Critical Peak Pricing Rates: A Marginal Cost Approach
3 April 2008
By Amparo Nieto
NERA Senior Consultant Amparo Nieto delivered the third in a series of presentations about electricity demand-response programs and Critical-Peak Pricing (CPP) rates at the 2008 MCWG Spring meeting in Phoenix on 3-4 April. Ms. Nieto drew on her extensive experience in marginal cost studies and electricity rate designs to discuss a step-by-step method to estimate hourly marginal costs and CPP charges. Her approach is intended to capture the full potential for efficiency gains, while keeping equity and other considerations in mind. Ms. Nieto discussed key issues related to program design, such as choice of critical hours and critical event triggering factors, as well as choices of class revenue targets that may be more efficient than under the traditional class revenue neutrality goal. Ms. Nieto conceded that no rate design is ever economically optimal because utilities must face real-world constraints, but the starting point of their analysis must be marginal costs.
