People-Powered Pricing: Nudging Illinois toward Time-of-Use Electricity Plans

TOU graphic KOThis week I submitted testimony in support of a petition by the Citizens Utility Board and, my shop, EDF, to urge the Illinois Commerce Commission to require Commonwealth Edison (ComEd) and Ameren, two of Illinois’ biggest utilities, to provide families and individuals with new ways to reduce their energy bills: electricity pricing based on the hour of the day. This “Time-of-Use” (TOU) option provides times of the day when electricity will be much cheaper than the all-day, “flat” electricity pricing currently used today. Such electricity rates would reward energy-efficient customers and those who shift electricity use away from “peak” hours—when demand is high, prices skyrocket, and power plants produce the most pollution.

Our petition to the Illinois Commerce Commission, which is in charge of regulating electric utilities in the state, asks for ComEd and Ameren to offer optional rate plans beginning 2016. With voluntary TOU electricity pricing, families with digital meters can enjoy lower electric bills by running certain appliances, like the dishwasher, when electricity is cheapest, such as early in the morning or late in the evenings. However, the benefits go far beyond households that participate. Cutting energy use at high-demand times, like the afternoon, lowers electricity prices for everyone, reduces stress on the power grid, and offsets the need for expensive, polluting power plants.  

Even though market prices plunge to just a few pennies per kilowatt-hour or lower at certain hours of the day—most Illinois residents cannot take advantage of these low prices because they are locked into rigid, “flat” rates that only change with the season (e.g., summer, non-summer).

EDF has been looking carefully at different electricity pricing plans because they are the currency for rewarding people (and their third party service providers) for clean energy investments, such as energy efficiency and self-generation, like solar rooftop panels.

A well-designed and effectively implemented TOU electricity pricing plan would provide at least five concrete benefits to Illinoisans:

  1. Give families and individuals the opportunity to reduce electricity bills by running certain appliances when energy is least costly, simply by providing more information that ties the cost of electricity production to the timing of energy use.
  2. Charge families and individuals for the electricity they use, not their neighbors. In the current flat-rate pricing structure, the cost of electricity is the same for everyone, and energy-hungry neighbors may drive up the cost of electricity for everyone. With TOU electricity pricing, savvy families will be rewarded for their conservation efforts and help lower the overall price of electricity for everyone.
  3. Reduce energy use at “peak” hours, offsetting power companies’ need to purchase the highest-priced electricity, as well as avoid the need to build more power plants. In turn, greater efficiency at existing power plants means improved cost-effectiveness for power companies.
  4. Improve air quality by helping reduce the need for fossil-fueled power plants, especially inefficient, high-polluting “peaking” power plants that only run a few hours every year. Instead, Illinoisans can choose to use electricity when renewable energy is available and opt for other money-saving, clean energy solutions like energy efficiency.
  5. Increase the power grid’s ability to integrate more renewable energy by signaling to families when they should use and avoid using energy, effectively reducing the need for expensive “peaker” power plants.

While TOU electricity pricing may be new to Ameren and ComEd customers, there is an enormous history of successful TOU programs in the US and abroad. Consequently, we know what to expect in terms of participant response, as well as what program features to include to spur enrollment and to maximize the number of families who see their bills decline from people-powered pricing options. In addition to those who adopt the TOU electricity pricing plan, all Illinoisans stand to gain from a billing structure that better reflects the cost of producing electricity.

Some of those features include:

  • Use best practices for outreach and marketing people-powered pricing programs as learned from other electric utilities.
  • Try-it-Before-You-Buy-It: Use “shadow” billing, where individuals and families can see what they would have paid under a flat rate as compared to TOU electricity pricing plan. Providing shadow bills for several months will help Illinoisans plan for and adopt new technologies (such as programmable thermostats) and habits (such as running the dishwasher when you go to bed instead of immediately following dinner).
  • Provide a period of bill protection after the switch to TOU electricity pricing, particularly if shadow billing suggests a customer may experience a bill increase.
  • Ensure low-income customers are provided with every opportunity to benefit from TOU electricity pricing, including access to newer, energy efficient appliances and building weatherization technologies.
  • Provide Illinoisans who voluntarily enroll in TOU electricity pricing programs with set-it-and-forget technologies. Several pilot programs, including in the Sacramento Municipal Utility District’s service territory, indicate that the provision of advanced thermostats – user-friendly thermostats that can precool homes in advance of high-demand, expensive times – help people plan around times of peak energy prices. The ICC has already directed ComEd and Ameren to make the piloting of in-home devices a part of the utilities’ energy efficiency programs. Such programs could be coupled with efforts aimed at enrolling families and individuals in a TOU electricity pricing plan.

With so many options to save Illinoisans money and help the environment, EDF, in partnership with CUB, Ameren, and ComEd, urges the Illinois Utilities Commerce Commission to investigate Time-of-Use electricity pricing options today and continue to advance the Land of Lincoln’s clean energy economy.

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  1. Posted February 21, 2015 at 2:27 pm | Permalink

    You are SO WRONG. The Smart Grid is not only set up for surveillance it is damaging to the environment.

    Shame on the Environmental Defense Fund for NOT protecting the environment. Do your research on how RF microwave radiation effects plants, animals and human health.

    Wireless microwave radiation is a Class 2B Possible Carcinogen in the same category as lead, DDT and chloroform.

    • Watt's Wrong
      Posted February 23, 2015 at 10:50 am | Permalink

      Please dismiss opposition comments from the anti-smart grid tin-hat wearing folks….we're not laughing with them, we're laughing at them.

    • Posted February 23, 2015 at 2:19 pm | Permalink

      Thank you for your comment. At EDF, we appreciate the vigilance and passion that you and others have put into understanding the potential health risks associated with radio frequency (RF) exposure. Protecting health is a key goal of EDF’s smart grid work. For that reason, we have taken a serious look at this issue and have examined the data provided by the World Health Organization and by smart meter critics. After much review, EDF has concluded that the health and environmental case for smart meters is much stronger than the case against them.

      By making investments in a smart grid (including advanced meters), we can rely on more clean, renewable energy, non-polluting electric vehicles, and community-based resources. This will improve air quality and the health of millions of Americans now harmed by dangerous air pollution while advancing our energy independence and economic growth.

      EDF does not advocate merely any smart grid; we advocate a smart grid done right. Our role is to advise utilities and regulators on how to design smart grid investments that deliver maximum environmental and public health benefits to the people they serve, including clean air, protected water and land and a stable climate, by radically reducing harmful pollution.

      Again, I thank you for reading my blog and offering your thoughts. If you are interested in learning more about EDF’s position, I encourage you to read our “What Consumers Need to Know about the Smart Grid and Smart Meters” fact sheet found here.

      – Jamie

      • Dave Rinebolt
        Posted February 24, 2015 at 1:26 pm | Permalink

        I work for a consumer advocacy organization in Ohio. We have been actively involved in smart grid activities in the state and offer the following observations:
        1) Utilities are not motivated to make this ratepayer-funded investment to help customers save money or environmental reasons. They are making the investments to increase their rate base which will increase profits. Wall Street favors utilities that are increasing regulated investments and the state law in Illinois reflects the utilities desire to 'force' those investments.
        2) Distribution automation and upgrades along with transmission automation are good investments from the consumer perspective. These investments produce 90% of the consumer benefits from smart grid and represent only 10% of the cost.
        3) Smart meters are 90% of the cost and provide 10% of the benefits. The environmental impacts are marginal and the cost savings — at best enough for a family dinner at McDonald's — hardly justify a busy family spending time monitoring their usage.
        4) In order to actually save anything a customer needs to invest in other equipment and appliances that can use the smart meter data, and these gizmos can cost hundreds.
        5) Customers aren't interested. Duke Energy Ohio has deployed 440,000 smart meters. They have run a series of pilots. Over 100,000 customers were contacted to participate, but only about 500 signed up. That's why Lynn Goode, Duke CEO, recently commented that customers want fixed prices.
        5) Of those in the Duke pilot, one-half saved and one-half paid more; the rates are generally designed to be revenue neutral. In AEP's pilot there was more savings, but the utility now wants to eliminate the rates…because of the savings.
        6) Real time rates can be used to save money, but only if the customers are organized correctly. My organization is working on a pilot that would use an aggregated customer group and combine real time rates with demand response. The demand response can be sold into the PJM capacity market or into the regulation market. This would be an opportunity for governmental aggregations that exist in Illinois (and started in Ohio).
        7) I can guarantee customers a savings at the same cost they will pay in rates for a smart meter: buy a new Energy Star refrigerator and 16 CFLs. You'll spend the same, save more, and you won't have to think about it.

        • Jamie Fine
          Posted February 27, 2015 at 1:39 pm | Permalink

          Hi Dave,

          Thank you for your comments.

          EDF agrees with your first point, which is why we’re working hard to change utility incentives to encourage clean energy investments.

          Points 2) and 3), you’ve identified short term benefits associated with grid modernization. EDF has our eyes on the long term need to decarbonize of the electricity sector and electrify ground transport. Doing so will require increased quantities of flexible resources, including customer responses to time-variant electricity rates.

          4) EDF agrees, which is why we support strategies and technologies that enable customers to “set-it and forget-it” in line with Illinois EIMA.

          5) Customers have a great diversity of wants and needs. Some customers do want fixed prices, whereas others want an opportunity to have low cost times of the day for using energy. Time-variant rates provides customers the option of having times of the day when electricity will be cheaper, but doing so necessarily means there will be times when their electricity prices are above flat rates. Furthermore, there are increasing numbers of customers who self-generate electricity (e.g., rooftop solar PV systems) and store energy (e.g., electric vehicles) who will need a currency that enables capturing the value of these investments. Time-variant and real-time hourly prices can enable clean energy investments to enjoy more rewards.

          Also, customer adoption rates depend on many factors, including the extent and effectiveness of marketing and outreach, the design of the tariff choices, and customers’ individual usage patterns. If utilities put more effort into well-designed time-variant tariffs and associated marketing and outreach, then customer adoption rates will increase.

          5) Yes, per your first point, this is a big concern to EDF because it takes away customer choice and increases system costs for all ratepayers.

          6) This sounds like an exciting program that EDF would like to learn more about.

          7) Given the ambitious goal, but undeniable environmental need to decarbonize electricity and to electrify ground transport, EDF does not see this as an either or proposition. We will need to work together to use all of the tools available.

          Also, EDF has seen how time-variant rates can be a gateway to increased energy efficiency investments. For example, customers who want to precool their homes before entering into a time window of higher prices will recognize the benefits of weatherizing their home.

          Best, Jamie

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