Voluntary Peak Pricing Deal Bites the Dust

By Published On: May 27, 2006

A voluntary peak-pricing settlement between investor-owned utilities and large industrial and commercial customers was rejected by the California Public Utilities Commission May 25. On a 4-1 vote, regulators shot down a proposal that would have adopted the agreement, replacing it with an order that requires utilities to present a default critical peak-pricing proposal in their 2008 general rate cases. Peak-pricing formulas charge extremely high prices for drawing energy during times of short supplies to create an incentive to curb power use. “It’s the wrong formula and the wrong tool,” said commission president Mike Peevey of the proposed settlement. “It’s a cozy way out and a nearly meaningless agreement.” The majority’s rejection of the settlement, however, means that no new demand-response program will be in place for this summer or next summer. “It leaves us at zero, right where we started,” said commissioner John Bohn. Bohn scolded his fellow commissioners for not backing the settlement. He added that he was “wary of a mandatory program” because some large energy consumers are unable to shift their power use from peak times on days of soaring temperatures. Under a default opt-out program, large commercial and industrial customers are automatically enrolled in a peak-pricing program unless they take steps to opt out of participating. Such an approach is expected to be incorporated into the general rate cases following the rejection of the settlement. Pacific Gas & Electric spokesperson Jeff Smith said the ruling was “disappointing” but added that it was too early to comment further. Other utilities did not respond by press time. The customers at issue are ones that use 200 kW or more and have advanced meters in place, which were paid for by ratepayers. Critical peak pricing lowers overall rates, but on a maximum of 15 days a year, prices soar. Under Bohn’s proposed settlement, large energy users in PG&E and Southern California Edison territories could select peak pricing in place of time-of-use rates. The latter rates may vary by the hour. San Diego Gas & Electric’s large energy consumers would be enrolled automatically, but the utility would confirm that they wanted to participate (Circuit, May 5, 2006). Marcel Hawiger, The Utility Reform Network attorney, opposed the settlement but thought it was much ado about nothing – given its voluntary nature. “The bottom line is that the commission is afraid to force anything on large ratepayers.” At the same time, Peevey has no qualms about mandating pricing programs for small ratepayers, Hawiger said. He pointed to the $1.6 billion investment approved to cover PG&E’s universal installation of advanced meters in all households. TURN believes that implementing air condition cycling programs is far less costly and more effective for residences.

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