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
(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.
Testing TOU
The three big utilities are halfway 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.
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