Originally published on NRDC Expert Blog.
Charging an electric truck or bus at a fleet depot—or an electric car at an apartment, workplace, or a public fast-charging station—should be far cheaper than filling up on gasoline or diesel. Unfortunately, that’s often not the case at sites that receive electricity under utility rates designed for commercial buildings and industrial operations that don’t reflect the flexible nature of electric vehicle (EV) charging. To remedy this mismatch, Southern California Edison (SCE) and Pacific Gas and Electric (PG&E), two of the largest utilities in the nation, have developed an innovative suite of rates designed specifically for commercial EV charging, providing significant fuel cost savings to customers who charge EVs in a manner that supports the electric grid.
These new commercial rates were needed to successfully implement EV charging infrastructure deployment programs approved earlier this year by the California Public Utilities Commission (PUC)—totaling more than $600 million to support electric trucks, buses, forklifts, other medium and heavy-duty vehicles, and fast-charging stations. SCE’s companion rates were authorized earlier this year, while PG&E proposed its new rates in early November. These new rates are not subsidized, but were instead designed to reflect the unique nature and costs of EV charging, and will help to expand the EV market. Here’s a summary of the SCE and PG&E approaches:
SCE’s Approved Commercial & Industrial EV Rates
Electric buses, trucks, and public fast-charging stations aren’t like buildings—EVs charge for only a few hours a day and can shift their charging demand to when most people are sleeping and there is plenty of spare capacity on the electric grid—but until now they’ve generally been forced onto rate plans designed for large buildings and industrial operations that use electricity more constantly. Most commercial and industrial rates include “demand charges” based on the facility’s highest point of demand for electricity at any time in a given month. Because EVs consume a lot of electricity while plugged in, these demand charges mean big bills, even if they’re charging when the grid is underutilized and electricity is cheap.
SCE solved this problem by ditching demand charges for the next five years and recovering costs purely through “time-of-use” rates (based on the total amount of electricity used and when it’s used) that encourage customers to charge when cheap solar and wind energy are abundant and when there is excess capacity on the grid. After five years, demand charges will be phased back in, with the theory being that demand charges won’t be such a big deal when there are more EVs on the road, increasing charging station utilization and allowing customers to spread the demand charges over more hours of charging. That will probably hold true generally, but demand charges could still pose a problem for locations that are unlikely to ever see high rates of utilization (but that might still be important places to have a charging station, like a remote location needed to allow folks to make the occasional trip).
The utility estimates these new rates will cut the bill for a typical customer in half—not by subsidizing EV charging or shifting costs to other customers, but by creating rates that more accurately reflect the true costs and unique nature of EV charging. In fact, because widespread EV charging can put downward pressure on rates for all electric customers by spreading the costs of maintaining the grid over more sales of electricity, these new rates benefit everyone by helping to expand the EV market.
PG&E’s Proposed Commercial & Industrial EV Rates
On PG&E’s existing commercial and industrial (C&I) rates, the cost of charging is often equal to or more expensive than filling up with gasoline or diesel (see orange diamonds in the figure below). However, under PG&E’s newly proposed commercial EV (CEV) rates, these sites would save 30 percent to 50 percent on their current monthly bills and would pay roughly half the price they would have if they used gas or diesel (see green bars in the figure below).
PG&E’s proposal is intended to make charging more affordable, understandable, and predictable. As with SCE’s approved rates, PG&E is not proposing to subsidize EV charging. Rather, PG&E is thinking outside of the box to design rates that better reflect the nature and costs of EV charging. In fact, the utility has proposed building a new box specific to commercial EV customers, creating a new commercial rate class for EVs instead of lumping them in with large manufacturing facilities and office buildings.
PG&E’s proposal also ditches demand charges, but unlike SCE’s rates, it does so permanently, replacing them with smaller and more predictable subscription fees. Those subscription fees are just like what you see on your cell phone bill, with sites paying a fixed monthly rate based on their total charging capacity. But unlike the typical cell phone bill, that fixed subscription fee will only account for a relatively small portion of the total bill.
The majority of the bill will be determined by time-of-use charges that reflect how much electricity is used and when it is used, encouraging customers to charge when the grid is underutilized and when renewable energy is abundant.
Paving the Path for Future EV Rate Design
These new rates are significant because, while EVs of all sizes are now more affordable than anticipated thanks to battery prices that declined 80 percent between 2010 and 2017 and continue to decline, EVs remain more expensive to buy than comparable gasoline or diesel vehicles in terms of upfront cost (i.e. not accounting for operations and maintenance costs). Accordingly, the economics of a decision to invest in a zero-emission truck, bus, or car hinge upon fuel cost savings—which will only materialize if utilities across the nation follow the lead of PG&E and SCE and design commercial rates that reflect the flexible nature of EV charging. An electric transit bus that charges overnight while people are sleeping is not the same thing as a factory that’s running around the clock—it’s time for utility rates to recognize the difference.
Thankfully, on the same day that PG&E proposed its new rates, San Diego Gas & Electric filed a settlement supported by a diverse group of consumer, environmental, and equity advocates; organized labor, EV charging companies, and other organizations for a medium- and heavy-duty vehicle infrastructure program similar to that of SCE and PG&E, with a proposed budget of $107 million. In that settlement, SDG&E also committed to propose new commercial and industrial rates designed for EVs of all sizes.
Meanwhile, in compliance with a similar settlement agreement approved in Nevada, NV Energy recently proposed new commercial EV rates that remove demand charges for now and gradually phase them back in over ten years. And in New York, the state’s investor-owned electric utilities recently submitted a Consensus Proposal to drive greater investment in fast-charging stations via per plug rebates that gradually decline out to 2025, complementing the New York Power Authority’s recent announcement to deploy 200 fast-charging stations across the state. Stay tuned on this front and look for other utilities across the US to follow suit.