POWER October 2015 - 22

Vidhya Prabhakaran
Katie Jorrie
California's Bold Move
Toward Default Timeof-Use
Rates
R
ate design is sexy again. On July 3, 2015, the California
Public Utilities Commission (CPUC) issued its long-awaited
decision altering California's residential rate structure.
Most of the focus on the CPUC's decision has understandably
been on the move from a four-tiered to a two-tiered rate structure
and the introduction of a Super-User Electric Surcharge for
customers using extreme amounts of electricity (400% above
baseline for 12 months) because of the significant and more
immediate impact of these changes on conservation and distributed
generation.
However, the CPUC's determination to implement default timeof-use
(TOU) rates statewide by the end of 2018-making California
the first state in the country to make such a momentous
change on such a large scale-should be closely watched. A successful
transition could mean a significant and meaningful step
in helping California with its ambitious renewable energy goals.
Failure could exacerbate grid reliability concerns and cause significant
customer backlash. Either way, expect other states and
countries to consider a similar model and follow the California
experiment with default TOU rates closely.
The CPUC's Proposed TOU Rate Structure for
California
California ratepayers have already invested billions of dollars in
advanced metering infrastructure (AMI). As the utilities do not
currently have significant enrollment in TOU rates, the potential
benefits of the AMI technology have not yet been fully unlocked.
In some ways, moving to default TOU rates was inevitable.
The 2018 deadline, which may be further extended as needed,
is meant to provide sufficient time and resources to meet all legal
requirements and, more importantly, to design a rate that is
acceptable to customers while achieving reductions and shifts in
load that benefit the entire state.
In determining whether or not to implement a default TOU
rate, the CPUC decision finds that customers must be able to opt
out of TOU in favor of other options, including tiered rates. Accordingly,
the CPUC focuses on providing a " menu " of options to
promote customer choice.
To ensure a successful default TOU rate structure, the CPUC had
some recommendations. First, there should be consumer protections
in the process, including a gradual glide path with a small
differential between on- and off-peak periods to reduce bill volatility,
a baseline credit with protections for medical baseline customers,
and bill protection for the first year. Second, extensive
customer outreach and education programs will be necessary.
Third, the CPUC believes that a minimum bill-rather than a
fixed monthly charge-will help facilitate adoption. Finally, prior
to the implementation of a default TOU, the CPUC believes that
studies of the potential impacts are necessary, including a pilot
22
TOU study, to gather more information on TOU rates, customer
acceptance, load reductions, and other factors that should be
considered in the design of default TOU.
The Impact of TOU Rate Design on California's
Renewable Energy Goals
California is leading the nation with its ambitious Renewable
Portfolio Standards (RPS) program. Proposed legislation before
the California Legislature would increase the RPS goal to an unprecedented
50% by 2030. The state's aggressive approach has
produced results but has also presented new hurdles.
One well-known hurdle involves a duck. The widespread implementation
of intermittent renewables, including solar, has created
a significant disconnect between electricity generation and
peak demand which, when graphically represented, creates what
has become known as the " duck curve. "
Thus, reducing peak loads and integrating renewables are two
areas in which TOU rates could be used to promote the efficiency
and reliability of the grid. Furthermore, if peak use is reduced,
the need for peaking power plants will be reduced as well. Fewer
new power plants means lower costs for everyone.
Success or Failure
A large component of the success of a default TOU rate structure
is customer education and understanding of TOU rates to enable
them to accurately respond to price signals. However, another
key component is the flexibility of the TOU time periods, which
will likely need to change over time to adjust to changes in energy
use and shifting load. Thus, the California default TOU rate
structure will need to find a balance between having the flexibility
needed to respond to a changing electricity market and
giving customers a stable and reliable price signal that they can
understand and anticipate.
A poorly designed default TOU rate, by contrast, could exacerbate
grid reliability concerns and unnecessarily increase the
need for certain types of generation. Even if the default TOU rate
is well designed, customer pushback could still destroy its success,
such as when Puget Sound had to terminate its default TOU
program in 2002 due to customer backlash.
No matter the result, success or failure of the default TOU rate
structure in California will provide important guidance and significantly
influence decisions made around the world and certainly
within the rest of the United States as to the appropriate rate
design necessary to increase renewable energy usage. All eyes
will be turned on California to see if the state gets it right. ■
-Vidhya Prabhakaran (vidhyaprabhakaran@dwt.com) is a
partner and Katie Jorrie (katiejorrie@dwt.com) is an associate
in Davis Wright Tremaine LLP's energy practice in the firm's San
Francisco office.
www.powermag.com
POWER | October 2015
http://www.powermag.com
POWER October 2015

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