Originally published on the NRDC, Expert Blog
by Miles Muller
One of California’s largest utilities, San Diego Gas & Electric (SDG&E), would establish new commercial electric vehicle (EV) charging rates that improve the economics of charging electric trucks or buses at fleet depots—or an electric car at an apartment, workplace, or a public fast-charging station—under a proposal filed at the California Public Utilities Commission.
If approved, the agreement would modify SDG&E’s original proposal to align with the principles set out in a recently-released report by Synapse Energy Economics detailing best practices for commercial and industrial EV rate design. The proposed settlement has broad support from a diverse group of consumer, environmental, and equity advocates; organized labor, EV charging companies, the utility, and other organizations including: NRDC, the California Public Advocates Office, SDG&E, the Coalition of California Utility Employees, Environmental Defense Fund, Union of Concerned Scientists, Sierra Club, Enel X, Siemens, Greenlots, ChargePoint, Tesla, EVgo, EVBox, and Plug In America.
As modified by the proposed settlement agreement, SDG&E’s rate could help set an important precedent for commercial EV rate reform across the country. While some utilities have proposed short-term “fixes” that rely upon subsidies or discounts, SDG&E’s rate is a sustainable, innovative solution that will help encourage greater commercial EV adoption without subsidizing EV charging or shifting costs to other customers. In fact, by expanding the commercial EV market and bringing this new load onto the system, these new rates benefit all electric customers by spreading the costs of maintaining the grid over more sales of electricity and putting additional downward pressure on rates.
SDG&E’s New Commercial EV Rate
Charging an electric truck 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 EV charging. In recognition of this mismatch, SDG&E’s designed the new “Electric Vehicle High Power Charging Rate” specifically for commercial EV charging.
On SDG&E’s previously 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. However, under these new rates, drivers and fleet operators could save twenty to fifty percent or more on their current monthly bills.
SDG&E’s rate ditches traditional demand charges (which often collect much more than the actual costs commercial EV charging imposes on the grid under existing C&I EV rates), replacing them with smaller and more predictable monthly subscription fees. The majority of customer’s bills under the new rate 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.
A More Sustainable Approach to Commercial EV Rate Reform
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 design reformed commercial rates that better reflect the flexible nature of EV charging and the underlying marginal costs of serving commercial EV load. As modified by the proposed agreement, SDG&E’s rate would collect only marginal costs during the critical developing years of the market, while gradually transitioning to recovering embedded costs as the market matures.
As recognized in both the proposed settlement agreement and the Synapse report, aligning rates with the marginal cost of serving new commercial EV load would provide customers with fuel cost savings relative to gasoline and diesel and incentivize greater commercial EV adoption. As the report notes, this expanded adoption “not only promotes emissions reductions and the achievement of state climate, equity, and air quality goals—but also the integration of incremental load which can help put downward pressure on rates to the benefit of all electricity customers.”
As long as rates are set to recover at least marginal costs, existing customers bear no additional costs from bringing this new load onto the system, while benefiting in the long term from this downward pressure on rates. And by accelerating the transition to zero-emission medium- and heavy-duty vehicles, these rates would also help provide relief to low-income communities and communities of color that often disproportionately bear the impacts of air pollution from vehicle emissions.
SDG&E’s new rates pave the path for more sustainable commercial EV rate design, and utilities across the country should follow suit.