Originally published on the NRDC Expert Blog.
by Miles Muller
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. Fortunately, a newly-released report explains how utilities can remedy that mismatch by offering rates designed for commercial EV charging.
Improving the economics of commercial EV adoption through appropriate rate design is more important than ever right now and can provide a much-needed infusion of job and economic benefits, without putting local and state budgets further in the red.
Recent reports highlight the simulative effect clean energy and transportation investments have had during past recessions and can be expected to have in the future, with widespread electrification of trucks and buses projected to add almost 2 million new jobs and hundreds of billions in direct investments through 2050 in California alone.
Utilities should design new commercial EV rates that provide significant fuel cost savings to drivers and fleet operators who charge in a manner that supports the electric grid, reflect the underlying marginal costs of serving commercial EV load, and avoid traditional demand charges which often collect much more than the actual costs commercial EV charging imposes on the grid. While some utilities have proposed short-term “fixes” that rely upon subsidies or discounts, they would do better to borrow from these best practices and implement sustainable solutions akin to those developed by Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE).
PG&E’s 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 traditional commercial and industrial (C&I) rates include demand charges based on the customers’ 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 which can erase fuel cost savings relative to gasoline or diesel, even if they’re charging when the grid is underutilized and electricity is cheap.
On PG&E’s previously existing commercial and industrial rates, the cost of charging is often equal to or more expensive than filling up with gasoline or diesel (see orange diamonds in figure below). However, under PG&E’s new commercial EV rates, these sites would save 30 percent to 50 percent or more 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 figure below).
PG&E unlocked these savings not by subsidizing EV charging or shifting costs to other customers, but by thinking outside of the box to create rates that more accurately reflect the true costs and unique nature of EV charging. In fact, the utility built 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 approach permanently ditches demand charges, 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. Simply put, PG&E’s rates will make charging more affordable, understandable, and predictable for EV drivers.
San Diego Gas & Electric’s Commercial & Industrial EV Rates
Borrowing from the innovative structure of PG&E’s rate, SDG&E proposed its own new commercial and industrial rates ditching demand charges for more predictable monthly subscriptions. As currently designed and pending before the California Public Utilities Commission, SDG&E’s new rates would save drivers and fleet operators up to 20–45 percent on their monthly bills.
Notably, both PG&E and SDG&E’s rates are based on the utilities’ underlying marginal costs. By recognizing that commercial EVs are new load on the system and charging these customers only the additional costs they impose on the grid, rather than saddling them with historical costs imposed by other customers, these rates will help improve the economics of commercial EV adoption during the critical developing years of the market — without subsidizing EV charging or shifting costs to other customers. Further, 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 in the long run by helping to expand the commercial EV market and bring this new load onto the system.
SCE’s Commercial & Industrial EV Rates
SCE’s approach to the demand charge problem focuses on ditching demand charges for the next 5 years and recovering costs purely through “time-of-use” rates (based on the total amount of electricity used and when it’s used). After 5 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 which might still be important places to have a charging station, like a remote location needed to allow folks to make the occasional trip).
Paving the Path for Future EV Rate Design
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 these utilities and design reformed 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.
PG&E, SDG&E, and SCE’s rates were developed to help successfully implement EV charging infrastructure deployment programs approved in 2018 and 2019 — totaling more than $700 million to support electric trucks, buses, forklifts, other medium and heavy-duty vehicles, and fast-charging stations. By reforming rates to support the adoption of commercial EVs and complement expanded infrastructure programs, utilities across the country can provide an economic jumpstart for transit agencies trying to electrify their fleets amidst reduced ridership revenues and declining gas prices, EV charging companies operating on tight margins, as well as contractors and electricians eager to get back to work.
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