Peak Day Pricing Day at PG&E

Today a Peak Day Pricing Day at PG&E

As I write this on July 16, 2010 it is an expected peak day event day at Pacific Gas & Electric Company (PG&E) for business customers.  This means that peak day pricing will kick in to reduce demand this afternoon or business customers will pay a much higher price for electricity.

Time of use pricing is not a new concept.  It has been around for years especially for commercial and industrial customers.  The California Public Utilities Commission approved a new demand response pricing plan for PG&E in February 2010.[1] The program is getting generally good reviews from environmental advocates who believe it will encourage more energy efficiency and use of renewables.[2] PG&E’s efforts with Peak Day Pricing is designed to simplify the sometimes complex process, get more participation by using opt-out instead of opt-in strategies, and improve the coordination of policies for energy efficiency, demand response, emissions reduction and dynamic pricing.  This pricing structure does not yet affect residential customers but our day is coming.

Customers switched to PDP must have had 12 months with an interval meter and three consecutive months of energy demand greater than or equal to 200 kW in the previous 12 months to qualify.  Commercial and industrial customers of any size who participate in either SmartRate™ or Critical Peak Pricing (CPP) will also transition to PDP.

What does Peak Day Pricing mean to Customers?

Peak day pricing (PDP) is the new rate structure PG&E has put in place for its business customers to encourage demand response.[3] It is a variation of time of use rates. PDP improves grid reliability, reduces demand on the hottest days, and cuts greenhouse gas emissions along with energy use. Since the wholesale price of electricity is generally set as the marginal cost of adding the next increment of power to meet demand—the hotter it gets the higher the costs to serve the next block of power.  To help accomplish this, PG&E shifted business customers to PDP unless they “opt-out” or choice an alternative demand response program. This is part of a larger, statewide initiative led by the California Public Utilities Commission to expand energy efficiency and reduce both emissions and the need to build new power plants.  Business customers are also getting advice and assistance from a growing number of energy management firms seeking a cut of the potential energy savings from efficiency and demand response.[4]

How Does a Peak Demand Event Day Work?

Customers get notice the afternoon before expected peak event days. An event day is caused by hot summer temperatures of 96 degrees or more as forecast by the grid operator, California Independent Service Operator (CAISO) or when the grid faces other emergency conditions. On peak event days, electricity prices increase during peak demand times typically from 2 to 6 p.m. Customers are encouraged to drop and shift energy use away from these event days and times—failure to respond will result in a price spike on the utility bill.

Won’t Business Customers just Opt-Out?

PDP offers business customers the option of lower electric price most of the time, if they agree to pay higher prices when PG&E is facing peak demand.  In fact, PG&E has proactively been working with business customers to show many of them that they can actually save money by doing simple things to reduce their energy demand during peak day events.  In this economy saving money on your energy bill gets a business owner’s attention. PDP’s lower summer rates may reduce energy costs if that business can cut energy use on event days.

The largest energy users among business customers on E-19 and E-20 rate schedules can use “reservation capacity” to pay fixed charges for a fixed part of their energy use thus limiting their exposure to higher PDP prices for use above their fixed reservation level.  Essentially, this means that business customers plan their energy use and notice PG&E so it, in turn, can better estimate it total peak demand.  This takes much of the unpleasant surprise out of the PDP program.  Those customers that do not set a reservation capacity amount when they sign up default to 50% of their average peak-period maximum demand during the previous six summer months.

PG&E says that a majority of its business customers maintain or lower overall energy costs. But customers who don’t think they can manage the demand response have choices of other demand response solutions such as automatic devices that let PG&E cycle HVAC and other energy uses a few minutes at a time to better manage load.  Most businesses will not likely notice the differences and most devices have a panic button to let the business override it.

Oh, Crap!  Forgive me PG&E for I have Sinned against God and my Utility!

And just in case something goes wrong and a customer messes up in his demand response, PG&E also has a bill stabilization safety net built into the program.  During the first 12 months on PDP pricing, customers are automatically be enrolled in Bill Stabilization. After 12 months, PG&E reviews how the customer has performed. Customers who pay more on PDP than their previous time-of-use (TOU) rate schedule, get a “forgiveness credit” on their subsequent bill.  Opt-out to TOU customers may opt out of the PDP pricing plan to a TOU rate schedule up to 2 business days before their PDP effective date.

So what?

So kudos to PG&E for what looks like a good transition to a smart program for business customers.  Setting up PDP so that most customers save money—or at least don’t have to pay more—if they actively participate is a great customer education strategy.  Customers are involved, understand the program, know that they have options and choices are more likely to be satisfied with the results—and so will the utility.

It is a peak load day today and we surely will have more of them this summer so we’ll see how it goes, but other utilities looking to expand their demand response participation by customers and improve customer satisfaction can learn some valuable lessons from the PG&E experience with Peak Day Pricing.