Commission tasked with regulating EV charging rates says ‘best left to free market’

The $1.2 trillion infrastructure package passed by Congress last year included a host of clean energy incentives. It also included a requirement that state public utility regulators conduct a hearing to discuss ways to encourage electric vehicle adoption within a year.

On Nov. 8, just a few days shy of the deadline, the South Dakota Public Utilities Commission held a hearing to discuss whether peak charging time-related rate adjustments are necessary for the state.

Instead of setting rates, however, the Commission decided that utility providers can regulate themselves until concerns regarding the grid arise. The Commission says the industry is best left to the free market for the time being.

“I believe the less that government interferes with private enterprise, on any subject, the better. Especially on build-outs of electric transportation,” Commissioner Gary Hanson said.

South Dakota PUC rate-setting authority

Part of the PUC’s role in South Dakota is to ensure utility companies provide safe and reliable service at fair and reasonable rates.

The decision will affect a few South Dakotans initially, but electric vehicles (EVs) are becoming more common in the state.

South Dakotans own 1,429 electric vehicles, according to the Department of Transportation – a fraction of the state’s total vehicles. But the state department expects the number to grow by 10,000-22,000 over the next 4 years.

Rapid growth is expected nationwide. The Infrastructure Investment and Jobs Act of 2021, signed by President Biden one year ago on Tuesday, is both a response to and an encouragement of a shift to electric transportation.

The rate-setting guidance that spurred the PUC’s discussion on Nov. 8 says that each state “shall consider measures” to promote electric vehicles, including the establishment of charging rates that are affordable and accelerate consumer demand. 

Specifically, the PUC was expected to discuss the setting of rates that would:

• Promote affordable and equitable electric vehicle charging options for residential, commercial and public electric vehicle charging infrastructure;
• Improve the customer experience associated with electric vehicle charging, including by reducing charging times for light-, medium- and heavy-duty vehicles; and
• Accelerate third-party investment in electric vehicle charging for light-, medium- and heavy-duty vehicles; and
• Appropriately recover the marginal costs of delivering electricity to electric vehicles and electric vehicle charging infrastructure.

The federal law ordered utility regulators to discuss potential EV-related rate policies within one year of the date of enactment, Nov. 15, 2021. 

PUC: utilities have electric vehicles handled

Most electric vehicle charging happens at home. The PUC wants to ensure that charging those 1,000-pound electric batteries won’t strain the electric grid. But electric utility providers understand that, according to Commissioner Chris Nelson.

“The overriding theme that I hear from utilities is that if this electrification of transportation is to have any chance of success, the time of charging is going to be crucial,” Nelson said. “We can’t be charging all these vehicles at five o’clock in the afternoon, and regulating when they can be charged is going to, I think, largely be determined by rate structures.”

It’s not as simple as setting a time-of-use rate across all of South Dakota, however. There are many different bodies that set rates and sell electricity in the state. Among them are six private companies, dozens of municipalities and dozens of member-owned providers

The PUC regulates the rates of the six private companies, or “investor-owned utilities,” but not the rates of member-owned co-ops or municipalities (which are regulated by the members and city, respectively). The private companies are Montana Dakota, Ottertail, Xcel Energy, MidAmerican, Black Hills Power, and Northwestern Power Service.

For those companies, the PUC decided to take a hands-off approach when it comes to regulating rates for charging electric vehicles – for now. 

“Each utility is going to best understand the needs of their customers and are in the best position to respond to those needs,” Nelson said. 

Commissioner Hanson echoed the sentiment. He said the best thing the PUC can do is stay out of the way of private industry. 

“Utilities need to be regulated. I understand that. However, they need to be regulated properly,” Hanson said.

If anything, Hanson said, he is concerned that the government has gotten too involved in the electrification of the transportation sector.

“I’m a little bit between myself,” Hanson said, “I’m concerned that government entities, probably nearly at every level of government, are getting involved in a private enterprise, the electrification of transportation.”

But the three-person Commission agreed there may come a time when it will have to get involved. The PUC ought to monitor peak loads from utilities to decide when that might be, Nelson said.

“If we begin seeing that peak load grow in a fashion faster than it would normally be growing, and it’s determined that that is being caused by the electrification of vehicles and that rate incentives are not being put in place to help shave that peak,” Nelson said, “That may be a time when we need to step in.”

And that’s something Commissioner Kristie Fiegen said she’s already keeping a close eye on.

“I am in weekly meetings with [Southwest Power Pool] on resource adequacy, and we continue to look at that and how we can make sure our grid stays reliable,” Fiegen.

After the discussion on Nov. 8, Fiegen, Hanson and Nelson unanimously voted to deem the Commission’s electric vehicle-related obligations under the Infrastructure Investment and Jobs Act complete.

Utilities already adjusting for EVs

Private utility providers are already making investments in the electrification of transportation because they want to electrify the transportation sector, the PUC members said, since demand created by electric vehicles provides a new avenue for shareholder growth.  

The Commission discussed during the meeting how Black Hills Energy has had a rebate program since 2020 and has spent about $62,000 “shareholder dollars” toward charging infrastructure – everything from $500 for a home charger up to $35,000 for a super fast charger. And Otter Tail Power Company offers a $400 rebate to “ensure that customers would not be adding those extra kilowatt hours onto peak time.”

There are a number of different ideas as to how providers might incentivize electric vehicle drivers to charge during “non-peak hours.” Everything from a rate that is cheaper at night, to a separate meter that attaches to the charger with rates that adjust depending on electric grid demand at the time have been talked about.

Preventing price gouging

Not everyone agrees that the PUC being hands-off is the right approach. 

South Dakota Renewable Energy Association Analyst Steve Wegman said that without regulation, companies can price electric vehicle charging rates higher than is fair. 

Wegman said without the PUC or another authority defining what a “fair rate” is, nothing stands in the way of companies charging consumers with an EV charger far more per unit of electricity than it costs the provider. 

“I agree that a free market approach is part of it,” Wegman said. “But on the other part, there is no real consumer protection in South Dakota regarding electric vehicles, and that needs to be taking place. You need to have rules and standards as to, ‘How do you charge? What’s involved?’ And in regards to public charging stations, ‘What is fair and equitable?’”

Cities and co-ops

Municipalities and member-owned providers have different approaches to the issue.  

The PUC regulates the rates of the six private companies, or “investor-owned utilities,” but not the rates of member-owned or municipality providers, which are regulated by the members or municipalities. 

Conceptually, cities and co-ops don’t need PUC oversight because the institutions are owned by the city residents and the co-op members. That removes the profit incentive that might lead to unfair prices in a monopolized market.

Member owned provider, Sioux Valley Energy, is already offering a $500 rebate to members who buy an electric vehicle, according to Ben Pierson, manager of beneficial electrification. It’s also incentivizing members to plug in at night by charging 5.84 cents per kilowatt hour of charge (which comes to about $.42 gallon gasoline), versus the average 10.26 kilowatt hour rate.

Many of the municipalities that sell electricity in South Dakota get it from Heartland Energy. 

“Heartland is currently working on our own suite of incentives for our customers that want EVs as part of the future load growth,” Heartland Energy CEO Russ Olson said. “Each utility will be different whether they offer a time of use or incentive off-peak charging. It will depend on their situation.”