Time of use rates (TOU) should be good thing, right?
According to today’s Inquirer (“Utility’s rates up, or down” 2011-05-21), PPL customers who elected to be among the first in the state to try time-of-use metering for consumer tariffs (account billing schemes; PECO does not yet offer time-of-use billing for consumer accounts) got stiffed with extra-high rates for summer peak hours and above-the-default-rate rates for so-called ‘off-peak’ hours in the tariff.
TOU metering and tiered charges promise enhanced grid stability and prices for all customers, since the scheme provides participants incentives to respond to the actual costs of energy at any moment in time. As the grid approaches maximum output capacity in high-demand events, especially peak mid-day hours in summertime when the most buildings operate their A/C, momentary pricing for energy skyrockets, with TOU customers the only ones who have any direct economic incentive to respond by throttling their A/C and other loads down to save money.
How would I change my energy consumption profile under TOU pricing pressure?
In the smallest granularity offered in our region’s electric energy market (5 minute-increments?), ‘spot-market’ energy prices can be more than 5 times higher than the year- or even 5-year averaged prices underlying energy distribution companies’ (EDC’s) default rates for consumers. There are two classes of response available to timed-price-sensitive energy consumers:
Autonomic energy conservation responses under time-of-use incentives/price pressures:
(in medical terms, these are the ‘involuntary’ processes of the building, like hormones, heart-rate and metabolism):
- Consumers on TOU tariffs will be likely to throttle down their AC settings during the high-rate hours, and…
- For those using electric to heat water, installation of a timer switch on the heater circuit can eliminate consumption during expensive peak hours (similar to a lighting control or sprinkler timer). The insulated heater tank naturally stores energy applied during lower-cost off-peak hours, keeping hot water available for modest mid-weekday tasks like washing dishes and up to one or two hot showers, depending on tank size. Like electric space heating, this is a classic time-shifted energy process that has had a special tariff in PECO territory for decades (phasing out in 2012), and proven itself to be effective and convenient for most customers.
- Smart home / home automation products such as Lutron’s Radio RA and Leviton’s Vizia RF promise consumer’s the ability to respond effectively to the most granular pricing events on the energy grid, allowing building owners to trigger demand response conservation behavior such as dynamic thermostatic control of HVAC equipment, programmed lighting schedules based on predictable price-timing at all times, and demand-response dimming of lights 10-30% below programmed schedules when peak pricing thresholds have been exceeded (like when energy costs more than triple the daily-averaged price). The networked control systems can also interrupt any standard wall receptacle location, allowing control of portable devices like window A/C units and large fans to eliminate consumption when extreme energy price events occur. Perhaps most important, automated events like dimming of lights and even a direct notification system for occupants will alert them to momentary high energy costs and encourage voluntary conservation behaviors in the building.
Voluntary energy conservation responses under time-of-use incentives/price-pressures:
(in medical terms, these are the ‘voluntary’ behaviors of the building, like eating resting or working):
- Time-shift high-energy discretionary activities, such as doing laundry or starting a dishwasher. Consumers may opt to line-dry in good weather — especially on the hottest summer days, when energy costs the most due to heavy cooling loads — and set laundry to start hours after loading by using newer appliance’s advanced controls to grab lower rates rather than consume energy during mid-day peak rate hours.
- Animated demonstrations of Grid, emissions, economics and TOU by University of Illinois c/o U.S. DOE (these animations require that you have authorized your browser to run java for the site; the demonstration worked well in Safari, was slightly glitchy in Opera browser, and non-functional in Google’s Chrome).
So where did PPL go wrong?
Actually, it’s the public utility commission’s energy procurement rules that drive the counter-intuitive TOU pricing consumers are seeing, and it may be that everything is working just as it should, in the long run. Still, in setting rules for energy distribution companies’ (EDC’s) sources for energy to supply TOU customers, it seems we conflated TOU consumption with TOU procurement, requiring utilities to use a mix of supplier contracts that have much shorter terms than the long-term contracts engaged to supply the standard default rate. Short-term rates are volatile, and the quarterly-adjusted default rates from PPL have TOU customers at a gross disadvantage, at least in summertime: they will pay more for off-peak energy (10.65 cents vs. 8.77 for standard default rate), and they will pay much more for peak-rate energy (12.37 cents vs. 8.77 cents for standard default rate).
It could be that this quarter’s PPL time-of-use rates are a blip of volatility that would even out to a net advantage over the long term, for savvy TOU customers who time-shift their energy activities over a period of several years. For now, TOU rate-payers are seeing red over the fact that their off-peak rate is higher than the 24/7 rate paid by standard rate-payers. PPL has offered to let them switch back to standard default rate, presumably without the usual frequent-switching fee (applied for customers who switch in or out of the default rate more than once per year).
Customers should ponder before jumping back into the arms of PPL just because of seasonal high prices. One factor in all this is that the circumstances were reversed in the prior quarter’s rates. TOU customers were getting a winter-time (low-demand season) peak-hours rate lower than the standard default rate (7.54 cents vs. 9.27 cents for the winter quarter standard default rate), and the new quarter’s spring/summertime high rates for peak-hours are the trade-off that they signed up for in the first place.
Still, the PUC may want to consider new rules for TOU energy sourcing contracts such that EDC’s have flexibility to offer TOU tariffs where pricing is ALWAYS lower for off-peak and ALWAYS higher for on-peak, regardless of season. TOU rates take a minute to wrap your head around, and a complex market where the seasonal time-of-use pricing is counter-intuitive on a day-by-day basis may discourage the kind of mass participation in TOU rates that could really help to stabilize the grid, curtail peak ours consumption and bring down pricing for everyone.
Some questions need answering in the wake of all this:
- Who played a role in the PUC’s decision to use short-term contracts? Did PPL plan this ‘shock’ to churn contracts and keep customers in the fold?
- Should the PUC revise it’s rules to allow long-term procurement contracts to supply TOU tariffs? Or should savvy customers with flexible budgets stick this out and reap long-term rewards in case future volatility includes a net majority of super-lows in the TOU tariff, over a long term? (in the latter event, customers should have access to long-term contracts pegged to a formula relating to short-term spot-market price fluctuations; otherwise, the energy provider could re-calibrate the TOU rate structure to prevent customers’ ever benefitting from low average price over a long term of volatility). Does it make sense to pass down the seasonal market forces to residential rate-payers who probably want 24-hour-based TOU? Marketing TOU to residential rate-payers may be easier if the TOU concept is restricted to 24-hour factors, since there may be few building controls or voluntary behaviors that residential customers can modify, in order to take advantage of seasonal pricing. It’s not as if one can wash a bunch of dishes or do a bunch of laundry during winter time so as to time-shift energy consumption out of the high-cost summer months, whereas a manufacturer might choose to intensify winter operations and ease off in summer in response to energy input costs.
- Do the high prices reflected in the short-term contracts supplying TOU in PPL territory represent a blip of volatility, expected seasonal variation, or reflect long-term trending in a new energy market that will spike prices for standard default rates, as well, a year or two from now when those longer-term contracts underlying the standard default rate get renegotiated?
Will PECO get TOU pricing right? What do energy distribution companies (EDC’s) need from PUC to do so?
After what just happened with PPL TOU rates, it may be a good thing that PECO has not yet come to market with a TOU rate. What steps do we as consumers and the PUC as our advocate need to take to make sure PECO offers a legitimate, fair and customer-intuitive TOU rate soon? This will be important to all consumers, but especially to the fast-growing market of solar PV and micro wind-turbine net-metering customers, for whom PECO is the only option for legally-guaranteed net-metered grid interconnections.
Are any alternative energy generation/transmission companies (EGC’s) offering TOU for consumers?
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