Xcel’s ‘Time of Use’ rates are meant to punish you for using electricity when it’s actually convenient for you

A recent article by Minnesota Public Radio (MPR) News states that Xcel Energy’s new Time-of-Use (TOU) rates are meant to “drive behavior changes and usage changes, and getting customers to shift their usage to those off-peak periods.”

Under the program, rates would be highest during the peak period from 3 to 8 p.m. on weekdays and cheapest every night from midnight to 6 a.m. Other hours would be a base rate. In other words, rates would be high when it is convenient for you to use electricity and low when you probably won’t be using it.

The argument for this approach is that TOU rates would better reflect the actual cost of delivering energy during those high-demand periods. According to Ryan Long, Xcel’s president in Minnesota, North Dakota, and South Dakota, these shifts could potentially allow Xcel to avoid building a new power plant to meet peak demand.

This is almost certainly wishful thinking.

California is already attempting to go this route, but the “nudge” of higher prices during periods of peak demand has not been working. Instead, the grid operator in California pleads with residents not to charge their electric cars or use their air conditioners or dishwashers when the sun is setting to prevent rolling blackouts. If Xcel tries to skimp on building enough peaking capacity under the guise of TOU rates, we will suffer a similar fate.

Some have argued that free-market organizations like American Experiment should welcome this change because it sends price signals to customers, giving them a greater ability to adjust their usage and potentially save money accordingly.

Variable pricing is desirable in a free market economy where new market entrants can bring in new supplies during periods of high prices. This is basic supply and demand dynamics.

But that is not what we have here in Minnesota. We have government-approved monopoly utilities with the exclusive right to sell electricity in their service territories. That means time-of-use pricing is not a market signal for more electricity as much as it is government-sanctioned rationing of the electricity we have to nudge people into using less or shifting their behavior.

Time-of-use pricing is the first step on the road to California’s calls for electricity rationing. Thankfully, you can opt out of Xcel’s program for now.