An Xcel Energy pilot program is slightly shaving electricity use during peak hours but not producing meaningful savings on most customers’ bills.
The Minnesota utility launched a residential time-of-use “flex pricing” pilot program in November 2020 in two Twin Cities neighborhoods, one urban and one suburban. Nearly 17,000 customers participate either in the pilot or a control group.
Instead of a flat, around-the-clock rate, the pilot group pays more for power during late afternoons and evenings but gets a steep discount overnight. Morning and daytime prices are roughly the same as the standard rate.
The rate design is seen as a potentially useful tool for grid management as climate change and electrification put a growing strain on the nation’s aging electricity infrastructure, especially on summer afternoons when demand tends to spike as many customers get home from work and turn on appliances.
The results of Xcel’s program so far, though, were disappointing to at least one time-of-use rate expert, who said similar programs in other states have had a much larger impact on reducing peak demand.
Shaving peak demand, slightly
Under traditional electric rates, most residential utility customers pay the same prices for power no matter the time of day. But that’s not true for utilities. Earlier in the day, when demand tends to be lower, utilities can rely on only the least expensive sources. As demand increases, they turn to more expensive generators such as peaker plants. And at night, lower demand can often be met with extremely cheap wind power.
Shifting even a sliver of power use out of those more expensive afternoon hours and into cheaper nighttime periods can help reduce overall system costs. It can also minimize the need to run inefficient peaker plants or build new generation resources to meet rising demand. And it could be the difference between a stable grid and blackouts as the nation’s electric system faces more strains.
A report capturing data from the pilot’s first 15 months suggests the program is encouraging at least some customers to put off running dishwashers or charging electric vehicles until later in the evening. Customers under the pricing plan reduced energy consumption during peak hours by 1.5% overall and by more than 2% in the highest demand hour of the day.
That reduction may not seem like much. But it can make a difference, according to Dan Cross-Call, who has studied time-of-use rates as director of market development and regulatory innovation at the Boulder-based energy software provider Uplight. His research has found that time-of-use rates can reduce strain on the grid and the need to operate more costly generation sources.
“Higher shifts are attractive, but even small changes can have important effects on cost,” Cross-Call said. “In some cases, a 2% change, or 1.5% change, can have an outsized effect on system reliability and on cost.”
Sparse savings for customers
Xcel’s program has not yet translated into great savings for individual customers. In Minneapolis, where the pilot took place in the Longfellow neighborhood, the average monthly savings came in at $1.20. In suburban Eden Prairie, participants actually paid 50 cents more per month, driven by higher costs for air conditioning.
The pilot attempted to cover several market segments, but most participants own their homes and have college educations. The Minneapolis pilot had more low-income households and renters in the program and the results for those two groups were positive. Low-income participants in Minneapolis and Eden Prairie saw their bills decline slightly less than 2% annually.
Xcel assigned customers to the program and then allowed them to opt out. Most customers appeared to understand the program and shifted consumption over time, the report says. “Despite most participants being home on weekday afternoons, many find it easy to shift consumption away from the on-peak period, and the population is becoming more responsive to the rate’s price signals over time,” the report said.
The study showed a significant decline in appliance use during peak hours. Surveys suggested an increasing understanding of the different billing periods as the program progressed and Xcel delivered more information. Most customers — 86% — rated their experience five or more out of a scale of 10.
Surveys showed that seniors drove on-peak reductions in Eden Prairie and renters did in Minneapolis. A small group of enthusiastic customers appears to be driving greater demand reductions than other the average of different segments, the report said, “though the size of the group and the magnitude of their aggregate contribution is unclear.”
Modest results an ‘outlier’
Other time-of-use pilots have shown much better results than what Xcel has demonstrated so far, though, according to retired Brattle principal Ahmad Faruqui. He’s among the nation’s leading experts in time-of-use, having studied the rate design since 1979 and reviewed hundreds of applications of it.
Xcel’s pilot program doubles the standard residential rate between 3 p.m. and 8 p.m. five days a week. The usual rate plummets by two-thirds between midnight and 6 a.m. The pilot applied the highest rates from June through September before dropping them from October to May.
“With a ratio of 10:1 between peak and off-peak prices, I would have expected to see impacts in the 15-18% range, not in the 2% range,” said Faruqui, who cited programs in Maryland and California as examples of the dozens of other time-of-use pilots that have shaved peak loads more than Xcel’s trial run.
Xcel’s program uses an opt-out model, but Faruqui said that doesn’t explain the relatively low impact on peak loads. An opt-out pilot conducted a few years ago by Sacramento’s municipally owned utility showed much better results, he said. Brattle’s Arcturus database has results from hundreds of time-varying rates and they reveal much better adoption of the flex pricing than Xcel’s pilot. He called Xcel’s results so far “an outlier.”
Faruqui found no major flaws in Xcel’s approach. He said the pilot’s design “seems to be sound” and the marketing materials described the program well in an attractive package.
Xcel did not respond to repeated attempts by the Energy News Network to discuss the pilot.
Room to improve
The summary report filed with state regulators, produced by consulting company Guidehouse, made several recommendations for how to increase the impact of the program. They include encouraging participants to set programmable thermostats higher during peak times.
Getting people to turn down their air conditioners will be challenging, said Mark Weber, who is a former chair of the Minnesota Renewable Energy Society and lives in Eden Prairie. But appliances with time delay features built-in, such as dishwashers and washing machines, could be easily programmed to run overnight. Many EV drivers can also set their chargers to take advantage of overnight rates. He predicted that a time-of-use billing structure may have only a modest impact on reducing peak loads.
Mike and Katharine Schowalter are participants in the pilot program. (Mike Schowalter is also a senior policy associate for Fresh Energy, which publishes the Energy News Network.) The overnight rate has been especially appealing for charging the family’s electric vehicle, with the low cost translating to the equivalent of 50 cents a gallon, he said.
“The savings are quite remarkable,” he said.
The company’s pilot is part of a grid modernization initiative spurred by a 2015 state law that requires utilities to propose improvements to their electric systems. For time-of-use to work, the utility had to replace older equipment with smart meters.
Xcel’s pilot is continuing in both communities. A report covering the first 27 months will likely arrive later this or early next year.