There are two sides to every story. Two sides to every coin. And two ways to look at our industry: one way focused on complex regulatory frameworks and highly engineered infrastructure systems, and the other way on the people who flip on the lights and heat their homes with increasingly hard-to-afford services.
The first is stressed due to increasing risks and mounting costs of natural disasters alongside regulatory requirements for reliability and resiliency. Additional challenges include industry mandates to decarbonize while facing rapidly growing energy demands from data centers and reshoring manufacturing that require additional capacity and more flexible assets.
The evolution to a more reliable, resilient, and lower-carbon future energy system continues to put upward pressure on rates. An S&P Global headline summarizes this path, stating, “Rate requests by US energy utilities set record in 2023 for 3rd straight year.” To quantify more precisely, the Energy Information Administration (EIA) found state utility regulators approved $9.7 billion in net rate increases in 2023, more than double 2022 authorizations.
The second is stressed with people struggling to afford their bills. The American Council for an Energy Efficient Economy described 25% of households as energy burdened, meaning over 6% of household income goes towards energy bills. While energy burdens vary across communities, one in seven families lives in energy poverty—with an energy burden over 10%. Increasingly, policymakers and regulators recognize the extent of energy poverty and grapple with affordability and equity. Illinois regulators rejected initial multi-year grid plans of its two largest electric utilities, citing concerns over affordability and equitable distributions of investment benefits.
The stress from all sides is real and comes to a head in the industry’s obligation to provide customers with safe, reliable, and affordable service.
Time for Customers to Take Action
Our industry needs to consider rate design as a means for immediate bill relief and begin viewing customers as part of the solution to long-term affordability, but it’s easier said than done.
A 2020 Oracle Opower survey designed to better understand U.S. utility bill perceptions asked people to rank daily expense categories according to levels of control. Utility bills and housing costs were equally ranked the lowest. People felt they have as little control over their energy bills as they do their mortgages and rent.
While customer bills include fixed charges they can’t influence with their own actions, they can impact the variable components. According to the International Energy Agency, if we deployed available cost-effective energy efficiency opportunities, households around the world could save $201 billion. The EIA reports that over 60% of U.S. residential customers have some kind of Time of Use (TOU) rate available to them, but, unfortunately, a BrandSpark survey found 70% of residential energy customers know little to nothing about TOU rates.
So, we have two problems: people do not think they have control over their utility bills, nor do they think about, or understand, the functions of their bills that they often do have control over (their rates and usage).
Take Two…and Action!
Rate design can help customers achieve more affordable bills and lower the cost to serve if utilities have the right tools to deploy more complex rates and informed customers are empowered to take action.
- Complex rate engines are increasingly needed as more time-varying rates—rates associated with specific distributed energy resources like community solar or electric heat pumps—become more common. These capabilities need to be configurable, accurate, and scalable.
- Discount rates are becoming more prevalent and more sophisticated. Illinois is one of the states to approve discount rates for the first time in 2023 while utilities like Arizona Public Service, who have employed a flat discount rate for some time, more recently introduced a tiered rate to income-qualified customers.
One Northeast utility worked with Oracle to increase enrollment in its discount rate. They identified approximately 300,000 customers to receive the Opower Affordability Solution. They saw a 3X increase in enrollments in the discount rate among those customers who engaged with the new experience, on average saving enrolled customers hundreds of dollars annually.
- TOU rates have had varied success in delivering customer bill savings and lowering the utilities’ cost to serve residential customers. Customer satisfaction with TOU rates has also varied. However, results are often dependent on the rollout of the new rates and the focus on customer education and engagement.
East: In Maryland, Brattle found that customers on the opt-in TOU rates offered by Baltimore Gas & Electric, Pepco, and Delmarva Power & Light shifted their summer peak demand in the range of 10–14% and saved up to 10% on their bills. TOU rates were equally beneficial to market rate and low-to-moderate income customers. The pilot included the first deployment of the Opower Rate Coach tool, a weekly communication to help households optimize their performance on a TOU rate.
Midwest: The Missouri Public Service Commission ordered Evergy to implement a default TOU rate under a tight timeline. One of the utility’s biggest concerns was ensuring customers felt they had a choice when it comes to what rate they are on, and rightly so. Research from Lawrence Berkeley National Laboratory shows that customers who choose their rate are more responsive to price signals. So, they decided to offer multiple TOU options to customers and encouraged them to select their own plan in the transition—a decision that comes with a new set of complexities to get customers to proactively select the rate that works best for them.
They partnered with Oracle to support the customer journey from start to finish—educating customers about the new rate plan options, providing a digital experience to help customers select the right plan, and providing weekly communications to coach customers’ behavior to ensure success on a TOU rate. Over 30% of their customers pre-enrolled in a TOU rate, 80% of those customers doing so through digital self-service. Having the right tools in place to support the transition to TOU rates resulted in a more informed and enhanced customer experience, significantly fewer calls into the call center, and achievement of the regulatory implementation ahead of schedule.
West: During a recent summer, a West Coast utility saw temperatures soar above 100 degrees. To help TOU customers optimize their performance on the rate and harness the power of their customer base to improve grid stability, TOU customers received weekly rate coaching emails. Emails were sent to 775,000 customers who significantly reduced peak-hour demand, above and beyond reductions from emergency communications. Customer comprehension and satisfaction improved measurably:
- Understanding of TOU rates improved by 27%
- Awareness of peak period energy use increased by 58%
- Satisfaction improved in multiple key metrics by at least 30%
By leveraging targeted communications, the utility helped customers better understand their rate to shift demand, reduced grid strain, and empowered them to play a critical role in helping to prevent rolling blackouts during extreme heat waves.
One Industry Working Together
These examples are about the rates, but they’re also about having the right tools to be able to offer rates that hold the promise of delivering a more affordable energy future. Given the rapid increases in energy demand, the stress of climate change on infrastructure, and widespread energy poverty, there is urgency to start rowing together—utilities, customers, regulators, and other stakeholders. So, let me say it again: achieving the benefits of rate design requires utilities to have the right tools to deploy more complex rates and empower customers to take action
