TOU Takeaways: Perspectives on Two Time-of-Use Rates in Colorado
Interviews with Fort Collins Utilities, Energy Outreach Colorado and Sandbox Solar
Utilities across the U.S. are increasingly using or considering time-of-use (TOU) rates (also referred to as time-of-day or TOD rates) as a way to help manage electric loads, encourage conservation, better utilize renewable energy resources, and accommodate electric vehicle charging, among other goals. What’s being tried? What are we learning along the way? What are concerns for lower-income ratepayers and how can these be addressed? What are implications for home solar?
There are two interesting windows into these questions now in Colorado, as the City of Fort Collins’ municipal utility, Fort Collins Utilities, rolled out a system-wide TOD rate late last year and investor-owned Black Hills Energy — which serves one of the state’s most economically disadvantaged communities — prepares for a TOU pilot this summer. In this article, we get perspectives and takeaways from a range of people in the know, including Fort Collins Utilities staff, low-income consumer advocate Energy Outreach Colorado, and solar installer Sandbox Solar.
Randy Reuscher, John Phelan and Lisa Rosintoski are Lead Rate Analyst, Energy Services Manager and Deputy Director of Customer Connections, respectively, at Fort Collins Utilities; Andrew Bennett is Director of Advocacy for Energy Outreach Colorado, which worked to try to influence the design of Black Hills Energy’s TOU rate; and Andrew “AJ” Lyle, Co-founder of Sandbox Solar based in Fort Collins.
FORT COLLINS UTILITIES “NO OPT-OUT” RESIDENTIAL TOD PRICING
What makes Fort Collins’ TOD rate structure unique?
Randy Reuscher: Our rate structure is one of the most intricate in the nation. We have on- and off-peak time-of-day rates that change by season, two specific time-of-day rates for all-electric heat vs. gas heat customers, plus an inclining block charge for total monthly electric use over 700 kWh, except for those with all-electric heat homes. We are also one of only a handful of utilities to make this a mandatory default rate as opposed to an opt-in or opt-out rate.
While it was complex to implement and communicate, our intention is to more equitably pass through the varying time-based costs of electricity to customers. Fort Collins Utilities is a cost-of-service utility. Our rates cover the costs and expenses to provide electricity to our customers, for example, generation costs, purchased power costs, transmission and distribution costs, capital expenses, debt service, and operations costs. We charge residents what it costs us to provide electricity.
This pricing structure also helps our customers better manage their energy use and costs by encouraging them to reduce their overall electricity use, as well as shift when they use it.
What did you learn during your pilot-testing phase that helped inform the full rollout?
John Phelan: In our pilots, we saw different financial impacts to electric heat and gas heat customers. So, we knew we needed to account for that in our current service territory-wide rate structure. We ended up with two time-of-day rates — one for gas heat customers, which represent approximately 90% of our residential customers, and one for all-electric heat customers, which are approximately 10% of our customers. We kept electric heated homes on a standard time-of-day rate and gas heated homes on a slightly different rate.
Randy Reuscher: Our main objective with introducing time-of-day rates was to establish a retail rate that more closely aligned with the cost of service to provide electricity, but we found in our pilot that the new rates also helped our customers save money. The 6,000 participants in our pilot were really engaged with the new rate and shifted some of their electricity use to lower-priced, off-peak hours, saving themselves almost 2% collectively on electric bills. Now that our time-of-day rates have been deployed system-wide, we are working hard to educate our customers on how to respond and better manage their energy use and costs. We will be monitoring aggregated consumption going forward to see if similar energy savings occur.
“Our main objective with introducing time-of-day rates was to establish a retail rate that more closely aligned with the cost of service to provide electricity, but we found in our pilot that the new rates also helped our customers save money.”
— Randy Reuscher, Fort Collins Utilities
Lisa Rosintoski: As a communicator, you don’t always know whether to give the bad news or the good news first. We initially decided to focus our communications on letting people know when the price is higher. What we’ve learned is that people thought that meant we were giving them a rate increase or penalizing them for using energy at certain times of the day — like when they wanted to make dinner. So, we evolved our communications to let residents know when electricity costs less, and that throughout the year, most customers use approximately 80% of their electricity during these lower-priced, off-peak hours.
John Phelan: During the pilot we saw a gap with some lower-income customers who ended up paying more. So, when we rolled out the TOD rate system-wide, we filled the gap by allowing anyone who qualifies for Colorado’s Low-Income Energy Assistance Program (LEAP) to apply for a discounted rate through our Income Qualified Assistance Program
What’s next for Fort Collins?
Lisa Rosintoski: We’ll be looking at opportunities to launch more customer education tools and campaigns. This summer, we will be collaborating with Climate Action Plan partners on a ‘shift’ campaign to encourage residents to shift not just their energy use, but also shift their commutes from cars to bikes, and shift away from junk mail and toward other types of conservation measures. We’re hoping it’ll provide a fun connection to savings.
We’re also working to educate the community on what appliances and electronics use the most electricity and how customers can best manage their electric use in their households, as well as what energy efficiency programs and rebates utilities offer that can enhance their savings.
BLACK HILLS ENERGY TOU PILOT
What is Black Hills Energy planning for its pilot TOU rate?
Andrew Bennett: The Colorado Public Utilities Commission Administrative Law Judge just issued his recommended decision on Black Hills’ TOU pilot, which will be rolling out this summer starting with a consumer education campaign from June 1 — Oct. 1, 2019. It will be a straight time-of-day rate with both summer and winter on- and off-peak rates. Peak hours will be 3 to 7 pm on weekdays, excluding holidays. The pilot will include 3,758 randomly-selected residential customers, including 195 net-metered solar customers. The new rates will go into effect with the October 2019 billing cycle. Participants can opt-out at any time and revert back to the utilities’ default inclining block rate, which kicks people into a higher rate after more than 500 kWh of electricity use in a month.
Why did the Colorado PUC decide not to include lower-income customers in the pilot?
Andrew Bennett: Black Hills Energy serves one of the most economically disadvantaged communities in Colorado. Of its 83,000 meters, more than 12,000 are households in poverty, or about one in every eight. Lower income households are much more likely to be homes where people are under-employed, working night shifts, elderly or dealing with medical conditions — in other words, homes where people are home during the day and can’t really adjust when they use power. So you have a population that can’t react as easily to time-of-day rates.
Black Hills originally proposed to include 140 lower-income customers in its pilot, and we advocated that the utility protect these customers by including a hold harmless provision and allowing people to opt-out at any time. It is critical to have data to see how TOU works in real life so we can advocate for mitigation strategies to protect customers in case they are not adapting and saving, as we are seeing happening with Xcel Energy’s TOU pilot. In the end, though, the Commission decided to exclude the 140 households from the pilot altogether. The ALJ had to balance goals for learning about impacts with the need to avoid harm and decided in this case to avoid any possible harm. In this case the 140 homes might have been too small a sample for concrete conclusions anyway, as lower income households are not a monolith.
“It is critical to have data to see how TOU works in real life so we can advocate for mitigation strategies to protect customers in case they are not adapting and saving.”
- Andrew Bennett, Energy Outreach Colorado
We respect the ALJ’s position, and hope to be able to use the other pilot participants as proxies to learn from since average household income in the Black Hills Energy service territory is so much lower than the state average, close to the cut-off for qualifying as low-income.
How can Black Hills and other utilities mitigate impacts of TOU rates on lower-income households?
Andrew Bennet: Strategies to protect lower income households from potential negative impacts of TOU rates include a ‘hold harmless’ provision, as well as allowing people to simply opt out. Opt-outs are a first defense — if at any point a customer decides they don’t want to be a part a TOU rate, they can leave the program and go back to the default rate. Hold harmless is a more nuanced way to give people an ‘out’ if they want it, but also educates them on which rate is more cost-effective at different times of the day and year. With a hold harmless provision, you get your bill and it shows both the rate for the normal default inclining block rate and the TOU rate, and you pay the lesser of the two. There are two models for a hold harmless provision — quarterly or yearly. With yearly, if the money you saved and paid over the course of the year is a net positive, you get the difference back. Quarterly hold harmless looks at three months’ worth of billing and does the same. You still get a price signal, but only have to deal with three months’ worth of billing. Finally, there is technically a third model where you are held harmless every month, but under this model there are no pricing signals to incent the desired behaviors.
What’s next for Black Hills Energy?
Andrew Bennet: Everyone should be selected for the pilot in June, education will go on for a few months, and the rate will kick in Oct. 1, 2019 through Oct. 1, 2020. Then Black Hills will report out on results in January 2021, and after that could move forward on a proposal to roll out the rates system-wide. It is unknown at this point if a system-wide TOU rate would apply to lower income households. But if it does, we will be advocating for Black Hills to include hold harmless and opt-out provisions.
IMPLICATIONS FOR HOME SOLAR
How can TOU rates impact solar customers and service providers?
AJ Lyle: TOU rates change the equation for solar service providers and customers. With flat rates, you typically design a residential solar energy system to maximize production no matter what time of day. But with TOU rates, there are times of day when the energy produced is more valuable and may be credited back to the customer by the utility at a higher rate than other times. For example, in Fort Collins a residential solar customer will earn 6.54 cents per kWh for energy produced during off-peak hours in the summer months and are credited back 22.72 cents per kWh during on-peak hours from 2–7 pm. Also, the cost of energy changes depending on when customers use it. So, you can’t just make a flat proposal to a client based on static energy use and costs. It won’t match reality, you won’t see the payback that was promised, and you will end up with unhappy customers.
How are you addressing these issues?
AJ Lyle: What we’ve done in Fort Collins since the city rolled out TOD rates is look more closely at how much and when our customers use energy, then design a system to offset as much use as possible, while generating as much energy as possible when it is more valuable and credited back at higher rates. In some cases, we’re helping customers install battery systems to capture excess solar energy produced in the morning and early afternoon and store it for later use when peak rates hit in the late afternoon and early evening.
What advice do you have for other solar developers?
AJ Lyle: We encourage solar energy providers working in areas with time-of-use rates to embrace technology and go beyond what an Excel spreadsheet can do for you. There are so many tools out there that can help you make a more accurate proposal based on these new rate structures. What we try to do is provide customers with access to real-time consumption data so that they can manage how and when they use energy. We include hardware such as Neurio or Sense with all our installs and find it helps customers gain a feeling of control over their energy use.
“We encourage solar energy providers working in areas with time-of-use rates to embrace technology and go beyond what an Excel spreadsheet can do for you. There are so many tools out there that can help you make a more accurate proposal based on these new rate structures.”
— AJ Lyle
What would you like to see from utilities?
AJ Lyle: Going forward, I’d like to see actual customer consumption data, such as green button data, made available. We know when energy is being made, but less about when it is consumed. With TOU, you can’t put a flat number on production and call it good. We’re also encouraging utilities to offer rebates for batteries, and we value the existing utility rebates for smart thermostats and other energy saving devices. With the advent of a new class of customer who is also producing energy — prosumers — the relationship with the utility must evolve to more of a partnership, involving bi-directional communication. Utilities should be actively engaging with customers to provide information that allows for the efficient and intelligent use of the energy produced.