California Institute for Energy and Environment (CIEE)

The rapid growth of renewable generation is creating challenges for the California grid in the form of the duck curve, with increasingly steep generation ramping requirements and growing curtailment of renewable resources. In response, there has been increased discussion of promoting dynamic electricity tariffs that vary with conditions on the grid in near-real time, which could incentivize customers to shift consumption and help flatten the duck curve. Dynamic tariffs may raise concerns about financial impacts on utility customers, bill volatility, and equity issues arising from potential cost shifting among customer groups. In this report, we leverage smart meter data for more than 400,000 California utility customers to assess potential customer bill impacts arising from a multi-component dynamic tariff that is conceptually informed by the “California Flexible Unified Signal for Energy” (CalFUSE1 ) tariff structure that has recently been proposed by staff at the California Public Utilities Commission (CPUC). Specifically, we compute impacts on customer bills and bill volatility under the assumption of fully inelastic demand, i.e., where customers do not change their consumption patterns in response to the tariff. Implicit in this assumption is that even flexible loads, such as storage and EV charging, do not respond to the dynamic tariff. In practice, customers would have the opportunity to reduce their bills by modifying their consumption patterns and operational profiles of flexible devices under a dynamic tariff; thus, the results of this study represent a worst-case set of bill impacts, which could provide a useful benchmark for future studies of customer response to dynamic tariffs.

We develop a single hypothetical dynamic tariff for each IOU, which applies to all of that IOU’s customers regardless of sector or customer class. The tariff is constructed to be revenue-neutral for the utility, relative to presently active IOU tariffs, so that any increase or decrease in one customer’s bill will be offset by changes in other customers’ bills, allowing us to assess any changes in cost allocation among customer classes (i.e., “cost-shifts”) that would accompany a universal dynamic tariff. The hypothetical dynamic tariff recovers all required utility revenue through a purely volumetric energy charge (i.e., with no demand charges or fixed charges) whose rate varies hourly based on expected conditions on the grid, as reflected in the CAISO day-ahead market.