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California Experiment: Dynamic Pricing for the Mass Market

Will the state launch a full-scale rollout of dynamic tariffs?
Fortnightly Magazine - July 1 2003

California Public Utilities Commission (CPUC) initiated a proceeding in July 2002 designed to introduce demand response in California's power market. 1 Three working groups were charged with developing specific tariff proposals to achieve increased demand response in the state. The mission of the third working group (WG3) was to develop a dynamic tariff (or set of tariffs) for residential and small commercial customers with demands of less than 200 kW. WG3 included representatives from the state's three investor-owned utilities, 2 commissions, equipment vendors, The Utility Reform Network (TURN), and other interested parties. As part of the WG3 deliberations, Charles River Associates (CRA) conducted a preliminary analysis of dynamic pricing for Pacific Gas & Electric Co. It showed a wide range of net benefits from the implementation of dynamic pricing. The net present value ranged widely, depending upon assumptions about meter and rate deployment strategy and costs, the level of customer demand response, and the magnitude of avoided energy and capacity costs. Analysis also indicated that conducting an experiment with a few thousand customers could reduce this uncertainty.

Based in part on this preliminary analysis, on Dec. 10, 2002, WG3 recommended that the state conduct a carefully designed social experiment with different pricing options in connection with making a decision on full-scale deployment of an automated metering infrastructure. -A.F. and S.G.

  1. Order instituting rulemaking on policies and practices for advanced metering, demand response and dynamic pricing, Docket 02-06-001.
  2. Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison.

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