Objection to TEPCO’s “Peak Shift Rates”!

Hiroshi Takahashi, Research Fellow

July 12, 2013 (Friday)

1. TEPCO Introduces Peak Shift Rates

From June of this year, TEPCO will begin introducing peak shift rates (“seasonal and time period peak electricity constraint”) for household consumers. In the past, the majority of electricity rates for households were flat rates(*1) regardless of time block(*2). In fact, demand during the afternoon in the summer is more than double that at night, meaning the electricity market value varies greatly, but peak shift made no headway at all due to the flat rate in a monopolistic market. However, if we divide a day into three time periods and raise the rate (¥53.29/kWh) during the afternoon, when supply-demand is tight, there will be a shift to a less expensive (¥12.13/kWh) time period.

This is the idea TEPCO came up with after being criticized for the planned power outages following the Fukushima nuclear plant accident and the across-the-board mandatory energy-saving requirements of last summer. The author thought highly of introducing a rate menu which effectively uses market mechanisms, giving consumers more options, and increasing the effectiveness of energy-saving without undue hardship. However, it has become clear that there is a large problem with actually implementing this plan. Even households which are able to peak shift very well will experience a large increase in electricity bills if peak shift rates are adopted.

2. Most Households Won’t Save Money with Peak Shift Rates

TEPCO’s website has a simulator which allows households to see simply how much their electricity would cost if they selected peak shift rates. It has the following options: “at home” or “not at home” on weekdays and “use A/C a lot”, “don’t use A/C much”, or “neither” for using air conditioning during summer peak hours. Thus, households are categorized into 2x3=6 consumption categories and their electricity bills calculated.

Of course, households which are “not at home” on weekdays and “don’t use A/C much” are the greatest contributors to peak shift, and if peak shift rates are implemented, their bills will be smaller than other households. However, even in that case, the majority of households will end up paying more for their electricity than they would normally after the price hike which is currently in the application stage (Figure 1).

One reason for this is that basic rates will be raised to ¥1260 (up to 6kVA) across the board. For normal ampere-based contracts, as the volume increases the basic rate rises, but since even a 40A contract would be ¥1092, households below this level which select peak shift rates will see an automatic price increase in this area. Put another way, the basic rate is lower for a 50A plan, i.e., ¥1365, but even in this case the bill comes out as more expensive for all consumption patterns. If one considers that 93.6% of all B-class meter-rate lighting contracts are 50A or less(*3), it seems that the main reason for this higher cost is that unit cost rates are too high in every time block.

Newspapers have begun to point out this problem with PSR. According to the morning edition of Mainichi Shimbun on June 1, 2012, TEPCO has received “approximately 4400 inquiries from customers”, but “a limited number of households can benefit, and only 120 applied to switch over.” It is a foregone conclusion that if most consumption patterns will result in a loss compared to current rates, then very few households will switch to the new rate. When the author actually called the TEPCO peak shift rate help desk, even when “not at home” and “don’t use A/C much” were selected, the response given was that peak shift rates were “not recommended.”

3. TEPCO’s Aim

Why did TEPCO set rates so high that peak shift would have no hope of gaining traction? They most likely thought as follows.

Normally, households which are “not at home” and “don’t use A/C much” are already executing peak shift and so they should be able to pay less simply by changing rate plans. However, in that case electricity fee revenues will decrease and there will not necessarily be any further peak shift. To begin with, TEPCO’s financial straits mean it needs to raise its approved rates (flat rates), which means that lowering prices is not worth the effort unless it can greatly increase peak shift. As a result, most rates are expensive ones that will never be adopted.

As though to support this, the simulator on TEPCO’s website has a link entitled “Simple Energy-saving Checklist,” which gives advice on practical energy saving practices. This page tells you how much you can save on your electricity bill if you follow these practices, e.g. “set A/C to 28 degrees Celsius on summer afternoons” and “do all laundry and drying at night.” Interestingly, if one adopts all these practices, electricity bills are reduced for all categories in Figure 1. TEPCO seems to be saying that it really does want people to adopt peak shifting.

However, this “Simple Energy-saving Checklist” is extremely simplified and leaves doubts as to its actual effectiveness. For example, regardless of the makeup of the household, the value displayed for energy-saving (money saving) effect was more or less the same. Normally, one would imagine that if the number of people in a family is different, then the amount of electricity consumed by appliances, and therefore the energy-saving effect, would be different. Furthermore, households which are “not at home” and “don’t use A/C much” are already peak shifting and should therefore show a smaller effect from “doing all laundry at night” relative to those that aren’t peak shifting, but unless additional efforts are made, these households will see no savings. Although the webpage has the caveat “This is an estimate based on general usage. May differ from the customer’s actual usage,” TEPCO will likely face a big furor if families trust this simulator and switch to peak shift rates but find that they have saved no money.

4. Introducing Ambitious Rates

Ever since 2011’s Fukushima nuclear power plant incident, TEPCO has taken a lot of criticism, but in addition to introducing peak shift rates, it has also actively sought measures to deal with demand, such as asking for external “business synergy” proposals for demand response programs. Moving forward, no matter what conclusion is reached on nuclear power policy, it is unlikely that the state of tight supply-demand will improve over the short term, and it is wonderful to see TEPCO blazing a trail ahead of other power companies in its efforts to develop new services from a customer perspective. If that is indeed what they are trying to do, then they should likely reconsider these rates, which could backfire.

Specifically, TEPCO should lower its basic price slightly, lower its unit prices in off-peak time periods, and make it so that if someone peak shifts normally they receive quid pro quo, while at the same time providing more detailed advice on energy-saving practices. For consumers who switch to this set of rates, TEPCO could provide a detailed energy-saving advising service for an added fee of ¥500 per month. In the near future, such service business could lead to direct remote control of household A/C and electric vehicle charge management.

Because TEPCO has lost so much, it finds itself in a good position for ambitious self-reform. While it will likely lose some revenue from electricity sales over the short term, it must inevitably reduce its investments into supply over the mid to long term while at the same time developing a new business model which places emphasis on the demand side. Providing various rate plans which are easy to use will also help to earn back the trust of consumers. Although TEPCO is finally moving forward, criticism such as “[TEPCO] is lacking in conscientiousness and doesn’t provide services and explanations from the customer’s point of view,” will have the opposite effect. Changing course now may cause some confusion, but the author hopes that rate plans will be revised ambitiously and peak shifting will move forward apace.

Notes

1) Although it is called a “flat rate”, strictly speaking, the unit cost rate increases stepwise depending on the total electricity used during the month,. Therefore, constraining consumption is effective, but unrelated to time period.

2) In the past, there were different rates for different time periods, e.g. “Night Savings 8” and “Night Savings 10”, but these were bi-level rates with only a small difference, and their adoption was very limited, e.g. all-electric houses.

3) In the case of a 60A contract (base rate ¥1638), assuming a five-person family and 481kWh/month consumption, if we select “not at home”, then finally we see a reduction in bills simply by switching to peak shift rates. However, even in this case, the savings are no greater than ¥83-209, or 0.6-1.5% of the monthly bill.