3. Policy Background
The Commission articulated a comprehensive demand response policy in its 2003 Vision Statement.7 In that statement, the Commission stated that electric customers should have "the ability to increase the value derived from their electricity expenditures by choosing to adjust usage in response to price signals" as customers are equipped with advanced meters as a result of the Commission's Advanced Metering Infrastructure (AMI) decisions.
Prior to the 2003 Vision Statement, virtually all large customers had moved to time-of-use (TOU) rates. TOU rates consist of several pre-defined time periods and charge customers different pre-determined rates during each time period. For example, during the summer the rate charged during the afternoon is generally higher than the rate charged at night. The different rates reflect the fact that it is generally more expensive to serve customers during some time periods. TOU rates do not change based on current market conditions. In the 2003 Vision Statement, the Commission recognized the value of moving beyond TOU rates to truly dynamic rates that change based on actual system prices and conditions.
The Energy Action Plan II (EAP II), developed and adopted jointly by the CPUC and California Energy Commission (CEC), sets out key actions that both agencies intend to pursue. The EAP II identifies demand response, along with energy efficiency, as the State's "preferred means of meeting growing energy needs."8
The EAP II concludes that "[w]ith the implementation of well-designed dynamic pricing tariffs and demand response programs for all customer classes, California can lower consumer costs and increase electricity system reliability."9 The Commission intends to pursue its Energy Action Plan objectives in this proceeding.
One key action of special relevance in this proceeding is the following:
Identify and adopt new programs and revise current programs as necessary to achieve the goal to meet five percent demand response by 2007 and to make dynamic pricing tariffs available for all customers.10
Dynamic pricing rates include CPP and Real-Time Pricing (RTP). 11
The Commission has identified rate design proceedings as the appropriate forum to address dynamic pricing. In D.05-11-009, the Commission determined that dynamic pricing tariff options for all types of customers should be addressed in each utility's comprehensive rate design proceeding.12 Furthermore, in D.06-05-038, the Commission directed each utility "to incorporate default critical peak pricing tariffs for large customers into their next comprehensive rate design proceeding or other appropriate proceeding if directed by the Commission."13
The Commission has also directed each utility to submit RTP tariffs in its first comprehensive rate design proceeding, following the California Independent System Operator's (CAISO) implementation of its Market Redesign and Technology Upgrade (MRTU).14
Finally, at the May 25, 2006 Commission public meeting adopting D.06-05-038, several Commissioners indicated their desire to address CPP issues in this proceeding.
Most dynamic pricing rates require meters that can measure a customer's usage on an hourly basis or even more frequently. Meters that have this type of capability are referred to as interval meters or advanced meters. PG&E's large commercial and industrial (C&I) and agricultural customers with maximum usage of greater than 200 kilowatts (kW) have interval meters, but the roll out of advanced meters to PG&E's smaller customers, including residential and smaller C&I customers, is just beginning. In D.06-07-027, the Commission approved PG&E's service territory-wide AMI project, and in A.07-12-009, the Commission is considering an upgrade to PG&E's project. Until metering infrastructure is more broadly available, dynamic tariff design may be constrained to certain customer groups. However, by 2012, all of PG&E's customers should have advanced meters, so all customers can take advantage of dynamic pricing.
7 "California Demand Response: A Vision for the Future (2002-2007)," referred to here as the 2003 Vision Statement, was attached to D.03-06-032 as Attachment A.
8 EAP II, p. 2.
9 Id., p. 4.
10 Id., p. 5.
11 Definitions:
Critical Peak Pricing (CPP): A dynamic rate that allows a short-term price increase to a predetermined level (or levels) to reflect real-time system conditions. Typically, the time and duration of the price increase are predetermined, but the days are not predetermined.
Real-Time Pricing (RTP): A dynamic rate that allows prices to be adjusted frequently, typically on an hourly basis, to reflect real-time system conditions. (Glossary of Retail Electricity Rate Terms, Attachment A to D.03-03-036.)
12 See D.05-11-009, Ordering Paragraph (OP) 3, 4, and 5.
13 D.06-05-038, p. 16.
14 D.05-11-009 states "As the CAISO moves to implement its market redesign, we anticipate that transparent pricing information will become available that will facilitate development and adoption of a true RTP tariff. However, design of such a tariff cannot be performed in isolation from comprehensive rate design examination. Therefore, we direct each utility, as part of its next comprehensive rate design proceeding application following development and final implementation of an hourly day-ahead market price by the CAISO, to submit a real time pricing tariff for consideration as part of its tariff offerings." (P. 7.)
