Approval of Xcel Energy’s Electric Vehicle Pilots Highlights Key Considerations for Electric Utilities

December 12, 2019 | New Rates, Products, and Services

Author: Trevor Drake

Following a stakeholder engagement process facilitated by the Great Plains Institute in 2018, Xcel Energy received approval and is moving forward in Minnesota with new electric vehicle (EV) pilot programs.  

As investor-owned electric utilities seek to meet the needs of shareholders, consumers, and the environment, EVs offer a unique opportunity. If implemented carefully, utility investments in EV infrastructure and programs can provide a series of benefits, including new sources of utility revenue, better services for EV drivers, reduced costs for all consumers by making the electric system more efficient, and reduced pollution and greenhouse gas emissions.

However, creating utility EV programs that do all of these things requires careful planning and program design. That was the focus of a stakeholder engagement process that the Great Plains Institute facilitated in 2018 to seek input on Xcel Energy’s EV pilot programs, which were approved by the Minnesota Public Utilities Commission (PUC) at a hearing on April 11, 2019.

Between May and August 2018, GPI, in collaboration with Xcel Energy, convened five stakeholder meetings to solicit input on several Xcel Energy pilot projects designed to test EV infrastructure investments and program designs. The pilots discussed included two offerings that were approved by the PUC in July 2019—a $14.4 million pilot for fleet operators and a $9.2 million pilot for public charging infrastructure.

The list of attending organizations, which is included in GPI’s full report of the stakeholder engagement process, shows the wide diversity of interests that have a stake in the design of utility EV programs, as well as the challenge that electric utilities must overcome in designing programs to meet the needs of so many different stakeholders. In this process, we saw attendance from over 40 organizations that fell into the following general categories:

  • Electric utilities
  • Consumer advocates
  • Environmental advocates
  • Public health advocates
  • State government agencies
  • Municipalities
  • Academic institutions
  • EV manufacturers and service providers
  • Public and private fleet operators (light and heavy duty)
  • Commercial property managers
  • Public transportation authorities
  • Regional transmission market operators

To provide a framework for balancing these interests, Xcel Energy developed an initial set of eight guiding principles, which were then reviewed and updated through stakeholder conversations. These were intended to provide a general point of reference for what a successful utility EV program should seek to achieve:

  1. Empower customers with information, tools, and options
  2. Increase access to electricity as a transportation fuel in an equitable manner
  3. Encourage efficient use of the power grid and integrate renewable energy
  4. Improve air quality and decrease carbon emissions
  5. Ensure reliability, interoperability, and safety of equipment
  6. Leverage public and private funding opportunities
  7. Provide benefits to all customers, both EV drivers and non-EV drivers
  8. Ensure transparency and measure results

With these principles in mind, Xcel Energy presented straw proposals on their pilot projects in development, seeking stakeholder feedback and ideas for improvement. The feedback provided on the proposed pilots, which is further detailed by topic in our written summary, helps to show the breadth of considerations that electric utilities must undertake when designing EV programs. In Xcel Energy’s case, it also proves that it’s possible to design programs on which a wide variety of interests can find common ground.

Below, I’ve laid out some of the considerations and feedback that participants discussed in these meetings, along with some notes on whether and how they came up for discussion when the PUC considered these pilots for approval. These may be particularly worth thinking about for other electric utilities that are developing EV programs and investments.

Considerations

Multi-faceted approach

We designed our stakeholder engagement process primarily around three different Xcel Energy EV pilots – a residential charging pilot, a fleets pilot, and a public fast charging pilot. In addition, Xcel Energy provided initial details on some additional pilots in the early stages of development. While discussing multiple different pilots at once was a challenge in some instances, the stakeholders who attended these meetings said they appreciated the breadth and multi-faceted nature of Xcel Energy’s proposed EV solutions as a package. This multi-project approach turned out to be a useful way to balance different interests and needs.

One example of this is the balance between Level 2 charging and DC fast charging. Participants in these meetings acknowledged that Level 2 charging is favorable to fast charging because it generally requires less electricity at a particular moment in time and can be reasonably managed through time-varying rate designs. However, several stakeholders also noted that widespread public fast charging stations are a key consideration for consumers who are looking at buying an EV. In other words, while Level 2 charging has the greatest promise of providing benefits to the electric grid, those benefits depend on EV ownership and that partly depends on the perception of available public fast charging stations. In this case, by deploying multiple pilots as a package, Xcel Energy was able to address stakeholder interests in both types of charging infrastructure.

Grid and environmental impacts

Several participants in our stakeholder meetings made clear that they wanted Xcel Energy’s EV programs to be designed to incentivize charging behavior that doesn’t increase costs at peak times of electricity usage, instead incentivizing usage when renewables are producing power. In response to this, Xcel Energy offered a conventional two-part time-varying rate for all three of its EV pilots, with on-peak occurring from 9 a.m. to 9 p.m., and off-peak occurring from 9 p.m. to 9 a.m. This proposed rate design led to a two-part discussion that may be insightful to other utilities.

First, some stakeholders wanted to see a more advanced rate design used for these pilots – one that would deploy more time periods (e.g., four time periods per day rather than two) to send more accurate price signals to customers. Notably, and as I’ve written about previously, Xcel Energy received approval for a more advanced residential time-varying rate design pilot in May of 2018, which has four electricity price changes in each day. Therefore, some stakeholders wanted to see this rate design deployed for the EV pilots. Second, for the public charging pilot, there was a concern that while the charging station owners (which, in Xcel Energy’s proposed design, will be third parties) would pay time-varying rates, the owners might not necessarily pass those rates on to the EV drivers using the charging stations, eliminating any charging behavior change that would have resulted.

In response, the PUC allowed the conventional time-varying rate design to move forward in the interim but required Xcel Energy to come back with a more refined rate design for the fleet and public charging EV pilots within six months. For the public charging site hosts in particular, the PUC asked charging station operators to use time-varying rates by default, but allowed them to opt-out of doing so if warranted.

In this particular case, the two-period time-varying rate proved unacceptable to both stakeholders and the commission. However, the fact that Xcel Energy had already completed some legwork to design a more advanced time-varying rate made it particularly hard to defend the two-part rate. Utilities developing EV programs should certainly be looking at time-varying rate designs, and, based on this experience, would do well to make the price signals in those rate designs as accurate as possible.

Consumer impacts and cost recovery

Consumer impacts, including cost recovery for pilot expenses, were of significant concern in our stakeholder meetings, with some participants stressing the importance of ensuring the benefits of EV programs outweigh the costs for all customers, EV drivers and non-EV drivers alike. This also became a key point of discussion when the pilots were being considered by the PUC.

The discussion centered on who should pay for the pilots, since EV infrastructure and services are in the interests of both the utility and ratepayers. Consumer advocates argued that, without an analysis showing the measurable benefits to all ratepayers, only the utility and participating customers should pay for the programs, as this is otherwise just a marketing initiative to sell more electricity to some customers at the expense of all. The Commission disagreed, stating that it asked the utilities to come forward with innovative EV pilot projects for several reasons in the public interest and this is an example of a utility following through on that request. Denying this request would send the wrong signal—that innovation is not rewarded. Therefore, they decided that all ratepayers should fund the pilots, as long as those expenses are shown by the utility to be reasonable and prudent.

The Commission clarified that the decision applies only to the pilots and that one intended outcome is to gather information that can enable better cost-benefit analysis in the future. As part of this, they made the following decisions:

  • While the utility typically does not own and recover costs on infrastructure beyond a customer’s service connection, for the purposes of these pilots the Commission allowed Xcel Energy to classify wiring and charging equipment beyond the meter as part of their distribution system.
  • While customers benefitting from a new service line typically need to contribute to the costs of that line, for these specific pilots the Commission allowed those costs to be spread out across all ratepayers.
  • Finally, Xcel Energy is currently operating under a multi-year rate plan, which is intended to promote innovation by allowing the utility flexibility on costs over multiple years, but within certain pre-established limits. While some parties argued that costs for these pilots should count within those limits, Xcel Energy argued that these costs were unforeseen when the limits were established, and that they should be allowed to recover these costs beyond those limits. The Commission ultimately agreed, but suggested that Xcel Energy’s next multi-year rate plan should include a proposed research and development budget to avoid this happening again in the future.

While the decisions made in this case may be unique to Xcel Energy and Minnesota, the broader lesson is that the costs and benefits of utility EV programs need to be thought through carefully, with specific attention to impacts on non-participants.

In summary, utility EV programs offer a unique opportunity to create benefits for shareholders, consumers, and the environment, but they need to be implemented carefully and thoughtfully. Xcel Energy’s pilot programs in Minnesota show that finding a balance among the needs of diverse interests is difficult, but not impossible, and that that upfront stakeholder engagement can be a beneficial step towards ensuring that a utility’s final proposal is as close to acceptable as possible among the parties who will potentially advocate for or against it.

UPDATE: There was a request submitted to the PUC to reconsider its order approving Xcel’s EV pilots. The request was denied and the denial is now being appealed. More information is available in MN PUC Docket 18-643.