# Critical Peak Pricing for Commercial Customers

> A few event days a year at a very high price, paid for by a discount on every other day. Whether that suits a site comes down to how many kilowatts it can drop when an event is called.

Section: Rate Schedules and Tariffs  
Author: Nil Masferrer Jiménez  
Published: 2026-09-24  
Reading time: 5 min

## In short

- **Critical peak pricing** charges a very high price during a few event hours on a limited number of days a year.
- In return, prices on **every other day** are lower than on the comparable time-of-use schedule.
- Events are called by the utility, typically on the hottest days, with advance notice set in the tariff.
- The rate pays off only if the site can **reduce load on event days**. The breakeven is a number of kilowatts, and it can be calculated.
- Some tariffs add protections: first-year bill stabilization, or a capacity reservation that shields part of the load from the event price.

Critical peak pricing is a trade. You accept a steep price on a few days you do not choose, and the utility gives you a lower price on all the days you do not think about. Whether the trade is good depends almost entirely on what the site does on the event days.

## How the structure works

A CPP schedule starts from an ordinary time-of-use structure and changes two things.

On **event days**, a large adder applies to energy used during the event hours — the utility's most expensive hours of the year, which is the whole point. On **non-event days**, some combination of summer on-peak energy prices and on-peak demand charges is reduced, so that a customer who does nothing different pays roughly what they would have paid on the underlying schedule over the year.

The design goal is revenue neutrality for an average customer who does not respond. Every kilowatt the site drops during an event is then a saving, and every kilowatt it does not drop is paid at the event price.

## What the California decision set

The clearest primary source on the mechanics is the California commission's 2010 decision establishing Peak Day Pricing for PG&E. It set out features that recur in CPP designs elsewhere:

- **Between 9 and 15 event days per calendar year.**
- **Default enrollment** for large commercial and industrial customers, with the option to opt out to a time-of-use rate.
- **Bill stabilization for the first year** for customers defaulted onto the rate or choosing it, unless they waive it.
- A **capacity reservation option** for larger customers, and an alternating-event-day option for smaller ones.

These are the provisions to look for in your own utility's schedule. The specific numbers — the adder, the credits, the event window, the notice period — are all tariff terms, and [reading the tariff book](https://thedemandcharge.com/articles/tariff-book-how-to-read) is how you find them.

## The breakeven, worked

**One summer on a CPP schedule**

A site with a 500 kW summer on-peak demand, averaging 450 kW through the event hours, and 12 event days.

- Credit: on-peak demand charge reduced by $6.00 / kW-month × 500 kW × 4 months: $12,000
- Credit: on-peak energy reduced by 1.0¢ on 200,000 kWh: $2,000
- (Total credits over the summer): $14,000
- Event adder: $0.90 / kWh
- Event hours: 12 events × 4 hours: 48 hours
- (No response: 450 kW × 48 h × $0.90): $19,440
- (Drop 200 kW on event days: 250 kW × 48 h × $0.90): $10,800
- Breakeven event load: $14,000 ÷ ($0.90 × 48 h): 324 kW
- **Kilowatts the site must drop on event days to break even: 126 kW**

*Without a response the site loses $5,440 on the season. Dropping 200 kW, it gains $3,200. The whole decision is whether 126 kW can reliably come off for four hours whenever an event is called. Figures illustrative.*

The calculation is simple once the tariff terms are in hand, and it should be done against your own interval data: take last summer's hottest weekdays as stand-ins for event days and read off what the site actually drew during the event window.

## Where the kilowatts come from

The load that can be dropped at an event's notice is usually the same load that serves other demand programs: pre-cooling and raising setpoints, deferring batch processes, shifting charging or pumping, running on-site storage. [Demand response programs](https://thedemandcharge.com/articles/demand-response-programs) covers how those resources are assessed, and the same inventory serves both purposes.

Two cautions. First, an event that moves load rather than removing it can move it into a new, higher interval later in the day, which a facility demand charge will still bill. Second, a site that curtails reliably on twelve days in a row in a heat wave is doing something harder than curtailing once; test the response against a sequence of consecutive events, not a single one.

## CPP and the monthly demand charge

A CPP schedule does not replace the demand charge. On most designs the facility or on-peak demand charge still applies every month, and the event adder sits on top of it as an energy price.

That has two consequences. First, an event-day response that does not remove load but moves it — pre-cooling hard at 11 am to coast through a 2 pm event, say — can set a new monthly maximum in the pre-cooling interval. The event is avoided and the demand charge rises. The response has to be planned against both determinants at once, and [facility versus on-peak demand](https://thedemandcharge.com/articles/facility-vs-on-peak-demand) explains which interval each one reads.

Second, the credit is only as good as the determinant it reduces. A credit on the on-peak demand charge is worth more to a site whose on-peak demand is high and steady than to one whose peak is brief and irregular. Read which line the credit lands on before valuing it.

## Using the first-year protection well

Where a tariff offers first-year bill stabilization, as the California decision did, the first season is the cheapest time to learn what the site can actually do. Use it deliberately: log each event, record the load drop achieved against the target, and note which measures held and which were overridden by production. Read the protection's exact terms in the tariff first, because they define what is being protected and for how long. At the end of the season you have evidence rather than an estimate, and the decision to stay or opt out can rest on it.

## Before you elect or accept it

Model the schedule side by side with the time-of-use alternative on the same interval data, as described in [choosing a rate schedule](https://thedemandcharge.com/articles/how-to-choose-a-rate-schedule), and read the switching provisions — notice, minimum stay, the terms for returning — before committing: [switching rules](https://thedemandcharge.com/articles/rate-switching-rules). If you were defaulted onto CPP and cannot respond to events, opting out may be the cheapest action available this year.


## Sources

- [CPUC Decision 10-02-032 on Peak Day Pricing for PG&E](https://docs.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/114280.htm)
- [California Public Utilities Commission — Demand response](https://www.cpuc.ca.gov/industries-and-topics/electrical-energy/electric-costs/demand-response-dr)
- [Federal Energy Regulatory Commission](https://www.ferc.gov/)
- [Berkeley Lab — Energy Markets and Policy](https://emp.lbl.gov/)

## Frequently asked questions

### How is critical peak pricing different from time-of-use?

Time-of-use prices are fixed in advance for every weekday of the season. Critical peak pricing adds a much higher price on a limited number of event days, called by the utility with advance notice set in the tariff, and lowers other prices to compensate.

### How many event days are there?

The tariff sets a range. The California decision that established Peak Day Pricing for PG&E in 2010 set between 9 and 15 event days per calendar year. Check the current schedule for your own utility, because the number is a tariff term, not a law of nature.

### Can I be put on a CPP rate without asking?

In some places, yes. That same decision defaulted large commercial and industrial customers onto Peak Day Pricing, with the option to opt out to a time-of-use rate and with bill stabilization during the first year.

### Is CPP worth it if I cannot curtail?

Usually not. A site that runs the same load on event days pays the event price in full and has only the off-event discount to set against it. The rate rewards the ability to respond, and charges for the lack of it.

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