Time Of Use Rate Transition Best Practices

June 20, 2020
Blog
Time Of Use

If your utility does not yet provide TOU rates or only offers them on a limited basis, chances are that will change very soon.

“About half of U.S. investor-owned utilities have optional time varying rates for residential customers. New programs are being tested or talked about in at least ten states…” – utilitydive.com

Implementing Time-of-Use rates introduces new and unique challenges affecting several utility functions including finance, regulatory, rates, customer engagement, billing and customer service.  This discussion does not attempt to cover every challenge encountered during TOU rate transitions, instead focusing on some of the most prominent challenges within the Utility Product Lifecyle Management process.

Utility rates follow a life cycle, traditionally referred to as Utilities Rate Lifecycle Management.  With continued growth in Smart Grid and Smart Meter deployments, utilities are enabled to release more and more new products and programs, in addition to a slew of new rates. As a result, many in the industry are now using the broader term Utilities Product Lifecycle Management.

Product Lifecycle Management – Product Design

The initial phase of Product Lifecycle Management starts with determining the product objectives and finishes with a complete product design to meet the objective.  Most products’ primary objective is to achieve a certain revenue target.  Beyond that, there are a variety of potential secondary goals, including peak shaving, growing renewables or even growing off-peak load.  TOU rate transitions have a goal of decreasing demand during peak time periods. 

When designing a TOU rate plan, there are inherent challenges compared to implementing traditional flat rate plans.  When transitioning from a flat rate plan to a TOU rate plan, utilities need to consider additional factors.

  • A flat rate plan has a single design constraint – designing a flat rate plan that achieves a desired revenue to the utility based on a cost to serve model.  With a time of use rate plan, it needs to consider how and whether the on-peak and off-peak prices will incent and achieve behavioral change to achieve both the revenue target and the behavior change.
  • With this new variable, there is interaction based on how much customers will react to the incented behavioral change, adding an additional layer of complexity.
  • To assess the possibility of achieving these goals, rates practitioners need the granular data of hourly or fifteen-minute usage intervals.  As a result, the volume of data is greater by a factor of between 700 and 3,000 times.  If the utility has Smart Meters, this data is readily available.  If not, it needs to be estimated by creating load profiles.

Existing modeling tools used to design flat rate plans are not capable of meeting these new challenges.

To meet these new challenges, Utilities have adopted technology to perform whole population rate analysis.  Whole Population Rate Analysis (WPRA) is the process of calculating bills for an entire utility’s customer population on a current and alternative rate plans using each customer’s individual historic actual usage.   When fully aggregated, the Whole Population Rate Analysis provides a revenue impact analysis for the utility to measure the impact of transitioning from a current to future rate plan.

Whole Population Rate Analysis, which relies on Big Data computing power, solves the challenges outlined above. For example, multiple WPRA can be run and analyzed, to optimize the rate design that will meet the dual objective of meeting utility revenue targets while incenting behavior change.  WPRA also uses 12 months of raw interval reads for every customer and calculates every line item on the bill which allows the analysis of every customer class and every revenue category.  Finally, best in Class WPRA is performed by an Enterprise Rating Engine capable of calculating tens of million customer bills per hour in order to generate answers in a time frame that meets business objectives and regulatory timelines.

Whole Population Rate Analysis is one of the emerging new best practices for rate design.

Product Lifecycle Management Product – Marketing and Education

When the new TOU rate design is complete and approved by regulatory bodies, the rate marketing and education phase begins.  During this phase the utility educates their customer population about the coming change with two goals, achieving the desired behavior change and maintaining or improving customer satisfaction ratings.  As with the rate design phase, transitioning from flat rate to TOU rate plans has added challenges during the product marketing and education phase.

First, many, if not most, consumers lack understanding of how their electric bill is calculated in general, let alone flat use vs. time of use rate plans.  Second, for utilities that offer multiple TOU rate plans and flat rate plans, regulatory bodies are requiring utilities to identify the best rate for each individual customer.  Finally, utilities are also required to inform customers of the bill impacts between different rate plans.

Similar to the product design phase, the WPRA process can assist with these challenges as well.  WPRA calculates every customers bill, on multiple rate plans, over a 12-month period identifying the bill impact between all rate plans and identifies the best rate for each individual utility customer.  The utility can use the results of the WPRA to inform customers of their best rate and bill impact satisfying regulatory requirements.

Product Lifecycle Management – Operationalizing the Product

As with the previous phases, operationalizing the TOU rate can bring unique challenges as well. These include:

  • The existing utility billing engine may not be capable of calculating TOU rates or it may be too expensive to customize the existing system to support TOU bill calculations;
  • Customer engagement channels need to adapt to answer new types of questions, such as rate plan bill-impact and load-shift bill impact
  • The call center needs to have a set of tools to be able to answer questions about the new products, provide advice, and answer questions about the new bills.

Enterprise Rating Engines can perform many tasks, including WPRA (as mentioned above).  When the TOU rate is live, the Enterprise Rating Engine can perform two critical tasks to meet the above challenges.

  • An Enterprise Rating Engine can act as an external bill calculation engine for the CIS.  The CIS maintains the overall orchestration of the meter to cash cycle, calling on the ERE to perform the TOU bill calculations.
  • The Enterprise Rating Engine can perform real-time bill simulation.  If a customer would like to compare rates or find the best rate based on a shift or change in load, the ERE can provide these analyses via the utility’s website, mobile app, or call center.

Enterprise Rating Engines are separate but integrated with the Utility CIS billing engine.  They are calibrated with the CIS so bill calculations match.  If the CIS is not capable of complex calculations, such as TOU, the ERE can augment the CIS acting as an CIS add-on bill calculator.  This enables the utility to operationalize the TOU rate.

In addition, the ERE helps with customer satisfaction by allowing customers to view bill impacts between flat rate and TOU rate plans, and between multiple TOU rate plans.  Customers can also view bill impacts when considering load shift, adoption of an EV or other changes in consumption patterns.

Conclusion

Product Lifecycle Management is a key process during a TOU rate transition.  Whole Population Rate Analysis is a key tool to support each step in the Product Lifecycle.  An Enterprise Rating Engine is critical for supporting customer satisfaction when implementing TOU rates.