15. PG&E's Aggregator Managed Portfolio

PG&E's Aggregator Managed Portfolio program allows demand response aggregators who enter contracts with PG&E resulting from a competitive solicitation to establish their own aggregated demand response programs. PG&E currently has five contracts with aggregators. Approved in D.07-05-029, these contracts began in 2007, and require the aggregators to provide up to about 150 megawatts of demand response by 2011. These contracts act as Non-participating Load in the current CAISO market, since the contracts do not allow demand response events to be called by local capacity area.¹⁴³ These contracts are already approved by the Commission and in operation. No action on these contracts by the Commission is required in this decision.¹⁴⁴

Like PG&E, SCE has several ongoing contracts with third-party demand response aggregators, which do not need to be addressed in this decision. SCE also requests approval of new contracts in its 2009-2011 application; these contracts are discussed in Section 19, below. SDG&E does not have similar aggregator contracts, and does not request authority in this proceeding to enter into any in this proceeding.

In the current application, PG&E proposes to issue a Request for Proposal (RFP) in late 2010 to replace its current aggregator contracts, which expire at the end of 2011. The purpose of such an RFP would be to replace the current contracts with contracts that could be more coordinated with the CAISO's new markets, possibly providing Proxy Demand Resource and/or Participating Load.¹⁴⁵ PG&E states "The replacement RFP and resulting contracts will incorporate CAISO's current MRTU phase requirements and will be callable within the Proxy Demand Resource (PDR) or Participating Load (PL) guidelines."¹⁴⁶ An RFP could also be used to solicit additional demand response capacity.

It is not yet certain how demand response should be structured to participate most efficiently in California's future electricity market under the CAISO's new markets, to provide the greatest benefits to ratepayers in 2012 and beyond. One uncertainty is whether it will be necessary for aggregators to enter into contracts with utilities in order to provide demand response services to California customers. As directed by FERC in its Order 719,¹⁴⁷ CAISO is currently in the process of designing wholesale markets in which third-party demand response aggregators would be able to bid their clients' demand reductions directly into the markets, rather than providing this load reduction to the utilities, who would then bid the demand response into the markets themselves. This capability, often referred to as "direct bid-in" or "direct participation," could be available as early as 2010. Under direct bid-in, aggregators would receive payments through the CAISO markets for the demand response reductions they provide, instead of or in addition to payment through a utility.

If direct bid-in becomes available, it is unclear whether it would still be necessary or desirable for utilities to enter into contracts with third-party aggregators. In any case, it is possible that contracts of the type PG&E requests approval to solicit in 2011 will no longer be appropriate at that time.

The existing aggregator contracts (those previously approved by the Commission and those approved for SCE in this decision) will present a layer of complexity for both the CAISO and the Commission in terms of ensuring that the market functions properly and is competitive to the benefit of customers.

It is not necessary to determine at this time whether an RFP will be appropriate in 2011. There are reasons to believe that changes in the energy market over the next two years may affect the desirability of entering into new contracts for 2012 and beyond. It is reasonable to await additional information before approving the RFP request. PG&E and certain other parties suggest that the Commission should approve the PG&E proposal to issue an RFP despite the existing uncertainties. According to PG&E, this would preserve the possibility of entering into new contracts for 2012 but would still allow for the Commission to deny contracts negotiated on the basis of the RFP if appropriate. It is not reasonable to approve ratepayer funding for an RFP at this time given the uncertainty about the need for or desirability of contracts in 2012 or beyond. PG&E's request to issue an RFP to enter into new demand response contracts is denied without prejudice; PG&E may propose a similar RFP in the future, if appropriate based on market conditions.

In addition to PG&E's request to issue this RFP, PG&E also requests funding to support its existing aggregator managed contracts. The amount of funding needed to support these contracts is not clearly defined in the PG&E application, however, the Bridge Funding Decision granted PG&E $924,000 to support these activities in 2009. We authorize a total of $2,772,000 for administration of aggregator managed contracts in 2009-2011, three times the amount approved for aggregator managed contracts in 2009.

¹⁴³ PG&E, Exhibit 201 at 2-15.

¹⁴⁴ In March 2009, PG&E filed a Petition to Modify D.07-05-029 seeking authorization to modify the terms of one of the five contracts. DRA has protested PG&E's petition.

¹⁴⁵ Proxy Demand Resource and Participating Load are discussed in more detail in Section 16, below.

¹⁴⁶ PG&E Exhibit 201.

¹⁴⁷ If such direct bidding is allowed by state and local market rules.