California’s three major utilities – Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) – have proposed plans to move Californians to electricity prices that vary with the time of day. Time-of-use pricing, or TOU, is critical to aligning our energy use with times when clean, cheap electricity powered by sunshine and wind is already available. TOU works because electricity is cheap when it can be powered by renewable resources and more expensive during times of peak (high) energy demand. As with any shopping, knowing prices empowers people to choose wisely to save money.
New research from Lawrence Berkeley National Lab estimates TOU rates could collectively save customers up to $700 million annually by 2025 by getting the most out of our solar and wind resources. They find that absent TOU rates, we will waste up to 12 percent of existing renewable generation capacity, and solutions like TOU can reduce this waste by six-fold. We at Environmental Defense Fund (EDF) estimate that if this clean electricity were instead provided by natural gas power plants, it would generate 8 million additional tons of greenhouse gas pollution each year. Burning gas when we could instead rely on clean energy would dramatically impede the 11 million tons per year of greenhouse gases we need to eliminate from our economy to reach California’s 2050 environmental goals.
The three big utilities are half-way through “opt-in” pilot programs that test these new rates. They’ve just submitted plans to the California Public Utilities Commission to test automatically switching some people to TOU in 2018, leading up to a complete roll out in 2019. TOU rates will work for most customers right away, reducing their bills and providing new opportunities to save money. Further, people can always opt out of the program.
However, the utility plans present an unnecessarily high risk of raising people’s bills during summer months, the reasons for which are explained below. To address this, the utilities will provide bill protection to everyone during their first year on TOU pricing ‒ guaranteeing no one will spend more than they would have if they had stayed on their old rate. Nevertheless, the plans must be designed to give customers actionable ways – not just measurements and band-aides – to manage potentially high summertime bills that could result if people don’t know how to switch the times they use electricity.
EDF is pushing the utilities to prevent these problems by testing clean energy tools, like demand response and storage, along with customer education that can ensure comfort and affordability. The good news is that LNBL’s research and other studies indicate by moving California to time-based electricity rates we’ll reap significant economic and environmental rewards.
Ensuring a smooth transition to TOU rates
Looking closely at PG&E’s plan, we see that most people in hotter areas of the state would see their bills rise by at least $10 per month in summer months if they aren’t able to shift or reduce their energy use. Proven steps, like replacing old light bulbs with LEDs or cutting “energy vampires” (devices that pull electricity even when not in use or turned off), will save people money around the clock. Slight changes to use electricity when it’s cheapest, like precooling during sunny afternoons and running the dishwasher at off-peak times, will also help keep bills low.
While cautionary, this information also suggests there’s an opportunity to lower bills for everybody. PG&E’s analysis shows most people won’t see a big change in their annual electricity costs: 59 percent of low-income households which currently receive bill discounts will see reduced yearly electricity costs and 40 percent will see increases of less than $5 per month. For people who pay non-discounted rates, the numbers are similar: 69 percent will have annual bills that increase by less than $5 per month, with 31 percent expected to see bill decreases.
So how does this all work? First, it’s important to recognize that the utilities won’t be making any extra profits from TOU rates. Second, as TOU rates encourage strategies to line up our energy demand with cheap, clean solar and wind, we can rely on these assets more. This lowers the overall costs of providing reliable electricity relative to the current system, bringing down costs over the long-term for everybody. Third, TOU rates are part of a strategy to avoid the significant long-term costs of degrading our environment with harmful pollution from fossil fuels. And fourth, these rates will open new opportunities for market innovations that give Californians more control over their energy use. Utility estimates of bill impacts don’t include these benefits, but they should.
Helping TOU work for everyone
It’s critical that utilities test and implement strategies to help customers at risk of higher bills take advantage of new ways to manage their energy use. Put simply, the pilots should first test how to help people align their energy demand with times when solar power is abundant. They should then explore how to help all customers take advantage of clean energy solutions and become more flexible in their energy use. To further ensure TOU rates work for everyone, utilities and the California commission should do the following:
- Use data to identify people and places that need additional help. Utilities should find the Californians facing the largest potential adverse impacts when switched to TOU rates, such as those most dependent on air conditioning. They should also consider people who have old appliances, or live in older, less-efficient buildings, for example. SDG&E is proposing to do this in their plan with a robust customer segmentation strategy.
- Help customers find vendors for clean energy solutions. PG&E could offer TOU customers a link to their existing, very helpful website that makes it easy to share energy-use information with companies like rooftop solar installers and demand response providers.
Utilities have these types of solutions on their radars. PG&E’s Director of Regulatory Relations, Sidney Dietz, said in a recent meeting with Commission staff, “Customers should be given a price signal that supports newer technologies like storage.” However, utilities are not acting on these words in the regulatory proceedings where it could make a real difference.
TOU pricing, if implemented with the right set of supports, has enormous potential to help us get the most out of our renewables, with the least cost, while offering Californians a way to save money. Our utilities should be taking the necessary steps to ensure TOU works for all.