An Hour’s Difference Triggers Pushback Over California’s Time-of-Use Rates

When it comes to California’s time-of-use rates and the effect they'll have on solar power, a single hour can make a huge difference -- especially if it doesn’t align with data that shows when the state really needs to make electricity more expensive for its customers. 

That’s what the Solar Energy Industries Association and Vote Solar are saying about a recent change to a rate design proposal from San Diego Gas & Electric, the first of the state’s big three utilities to start the shift to time-of-use (TOU). With the California Public Utilities Commission set to vote on the proposal this Thursday, solar groups are demanding an explanation for the change, which they say goes against the CPUC’s own methodology for establishing TOU rates. 

The change, made by CPUC staff last week (PDF), seems fairly minor to the untrained eye. It simply changes the utility’s peak TOU period -- the hours when customers will be charged more for electricity -- to 4 p.m. to 9 p.m., from the 3 p.m. to 9 p.m. period laid out in an earlier version. 

That’s not a huge change, compared to the major shift away from SDG&E’s 30-year long policy of charging peak rates between 11 a.m. and 6 p.m. -- a shift that will undercut the value of rooftop solar, which is calculated by the retail value of electricity during the hours when it’s generating power. 

Solar groups are resigned to moving TOU peaks later in the day, however, because it aligns with the needs of the state’s grid. The rise of utility-scale and rooftop solar as a share of California’s overall power mix have flooded the state’s grid with cheap power during the old midday peak hours, and led to fast-rising ramp-ups in energy demand in the late afternoon, when solar fades away and residential energy use increases. This combination of factors has created the so-called “duck curve” imbalance in California’s energy supply-demand mix, which is something TOU rates are meant to help mitigate. 

But determining just which afternoon hours are truly the most expensive for the state’s power generators, grid operators, utilities and customers is a complex undertaking. SEIA has argued that peak hours should be set between 2 p.m. and 7 p.m., which is a less harsh shift for rooftop solar. But the CPUC has not taken up that proposal in its SDG&E considerations. 

The main problem SEIA and Vote Solar have with the CPUC’s recent change is that it appears to ignore the fact that the proper price of power shouldn’t be set just by the cost to generate power for the state’s grid at large. It should also include the costs at the transmission and distribution grid level -- something that the CPUC’s January guidance (PDF) on how to set TOU rates specifically included.

Last week’s change doesn’t seem to acknowledge this fact, said Sean Gallagher, SEIA’s vice president of state affairs, in a Tuesday interview. As the SEIA chart below indicates, while the highest generation costs are moving into late evening, as gas-fired peaker power plants are running hard to supply energy to the grid, transmission and distribution costs are forecast to peak much earlier, between about 5 p.m. and 6 p.m. on summer afternoons. 

“If you follow the methodology, you have to set the peak period earlier than 4 p.m. to 9 p.m., because the methodology says [to] consider T&D as well as generation,” Gallagher said. “And if you look at the graph, you see that T&D peaks at 5 p.m. to 6 p.m. You can’t get to a peak period of 4 p.m. to 9 p.m. if you follow the methodology correctly.” 

The CPUC’s recently added language doesn’t seem to address this issue, he noted. "We think it’s more consistent with the evidence to have a peak period that ends at 8 p.m."

But the CPUC insists the later time is appropriate. The proposed decision states that “the forecast data continues to support SDG&E’s proposed 9 p.m. ending time for the on-peak period, as it appears that the 2020 forecast shows distribution costs peaking between 8 p.m. and 9 p.m.” 

As for switching the start time from 3 p.m. to 4 p.m., the CPUC stated previously that "considering the 2020 forecast transmission and distribution marginal costs would indicate a slightly earlier TOU period start for SDG&E, somewhere in the 3 p.m. time frame." However, its newly added language on the matter noted that “in response to comments, we have modified the on-peak period to 4 p.m. to 9 p.m."

"While the record can support either a 3 p.m. or 4 p.m. start to the on-peak period, for policy reasons we select 4 p.m.," commission staff explained. "This will allow for a 5-hour on-peak period rather than a 6-hour on-peak period, which will be easier for customers to manage as we transition to default TOU rates. It is also consistent with the on-peak period adopted in JT-2, which will allow simpler messaging for the transition to those new TOU periods.” 

SDG&E submitted its own chart to the CPUC, showing how its default load aggregation point prices peaked during the hours of 8 p.m. to 9 p.m. during last year's summer months, as shown below.

But, according to Gallagher, that chart doesn't tell the whole story. “If you look at the ISO’s outlook website for demand and renewable production, and yesterday’s net demand, the actual peak is still in the late afternoon when people are using their air conditioners. That’s the actual peak that drives the buildout of the system," he said. 

To be sure, solar groups have their own stake in this argument beyond finding the most optimal set of TOU peak periods. Solar groups have already submitted testimony saying that the shift to 4 p.m. to 9 p.m. TOU peaks will cut SDG&E customers’ savings from solar systems from 9 percent to 22 percent for commercial customers, and from 10 percent to 15 percent for residential customers.

This hit to rooftop solar economics is troubling, but limited, Gallagher noted, because SDG&E is the smallest of the state’s big three investor-owned utilities. But SEIA is worried that this decision could set a precedent for allowing the much larger Southern California Edison and Pacific Gas & Electric to move ahead with their own TOU proposals, which in some cases shift peak periods into even later in the day -- from 5 p.m. to 10 p.m. in PG&E's case. 

CPUC commissioners are set to vote on the SDG&E rate proposal in their Thursday meeting, making this a pressing issue, said Gallagher.

“We do want to set up time-of-use rates that work for the system and that align customers’ behavior with system needs,” he said. “That’s the goal here. Let’s do it right.”