Reforming Electricity Pricing Can Promote Electric Vehicles and Help Optimize the Electric Grid

Electric vehicles (EVs) provide multiple environmental and consumer benefits. Because they emit about 60% less greenhouse gas (GHG) than conventional vehicles, EVs are an important element in reaching state GHG reduction requirements. Plus, EVs have lower operating costs than conventional vehicles—even with today’s low gasoline prices; for example, in Connecticut an EV only costs about five cents per mile to operate compared to eight cents for a conventional vehicle. That’s a savings of over 80 cents per gallon-equivalent. Given that the largest source of GHGs in the Northeast is the transportation sector, states should be pushing for accelerated adoption of these vehicles.

Recognizing this opportunity, many states in the Northeast have already committed to increasing the number of zero emission vehicles, primarily EVs, on the road by signing on to the California Clean Car Standards and the Multi-State Zero Emission Vehicle Memorandum of Understanding (ZEV MOU). These agreements have set an ambitious goal of increasing the vehicle fleet in those states to about 13% EVs by 2025.

Though this goal alone is commendable, concerns must be addressed about the amount of electricity that will be needed to charge these additional EVs. If EVs are plugged in during periods of high demand, they can strain the electricity system, triggering costs associated with increased distribution or transmission investment, greater capacity needs, and higher marginal energy prices. If EVs are charged at off-peak times, however, the impact on the electricity system is minimal and can even have benefits.

To encourage off-peak charging, several states have started to adopt electricity rate structures for EV owners that reflect the higher cost of providing electricity during peak periods and the lower cost during off-peak periods. These “time-of-day” rates typically divide the day into two or three different periods, during which electricity costs are different. “On-peak” periods encompass most of the afternoon and evening and have the highest rates; “off peak” periods comprise the rest of the day and weekends and feature lower rates; and sometimes “super off-peak” periods are offered with extra low rates from midnight to early morning when there is minimal demand on the system.

Because lower charging costs translate to lower costs per mile traveled, EV owners have a monetary incentive to charge during off-peak hours. This per-mile savings also makes owning an EV more attractive and can provide the extra push some consumers need to purchase an EV.

Pilot programs adopted by Maryland and New York have demonstrated that time-of-day rate structures are effective at shifting customer behavior. The chart below shows the electricity use of EV owners in Maryland before and after they adopted the time-of-day rate structure or “tariff.”¹ Pre-EV tariff, the customers’ peak energy use was at about 6:00 pm (red line), indicating EV charging likely occurred when commuters returned from work and plugged in their vehicles.  This peak also corresponds with peak system demand. Following the EV-tariff adoption, the peak use for the pilot participants shifted to 10 pm (green line), indicating that customers had altered their behavior to take advantage of the lower rates.

A poll of the Maryland customers who adopted the EV tariff found that over 90% of participants were either “extremely satisfied” or “satisfied” with their new electricity plan, and the majority of customers saved money on their house electricity bill. With the positive result of this pilot and others, Maryland and other states, including California and New York, are now offering full-scale (non-pilot) time-of-day rates for EV owners.

Given their demonstrated success, both satisfying customers and shifting behavior, time-of-day rates should be considered by states as one of the key mechanisms for meeting ZEV commitments and GHG emissions reduction targets. This single reform offers multiple, important benefits: it incentivizes owning an EV, it reduces the contribution of EVs to peak load, and it helps capture the significant environmental benefits of EVs—not just GHG emissions reductions, but also local air pollution reductions that help improve public health.

The Public Utilities Regulatory Authority (PURA) of Connecticut is currently considering whether to move forward with time-of-day rates for EV customers.² As one of the 8 states committed to the ZEV MOU, Connecticut, through PURA, should make the smart choice to implement this proven reform as soon as possible. As Connecticut is likely not on track to meet its mandatory 2020 GHG emissions cap,³ and because transportation emissions comprise 40% of the state’s total GHG emissions, Connecticut will absolutely need the help of time-of-day rates. Acadia Center is participating in PURA’s current docket to ensure that it considers the environmental and consumer benefits of both EV adoption and time-of-day rates.

¹ BGE Electric Vehicle Rate Pilot Program Report, February 2016

² PURA Docket No. 16-07-21. Acadia Center has been granted status as an intervenor. Final decision scheduled for February 2017.

³ Acadia Center, “Updated Greenhouse Gas Emissions Inventory for Connecticut,” June 13, 2016. Emissions overall have increased 7.5% from 2012 to 2015 and we anticipate them increasing even more in 2016.