Looking ahead to 2030 and then beyond to 2050, the majority of New England states have set ambitious clean energy goals. The growing adoption of new technology empowers energy customers to play a direct role in making these goals happen and to make their own energy choices in ways not available 10 years ago. But one piece of this puzzle is still largely missing: The design of electricity rates by utilities serving the region simply has not kept up with customers’ changing needs.
We set out to examine this mismatch between modern needs and outdated rate design recently in a four-part series of policy briefs. What we found shows that there is substantial room for improvement in residential pricing. The New England large utilities’ rates do not work to realize customers’ current-day needs, nor do they accurately reflect the time-varying aspect of grid costs, from electricity supply to transmission and distribution to regional capacity and charges.
We’re revisiting RAP’s series to highlight the opportunity at hand for utilities and regulators: Updating rate designs can empower consumers control over their energy choices, including low- and moderate-income ratepayers. Modern rates must be affordable rates for all ratepayers, and in turn these rates can help states meet their policy goals for clean energy and affordability. A few leading examples of promising rate design already on offer suggest that this challenge can be met.
A Rate Design Disconnect
The first brief, New England’s Rate Design Disconnect: Analyzing the Region’s Wide Variation in Electricity Bills, tackles one of the most puzzling aspects of rate design by New England utilities: Rates are all over the place, varying among the different states to a degree that is greater than that seen within any other U.S. region. Moreover, when we tried to figure out why that is the case, there was no substantial good reason. This hints at a lack of good information flowing between and among regulators and utilities. That lack of information suggests an opportunity for New England states to set benchmarks and collect data on utility costs and performance for use in better standardizing cost data, analysis and rates.
The Affordability Challenge
The benchmarking process alluded to above could particularly benefit low- and moderate-income customers, who face a significant energy burden, and our second brief, Making Basic Service More Affordable: Electricity Rates for Low- and Moderate-Income Ratepayers, focuses on rate designs for low- and moderate-income customers and how they can be improved. We review and compare tariff discounts from utilities in four New England states, and highlight the example of New Hampshire’s Electric Assistance Program, whose sliding-scale design targets greater relief to those ratepayers who need it most. New Hampshire also provides LMI rate uniformity in design and cost allocations across all the state’s utilities.
Designs that Work for Customers: Time-Varying Rates Give Options
The last two briefs in our series, published in 2020, focused on the modern imperative for rates around the region to shift more to time-varying options and models, in which energy and its delivery is valued in part according to when it is used.
Time-varying rates (TVRs) work well for particularly modern needs such as electric vehicle charging and home storage batteries. This is the focus of our third brief, Rate Designs That Work for a Modern, Customer-Oriented Grid. The brief examines the examples of a few utilities, such as Green Mountain Power (GMP) in Vermont and Liberty Utilities in New Hampshire, that are putting specific EV or battery storage rates in place. Since we published this brief, GMP has begun offering a time-of-use rate for EV charging that features a peak period of 1 p.m. to 9 p.m. on weekdays. (That may be slightly longer than ideal for shaping customer behavior, an idea we explored in the last brief in our series.) GMP separately offers EV customers a chance to avoid “peak event” pricing by having the utility give advance notice that it wishes to switch off their chargers during such an event. Customers can opt out of any given critical peak event notification but will then pay a critical peak rate of 68 cents per kWh to charge during that time; that rate is high enough to be a definite price signal to avoid critical peaks, and that’s the tradeoff for discounted off-peak rates.
A number of the existing time-varying rate designs offered by New England utilities have little uptake from consumers. In the final brief, Time-Varying Rates in New England: Opportunities for Reform, we look at a set of these and concluded that in general, these rates have overly long peak periods and that the differences between peak and off-peak pricing are not large enough to drive customer behavior (i.e., shifting usage to when it is cheaper for the grid to serve it). New rates in New Hampshire are a promising example of a design that fixes these problems, with a peak period of no longer than five hours and a critical-peak-to-off-peak price ratio of more than 3:1. And recently released data from beyond the region, in Maryland —more on that in a moment — shows robust results for well-designed time-varying rates.
What does all this mean for regulators and utility rate designers in New England?
- First, discounts for low- and moderate-income customers can be provided on a sliding scale and can be consistent across utilities, following New Hampshire’s model.
- Second, time-varying pricing is the most tested and leading rate design model to meet modern needs of customers and the grid.
- Third, utilities and regulators can design time-varying rates that send customers a clear signal to shift their usage to lower-priced and lesser polluting hours.
- Fourth, time-varying rates empower customers to take more control of their energy consumption and make use of affordable technology (smart thermostats, smart appliances and EV chargers) that can more easily time when they use energy. This helps customers reduce their bills while also reducing grid costs and pollution.
- Finally, recent data on time-varying rate pilots from Maryland — a state with a restructured electricity market like most of New England — offer encouraging evidence that good rate design can pay off for consumers and the power system alike. The results from pilots by Baltimore Gas & Electric, Pepco, and Delmarva Power & Light found that time-varying rates reduced peak-time usage across all customers enrolled in the pilots by 10-15%, and low- and moderate-income customers were able to save 5-10% on their bills, with other customers saving even more.
Antiquated rate structures are one of the reasons that New England’s energy burden is relatively high compared to the U.S. average. And there are growing questions about whether the management of the region’s power market is designed to meet the needs of the future. To enable the grid flexibility New England will need to decarbonize, customers will need to be empowered to target their energy usage to times that are cheapest for them — and optimal for the operation of the grid. Modernized rate design is an essential ingredient of this modern grid recipe.