Part 3: Rolling out time-of-use electric rates

As extreme weather events drive up peak power demand, and solar power continues to grow rapidly, we are reminded that with electricity, timing is everything. To look at some issues of timing and what they mean for EBCE and its customers, we present a three-part series. This is part 3.

Traditionally, the price of a kilowatt-hour of electricity was the same all day and year-round, even though demand and the cost of generation varied widely. To better align demand with costs, California is moving to time-of-use (TOU) rates, which vary by time of day and by season.

EBCE is tapping energy efficiency, storage, and flexible demand to deal with peaks, but those strategies hinge on having electricity rates that reflect the higher value of peak hours. TOU price signals are the key to making demand-side strategies work and shaping load to reduce costs and pollution.

While TOU rates have long been a voluntary option for customers, EBCE moved all commercial and industrial customers over last fall. All Alameda County residential customers switched between March and May of 2021, while Tracy (in San Joaquin County) will change in February 2022.

TOU rates allow customers to save money by acting to avoid higher prices and save money for EBCE as a whole by reducing the need to buy power during expensive peak periods. Customers can, however, opt-out of TOU rates and stay with a flat rate if they choose.

While customers may try to avoid higher prices by simply changing their behavior, TOU rates will also encourage other strategies, such as automation and battery storage. Programmable or “smart” thermostats can be set to cut air conditioning demand during peak hours, while batteries can shift daytime solar power into the evening peak. Commercial and industrial customers may be the most responsive to changing prices and have larger electrical loads to cut and shift.

TOU rates have on-peak and off-peak time periods, with higher charges during hours of high demand, and lower charges off-peak. While the details vary by rate class, peak hours are most commonly from 4:00 to 9:00 pm weekdays, varying by winter and summer.

EBCE is moving residential customers to TOU rates (figure shows the E-TOU-C rate). For more information see https://ebce.org/tou-residential/.

In these hours, demand is high as air conditioners battle the heat of the day, lights start to come on, and people prepare dinner. At the same time, solar power output starts to decline, requiring other more expensive resources to fill in, like natural gas peaking plants and imports from out of state.

While EBCE always schedules power purchases in advance, if demand is higher than expected buyers have to get extra power on the spot market to make up for any shortfalls. Prices in those hours can be much, much more expensive: while typical wholesale costs are about $30-50 per megawatt-hour, peak spot-market prices can shoot up into the hundreds or even thousands of dollars. This results in higher costs of service for EBCE.

EBCE has 26 different rate options altogether: five for residential customers (with variations on four of them for CARE customers), eight for small and medium business customers, six for large commercial and industrial customers, two for streetlights, and one for agriculture.

Each of these rates has additional variations by season, by the time of use, and by the amount of energy consumed, with higher rates for amounts of electricity consumed over certain “tiers.” And lastly, consumers can choose from three different supply options, with different levels of renewable energy and carbon emissions.

While this results in a bewildering set of options, most residential customers will be on the relatively simple TOU-C rate, with peak hours from 4 pm to 9 pm on weekdays, and lower rates in the winter. Non-residential customers choose rates primarily by the size of their operations and the amount of power demand.

Research has shown that TOU rates combined with “smart” appliances, that can be set to avoid peak periods, have resulted in big savings for customers. In a review of more than 300 deployments of time-varying rates, the Brattle Group found a 25 percent reduction in peak demand when TOU rates are combined with smart technologies, compared to a 10% drop when customers got only a price signal.

EBCE is working with OhmConnect to encourage customers to add some smarts to their appliances. By plugging a refrigerator, air conditioner, or other devices into a smart plug, OhmConnect can control the plug remotely, turning it off during periods of high demand and paying the customer.

EBCE is contracting with OhmConnect for 25 megawatts of demand reduction, which it can then use to meet market obligations and cut costs during periods of very high-priced power. As EBCE Chief Operating Officer Howard Chang told Canary Media, “What’s great about working with a demand response provider is that you’re able to do this hedge during particularly high-priced peak hours, in a way that a typical energy supplier wouldn’t want to do.” Generators, after all, look forward to high-priced peaks as a big payoff.

Cutting peak demand can also increase reliability. During the August 2020 blackouts in California, customers volunteered to cut demand in response to pleas from the grid operator. But it would have been more certain if demand response providers could have simply sent a message out to smart appliances.

Time-of-use rates provide the needed price signals to enable all of these solutions, to cut costs, and improve reliability for all.