Residential electric bills across Kern County will soon undergo a fundamental change designed to support California's shift to renewable energy by charging people more money for power consumed during hours of peak demand and less the rest of the day.
The transition to "time-of-use" rates offers ratepayers lower monthly bills — or higher ones, depending on their success at avoiding the use of air-conditioning and other appliances from late afternoon to early evening. Customers will be compensated through the first year if it doesn't work out, and they can opt out at any time.
Concern for customers has blunted the "TOU" rates being rolled out by Pacific Gas and Electric Co. and its territory neighbor in Kern County, Southern California Edison, such that they are milder than rate plans used by some other utilities. Whether the change goes far enough to persuade consumers to adjust their habits remains to be seen.
Opposing risks are at play: Ratepayers unable to change their ways could be hit by unexpectedly high bills. But if the financial rewards for success are too small, people might decide their adjustments aren't worth the effort.
PG&E and SCE are reaching out to customers to educate them about the changes ahead so they don't get stung by time-of-use rates. Representatives of both utilities emphasized they make no money on the change.
ATTRACTIVE ENOUGH?
An international expert on designing electric power rates, Ahmad Faruqui, voiced worries California utilities' relatively minor rate differentials could backfire, as he said happened two decades ago in Puget Sound when consumers who'd worked hard to reschedule their consumption gave up after experiencing only modest savings.
He said pilot projects in California and rollouts in other states have demonstrated that TOU price differentials steeper than those being introduced by PG&E and SCE have led to greater success in achieving consumer cost changes.
"It's like Macy's having a sale but everything is 5 percent off. I mean, who's going to go there?" asked Faruqui, an energy economist and principal at international consulting group The Brattle Group Inc.
But Mike Campbell, program manager of the CPUC Public Advocates Office's Electricity Pricing and Customer Programs Branch, said by email there's evidence modest price differentials are more effective and that sharp jumps in peak rates can have unintended negative consequences.
"More extreme differences do not correlate with substantially stronger responses from customers," he wrote.
IMPROVING RELIABILITY
The switch to time-of-use, or "TOU," rates was ordered by the California Public Utilities Commission, and crafted with input from various stakeholders, to improve the reliability of the state's power grid as petroleum-burning power plants are gradually replaced by intermittent sources of electricity such as solar and wind.
This capability was one of the original reasons for replacing traditional electric with so-called smart meters introduced locally more than a decade ago. They gave utilities the ability to charge people according to when they use electricity, as opposed to their total consumption during a given month.
Some local customers are already on TOU rates, including owners of rooftop solar panels and new customers who have selected the option as a way to save money.
PG&E plans to transition some 50,000 customers in Kern to TOU pricing in November as part of an effort that started in April and will involve as many as 2.5 million ratepayers by March. Some customers including those on subsidized rates won't automatically be moved over to the new rates, which for the most part increase the cost of power used between 4 and 9 p.m.
Its actions are based in part on a 2018 demonstration project involving 150,000 residential customers. It found more than 80 percent opted to stay on the program for more than a year.
MODEST DIFFERENCE
The peak rates it is introducing for summertime bills vary according to usage but are no more than 23 percent higher than non-peak rates. In winter the difference is no more than 7 percent.
So far, only 17 percent of its general customers have opted out of the new program, it said. In Kern, about 55 percent of those switched over so far have declined to participate in the TOU program, and all of them were customers with rooftop solar. In all, nearly 40,000 of its residential customers in Kern are on a TOU plan.
"We incorporated a tremendous amount of customer feedback from our first phase of transitions in 2018 into the full rollout taking place now, as well as from an earlier pilot in 2016 that tested different rate designs," the company said by email. "PG&E offers optional rate plans with higher differentials for customers who want to choose a different plan. Our goal as part of the statewide effort continues to be the creation of a cleaner energy future."
SCE's basic TOU rate differentials are more dramatic: about 60 percent for customers choosing a 4 to 9 p.m. peak, and 100 percent for those selecting a 5 to 8 p.m. window designed to be short and therefore increase ratepayer flexibility.
So far the utility has found that customers on the steeper, three-hour price differential are averaging higher energy savings than those on the milder, five-hour differential.
Already SCE has moved more than 10,000 of its Kern County customers to TOU rates and in October it expects to begin transitioning another 28,000.
PRICE SIGNAL
Andre Ramirez, SCE's senior advisor in pricing design and research, said the utility is trying to balance the needs of customers who can't reschedule their power usage or are unaware of the change.
"We don't want to hit them with unexpected high bills," he said. But at the same time, he said "If you don't give a big enough price signal, in general, customers are less likely to respond."
Steeper rate differentials are in place at the Sacramento Municipal Utility District, which unlike PG&E and SCE is not investor-owned and not regulated by the CPUC.
SMUD's differential between summer peak and non-peak pricing stands at 143 percent. The higher rates don't apply on weekends or holidays.
The utility said during an update about a year ago that its TOU rates achieved better than expected results in terms of savings and the share of customers sticking with the shift. It anticipated $3.7 million in savings but got $5 million, and instead of the 5.8-percent load reduction it expected, the result was 8 percent.
Faruqui, the energy economist, said utilities' success at switching people to TOU rates depends largely on their customer-outreach efforts, which he noted can vary widely.
"Without education this is a sure-fire prescription for a disaster," he said.
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