Over the past year and a half, the federal government has made monumental investments in electric vehicles, including $7.5 billion for the National Electric Vehicle Infrastructure program. Every state has now submitted plans on how they will use these funds, and with federal minimum standards released in mid-February, projects are just months away from starting.
But there’s a major roadblock that many have not even started to grapple with: The complex way that utilities charge site hosts for the electricity that powers EV chargers.
For most Americans, electricity bills are relatively straightforward. You pay a standard service fee and a charge for the amount of electricity you used, plus taxes. But for commercial customers like EV chargers, electricity bills are far more complicated because they often include a “demand charge” — a fee based on the largest amount of electricity used at any point that month. If you think about the electrical grid as straws in liquid, residential customers are typically charged based on the amount of “juice” they drink. Commercial customers, on the other hand, are charged both for the amount of “juice” and the size of the largest “straw” they need at any point that month.
These fees were created decades ago to ensure major facilities like factories — which draw massive amounts of power for long periods of time — would pay for electrical grid upgrades to support their immense demand. But the assumptions behind demand charges simply don’t work anymore. Many factories can operate 24/7. EV chargers, however, are used on and off and draw far less electricity — still, many utilities treat them the same. As a result, some small businesses pay thousands of dollars for the “straw” but much less for the actual electricity. In one example of a fast charger on Long Island, demand charges in July 2021 accounted for $1,763 of an EV charger’s $2,322 electrical bill — 76 percent.
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The impact of demand charges makes it hard for even major organizations to go electric. Last year, New York’s Metropolitan Transportation Authority said fueling an electric bus was two to three times more expensive than diesel or natural gas — all because of demand charges.
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The real-world impact is massive. Demand charges can scare businesses away from installing public EV chargers or electrifying their fleets, delaying the United States’ embrace of electric mobility. Worse, some businesses might not consider demand charges, leading to sticker shock when they receive their electricity bills.
The good news is that the Infrastructure Investment and Jobs Act — the same law that dedicates billions of dollars to EV charging — directs states to address demand charges. Massachusetts and New York stand out as the two states that have effectively addressed this issue. Other states that want to quickly and correctly deploy EV charging infrastructure should follow their lead.
In Massachusetts, the Department of Public Utilities approved new utility rates specifically for EV charging, which give companies that own and operate public EV chargers 50 percent to 100 percent off their demand charges for the next 10 years. In effect, Massachusetts is pausing demand charges until more EVs hit the road and power use at EV chargers becomes more consistent over time, like a factory. In New York, the Public Service Commission approved a 50 percent rebate on demand charges for commercial EV charging that will be in effect until a longer term rate is implemented. In both cases, full demand charges will phase back in over time on a sliding scale based on how much the chargers are used.
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In the earlier example, demand charges would drop from $1,763 to $882 and the EV charger’s overall electricity bill would fall to $1,349 — a far more affordable expense that is in line with the actual cost incurred by a utility to provide electricity. For New York’s Metropolitan Transportation Authority, it means that electric buses are now more cost effective to fuel than diesel or natural gas vehicles, allowing them to keep their transition to a zero emission bus fleet on track.
In other words, these common-sense reforms will lead to more businesses across Massachusetts and New York embracing a green, electric future.
Other states have more work to do. California — long an EV leader and the state with the most electric vehicles per capita — made significant progress in eliminating demand charges for commercial EV chargers, but additional steps are needed. In states like Pennsylvania, Indiana, and North Carolina, among others, utility regulators are just now debating the best way to address demand charges.
If states want to clear this roadblock so they can use federal funding for EV charging as quickly and efficiently as possible, they would be smart to look east and follow the example set by Massachusetts and New York.
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Anne Smart is vice president of global public policy for ChargePoint.
