Utilities manage loads, build relationships with TOU rates

The difference between the "SmartMeter" (above) and a conventional meter is complex electronics (below) that allow two-way communication between the meter and the utility. (Photos by Salt River Project)

Caught between a decidedly mixed history and new Federal regulations, with one eye on improved technologies and another on the budget, utilities that once shied away from time-of-use rates are now wondering how to make this strategy work for their business and their consumers.

The 2005 Energy Policy Act requires utilities to consider offering time-based metering and pricing options—TOU rates—to customers.  TOU rate schedules, which impose higher charges for energy use during peak periods, can lead to more efficient use of resources, energy and capacity. They can also help utilities shift loads, avoid expensive supplemental power purchases and put off building even more expensive new generation.

Pros and cons abound

That is, when they work, and there are certainly cases where TOU schedules did not achieve the desired results. A three-year demonstration by Puget Sound Energy shifted only 5 percent of the load from peak hours and reduced energy use by only 1 percent.  Worse yet, most of the participants ended up paying more than the standard flat rate for power. "If customers don't see the savings, they won't participate," said Energy Services Manager Ron Horstman. "Without their participation, the TOU schedule won't shift enough of the load to have tangible results."

Utilities need tangible results—in other words, cost savings—to recoup their investment in advanced metering technology and installation. The current generation of "smart meters" offers many advantages beyond TOU capabilities, and utilities are switching to the units for a variety of reasons. However, a system-wide upgrade can be a daunting expense, and a tough sell to a board of directors looking for ways to save money.

As with most technology, though, prices are coming down, notes Horstman. "When you add up the savings from a successful TOU schedule with the operational cost savings that 'smart meters' make possible, it may justify the investment," he said.

Even established program needs marketing

Getting customers to change their habits is critical to successful TOU rates, said Horstman. "And that doesn't happen without extensive outreach on the part of the utility," he said. "If a utility wants its TOU rate to make a difference, it has to be prepared to educate its end-users."

Jennie King, a principal planning analyst with Salt River Project, agreed with Horstman's views about customer education. The Phoenix, Ariz., utility offers both residential and commercial TOU rates to manage the extreme summer peaks caused by the desert climate.  "Whatever we can do to clip those peaks is going to help SRP and our customers control energy costs," said King.

Even though the schedules have been in place for more than 20 years, SRP continues to do a lot of communication and outreach, she noted. King recently educated her parents about the benefits of switching to the TOU rate. "That was a one-on-one job," she admitted. "Obviously, we can't do that with all our customers."

High participation rate

Over the years, SRP’s TOU program has grown so well because it largely sells itself. Currently, about 175,000 residential customers and about 6,000 commercial customers take advantage of the TOU plan. "It is harder for businesses to shift their use," King acknowledged. "High-use residential customers, especially ones who aren't home during the day, are most likely to benefit from the schedule."

And the benefits are significant. "I'm on TOU myself and during the hottest summer months, I can save up to $50 per month," said King. "This is something that we know is good for our customers."

Pool owners, a large portion of SRP residential customers, can save up to $100 or more annually by putting their pool pumps and cleaning systems on timers that shift operation to overnight and combining that with lower-cost nighttime TOU rates. "We promote that point heavily," King observed. "SRP also offers rebates on water heater timers and programmable thermostats. That has been very good for bringing people onto the TOU schedule."

New meters with more capabilities

SRP is updating its own equipment, as well, replacing older TOU meters with smart meters. Over the next five to seven years, the utility hopes to complete the transition to meters with remote reading capabilities and many with connect/disconnect switches. Many of the 150,000 meters SRP has installed so far are in apartment complexes and areas that pose safety hazards to field personnel. In addition to cutting down on field trips and employee injuries, the units make it easier for customers to switch to TOU rates.

Eventually, TOU participants will be able to access records of their energy use online. "As a future enhancement, customers will log onto our Web site and see how much they saved the previous day," said King. "That will be a great motivator."
  
TOU for commercial and industrial customers

In Central California, Turlock Irrigation District time-of-use customers with 500-kW or higher demand are able to monitor their energy use online with the Meter Manager program. The Web-based tool is a relatively recent addition to a system that relies mostly on older metering technology. Like Salt River Project, TID's TOU schedule dates back many years.

Unlike SRP and many other utilities, TID offers TOU rates to every customer class except residential customers. Commercial, industrial and agricultural customers are usually highly motivated to control energy costs, and TID automatically places businesses with a demand of 500 kW or more on a TOU schedule. "We once offered large customers the option of non-TOU rates, but so few chose it that we discontinued the option." said Utility Rate Analyst Chris Poley.

Facilities must install a dedicated phone line to connect to an interval meter, which feeds data to Meter Manager. Customers can use this data to manage their energy consumption. An almond processor, for example, put off a large hulling order one month in order to avoid three consecutive months of energy use that would have forced the business to a rate schedule that would have increased their annual costs. Rate schedules are based on the customer's kW demand over three consecutive months in a 12-month period.

Meter Manager can also help customers pinpoint the cause of sudden spikes in their electric bill, said TID Area Manager Kate Schulenberg. "The owner of a business that was closed for most of December couldn't understand why its electric bill was so high during that period," she recalled. "The spike coincided with the days the maintenance crew was cleaning and tuning up equipment. Everything in the building was turned on, creating a high demand the management didn't expect."

Changing operations to get savings

Smaller commercial customers with demand between 35 and 499 kW can choose the TOU schedule, and many do. "Customers in this service category are sometimes less attuned to energy costs than heavy industrial facilities, but they often find that shifting their use can result in substantial savings," explained Schulenberg.

To determine if the TOU schedule is right for a business, Turlock's key account representatives talk to the customer about hours of operation and the nature of the business. "For a 24/7 business, the savings from TOU are automatic, but others may have to make some changes," Schulenberg said. "A meat packing plant cut its costs by starting its work day earlier and closing by 2 p.m."

Still, some types of businesses are unable to shift work to get the benefit from TOU, added Schulenberg. "Manufacturers can schedule projects, but agriculture processors can't. When a crop is in, it's in and it has to be chilled right away. It can't wait six hours for 'off-peak' power."

Those are reasons utilities typically design time-of-use schedules to target residential loads, but Turlock has yet to develop a residential TOU schedule. "We are looking at it for the first time in several years because of the 2005 EPAct provisions," said Poley.

"We are doing an analysis to see if residential TOU could be beneficial for our customers and for TID," Poley said. "The board will make a decision in August."

Learn more about TOU

A successful time-of-use schedule benefits both utility and consumer, whether the consumers are homeowners or business owners as the different approaches at Salt River Project and Turlock Irrigation District prove. In both cases the utilities have turned customers into partners in managing energy use, and that may be one of the biggest benefits.

For utilities considering developing a time-of-use rate, American Public Power Association is offering a workshop, Designing and Implementing Time-of-Use Rates in Your Utility, Aug. 2 to 3, in Portland, Ore. This "soup-to-nuts" course covers the principles, practical development and implementation of TOU rates.