Third Letter to the California Public Utilities Commission on EV rates

Here is my latest letter to the CPUC regarding electricity rates for electric vehicles. 

May 24, 2012

CPUC Energy Division

Tariff Files, Room 4005
DMS Branch
505 Van Ness Avenue
San Francisco, California 94102
Facsimile: (415) 703-2200
E-mail: EDTariffUnit@cpuc.ca.gov

Dear CPUC:

I am writing with regard to Advice 3910-E-A,(Pacific Gas and Electric Company ID U 39 E) dated May 9, 2012. Subject: Modifications to Electric Rate Schedule E-9 for Residential Time-of-Use Service for Low Emission Vehicle Customers and Creation of New Schedule EV.

 
While this proposed modification represents an improvement to the previous proposal for electric rates for electric vehicles, I urge the Commission to delay approval until the Commission clarifies several points discussed below.

I feel that the key issue that the Commission should ask PG&E to address is "How does this proposal promote the mass conversion of vehicles from internal combustion engines to electric?" Clearly the Commission understands that this is a necessary and important goal. As the Commission stated in Decision 11-07-029: "Our goal is to create a future where residential Electric Vehicle charging will be the norm.”

Several particular questions need to be addressed:

1. Rates and Tier Structure

The most important price for EV owners is the off-peak rate, tier 1. The off-peak is key since that is when most of us charge our car's batteries--midnight to 7AM.

Tiers: Regarding tiers, as I have argued before (see attached letters below), the current tier structure of E9-A and E-9B allows an EV to go about 12,000 miles per year and still keep the electricity price in tier 1 and tier 2. Note that an average car is driven about 12,000 miles per year. Also, the tier structure encourages people to add solar panels to their roof in order to keep their usage down in the tier 1 level. It is true that people with more than one EV would be likely to move into higher tiers. However, many of these EV owners could add solar to avoid this under E-9A rates. I understand that the idea of eliminating tiers was endorsed by the CPUC in Decision 11-07-029, but I urge the commission to reconsider this position since I feel it was made using erroneous information.

Rates: The current E9, off-peak, tier 1 rate is about 5 cents per kwh (averaging winter and summer, E-9A and E-9B, adding in some tier 2 prices, and rounding off). The new EV rate is 10 cents per kwh--i.e. double the current rate. In talking with CPUC staff I learned that PG&E has non-bypassable costs of about 5 cents per kwh and distribution costs of about 2 cents per kwh. Then PG& E adds 3 cents per kwh for off-peak generation for a total of 10 cents. My concern is about the generation cost.

Eventually, I hope that millions of people will be charging their cars at night, taking advantage of wind power, which is plentiful at night. When that happens, I can understand paying whatever the appropriate cost of wind power is. However, right now, my understanding is that it costs as much to turn off the generators at night as it does to keep them running, so the nighttime cost of generation is negligible. I think PG&E needs to document this 3 cents per kwh generation cost that it intends to charge in the off-peak more clearly. Unless they can show that nighttime generation is actually costing them money (rather than saving them money since they don't have to shut off their generators), the off-peak price should be no more than 7 cents per kwh.

2. Why a 30,000 customer limit?

We agree that the CPUC goal is to make electric vehicles the norm. There are over 4 million registered autos in the Bay Area nine counties (see DMV Estimated Registered Vehiclesreport.) 30,000 is much too low as a cutoff figure. As noted above, when there are millions of electric vehicles, the nighttime prices will need to be adjusted. Why not set the limit at something more appropriate, like one million users? This will give manufacturers and consumers confidence that PG&E is solidly behind electric vehicles.

3. Why winter and weekend peaks?

The new rates introduce a winter peak to the pricing. They also introduce a weekend peak. In fact the weekend goes from off-peak directly to peak without any transition; this abrupt leap seems questionable. PG&E should document that weekend use is comparable to weekday peak hours. Similarly, adding a winter peak requires justification, even though it is priced lower than the summer peak. More explanation of these changes is warranted, especially since the CPUC did not request any such adjustment.

4. Who is Subsidizing Whom?

PG&E has made a point to structure its rates to avoid what they call "subsidies" for electric vehicles. I believe this argument is upside down. The true subsidy is for internal combustion engine (ICE) vehicles which produce 72% more CO2 than electric vehicles using PG&E's current grid. Electric vehicles powered with solar panels reduce CO2 by 88% compared to typical ICE vehicles (since they still produce CO2 in the manufacture of the car and the solar panels). Please see How Clean are Electric Cars? for details.

Given that CO2 is causing global warming that threatens human civilization, anyone driving an ICE car is creating significant costs for both present and future generations. This does not even count the health costs from particulates and other chemicals caused by burning gasoline. PG&E would do well to document these significant costs and get behind the urgent need to convert our transportation system to electric vehicles running on renewable energy. The reality is that people who buy electric vehicles today are subsidizing everyone else since they are creating much less pollution than ICE drivers. Also, as early adopters, they help to bring the price of EVs down. California's State government is strongly supporting electric vehicles, so the CPUC policies should reflect that political will.

Summary

The price structure for PG&E should support the transition to electric vehicles powered by rooftop photovoltaic cells or other renewables. The current proposal, while an improvement over PG&E's original Advice 3910-E proposal last fall, still does not make an explicit effort to support EVs in accordance with State policy. I urge the Commission to develop a strategy that uses appropriate price signals to make electric vehicles the norm.

I think PG&E is sitting on a golden opportunity to become the key energy supplier for the transportation sector of our economy here in Northern California, and all California utilities have this same potential. While the new rates are superior to the previous proposal, they still need development. I would like to see PG&E get more enthusiastic as a backer of electric vehicles. It's good business for them, and essential for human survival.

I am attaching my letters of October 11 and November 22, 2011 for your reference.

Sincerely,

Jack Lucero Fleck

 
Attachment 1: letter of November 22, 2011:

Mr. Honesto Gatchalian

Energy Division
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, CA 94102

Re: PG&E’s Reply to Protests of Pacific Gas and Electric Company’s Advice 3910-E (Modifications to Electric Rate Schedule E-9 for Residential Time-of-use Service for Low Emission Vehicle Customers)

Dear Mr.Gatchalian:

This is in response to PG&E’s Reply to Protests regarding Advice 3910-E.

I appreciate the PG&E letter to you dated November 14, 2011 signed by Brian Cherry, Mr. Cherry’s letter explains more clearly than Advice 3910-E why PG&E favors a rate change, however I still protest the rate change. Three key arguments that Mr. Cherry makes are that the rate change is necessary:

1) To cover PG&E’s costs.

2) To provide a non-tiered rate.
3) To avoid subsidizing EV owners.

1) Mr. Cherry’s letter states that PG&E wants to change the E9 rates because they “do not cover PG&E’s marginal cost of service.” He goes on to say that PG&E wants “to remedy the low rate problem. . . and establish rates that are more cost-based and reduce the current E-9 subsidies.”(page 3 of letter). Mr. Cherry explains that raising the Off-peak rates from 4 cents per kwh to 11 cents is the equivalent of raising the cost of driving an electric vehicle from $0.40 per gallon gas to $1.10 per gallon gas, and argues that this is still an “ample incentive” for EV use (page 4).

The letter explains that the rate is based on non-bypassable charges, distribution, and generation costs. The letter does make a good case for raising the rate to 5 cents per kwh when it explains that “non-bypassable charges currently total more than 5 cents per kwh”. The letter also defends the $8 distribution charge being proposed, although it states that “PG&E may be amenable to initially charging a lower amount and phasing in subsequent increases to the charge.” This suggests that the $8 is higher than the currently anticipated costs.

Please note that the current E9 rate includes a monthly minimum charge of $11.73, which is $3.73 more than the proposed distribution charges. This extra amount more than covers the non-bypassable shortfall since average EV customers only use 175 kwh per month for their cars per Mr. Cherry’s letter (page 1 of attachment 2)--Dividing $3.73/175 = 2 cents/kwh. Therefore the current E9 rates cover both the distribution costs and the non-bypassable charges.

With regard to generation costs, I do not see any clear justification of the proposed increase. The letter discusses generation costs on page 1 of Attachment 2. Point 6 states that the “proposed Generation rates for Schedules E-9A and E-9B assign the entire capacity-related portion of the generation revenue requirement to the Summer On-Peak and Part-Peak TOU periods, using the same cost allocation factors that are used for all other residential and small commercial TOU rates. Energy-related generation is assigned to all six summer and winter season TOU periods. . .”

However, one of the key points about EVs is that they are charged mostly in the off-peak periods—at home when people are sleeping--and therefore do not require any capacity increases, or add any strain during peak and part-peak time periods. The cost for electricity for EVs should be assigned based on the actual cost of Off-peak electricity generation. The letter makes no attempt to quantify the cost of Off-peak energy, and only makes the assertion that the rate should be increased.

As I stated in my letter to the CPUC dated October 11, 2011(see pasted below), the issue of cost is “addressed in CPUC decision 11-07-029 which states, ‘We find that the Commission should revisit the suitability of the utilities' Electric Vehicle residential rate schedules in 2013-2014.’” Given that the information provided by PG&E in their November 14 letter is not adequate to justify nearly tripling the Off-peak tier 1 rate, it is appropriate for the Commission to reject this request.

2) Regarding tiers, I pointed out in my previous letter to the Commission that the current tier structure allows EV drivers to stay in Tiers 1 and 2 as long as they drive less than 1200 miles per month (1,162 to be exact), which is well over the national average of 1,000 miles per month per vehicle. Driving 1200 miles would require about 363 kwh assuming 3.3 miles per kwh (my Chevy Volt). However, as noted above, Mr. Cherry’s letter states that the average charging load per EV is 175 kwh per month, which is much less than even the Tier 1 level of 271 kwh. In other words, the numbers in Mr. Cherry’s letter refute his claim that the “inclining block design provides a disincentive for, and is fundamentally at odds with goals of encouraging electric vehicle charging.” (page 3)

One group for whom the tiers could be a problem are people who own more than one electric vehicle. I only know of two such people, and neither of them has supported PG&E’s new rate proposal to my knowledge. In fact, one of them, Felix Kramer, was the one who urged me to write to protest this rate change. Clearly, the issue of multiple electric vehicle ownership is not one that requires immediate action.

The November 14 PG&E proposal does modify Advice 3910-E by restoring Off-peak rates to weekends. This is appreciated. However, the rates would still add a new Peak rate to the winter months. There is no data provided to support this change, so it should be rejected.

Mr. Cherry also argues that the current E9 rates “significantly reduce conservation signals for Tier 1 and Tier 2 usage.” But this ignores the fact that people who maintain their usage in Tiers 1 and 2 are already conserving energy by keeping in those tiers. As in the case with raising the rates discussed above, the idea of throwing out the tiers needs careful analysis and documentation. This is not provided in the letter of November 14, and the proposal should be rejected.

3) A third argument against the current E9 rates has to do with subsidies. There are two points here:

i) Is there currently a subsidy, and if so, how much is it?

ii) Should there be a subsidy?

i)The PG&E letter states that current rates result “in low emissions vehicle owners being subsidized by other customers.” However, as discussed above, because the letter does not clarify what PG&E’s Off-peak costs are, it does not demonstrate that there is actually a subsidy, nor does it explain how big the subsidy is.

Calculating the hypothetical subsidy is quite easy: For the sake of argument, let’s assume that PG&E’s new rate of 11 cents per kwh is appropriate. That would mean that current users are receiving a 7 cents/kwh subsidy in the Off-peak. According to Advice Letter 3910-E there are 359 customers currently on the E-9 rates—324 on E-9A and 35 on E-9B (page 4). Given the average of 175 kwh per month stated in Mr. Cherry’s letter, and assuming that all of this is in the Off-peak, the monthly subsidy would be 175 kwh x 7 cents/kwh x 359 customers = $4,397.75. Given that the PUC will reexamine all the rates in 2013, the subsidy in the next two years would total about $100,000. (24 months x $4,400 ) Even if electric vehicle ownership triples in those two years, the subsidy would still only be $300,000, a miniscule amount compared to PG&E’s annual revenue of $13 billion. And note that this assumes that PG&E’s proposed rate is correct, which PG&E has failed to demonstrate.

ii)Given the minor amount of PG&E’s alleged subsidy, there is no need for the Commission to take a position with regard to the larger issue of subsidizing electric vehicles at this time. However, since this is an important point that the Commission will have to deal with in the near future, I would like to offer some suggestions.

Both PG&E and the Commission agree that “EVs are to be encouraged”(page 4 of Mr. Cherry’s letter) and “Our goal is to create a future where residential Electric Vehicle charging will be the norm” (from CPUC decision 11-07-029). Mr. Cherry argues, however, that“neither state law nor Decision 1-07-029 mandate or even suggest a program of rate subsidization for EV charging.”

I am arguing that maintaining the current low rates does not really constitute a subsidy since electricity usage between midnight and 7 am is so low that the current EV charging is simply utilizing energy that would otherwise go to waste. As EV ownership becomes the norm, this will change. It is quite likely that overnight charging will eventually level out the demand so that electricity should be charged at nearly the same rate as daytime charging. See the graphic attached from the Networked EV conference held at PG&E on October 20, 2011, which demonstrates this“valley filling” concept.

In addition, I would argue that this is an excellent time to subsidize electric vehicles, while they are in the “early adopter” stage. In a few years, as battery technology improves, and prices of electric vehicles drop due to economies of scale, subsidies will not be needed. A small investment now will reap much bigger dividends in the future.

Mr. Cherry’s letter argues that subsidies are not appropriate because such subsidies come from those who “may not have the economic means to buy the vehicles.” He also notes that E-9 customers come from the more “affluent” areas. But this is exactly why it is important to keep the cost of charging EVs as low as possible. It’s true that most people cannot afford to buy new cars at all, but 13 million people in the U.S. are buying new cars this year, and many of these are not affluent people. Because PG&E now offers E9 rates for charging EVs, it is actually cheaper to buy and operate an EV than a typical car that gets 20 miles per gallon. Without those low charging rates, this advantage will disappear, acting as a disincentive to EV buyers.

To illustrate this: as Mr. Cherry’s letter notes, the E9 rates are comparable to 40 cents per gallon gasoline. Thus EV owners save $3.60 per gallon compared to $4.00 per gallon gas. If the gasoline car gets the U.S. average of 20 miles per gallon, that is a savings of 18 cents per mile. (20 cents per mile for gas vs. 2 cents per mile for electric) Driving 10,000 miles per year on the batteries would thus save $1800. The cost of financing an extra $15,000 to buy an electric car (note that this purchase price will come down as discussed above) is only $1,275 per year for a 15 year loan at the current rate of 3.25%. So, if you can obtain financing, an electric car saves you over $500 per year. Now, not everyone can obtain financing since housing prices have fallen, and home equity is much less than it was a few years ago, but the millions of who are buying cars, do deserve to have the option of buying electric. For these millions of people, the current E9 rates create a great incentive to buy an EV, and any increase in the rates will reduce that incentive.

Therefore, when the Commission does revisit the rates in 2013, I urge you to retain low rates for EVs, at least until their use of Off-peak electricity starts to require more generation costs. I would expect that, by that time, there will be hundreds of thousands of EVs, and their purchase price will be comparable to internal combustion engine (ICE) vehicles, but their overall costs, including PG&E’s suggested 11 cents per kwh for charging, will be much less than ICE vehicles.

Instead of squabbling over a very minor hypothetical subsidy, PG&E would be wise to see the big picture. They can very easily become the energy provider for the entire transportation sector in Northern California, save the environment by drastically reducing greenhouse gases, save thousands of lives by reducing air pollution, and rescue the national economy from oil imports all at the same time. This is a golden opportunity for PG&E to gain great publicity and international prestige, and secure a lucrative market. I urge the CPUC to retain the current E9 rates, and urge PG&E to promote the E9 rates for its own economic long term interests.

Sincerely,

Jack Lucero Fleck

Attachment 2: Letter to CPUC dated October 11, 2011

October 11, 2011

CPUC Energy Division

Tariff Files, Room 4005
DMS Branch
505 Van Ness Avenue
San Francisco, California 94102
 
Re: Advice No. 3910-E (Subject: Modifications of Electric Rate Schedule E-9 for Residential Time-of-Use Service for Low Emission Vehicle Customers)
 
Director, CPUC Energy Division, et al.

I wish to file a formal protest against the proposed rate changes to electric rate schedule E-9 as suggested by PG&E in Advice No. 3910-E in response to CPUC decision 11-07-029.

I agree strongly with the CPUC’s desire to promote electric vehicles (EVs) and to ensure that the rate structure provides incentives for electric vehicles and for charging in the off-peaks. It is clear that the intent of CPUC decision 11-07-029 is to seek off-peak charging and to lower costs for EVs in order to encourage their use. The decision states, “Electric Vehicles are uniquely positioned to contribute toward the policy goals set forth in AB 32 and ARB's 2008 Scoping Plan to encourage the electrification of the transportation sector as a means of reducing overall greenhouse gas emissions.” I also strongly concur with your statement, “Our goal is to create a future where residential Electric Vehicle charging will be the norm.”

I believe that CPUC decision 11-07-029 encourages “non-tiered” rates for EVs in order to promote EV ownership and to avoid excessive charges. This is a valid concern, especially in the case of EV owners who drive for more than 1200 miles per month on their batteries* or who have two or more electric vehicles. However, since the average number of miles driven per month in the U.S. is around 1,000 miles per vehicle, the current Tier structure accommodates the needs of most drivers.

Also, the elimination of tiers is contrary to the goal of energy conservation. Even though EVs are much more environmentally friendly than internal combustion engine vehicles, we should still encourage choices that conserve energy. And even if the EVs are powered by renewable energy, the issues of urban sprawl such as loss of wildlife and farmland, as well as problems of obesity associated with excessive reliance on automobiles, should be discouraged. The tiered rates promote such conservation and healthy choices.

I believe the emphasis of decision 11-07-029 is on bypassing disincentives for EV use. Unfortunately, PG&E’s proposal takes advantage of the CPUC recommendation to eliminate tiers, as an opportunity to address primarily the issue of cost. In the words of Advice No. 3910-E, “Schedule E-9 is both complex and outdated, and its tiered structure does not reflect PG&E’s cost of service.”

Now these may or may not be valid points, but they do not address the essence of the CPUC’s ecommendation to encourage EVs. I do not believe that the CPUC intended to discourage EV use by raising rates. And it is doubtful that the complexity of tiers is a serious problem since utility bills are currently tiered. Also, both of these issues are already addressed in CPUC decision 11-07-029 which states,“We find that the Commission should revisit the suitability of the utilities' Electric Vehicle residential rate schedules in 2013-2014.”

PG&E admits that their proposed rates would result in increases for the vast majority of people currently using E-9A and E-9B rates. Such an action is not at all compatible with encouraging EV use.

The simplest course of action would be to deny PG&E’s request. You could also consider allowing an option for a single tier for both E-9A and E-9B. This would benefit those who put a lot of miles on their EV or who have more than one.

You could also apply the single tier, albeit with a lower rate, only to the E-9B schedule. And you could also reduce electricity prices for only off-peak hours above tier 2 for both E-9(A) and (B), which would “bypass disincentives” to EV use.

It is important to understand that the E-9A rate is especially desirable for those who have solar panels on their roof as well as an EV. A recent study of Nissan Leaf owners (cited in the Santa Monica Daily Press) found that 30% have solar panels, and this is something the CPUC should strongly encourage. Rooftop solar panels produce enough electricity to keep total household consumption (both residential and EV) in Tier I and Tier II levels. This was the calculation we made when we sized our solar photovoltaic (PV) system. Changing the rates now would more than double our PG&E electric bill. This is no way to support California in replacing fossil fuels with clean energy and electric vehicles.

Combining PV and EVs is beneficial on many levels. It reduces greenhouse gases and air pollution; it reduces summer peak hour electricity consumption; and, as you have pointed out in decision 11-07-029 “night-time charging facilitates' integration of wind energy by using the storage capacity of the Electric Vehicles' batteries to transform California's predominantly nocturnal wind power resources into transportation fuel for daytime driving.”

Therefore, it is especially important to leave the E-9(A) rate unchanged.** Note that this is consistent with decision 11-07-029, which states, “Pacific Gas and Electric Company shall file an advice letter to modify Electric Rates Tariff Schedule E-9(B) to eliminate the tiers but retain time-variant pricing.”

However, as explained previously, I believe that the E-9(B) rate proposed in Advice No. 3910-E is excessive and ill-advised. PG&E admits that their proposal would increase rates for 34 of the 35 people now using E-9(B)—97%! This contradicts their claim that “PG&E’s proposed changes to Schedule E-9 are designed to be revenue neutral for electric vehicle customers.”

Two additional problems with Advice No. 3910-E are its elimination of weekend off-peak periods and its addition of a winter peak period. These appear to have no justification other than a rate increase and should be rejected by the Commission. PG&E presents disingenuous arguments to support these changes: e.g. “allow customers to more easily remember and understand the daily rate structure”, as if people don’t know when it is a weekend, and “to allow customers greater flexibility for their weekend and holiday charging needs” as if eliminating off-peak periods on the weekend is some kind of improvement.

Thank you for your consideration of these points, and also for your efforts to support electric vehicles and clean energy,

Sincerely,

Jack Lucero Fleck

*Calculation: The current baseline for Tier I averages 271 kwh per month. At 3.3 miles per kwh (our Chevy Volt) this is enough energy to drive 894 miles. Tier II allows 30% more mileage at a still low rate, i.e. 1,162 miles per month. So anyone driving less than 1,200 miles per month is almost entirely in Tier I and Tier II.

**Note that the following statement from decision 11-07-029 is true for many E-9(A) homes without solar power, but it is not true for most E-9(B) drivers, i.e. those driving less than 1,200 miles per month on their batteries: “the existing single meter Electric Vehicle rates effectively place the customer into the upper tiers of the rate structure due to the increased electric usage resulting from the customer's Electric Vehicle load.” Therefore, I am arguing that the E-9(A) rates are ideal for homes with EV and PV, and the E-9(B) rates are best for those with EV only. For both of the E-9 rates, the tiered system works well for most drivers.