can be enabled remotely.

2. Adoption is extremely low.

3. Functionality is very limited. Probably not in all cases but the discussion I had was about the fact that once connect a customer could see kW in near real-time and really nothing more. This led to many customers using it once - going round the property switching stuff on and off individually to understand the demand each device has.

4. Perhaps naively, I assumed that these devices would provide not only kW but $ information based upon utility pricing, would connect to multiple appliances around the home and use price plan and price signals to optimize consumption.

The potential is there but it seems functionality, integration and adoption are lagging.

Mark Silverstone's picture
Mark Silverstone on Jul 1, 2020

Thanks James. I appreciate the explanation.  There is, however, one sentence that befuddles me, and it is key:

Prices are cheaper up to 130% of baseline, and more expensive above it.

Perhaps you could give an example? Also, are there other costs on your bill, e.g. smart meter, line service, etc.?  Where I am (Norway), charges for the electricity consumed are a relatively small part of the bill, especially in summer when kwh charges are tiny and we don´t use much anyway.

James Riley's picture
James Riley on Jul 1, 2020

Hello Mark,

Baseline is used for tiered pricing and my ToU rate is both ToU and Tiered and Seasonal etc... In other words I pay less for peak consumption up to 130% of my baseline in a month and more above 130% of my baseline.

A customer's baseline is determined generally based upon their their dwelling type, climate zone etc. 

Hope that makes sense.

Mark Silverstone's picture
Mark Silverstone on Jul 2, 2020

Thanks for clarifying that James.  Yes, it makes sense.

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