Illinois groups split on how to balance risk, reward for ComEd time-of-use rates

Stakeholder groups generally support the utility’s proposal but have concerns related to consumer protections.

As ComEd looks to test new time-of-use rates in Illinois, stakeholders disagree on how to protect participants from potential bill increases while still giving them financial incentive to change their behaviors.

ComEd, which serves approximately 3.5 million residential customers in northern Illinois, including Chicago, proposed a four-year time-of-use rate pilot program to the Illinois Commerce Commission last fall. The utility already offers an hourly pricing option that fluctuates based on wholesale electricity prices, but the proposed program would instead charge customers fixed rates for three time windows: “off-peak,” “peak” and “super-peak.”

The objective is to shift electricity use to evening and overnight hours, which can reduce the need to build or operate power plants to meet daytime peak demand. Nighttime electricity also tends to be cleaner and cheaper.

“We get the most cost-savings benefit and environmental benefit by shifting electricity from afternoon use to overnight,” Andrew Barbeau, president of the Accelerate Group, an environmental consulting firm, wrote in an email. Northern Illinois has abundant wind and nuclear power at night, he said. “In the day and the afternoon, we pay more money for dirty, polluting power plants to serve our highest demand.”

Customer uptake for ComEd’s existing time-of-use rates has been low. Since introducing the option in 2007, only about 30,000 customers have signed up, even though one study found that 97% of the utility’s customers would have saved money under the program in 2016.

“We think it’s possible there’s a segment of customers interested in a time-variant energy supply rate but seek more certainty than our current Hourly Pricing tariff,” company representatives wrote in an email.

Customers who participate in the new proposed ComEd pilot would pay fixed rates for three time windows. ComEd currently proposes that off-peak hours, with the lowest rate, would last from 10 p.m. to 6 a.m. Super-peak hours, with the highest rate, would last from 2 p.m. to 7 p.m. The rest of the day would be peak hours, with rates in between the other two windows. Since grid load is usually higher in the summer, prices during the summer would be higher.

Clean energy and consumer advocates say time-variant rates like these are better for customers and the grid than the traditional fixed rates.

“We think it’s important for the state to move” toward time-of-use rates, said David Kolata, executive director of the Illinois Citizens Utility Board, which is “generally supportive” of ComEd’s proposal. “If we can reduce peak demand by just 5%, there are huge consumer savings for everyone, and there’s huge environmental benefits.”

While no one has yet objected to the proposal itself, participants in the docket proceeding have raised several concerns about how the program could affect participants, in particular about how the utility would protect customers from unexpected bill increases.

The Illinois attorney general’s office has proposed that to decrease customer risk, ComEd should compare participants’ bills at the end of each 12-month period to what they would have paid under the traditional fixed-rate structure. If they pay more with the time-of-use rate, they should receive a refund of 90% of that difference, the attorney general representative wrote in comments. It also recommended that low-income customers not be allowed to participate in the program, “given the uncertain nature of the effect of the rate structure on customers’ bills.”

“There are real risks associated with time-of-use pricing for consumers who have inelastic demand that puts them in the super-peak period or burdens them with high capacity charges that negate savings,” Annie Thompson, a spokesperson for the attorney general’s office, wrote in an emailed statement.

ComEd, as well as the Citizens Utility Board and the Environmental Defense Fund, objected to the attorney general’s office proposals. “Removing the majority of the risk may disincentivize customers from changing their behavior, thus reducing the potential benefits of the pilot,” Barbeau, representing CUB and EDF, wrote in comments submitted earlier this month. Furthermore, excluding low-income customers could prevent ComEd from gathering important data from the pilot and would also be unfair to those customers, he said.

He proposed ComEd consider offering a refund to low-income participants in case they pay more under the time-of-use pilot, “to ensure that the customers who can least afford bill fluctuations are not at risk.”

To calculate the rates in the time-of-use program, ComEd would use historical PJM real-time prices. The utility would then cut 10% of the revenues associated with the peak and off-peak hours and add that amount to the super-peak hours to raise the rate.

Illinois Commerce Commission staff argued that even without the revenue shift, customers will be incentivized to use less electricity during super-peak hours. Furthermore, they added, if customers significantly shift their usage to off-peak hours, the utility might not recover supply costs from the program participants in the four-year time frame of the pilot.

Another issue with the bill structure involves capacity charges, which would be calculated for each customer based on electricity use during PJM’s and ComEd’s busiest hours in the previous year. This is the same way capacity charges are calculated for customers under the current hourly pricing option.

The attorney general’s office proposes to eliminate capacity charges and instead raise the super-peak rate to recover those costs. ComEd so far hasn’t changed these aspects of the proposal, emphasizing in an emailed statement in response to questions that it believes the revenue shift is a reasonable approach.

Part of the challenge for ComEd could also be marketing. Kolata said more marketing would help increase enrollment for the current program. ComEd hasn’t specified how it would market the new one, but experts generally agree that multiple parties need to be responsible to reach customers about these programs, since most people are used to the traditional fixed rate.

“It is important to have multiple messengers, because different people trust different messengers,” like utilities and consumer groups, said Anne McKibbin, director of policy at Elevate Energy, which assists customers in signing up for real-time pricing.

“I think there are a range of dynamic prices, all of which are likely to be helpful for a lot of customers,” McKibbin said. How much they benefit customers depends on how they’re structured, she said.

ComEd and the other parties, including representatives of Illinois’ alternative retail electric suppliers, will have more opportunities to weigh in before the commission is expected to decide on the pilot in the fall.