Sacramento is only halfway through its pilot on dynamic pricing, but it already sees a future of rates that are more closely aligned with the costs of delivering electricity.

While most utilities only dream of having most of their residential customers on effective peak-time rate plansSacramento Municipal Utility District is putting in the hard work to actually make it happen in coming years.

It certainly helps that SMUD received $127.5 million in stimulus grants for increased grid reliability, integrating renewables and increasing energy efficiency. But the deployment of smart meters, which was part of the smart grid project, was always intended to bring dynamic pricing and greater energy efficiency to customers.

Results from the first year of its pilot show that is already happening. The pilot, which included a critical peak pricing group and a time-of-use group, saw peak reductions of 6 percent to 26 percent. Even more impressive is that in the group of customers that were defaulted into the varying rates, less than 10 percent opted out of the program.

“Part of it is inertia,” speculated Lupe Jimenez, senior project manager for smart grid at SMUD. “It’s easier to do nothing and stay in the program than to opt out.” She added that the team did extensive research and consumer marketing beforehand.

Instead of focusing on the few hours where the price goes up, SMUD emphasized the savings the rest of the day. Utility speak like “event days,” “critical peak” and “load shifting” were nowhere to be found. The plans have names that sound like cellphone plans, such as Optimum Off-Peak and Summer Weekday Value Plan. “Peak is our problem; it’s not their problem,” Jimenez said of communicating the program to customers. “Their problem is the bill.”

The plans themselves are pretty straightforward. Each participant's web portal is tailored for the program that they are on. There is one plan that is critical peak pricing, where for 12 events during summer, the price goes from $0.07 per kilowatt hour to $0.75 per kWh for three hours. The average SMUD residential rate is around $0.09 per kWh. The other plan is a dynamic pricing scheme where the rate is $0.08 off-peak during summer and then $0.27 per kWh from 4 p.m. to 7 p.m. on Monday through Friday. The rates were designed to be revenue-neutral.

The highest levels of savings, 26 percent, came from customers that were on the critical peak-pricing rate. However, less than 20 percent of the people who were invited into that program joined in. For the customers on the dynamic rate that were defaulted into it, the savings averaged just 6 percent, but about 90 percent of the people who were enrolled stayed in the program, so the energy savings were higher in aggregate. Overall, customers that were on variable rates saved more than the control groups that were on a flat rate. “We really exceeded a lot of our goals,” said Jimenez.

The pilot will continue through the end of this summer. But SMUD is already looking ahead to the next five years. The utility is looking to phase out the tiered structure that exists across California. Although customers pay higher rates after they use more than a set amount of electricity every month, the tiers do not incentivize energy efficiency. Also, the tiers don’t really reflect the fact that electricity is far more expensive at certain times, such as the hottest days of summer. “We really want to go to a time-of-use plan to provide that signal,” said Rick Codina, pricing advisor at SMUD.

SMUD has already begun to further separate out the fixed cost of delivering electricity. Separating out the fixed costs means that the utility can still recover the cost of operating as more people install solar and invest in energy efficiency. By 2017, the tiers will also be phased out, with the base rate at about $0.12 per kilowatt-hour.

If approved by the board of directors, default dynamic pricing will be implemented in 2018, although customers can opt out and go back to a flat fee. The dynamic pricing will likely look similar to the one currently being piloted, although the details haven’t been hashed out yet. Codina said there could also be a critical peak-pricing program that customers can opt in to for more savings. There could even be a program where customers get deeper discounts late at night, similar to the electric vehicle rate SMUD offers.

Although the new rates would allow people to save by shifting use, the reality is that it will go up for some people. The rates were designed to be revenue-neutral, but for those who don’t make any changes on the dynamic rate, the increase would likely be a few dollars per month. Codina also said that the end of the tier system will mean that people who never move out of the lowest tier, including him, will likely see an increase of a few dollars. SMUD provides bill assistance to about one in five of its customers.

The upside for the majority of customers, however, is that tweaks to usage within those three hours could easily offset any other rising bill costs. Many consumers are investing in wireless thermostats that are much easier to program and control than their predecessors, making it far easier to precool the house or turn down the AC on the way out the door. SMUD incorporated in-home displays as part of the pilot, but not smart thermostats because the utility “wanted to know the effects of rates on their own,” said Jimenez. “This was really a behavioral study.”

Although there is still a lot of work to be done, including crunching data from this year’s pilot, SMUD is running full steam ahead. The utility integrated every part of the pilot into daily business practices, from billing to the call center to IT support. When the approval comes, SMUD will be ready -- and hopefully its customers will be too.