Measures like “time-of-use” tariffs are proliferating in the United States and globally, with utilities charging higher electricity rates during peak demand periods. In places like sunny California, the idea is to shift more energy usage to the afternoon—when solar power is abundant and cheap—and away from evenings, when utilities rely more on fossil fuel-fired power plants.
Yet such initiatives may have unintended consequences. A new study in the journal Nature Energy found that one utility pilot hit some participants harder than others. Vulnerable groups, including elderly people and those with disabilities, saw disproportionately negative financial and health impacts as a result of paying time-of-use rates.
“You have this potentially really useful tool, but you need to make sure you’re not unintentionally making a worse situation for parts of the population,” said Lee White, the study’s lead author and a research fellow at Australian National University in Canberra.
About 14 percent of U.S. utilities offer residential time-of-use rates, according to the consulting firm Brattle Group. Rate designs can vary from place to place, as do climate conditions and consumer habits, so the study’s findings might not hold true everywhere. Still, the research highlights concerns worth heeding as utilities and regulators design such programs.
“We need to be very careful about how we implement these rates,” White said.
White and Nicole Sintov, an assistant professor at Ohio State University, analyzed data from 7,500 households that voluntarily joined a utility’s 2016 pilot in the southwestern United States. (The company asked to go unnamed.)
Participants were randomly assigned to a control group, or one of two time-of-use rates. The first group paid an extra 0.3451 cents per kilowatt-hour from 2 to 8 p.m. on weekdays. The second group saw tariffs of 0.5326 cents per kilowatt-hour from 5 to 8 p.m. on weekdays.
Researchers studied results from July to September, a sweltering season. All participants paying time-of-use rates saw their bills increase. But households with elderly members or people with disabilities saw even greater bill increases relative to the rest. Elderly folks reported turning off their air-conditioning less than other groups; in general, older adults are especially vulnerable to heat-related illnesses.
Participants with disabilities were more likely to seek medical attention for heat-related reasons when assigned to one of the time-of-use rates—as were customers identified as Hispanic. But researchers found that people within the disability, Hispanic, or low-income groups were more likely to report adverse health outcomes regardless of rates, even in the control group.
White said a “somewhat encouraging” finding is that low-income households and Hispanic participants saw lower bill increases compared to other groups. Yet any extra costs “could still cause additional tensions in the household budget,” she added. According to the U.S. Census, low-income households on average spend 8.2 percent of their income on energy bills—about three times as much as higher-earning households.
The study highlights gaps in “flexibility capital” among electricity users, said Michael Fell, a research associate at the UCL Energy Institute. For example, wealthier households might avoid higher rates by installing energy storage devices or smart appliances with sensors and timers. Healthier individuals can cope with using less AC or heating. But many people can’t spare the expense to their wallets or wellbeing.
“There is already recognition amongst regulators that the transition to a flexible future may come with risks to those in vulnerable situations,” Fell wrote in Nature Energy. “White and Sintov’s study lends nuance to this concern.”
Ryan Hledik, a principal at Brattle Group, said residential time-of-use rates are gaining momentum as smart meters become the norm in households nationwide. While many utilities are now using tariffs to integrate more wind and solar power into the electricity mix, in coming years, such programs could help keep electric-vehicle owners from charging batteries all at once, overtaxing local infrastructure.
“That’s definitely something utilities are going to need to confront, and time-of-use rates are one way to deal with that,” Hledik said.
