California Experiment: Dynamic Pricing for the Mass Market

Will the state launch a full-scale rollout of dynamic tariffs?

A pilot program in California is putting dynamic pricing and advanced metering to the test.

The California Public Utilities Commission (CPUC) approved a Statewide Pricing Pilot (SPP) in March,¹ at a cost of approximately $10 million, including metering, project planning, management, evaluation, and concurrent market research on non-pilot participants focused on customer preferences for rate options.²

The SPP has the following objectives:

• Estimate demand curves for electricity consumption by time-of-use for dynamic tariffs, and derive the associated price elasticities of demand;
• Gather information on customer acceptance of dynamic tariffs, control technologies, and information treatments;
• Forecast the impact of a full-scale rollout of dynamic tariffs; and
• Provide input into a cost-benefit analysis of universal deployment of advanced metering infrastructure.

Building on the past quarter century of research on time-differentiated pricing, the SPP breaks new ground in a number of areas. First, it will test time-varying rates against a backdrop of an inverted five-tier rate structure that was created in response to the energy crisis of 2000-01. Second, it will use an integrated sample design across three utility service areas. Third, it will use similar rates across the three utilities.