CPUC Tables Peak Pricing

With time running out before summer temperatures soar, the California Public Utilities Commission on April 21 reversed course and decided not to adopt default rates for large electricity customers aimed at reducing peak summer demand. The commission determined that peak rates would cost $10.45 million to implement and could save 66.3 MW. In a worst-case scenario, it?s estimated that Southern California could be more than 1,800 MW short this summer. Commissioners cited a shortfall of energy savings and a ?resounding groundswell of opposition.? Instead, the CPUC set a goal for achieving a comprehensive reform of rate design in 2006, including adopting a critical peak-pricing tariff for unbundled customers not participating in voluntary demand-reduction programs. The CPUC forecast that the maximum total load reduction from implementing a default peak-demand tariff for customers with loads between 200 kW and 500 kW would be only 66.3 MW statewide, with 43.8 MW in Southern California. Moreover, the proposed rate structure would prevent large customers from being able to reduce their energy bills significantly by reducing their loads, giving them little incentive for conserving energy, the CPUC found. ?The rate designs do not provide a strong motivation for customers to change their on-peak usage since they will still be worse off,? the commission stated. The three investor-owned electric utilities proposed critical peak-pricing tariffs in response to a commission ruling. In December, it directed them to file applications for a new default rate for users with loads over 200 kW that could be in place by June 1. The CPUC targeted large users because they are the only customers that have the necessary real-time metering and communications to monitor their shifts in energy usage. The commission sought to expand its toolbox of demand-reduction programs beyond its voluntary policies for advanced metering, demand response, and dynamic pricing. Those so far have failed to attract large customers and have achieved limited load reduction. Large energy customers adamantly opposed both the CPUC?s plan to impose a mandatory critical peak-pricing rate and the utilities? proposed default tariffs, which varied by location and customer class. For example, Pacific Gas & Electric proposed excluding nonfirm and interruptible customers as well as agricultural users from the default tariff, while Southern California Edison did not. San Diego Gas & Electric concluded that price signals were most effective when implemented across all customer classes. The California Large Energy Consumers Association (CLECA) argued that high peak demand was driven by customers with loads under 500 kW rather than by large industrial customers?who have already invested in expensive technology to reduce their demand to take advantage of utilities? interruptible rates. CLECA cited a study by the California Energy Commission that found that air conditioning accounted for 29 percent of peak demand and commercial lighting 11 percent. The CEC found that industrial processes accounted for just 5 percent of summer peak demand. The California Manufacturers & Technology Association argued that imposing a new default tariff for summer 2005 would do more harm than good. It would discourage the long-term changes in plant and operating practices needed to achieve real energy efficiency and reduce demand. Manufacturers and other large customers with loads greater than 500 kW need at least six months to respond to new programs, CMTA said. Moreover, many large customers have direct-access contracts that already provide market price signals and reliability. CMTA also maintained that customers that use more than 500 kW are not driven by air conditioning demand and thus contribute less to systemwide peak demand, have been on time-of-use rates for the past 20 years, and have already achieved significant energy-efficiency savings. In addition, they cannot readily curtail their supply without disrupting critical manufacturing processes. The CPUC acknowledged that large energy users may be the least capable of shifting their usage and may not provide the greatest energy savings. Hospitals, schools, agricultural users, food processors, the Bay Area Rapid Transit District, energy producers, and independent generators all argued that they should be exempt from paying a default critical peak-pricing tariff. The commission directed the three electric utilities to file new critical peak-pricing proposals on August 1 and consider narrowing the peak period to between 2 p.m. and 6 p.m. After each utility?s rate design proceeding is completed, bundled customers should be placed on a critical peak-pricing tariff as a default but be able to change to standard time-of-use rates without cost. The CPUC directed SDG&E to expand eligibility for its commercial/industrial 20/20 program to customers with loads of 200 kW and larger.

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CPUC Tables Peak Pricing

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