California Is Repricing Electricity in Real Time
San Diego Gas and Electric filed an application with the California Public Utilities Commission on February 2, 2026, requesting approval of demand flexibility rates for its commercial and residential customers. The filing, proceeding A2602001, is not a pilot program. It is a compliance filing under CPUC Decision D.25-08-049, issued in August 2025, which directed all three of California’s investor-owned utilities to develop dynamic rate structures that reflect the actual, hour-by-hour cost of electricity on the grid.
SDG&E is first to file. PG&E and SCE will follow. When all three comply, dynamic pricing will cover roughly 11 million commercial and residential electricity accounts in a state that consumes more power than most countries.
What dynamic rates actually are. Traditional electricity rates are static. A commercial customer on a time-of-use schedule pays one price during peak hours and a lower price off-peak. Those prices are set months or years in advance through rate cases and do not change based on what is actually happening on the grid on any given day. A Tuesday afternoon in March and a Tuesday afternoon in August carry the same peak rate, even though the grid conditions are entirely different.
Dynamic rates replace that structure with prices that move. Under the framework established by D.25-08-049, the dynamic component of a customer’s bill is tied to day-ahead hourly wholesale market prices and load forecasts. When the grid is flush with midday solar and demand is low, prices drop. When evening demand peaks and solar generation falls off, prices rise. The price signal reflects reality rather than an annual average.
The CPUC’s decision frames this around six objectives: grid reliability, bill affordability, reduced renewable curtailment, electrification, lower long-term system costs, and broader participation in demand flexibility. The practical effect is simpler than the policy language. Customers who can shift consumption away from expensive hours save money. Customers who cannot, pay more.
Why this matters for storage. A battery is a time-shifting machine. It charges when electricity is cheap and discharges when electricity is expensive. The value of that capability is directly proportional to the spread between low and high prices. Under static time-of-use rates, that spread is fixed and known in advance. Under dynamic rates, the spread widens on days when grid stress is highest, which is precisely when storage delivers the most value.
Consider a commercial building in SDG&E territory on a static TOU rate. The peak-to-off-peak spread might be 15 to 20 cents per kilowatt-hour, predictable year-round. Under dynamic pricing, that spread compresses to near zero on mild spring days when solar floods the grid, but expands to 30, 40, or 50 cents during summer evening peaks or grid emergencies. A battery system with intelligent controls captures the wider spreads automatically. The annual revenue from arbitrage increases without any change to the hardware.
This is distinct from demand charge reduction, which is already the primary economic driver for commercial battery storage in California. Dynamic pricing creates a second, independent revenue stream layered on top of demand charge savings. For buildings already evaluating storage on demand charges alone, dynamic rates shorten the payback period. For buildings where demand charges alone did not justify the investment, dynamic rates may close the gap.
The curtailment problem. California curtailed 3.6 million megawatt-hours of renewable energy in 2024, the equivalent of powering roughly 500,000 homes for a year. Most of that curtailment happens midday, when solar generation exceeds demand. The CPUC has identified this as a central inefficiency in the state’s grid, and dynamic pricing is designed to address it by making midday electricity extremely cheap, encouraging consumption (and battery charging) during surplus hours.
For commercial storage operators, curtailment hours are charging hours. The cheaper midday electricity gets, the wider the margin when discharging during evening peaks. Dynamic rates formalize and amplify a pattern that already exists in wholesale markets but has not previously been visible to retail customers.
SCE’s filing shows what the rate structures look like. Southern California Edison’s consolidated application, filed in parallel, proposes two dynamic rate designs. A large power customer rate combines a subscription component based on the customer’s existing tariff, a dynamic component tied to day-ahead hourly market prices negotiated through individual contracts, and a non-bypassable charge. A general dynamic rate applies to smaller commercial customers, with the dynamic component covering only the “flexible” portion of consumption.
Intervenor testimony in the SCE proceeding is due January 16, 2026, with rebuttal testimony scheduled for February 17. The timelines suggest approved rates could take effect by late 2026 or early 2027 across all three utility territories.
The structural shift. Decision D.25-08-049 moves dynamic pricing from voluntary pilot programs to core rate design policy across the state’s three largest utilities. This is not a temporary experiment. It is a permanent change in how California prices electricity, and it is designed to reward flexibility. Buildings with battery storage, smart HVAC controls, EV charging management, and other load-shifting capabilities will see lower bills. Buildings without those capabilities will see higher bills during the hours that matter most.
The filing is a regulatory document. It will not make headlines. But for commercial building owners in California evaluating battery storage, it changes the math in a way that static incentive programs never could. Incentives expire. Price signals are permanent.
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