Policy-driven, ground-breaking, electric vehicle-specific rate designs from California's top utilities could break down cost barriers to driving electric and support grid stability while protecting ratepayers.
In September 2018, California lawmakers enacted Senate Bill (SB) 1000 to advance the state's U.S.-leading transportation electrification effort. In December, the California Public Utilities Commission (CPUC) opened a proceeding to develop a formal transportation electrification framework. Both called for rate design solutions to market barriers.
SB 1000 ordered the CPUC to, within an existing proceeding, consider rate designs that shift the EV charging load away from peak demand and address the demand charges in commercial and industrial (C&I) rates now impeding electric vehicle (EV) growth, CPUC EV Program staffer Carolyn Sisto told Utility Dive.
The demand charge in C&I rates covers the utility's cost for being able to meet the customer's highest kW usage but can significantly increase a C&I bill when a customer adopts EVs, Sisto said. It has become a barrier to EV growth in the commercial-industrial sector because the disproportionately high spike from charging an EV fleet can make driving electric more expensive than using a traditionally fueled vehicle.
The commission was already working toward the transportation electrification objectives in SB 1000, but in the new rulemaking, the CPUC directs the state's IOUs' focus on those objectives as well, said Sisto. In 2017, the CPUC approved a San Diego Gas and Electric (SDG&E) trial rate to shift residential EV charging as well as a new Southern California Edison (SCE) EV-specific rate to address demand charges.
The commission was already working toward the transportation electrification objectives in SB 1000, but in the new rulemaking, the CPUC directs the state's IOUs' focus on those objectives as well, said Sisto.
"Electrifying transportation has to be easy for customers, but cannot impose cost shifts, and a monthly subscription charge that replaces the demand charge, but covers fixed costs, is a simple way to do both."
A precedent-setting Pacific Gas and Electric (PG&E) demand charge solution would create a new rate class to address C&I customers' EV load. It was introduced in November 2018 and will be considered by the commission this year. Like the SCE and SDG&E rates, it proposes time varying pricing that acts as a signal to shift usage. Uniquely, it replaces the demand charge with a monthly subscription charge.
This is a hybrid version of the energy subscription concept introduced by Navigant Director Lon Huber.
"PG&E's proposal is a step toward the full subscription concept," he told Utility Dive. "Electrifying transportation has to be easy for customers, but cannot impose cost shifts, and a monthly subscription charge that replaces the demand charge, but covers fixed costs, is a simple way to do both."
The innovative rates so far brought forward by California's IOUs are an early — but important — indication of what rate design can do.
The law and the order
SB 1000's first objectives are to drive planning and investment for charging infrastructure deployment that is "in the best interests of ratepayers." To do so, a CPUC proceeding should explore rate strategies that "reduce the effects of demand charges" and that encourage charging "when there is excess grid capacity."
To further clarify the role of the regulatory process in transportation electrification, the commission developed an order that calls for a "Transportation Electrification Framework" (TEF) based on legislative guidance that enables utility-private sector engagement.
In the state's legislative directives, "there is no clear definition of what the electric utilities' overall role should be," Sisto said. The TEF is to identify new metrics or targets that can guide new utility proposals, and to clarify that "ratepayers cannot be expected to pay for all the needed infrastructure."
It's also meant to define the role and responsibilities of the IOUs in transportation electrification and ensure that IOUs and private providers work together to develop a robust private sector, the order said. A draft from Energy Division Staff, which will draw on stakeholder input, is due in October.
The new rates
IOUs were already working on EV-specific rates, the rulemaking aimed at creating a TEF and advancing transportation electrification acknowledged. But there is no "standardized method" or single rate design for accomplishing the SB 1000 objectives. It therefore orders California's IOUs "to submit a joint proposal" for new rate designs.
The final proposal, which will be part of the TEF development process, could incorporate time-of-use (TOU) rates that shift usage away from the peak. And, based on the commission's orders, it is to address demand charge barriers facing direct current fast charger (DCFC) site hosts, transit agencies running electric buses and C&I customers with EV fleets.
Rate designs must be cost-based, avoid cross-subsidies and keep the cost of driving electric "well below" the cost of driving with conventional fuels.
Each IOU is approaching the objectives differently.
The SDG&E vehicle grid integration (VGI) pilot is being implemented for 3,000 customers. It is one of three EV-specific TOU rates expected to shift SDG&E's EV charging load toward periods of midday solar over-generation, SDG&E EV Customer Engagement Manager Natasha Contreras told Utility Dive.
TOU rates are for residential and workplace light duty vehicle charging and do not address the demand charge barrier, Contreras acknowledged. Customers are notified a day ahead of hourly prices. The utility's "TOU 5" plan offers a super off-peak $0.09/kW midnight to 6 a.m. rate with a $16 monthly fee. Its "TOU 2" plan has a super off-peak price of $0.28/kWh but requires no monthly fee.
SDG&E analytics show high volume EV drivers can easily offset the $16 monthly fee with the discounted electricity rate and save significantly over conventional fuel vehicles, Contreras said.
SCE's new C&I rate plan, to be implemented March 1, offers a five-year demand charge holiday, SCE Director of Pricing Design and Research Russ Garwacki told Utility Dive. It will be followed by a five-year demand charge phase-in to a new demand charge 40% below the current charge.
The demand charge normally covers utility costs to meet a C&I customer's highest demand spike, he said. But early-stage EV fleets often have very low loads except during the charging spike. With the demand charge holiday, we are "migrating a portion of our distribution costs toward energy and becoming less demand charge focused," Garwacki said. Incremental costs can be absorbed through the energy charge until charging loads grow.
SCE's EV-specific TOU energy charge has an off-peak $0.13/kWh price for all hours except the 4 p.m. to 9 p.m. peak demand period, when it is as high as $0.38/kWh, he said. Off-peak charging will make driving electric significantly more cost-effective because $0.13/kWh roughly converts to $1.30/gallon, he added.
Several utilities proposed limited demand charge holidays in 2018, according to North Carolina Clean Energy Technology Center Senior Research Manager Autumn Proudlove, including National Grid, Orange and Rockland Utilities, NV Energy, PECO Energy and Pacific Power.
The main innovation in the PG&E commercial EV (CEV) plan is replacing the demand charge with a fixed subscription rate to make C&I customer bills simpler and more certain, spokesperson Paul Doherty emailed Utility Dive. With TOU rates and the subscription charge, customers can pay a per-kW charge for the charger capacity they want to use and charge at a per-kWh rate that fits their need.
For charging sites of up to 100 kW, there would be a "CEV-Small" subscription fee of $25/month for each 10 kW of charging capacity, according to a PG&E filing. For fleets and high-volume sites with over 100 kW charging capacities, there would be a "CEV-Large" $184/month subscription fee for each 50 kW of charging capacity.
The 4 p.m. to 10 p.m. peak demand charging price would be $0.30/kWh, and super off-peak 9 a.m. to 2 p.m. hours charging would cost $0.09/kWh. Other hours range from $0.11/kWh to $0.12/kWh. These "price signals" will lower customer costs and shift usage to support the grid, Doherty said.
The subscription innovation
The CPUC only recently began reviewing the PG&E subscription proposal but it appears to be unprecedented in California, CPUC's Sisto said. "The subscription fee and energy charges fully cover system fixed costs for the new rate class, and there will be no cost shift because all costs go to the new rate class."
SCE has said its plan "could reduce C&I customers' charging costs as much as 50%," NRDC Clean Energy Legal Fellow Miles Muller told Utility Dive, adding that PG&E has shown "its plan could reduce customer costs between 30% and 50%."
PG&E's plan [is] "a step forward for all EV charging."
Senior Advisor, Regulatory Assistance Project
However, the PG&E plan eliminates a concern of SCE's plan: that at the end of the phase-in, the load at some necessary but low volume charging sites may not support even a reduced demand charge, Muller noted in a blog.
Both proposals have been described as subsidies for EV charging, but because the costs of incremental EV loads are covered by energy charges, they are not, Utility and Grid Services Director James Tong of fleet EV truck provider Chanje told Utility Dive.
The way PG&E addresses system costs makes PG&E's plan "a step forward for all EV charging," Regulatory Assistance Project Senior Advisor Jim Lazar emailed Utility Dive. "Each customer pays for the final connection to the grid on a ‘subscription' basis," but the plan "puts all the shared costs — generation, transmission, and distribution substations and circuits — into the TOU energy part of the rate."
PG&E's subscription rate "is a type of demand charge that is understandable for customers," SCE's Garwacki said. There are questions about how it will work, "but the solution in the final joint proposal will probably be a combination of the proposals from the IOUs and other stakeholders."
Subscriptions can be a "win-win-win" for utilities, customers and technology providers, Navigant's Huber said. "Using a subscription in an EV-specific rate to address the demand charge, and coupling it with TOU energy charges, is a good hybrid application to advance the concept."
Demand-based pricing for EV infrastructure "requires utilities to estimate the revenue collected from charging to cover their fixed costs," Huber said. "A subscription rate can be set to cover these costs and eliminate guessing."
An electricity subscription "appeals to customers in the same way cell phone plans and online home entertainment plans appeal to them," he added. "And it is easy for EV drivers to compare the subscription's cost to their gasoline costs."
"More public charging and DC fast charging will drive the EV market and those sites pay C&I rates that face demand charges, which is why both SCE and PG&E are on the right track."
Utility and Grid Services Director, Chanje
Significant EV adoption will require "customer-friendly rates that also provide predictability to investors," Huber said. "A customer-centric subscription rate is a clear pricing strategy that both sophisticated private providers and utilities can base investments on."
Other versions of the subscription rate are being tested by utilities in EV-specific rates for residential customers, he added. In Texas, Austin Energy offers unlimited public charging for $4.17/month and unlimited off-peak home and public charging for $30/month. Vermont's Green Mountain Power offers unlimited off-peak charging at $29.99/month.
Shifting residential charging to off-peak is important, but rates should drive EV adoption, Chanje's Tong said. "More public charging and DC fast charging will drive the EV market and those sites pay C&I rates that face demand charges, which is why both SCE and PG&E are on the right track."
But the California IOUs' proposals do not get at the CPUC Staff's biggest goal, a performance-based metric, which will hopefully be developed in the joint utilities proposal or the TEF process, Sisto said. The metric "would replace utility compensation for infrastructure investments with compensation for shifting load, including EV charging load, to when there is excess generation, and especially to when there is excess renewables generation, on the system."
This article has been updated to clarify some of the CPUC's regulatory actions pursuant to SB 1000.