10. Critical Peak Pricing
PG&E's CPP is a voluntary supplemental tariff offered to its residential and small commercial and industrial (C&I) customers with electric demands below 200 kW. The tariff will be available as the AMI modules are deployed and activated. PG&E designed the CPP rate as an "overlay" in addition to the default rate. PG&E intended it to be similar to the rate design used in the Statewide Pricing Pilot (SPP)28 research project, authorized in D.03-03-036.
Using an overlay maintains the existing inverted-tier rate structure for residential customers with the CPP rate in effect during the summer period (May 1 through October 31). It also preserves Tiers 1 and 2 rate levels protected by Assembly Bill (AB) 1X, and ensures that the rates remain revenue neutral between classes.29 To maintain revenue neutrality,30 PG&E applies a CPP rate credit to approximately 95% of the customers' electricity usage during the June 1 through September 30 period. In addition, PG&E applies a CPP customer participation credit to all electricity usage in Tiers 3, 4, and 5 from June 1 to September 30, including critical peak periods in those months, to make the CPP tariff more attractive by providing an opportunity for customers to reduce their bill. PG&E estimates that the target market (residential customers with significant air conditioning loads, with 700 kWh to 1,500 kWh summer monthly usage) would have the opportunity to save 10% or more by reducing their usage by 25% or more during CPP periods. (Ex. 6, p. 1-10.)
PG&E proposes that its CPP rate be in effect for most of the AMI deployment phase and until its subsequent test year 2010 general rate case. (Ex. 6, p. 1-1.) CPP rates and underlying tariffs would be updated annually to maintain revenue neutrality (adjusting for the amount of actual credits so that PG&E fully collects the authorized revenue requirement from within each rate class without inter-class revenue shifting) and recover the CPP participation credit and bill protection costs.
PG&E includes a bill protection provision to encourage more customer participation. This provision gives customers the opportunity to test the CPP rate and determine whether the new rate is appropriate for their home or business. Bill protection is provided during a customer's first year (complete summer CPP season) of participating on the CPP rate. At the end of the summer season, PG&E would evaluate each customer's summer season bills and apply a one-time credit to the next bill, if the customer paid more in CPP charges than it received in offsetting CPP credits. PG&E proposes to maintain the one-year bill protection program for newly converted customers for the duration of the AMI deployment. (Ex. 6, p. 1-9.)
PG&E proposes to start with a CPP rate proposal that can be monitored and changed as appropriate. PG&E requests $5 million for measurement and verification research to document the benefits and supporting data for the development and refinement of new demand response rates and programs for customers below 200 kW. We agree with PG&E that it is important to monitor the CPP program effectiveness and understand how customers are responding to the new rate. No party contested the PG&E's request, we therefore adopt it. We direct PG&E to report on the acceptance and degree of success for the CPP rates in the next general rate case.
Dynamic rate offerings for the large commercial and industrial customers are beyond the scope of the AMI proceeding and are addressed separately in A.05-01-016.31 The following table shows PG&E's proposed CPP rates by customer class.
Table 3
PG&E's Proposed CPP Rates
Customer Class |
CPP Rates |
Non-CPP Credit |
Participation Credit |
Residential |
$0.60/kWh (2-7pm) |
$0.02992/kWh |
$0.01/kWh (upper tiers) |
Small Light and Power |
$0.75/kWh (2-6pm) |
$0.02720/kWh |
$0.005/kWh (all usage) |
Medium Light and Power |
$0.75/kWh (2-6pm) |
$0.02320/kWh |
$0.005/kWh (all usage) |
Notes:
1) CPP rates above apply during CPP events which may be called during the period of May 1 through October 31;
2) CPP rates apply during the CPP events;
3) Non-CPP credit is applicable to all usage from June 1st through September 30th outside of CPP events;
4) CPP participation credits are applicable as indicated in the table from June 1st through September 30th, including during CPP events; and
5) Source: Ex. 6, p. 1-16.
DRA's CPP proposal is significantly different than PG&E's. DRA converts the tiers above Tier 2 into Time of Use (TOU) rates with three time periods plus a CPP rate for the summer season. DRA's CPP rate only applies to usage above 130% of baseline in combination with TOU rates. (Ex. 101, p. 3-1.) DRA targets consumption in Tiers 4 and 5 - the highest tiers - where customers have the highest peak usage and therefore the most potential to drop load. DRA believes its rate proposal does not violate Water Code § 80100 by placing all impacts on Tiers 3 and higher, unlike PG&E's proposal that addresses the total bill. DRA also suggests that targeting this smaller group means lower marketing costs. (DRA's Opening Brief, pp. 32 - 32.)
10.1. Discussion
In its comments on the Draft Decision, DRA questions whether the proposed Critical Peak Pricing program is consistent with AB 1X. In particular, DRA questions whether a customer can waive its statutory protections under AB 1X, and whether PG&E's proposed program provides for a knowing waiver of those protections.
Water Code Section 80110 (enacted by AB 1X) provides, in pertinent part:
In no case shall the commission increase the electricity charges in effect on the date that the act that adds this section becomes effective for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of existing baseline quantities, until such time as [an event that has not yet occurred].
DRA suggests that this language may create a protection that individual consumers cannot waive, and cites County of Riverside v. Superior Court of Riverside County (2002) 27 Cal. 4th 793, 804-805 to support this argument. That case deals with the rights of law enforcement officers under the Public Safety Officers Procedural Bill of Rights Act, and notes that:
Civil Code section 3513 provides: "Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement." The Bill of Rights Act, which explicitly declares that its purpose is to promote "effective law enforcement" by maintaining "stable employer-employee relations" in law enforcement agencies (Gov. Code, sec. 3301), was clearly "established for a public reason." . . . "[L]abor unrest and work stoppage among police officers pose an obvious threat to the health, safety and welfare of the citizenry . . . ." (27 Cal. 4th at 804.)
In contrast to the public purpose served by the Public Safety Officers Procedural Bill of Rights Act (preventing work stoppages by police officers), we conclude that the purpose of the above-quoted language from AB 1X is to protect individual residential customers from being forced to pay more for electricity usage -- up to 130% of their baseline allowance -- than what they would have paid for the same usage prior to the enactment of AB 1X.. Accordingly, we conclude that individual customers can waive the protections afforded by this provision of AB 1X.32
This conclusion is reinforced by the language used in AB 1X. It provides that the Commission shall not increase charges for residential electricity usage up to 130% of the baseline quantity above pre-existing rates. Under the CPP program, the Commission is not requiring anyone to pay more for the first 130% of baseline usage than AB 1X allows. The pre-existing tariffs will continue in effect, no customer will be required to switch to the CPP tariff, and customers who do switch to the CPP tariff will be able to opt out of it. Thus, we do not believe that the CPP program violates this language from AB 1X. Rather, we are authorizing a purely voluntary tariff, which exposes those customers who sign up for it to a risk that they may be charged more than the pre-existing rates. Moreover, in return for subjecting themselves to that risk, those customers have a real opportunity to lower their overall electricity bills by changing their consumption patterns.
DRA also argues that in order for there to be a knowing waiver of the AB 1X protections, a customer must be informed of what those protections are. We agree that customers should be informed before they sign up for the CPP program of the AB 1X protections they may be giving up.
Accordingly, when PG&E signs customers up for the CPP program we will require it to provide, along with the other materials it provides customers (e.g.,an application form), a disclosure notice that must include at least the following points:33
(1) The CPP tariff is optional. By signing up for the CPP tariff, the customer is waiving protection otherwise afforded by AB 1X. Under AB 1X, a customer cannot be charged more in any month for usage up to 130% of that customer's baseline allowance than the rates in effect prior to February 2001.
(2) There will be "bill protection" for the customer's first full summer season on CPP rates (and any preceding partial season). The notice shall inform customers whether bill protection will apply to customers who opt out of the CPP program before the end of the season.34 Under bill protection, customers will receive a credit after the end of the CPP summer season IF their overall bills for the season were higher than they would have been under the regular tariff. The credit will ensure that the customer does not pay more for electricity overall for the summer season than it would have under the regular tariff. Because customers will not get the benefit of bill protection until the end of the CPP summer season, some (or all) bills during the CPP season may be higher than what the customer otherwise would have been paying on the regular tariff (and some or all may be lower).
(3) After the first full summer season on CPP, there will be no bill protection. Some (or all) bills during the CPP season may be higher than what the customer otherwise would have been paying on the regular tariff (and some or all may be lower). To the extent a customer's bills over the course of the season are higher under the CPP than they otherwise would have been under the regular tariff, the customer will NOT receive an offsetting credit at the end of the season.
(4) A customer may opt out of the CPP tariff at any time. The notice must explain how the customer can opt out.
In addition to the notice provided at the time of sign up, we will require PG&E to provide an additional notice before each customer begins its first CPP season without bill protection. This notice should cover points 1, 2, & 4, above, and also should provide a form for the customer to fill out and return to PG&E if the customer wants to opt out. This notice shall be provided 60 to 90 days before the start of the customer's first CPP summer season without bill protection. In addition, another notice and form must be provided at least once more during the CPP season.35
PG&E must consult with the Office of the Public Advisor and obtain that office's approval of the precise language to be used in these notices. In addition, PG&E must consult with the Office of the Public Advisor about the marketing and promotional materials it plans to use in connection with the CPP program. PG&E shall include in those marketing and promotional materials, such disclosure language as the Office of the Public Advisor may require. The Public Advisor shall require the above four points to be included in such materials to the extent it is practical, and informative, to include those points in the particular material involved.36
PG&E's proposed CPP is consistent with the rates offered in the SPP. We also have more information about customers' acceptance to this type of rate design37 and the most likely estimated level of demand response.
DRA's CPP rate proposal is significantly more complex because it overlays a TOU rate to the inverted residential rate structure and then adds a CPP rate. We are concerned about the necessity of convincing customers to both participate in a CPP rate and switch full-time to TOU rate with an underlying inverted tier rate structure. Further, we have no record to indicate the likelihood of customers' accepting DRA's proposal for a CPP rate. DRA's proposal may easily discourage customers from switching. The likely key to successful demand response is a clear financial incentive (coupled with an effective informational message) and single focused rate proposal. We therefore will not impose TOU as a requirement for CPP rates.
Neither DRA nor TURN address PG&E's CPP rate proposal for small and medium commercial customers. Also, no party objected to PG&E's proposal to exclude agricultural customers from CPP rates. We will therefore adopt these features of PG&E's CPP proposal, consistent with our adoption of PG&E's residential proposal.
10.2. Revenue Target
PG&E designed the CPP rates (Table 3) by allocating a summer season revenue responsibility of $45 per kilowatt-year (kW-year), divided by the number of CPP hours. PG&E proposes a maximum of 15 CPP events per summer season with a five-hour duration limit per event (2:00 p.m. and 7:00 p.m.) so there are 75 CPP hours38 for residential customers and 60 CPP hours for the small C&I customers (four-hour duration limit per event.) PG&E determined the $45/kW-year based on the $52 per kW-year avoided cost of generation (discussed below in Demand Response).
10.3. Critical Peak Pricing Conclusion
We find that PG&E made the most persuasive proposal for a CPP rate design and we will therefore adopt it. PG&E's proposal consists of a CPP proposal available to all residential customers and all small commercial and industrial customers with less than 200 kW demand on a voluntary basis. We are greatly interested in the effectiveness of the CPP tariff, especially during the early years of AMI deployment. Therefore, we will direct PG&E to report annually to DRA and the Energy Division within 60 days of the end of each CPP season the best estimate of demand response achieved during each CPP event, if any, including the number of customers (by class) on the CPP tariff and the participation rate of those customers during CPP events.
28 The SPP was a pricing research project designed to estimate the average impact of time-varying rates on energy use by rate period for residential and small commercial and industrial customers.
29 A portion of AB 1X is codified as Water Code § 80100. "In no case shall the commission increase the electricity charges in effect on the date that the act that adds this section becomes effective for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of existing baseline quantities, until such time as the department has recovered the costs of power it has procured for the electrical corporation's retail end use customers as provided in this division."
30 Revenue neutrality means that PG&E has the same opportunity to recover its authorized base margin and reasonable energy procurement costs after implementing the CPP rate design as it did before offering the new tariff option.
31 Ex. 6, p. 1-1.
32 Indeed, customers who voluntarily waive their AB 1X protections are serving a public purpose by participating in a program designed to decrease peak demands.
33 This is not intended to be the precise language to be used in the notice, but only an outline of the points to be covered.
34 When PG&E files its Advice Letter proposing its electric tariff for the voluntary CPP rates, PG&E shall include a specific proposal on this point (i.e., whether customers who opt out of the CPP program before the end of the season still get bill protection). Any interested person will be able to protest PG&E's proposal.
35 When PG&E files its Advice Letter proposing its electric tariff for the voluntary CPP rates, PG&E shall include a specific proposal on this point (i.e., when this additional notice will go out).
36 The nature of the disclosure will need to vary depending on the kind of materials involved: e.g., radio or TV spot; newspaper advertisement; or written material given directly to the customer. Indeed, in the case of a brief broadcast announcement, a simple statement that a customer's monthly bill may be higher than otherwise may be sufficient.
37 Customer Preferences Market Research (CPMR): A Market Assessment of Time-Differentiated Rates Among Residential Customers in California, Momentum Market Intelligence, December 2003.
38 There are 5 hours between 2 p.m. and 7 p.m. Multiplying 5 hours by 15 events results in a total of 75 hours. (5 x 15 = 75 hours.)
