DEEP DIVE: SDG&E's $11.3 Million Demand Flexibility Filing - Compliance, with Reservations

TL;DR

• What happened: SDG&E filed a compulsory demand flexibility rate application, requesting $11.3 million in cost recovery through 2036.
• The subtext: The utility is building a defensive record. SDG&E cites $2.4 million spent on an export pilot with zero enrollment, notes 80% of its customers take Community Choice Aggregator generation service (meaning most can't access full demand flexibility benefits), and repeatedly cites affordability concerns.
• Rate design: Opt-in only. Day-ahead CAISO pricing with price caps/floors. Location-based distribution adders across 10 circuit clusters. One-year minimum enrollment. Net Energy Metering, Net Billing Tariff, and conjunctive billing customers are excluded.
• The buried data point: Negative wholesale pricing hours jumped from 43 (2022) to 989 (2024), a 23 x increase suggesting California's solar surplus problem is intensifying faster than rate design can accommodate.
• Bottom line: This is demand flexibility designed not to scale. SDG&E has complied appropriately with CPUC guidance while constructing a paper trail that could justify minimal deployment for years.

Protests/responses are due March 5.

Application Summary

SDG&E filed a new application seeking CPUC approval for opt-in demand flexibility rates in compliance with a 2025 decision (D.25-08-049). The proposal would introduce rates that provide participating customers with day-ahead hourly price signals, Time-of-Use transmission charges, and location-based distribution pricing.

In theory, this offering would allow customers to shift electricity usage in response to granular price signals. SDG&E states that potential benefits include more efficient load shifting, opportunities for bill savings, and improved grid reliability. But it also expresses reservations about pursuing a complex new rate design at this time given affordability concerns, limited demonstrated customer interest, and the fact that about 80% of customers take generation service from Community Choice Aggregators that are not planning to offer complementary demand-flexible commodity rates.

SDG&E requests authorization to recover approximately $11.3 million in revenue requirements associated with planning, design, billing system modifications, customer protections, marketing, and implementation of the demand flexibility rates. Cost recovery will be phased in beginning as early as 2028 through 2031, with any post-2031 recovery addressed in future General Rate Cases.

SDG&E emphasizes that its prior export pilot saw no customer enrollment despite $2.4 million in spending, and that similar pilots at PG&E and SCE have not yet been fully evaluated, reinforcing the utility’s view that a cautious, affordability-focused approach is warranted.

Accompanying Testimony

Below are brief summaries of SDG&E's accompanying testimony.

POLICY

SDG&E explains that the demand flexibility rate application is filed to comply with D.25-08-049, but the utility is explicit that it does not view broad demand flexibility deployment as cost-effective or prudent under current affordability conditions. The utility emphasizes that most customers in its service territory receive generation service from CCAs that are not planning to offer demand flexibility commodity rates, meaning fewer than 20% of customers would see full demand flexibility benefits.

SDG&E also cites the lack of enrollment in its existing Dynamic Export Rate Pilot and the incomplete evaluation of PG&E and SCE demand flexibility pilots as reasons for caution. Nonetheless, the application proposes demand flexibility rates designed to meet Load Management Standards, provide hourly day-ahead price signals, and preserve customer protections while balancing implementation complexity, equity considerations, and revenue stability.

COMMODITY/GENERATION

This chapter describes the generation commodity components of the demand flexibility rates, which consist of Marginal Energy Costs and Marginal Generation Capacity Costs.

• Marginal Energy Costs are based on CAISO day-ahead Default Load Aggregation Point prices and incorporate distribution and transmission loss factors to reflect meter-level delivery costs.
• Marginal Generation Capacity Costs are calculated using a cost-of-new-entry framework based on four-hour lithium-ion battery storage, with values derived from the most recent Integrated Resource Plan inputs. Flexible capacity is valued at $0.00, reflecting SDG&E’s determination that existing resources are sufficient to meet ramping needs. The Marginal Generation Capacity Cost is applied using a Top 150-hour approach based on system load, intended to preserve price responsiveness while maintaining revenue stability. Non-marginal generation costs would be recovered through an Equal Percent of Marginal Cost factor applied to the Marginal Energy Cost component, embedding them in the hourly price signal.

SDG&E evaluated three approaches for applying the MGCC; the two Loss of Load Probability-based methods would have collected more than the entire $595 million commodity revenue requirement: