Xcel Energy (MN) Introducing TOU Rates to Conserve Energy and Reduce Peak Usage

In late May, the Minnesota Public Utilities Commission (PUC) approved the Xcel Energy time-of-use (TOU) pilot program, which aims to help customers save money, reduce energy demand during peak hours, and encourage the consumption of renewable energy. Under the pilot, customers’ electricity usage and times of use will reflect the billing they receive.

“Many energy consumers are not aware of how their electric rates are calculated, and this pilot will be a wonderful opportunity to educate the broader public about challenges to the electric grid,” OATI Account Executive Glen Fisher said. “They can also understand how they can contribute to overcome that challenge, and how that can benefit them economically.”

TOU Pilot Programs in North America
Back in 2016, Xcel proposed and received approval for a TOU rate pilot in Colorado. According to the Denver Post, the number of Colorado pilot participants was far fewer than anticipated and results from this pilot will not be revealed until 2019. As a solution, Xcel will automatically enroll Minnesota customers into the program with the option to opt-out.

Customers in Ontario, Canada experienced default TOU rates, with the option to opt-out, from 2009 to 2014 in order to encourage electricity usage during mid-peak and off-peak hours and/or reduce electricity usage as a whole. A Brattle study concluded that the TOU rates in Ontario resulted in reduced electricity usage during peak hours and that greater peak to off-peak price ratios would have furthered these reductions.

In California, customers will be paying default TOU rates, with the ability to opt-out, by 2019. This decision hopes to make electricity prices more transparent and fair for customers, as well as encourage high-energy users to conserve power, according to Utility Dive.

What Customers Can Expect
At certain times of the day, electricity is more expensive to generate because customers demand a higher supply of it. During these peak hours, from 03:00 PM – 08:00 PM, Xcel Minnesota pilot program customers will pay the increased price of $0.258/kWh in the summer and $0.226/kWh in the winter. However, during “Super-off” peak hours when energy demand is low, from 12:00 AM – 06:00 AM, customers will be charged the low rate of $0.057/kWh all year round. During all other hours including 6:00am – 3:00pm and 8:00pm – 11:59pm, customers will be charged a medium rate of $0.121/kWh in summer and $0.106/kWh in winter.

The Xcel TOU pilot program docket notes that stakeholders and surveyed customers were interested in increasing energy use at night and early morning, when wind generation is the highest, to further renewable energy consumption. This inspired the discounted price during off-peak hours.

Though Xcel does not expect adverse billing effects, customers will receive compensation if their pricing rate increases by over 10%. As the program progresses, Xcel will observe how and if customers adjust their energy-use habits.

Prospective Long-Term Effects
Last year, the average annual price of electricity for U.S. residential consumers was $0.129/kWh. For commercial consumers, the price was $0.107/kWh.

“Electric generation, transmission, and distribution equipment is sized so that it can meet the need during the times of highest demand,” Fisher said. “If peak demand can be reduced, so can capital costs and maintenance expenses for equipment used to deliver energy to consumers.”

According to the U.S. Energy Information Administration, transmission infrastructure spending has steadily increased since 1996 to sustain and renovate equipment and devices. If customers decrease energy usage when demand is highest, this could reduce the burden on the electric grid.

In 2014, the Sacramento Municipal Utility District found that their default TOU pilot program, which was one of the studies that encouraged the California Public Utilities Commission to default to TOU rates, lessened peak load by 5.8%.

Next Steps for Minnesota
Next year, Xcel will begin installation of advanced meters at 17,500 in Midtown Minneapolis, Eden Prairie, and surrounding areas. The program will officially launch in 2020. It is possible that Xcel Minnesota’s pilot program could lower overall system costs, help customers save money, and provide Xcel with useful customer data to consider for future programs and decisions.

To learn more about how states are moving towards sustainable energy and optimizing electricity generation, click here to read Glen Fisher’s blog on grid modernization. You can also learn about OATI’s solutions for utilities that help manage TOU programs including Distributed Energy Resource Management System (DERMS) solutions.