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California Energy Markets / Bottom Lines

[May 12, 2017 / No. 1436]

Another Step Toward Time-of-Use Rates

Are you ready to start doing the laundry at noon or midnight? Neither am I.

But California is inexorably moving toward time-of-use rates, which means a lot of Californians will have to alter regular patterns of turning on lights, stoves, TVs, computers and washers and dryers at the end of a 9-to-5 day, or face paying far higher rates for electricity.

The CPUC at a May 11 business meeting approved a $21 million Southern California Edison residential default time-of-use pricing pilot that calls for defaulting 400,000 residential customers to time-of-use rates next March. The approval comes as Edison in April submitted an application to the commission to transition up to 3.3 million eligible residential customers to time-of-use rates (see CEM No. 1434 [12]).

"While termed a 'pilot,' we note that this is really the first step towards defaulting the entire eligible residential class onto TOU rates," the commission said in a resolution approving the Edison pilot.

Are you ready to start doing the laundry at noon or midnight? Neither am I.

The commission expects the residential default pilot approved this week and Edison's opt-in pilots for 20,000 customers that started last June will inform the larger TOU proceeding, to an extent, as Edison may not have all of the learnings from the pilot when it begins its large-scale deployment. The pilots will also help determine how Edison proceeds with its larger TOU rollout -- an effort that will require transitioning 500,000 customers a month.

A separate resolution approving San Diego Gas & Electric's default TOU program was held by CPUC staff from being considered at the meeting.

Edison's default TOU pilot will run for a year, after which customers will remain on the time-of-use rates unless they become ineligible or opt out.

The utility is testing two separate default rates: Default Rate 1, which has a longer peak period but a smaller rate differential -- summer weekday peak runs from 4 p.m. to 9 p.m. -- and Default Rate 2, with asummer weekday peak running 5 p.m. to 8 p.m., but a larger rate differential.

Participants in the Rate 1 pilot will see summer weekday rates of 21.5 cents/kWh off-peak and 39.1 cents/kWh during the peak period -- an 81.8 percent increase. Summer weekday Rate 2 rates would go from 22.2 cents/kWh to 46.1 cents/kWh, an increase of 107.6 percent. The peak rates include a projected baseline credit of 7.7 cents/kWh, according to the commission.

Midday super-off-peak rates of 16.6 cents and 16.7 cents/kWh reflect low marginal energy costs and high amounts of renewables, according to the commission.

Those super-off-peak rates are great -- for people who are home during the day.

For others, where are the savings? In a 2015 decision in the CPUC's rulemaking to look into investor-owned utility residential rate structures and a transition to time-varying and dynamic rates [R12-06-013], the commission said that long-term, it expected time-of-use rates would reduce overall electricity costs for all customers.

In looking at expected long-term cost savings, stakeholders didn't agree on the extent of savings -- or even whether there would be any. The commission cited an earlier estimate from the Office of Ratepayer Advocates that TOU rates would result in a peak load reduction of 2,400 MW. Environmental Defense Fund likewise contended that TOU rates would result in savings of $500 million a year with just half of customers signing on.

The Utility Reform Network, on the other hand, argued those estimates were "deeply flawed," according to that 2015 decision [D15-07-001].

The commission directed the IOUs to develop a methodology to estimate TOU savings, noting it expected quantification of savings may overlap with savings attributed to other programs, such as energy efficiency.

Because the TOU periods are consistent, the new rate schemes will be easier for customers to understand, the commission said. Whether that is the case will be determined as the new pilots are rolled out, and as data from the current pilots come in.

One thing is clear: marketing, education and outreach will be hugely important to the effort.

And utilities don't want to mess it up. Pacific Gas & Electric recently asked the commission to allow it to delay sending out rate-comparison materials for time-of-use, because if it mailed out the information just ahead of the summer season, it expected customers would be confused when they saw that they'd actually pay more in the summer months -- not exactly the best footing to start out on for a utility plagued lately by customer complaints over high bills.

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The pilots bake in one year of bill protection, meaning customers will not have to pay any more under TOU than they would have otherwise under the tiered rate system.

The default pilot will allow Edison to test and collect data in a number of areas. It will be testing its own systems and looking at call volumes, database capability, tracking and monitoring, and its billing systems.

The pilot will also allow the utility to test out various marketing, education and outreach materials and approaches; these will be tracked and reported on to the commission. With ME&O, Edison will be looking for strategies that result in maximum customer awareness; it is also required to send bill-comparison tools so customers themselves can evaluate which rate may be best for them.

And of course, Edison will be testing which default rate will ultimately be used in the larger transition. The reports that come back from the pilots will be interesting reading.

In its application, Edison said that as of November 495 customers chose to opt out of TOU, citing higher-than- normal summer bills, or difficulty managing TOU peak periods.

"Customers stated that it is difficult for them to wait until 9:00 p.m. or 10:00 p.m. to run major appliances to see savings or manage bills on a TOU rate," Edison said. I guess I'm not alone.
-Mavis Scanlon

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