Navigant Research Blog

Time-Based Rates: What Works, What Doesn’t

Neil Strother — June 30, 2015

A new interim study of time-based or time-of-use (TOU) electricity rate programs shows that certain approaches and technologies get better results than others and that utilities in the planning stages can learn some valuable lessons before they launch their own versions. For instance, the average peak demand reductions for customers on critical peak pricing (CPP) programs were nearly twice the amount (21%) compared with the average reduction among customers in critical peak rebate (CPR) programs (11%).

Opt-In or Opt-Out

The study also explored the process of enrolling customers in programs, employing either opt-in or opt-out approaches. The results showed that enrollment rates were much greater and peak demand reductions were generally lower with an opt-out approach, but retention rates were nearly the same (91% opt-out vs. 92% opt-in) for both. Given these results, there appears to be an overall cost-benefit advantage to opt-out approaches versus opt-in, though additional analysis is needed to validate and replicate this conclusion, the report authors noted.

In-Home Displays Make Little Difference

The use of in-home displays (IHDs) was also scrutinized, and results showed these devices made little difference to enrollment or retention rates. Moreover, Sacramento Municipal Utility District (SMUD) found that its program offerings without IHDs were more cost-effective for the utility in all cases than those with IHDs. This has led SMUD officials to say they do not intend to offer IHDs in the future.

PCTs Show Better Results

The use of programmable communicating thermostats (PCTs) yielded generally better results than among customers that did not have this type of device. Peak demand reductions for CPP and CPR customers with PCTs (27% to 45%) were higher than among customers without a PCT (-1% to 37%). Results from Oklahoma Gas & Electric (OG&E) showed that rate offers for customers with PCTs were more cost-effective for the utility than for those without the device.

Besides SMUD and OG&E, the study involved eight other U.S. utilities that were part of the Department of Energy’s (DOE’s) Smart Grid Investment Grant (SGIG) program: Cleveland Electric Illuminating Company (CEIC), DTE Energy (DTE), Green Mountain Power (GMP), Lakeland Electric (LE), Marblehead Municipal Light Department (MMLD), Minnesota Power (MP), NV Energy (NVE), and Vermont Electric Cooperative (VEC). The DOE plans to publish five more reports using data from these utilities in the coming months, with a final report expected in the first quarter of 2016.

Given the wide variety of options, designing effective time-based rate structures and processes can be a significant challenge for utility managers. What works for one utility’s customer base might not work for well for another. Yet, these interim results do provide some solid guidance, and with careful planning (noting what has and has not worked), a reasonably positive outcome is a likely result for both the utility and its participating customers.

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