Timing is Everything: How California is Getting Electricity Pricing Right and Bringing Clean Power to the People

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Anybody managing a household budget knows it pays to plan ahead. With advanced thinking we can buy favorite items with coupons, when they’re on sale, in bulk, or at the cheapest store in the area. Similarly, we know that buying under duress, or in the touristy spot, will likely mean higher prices. Using the same smart shopper skills, new changes to the way utilities charge for electricity are going to give Californians another way to save money on energy bills.

In the current system, most California households’ electricity prices don’t change throughout the day. There is no option for lower prices when system demands are lower and electricity is cheap in wholesale markets. But that’s about to change, thanks to a recent 5-0 decision by the California Public Utilities Commission (CPUC).

Starting January 1, 2019, after a period of study, public outreach, and education, California’s large investor-owned utilities (Pacific Gas and Electric, San Diego Gas and Electric, Southern California Edison) will switch households to time-of-use (TOU) electricity pricing.

This simplified rate structure rewards customers who shift some of their electricity use to times of the day when clean energy is plentiful. Why would you run the dishwasher at 6 PM, for example, if it were cheaper to wash the dishes overnight when wind energy is abundant and cheap? This shift to a TOU pricing regime – one of the first in the nation – is a huge win for Californians and the environment.

TOU pricing can bring big benefits to California

Historically, the major challenge for utilities has been to ensure adequate electricity is available to meet peak demand. This is especially challenging on hot summer afternoons when demand peaks in response to high temperatures. In addition to this ongoing challenge, the growing reliance on solar will mean a new grid management issue: keeping the lights on as the sun sets but demand grows (as people get home from work and start using electricity). This latter challenge is motivating a lot of new power plant construction.

There are currently plans to build new “peaker” power plants, but they can be avoided if people adapt their energy use and make clean energy investments in self-generation, efficiency, and energy storage. One key piece of this alternative is the transition to TOU pricing.

From late morning until the sun sets, California produces a significant amount of solar power; and the future for solar is so bright, we’re reaching for our shades. With TOU pricing, we can shift demand to match up with the abundant solar electricity we produce – making the cheapest price windows for TOU rates likely from 10 AM until 4 PM. The good news is, the success of clean energy programs in California over the past decade means we’ll be able to meet peak demand by simply re-aligning our energy use to synch up with plentiful, clean, and cheap electricity.

With TOU pricing, we will inspire investment in other clean energy strategies, like storing thermal and chemical energy, improved efficiency (such as weatherization to help homes stay cool or warm as they ride through peak price times of the day), and smart devices, like “set-it-and-forget-it” thermostats, that can help us better manage our energy use. These new strategies driven by customer action will further help to displace dirty, fossil fuel electricity.

As CPUC President Michael Picker put it,

[Utility rate reform] move[s] us into a future where consumers have the tools they need to manage their own energy use, and can install new, clean technologies such as storage and renewables… It also builds a more nimble rate structure to allow us to add more and more renewables to the grid, and to encourage customers to use energy when we have excess renewables and to cut back during peak periods.

The introduction of TOU pricing could not come at a better time as California works towards Governor Brown’s goal of 50 percent renewables by 2030, which is currently going through the process of becoming law in the form of SB 350 (De León).

What’s needed to make sure the new system works?

First, utilities will need to do a good job of communicating peak and off-peak hours. Beginning now, this means customer education and outreach, but eventually it will mean systems that communicate with our smart phones and wifi-enabled appliances.

The current four-tier inclining rate structure is opaque and unfairly punishes households with large families. TOU pricing aims to fix this. Families will need clear information to make good choices. We’ll also need access to the right technologies, such as set-it-and-forget-it thermostats and appliances, so they can help us take advantage of low-priced times of the day. Several thermostats are already smart enough to routinely precool in advance of peak price windows.

The Commission needs to make sure utilities take these public awareness and technology interoperability components very seriously. As part of the working groups established to advise the utilities on their TOU roll-out plans, Environmental Defense Fund (EDF) will work with the Commission to make sure these are priorities.

Second, the Legislature needs to maintain, adequately fund, and strengthen programs that make it easy for Californians to access these conservation and clean energy technologies. As Commissioner Carla Peterman notedduring the July 3rd hearing:

These rate reform measures, coupled with California’s pioneering programs for energy efficiency, solar, and low income assistance, will enable consumers to better understand and manage their energy consumption and bills… A crucial next step in this reform process is to ensure that consumers are aware of the programs that are available to them.

TOU pricing offers more options

Utility reform debates can be divisive. What’s different about this CPUC decision is it gives Californians more opportunities to save, more choice, and greater control over electricity bills than previous rate reforms – and it does so without having to sacrifice cleaner air for our families.

Keep in mind that the current system isn’t fair. It doesn’t give access to low-cost energy each day and it doesn’t involve people as a vital part of a more nimble energy system. No one is being forced into the TOU pricing structure. People who prefer tiered rates can switch back at any time. For those who stick with the program, however, we think they will find TOU pricing is a powerful solution to decrease energy bills and a pathway to cleaner, cheaper electricity.

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4 Comments

  1. Posted July 22, 2015 at 10:31 am | Permalink

    Jamie, there's another way to look at this, of course.

    Because "renewables" like wind and solar often aren't available when California needs them, customers will have to change their habits – not in order to save money, but to maintain the current rates they have now – in order to integrate these expensive, non-dispatchable sources of electricity.

    We never had this problem before antinuclear groups helped turn off the 100% carbon-free, baseload electricity coming from San Onofre Nuclear Generating Station (SONGS). That facility, occupying .5 square miles on California's coast, generated half as much as all of California's "renewables" combined and occupied 1/100 of the space. Now less-fortunate Californians working two jobs will have to do their laundry in the middle of the night to help placate the irrational fears of those who have fallen prey to antinuclear dogma coming from your group, and others.

    I'm celebrating because there are still three and a half years to avoid an environmental disaster worse than the one happening in Vermont. There, fossil fuel entrepreneurs have successfully transferred the state's reliance on clean nuclear power to Canadian natural gas – using the same "renewable" masquerade.

  2. Pedro Nava
    Posted July 24, 2015 at 9:44 am | Permalink

    California's renewable energy portfolio must include greater amounts of geothermal if we are to meet our greenhouse gas reduction goals. Currently, geothermal represents only 4.45% of California's renewable energy. This is in spite of California having one of the richest geothermal deposits (southern end of the Salton Sea) in the Northern Hemisphere.

  3. mark
    Posted July 27, 2015 at 7:46 pm | Permalink

    I work in the power industry and I don't agree. Not all business or residence can switch TOU needs like schools, hospitals, people working and depending on their shift. Also demands in those off shifts EV use as much as 10 to 15 home per hour and that sector is increasing as well with 9,000 EV in my area. I have also noticed those with PV on their homes who produce extra power during those peak times don't get refunded the peak rates. Bought at .04kwh and sold next door for .28khw saving the power company both generation, transmission and reducing GHG. I also produce private hydro power and I don't get the off set costs either while the power company uses 86% coal & NG which are more costly and produce GHG charging the customer .18 kwh. I also see those with medical needs having a problem of being forced out. Compare this to the freeway system & saying ok between 8 am & 7 pm you are charged a fee,.. but at night it is no cost. Developers/owners paid for the local infrastructure,.. I put in $200k of equipment for my local power company which they now own and not I. The same goes for bulk transmission lines which recover a transmission surcharge fee to be used. So those infrastructure costs are covered & reimbursed over time or as upgraded. I think the current tier with a base provides equality and fairness of pricing otherwise the poorer residence won't be able to afford to use any power during the day when needed due to huge price increases. I see most rates are from .05 to .30 /kwh higher which is a huge increase if their base rate .07 to .15 kwh.

  4. mark
    Posted July 27, 2015 at 8:01 pm | Permalink

    It remind me of driving by a gas station and seeing the pricing changes 2 to 3 times per day yet their manufacturing costs remind the same and still are making $60B quarter profits. I only use $40 to $60/mo curerntly and I have several times that run all day and need power (clocks, refrigerators, freezers, PC, monitors) to name a couple so now those components will be charged more during the day. So next time I go tot he hospital will my medical costs go up since their power rate is up during the day when I am working & might get hurt,.. or the traffic lights will be browned out so the city can save money during the peak. I think the power companies need to put more focus on developing more Solar or Bio Char to help them lower their power production costs and have the energy needed instead of overlay focus on the TOU rates,.. I am part of the AC core where my ac can be cycled if power is needed during peak. But this more like oh we want to charge more during these times instead of educating first, developing alternative savings (LED lights, better HVAC systems or heating systems). See where the primary energy is being used: businesses, companies, industries or residences and focus on saving the consumption there first. Educate, reduce and save can go a long way with the costs. Our peak load dropped by 1,000GW by using education, traning, and improving savings (shade trees, better energy saving appliances/HVAC systems, LED, insulting rebates, whole house fans, CFL lighting)

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    As Senior Economist, Jamie Fine works to reduce the impacts of energy systems used to power buildings, transport and service people, and produce and move goods.

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