19. SCE Contracts with
Demand Response Aggregators19.1. Procedural Background
In A.08-06-001, SCE asks approval of four contracts with four different demand response aggregators, Energy Curtailment Specialists (ECS), EnerNOC, AER, and ECI. The Commission previously rejected contracts with these providers in D.08-03-017, in which four other aggregator contracts were adopted. That decision suggested that SCE could renegotiate the rejected contracts and request approval of the modified contracts in this application, which SCE subsequently did.
All four contracts originally included provisions that they would terminate if not approved by the Commission by February 28, 2009. Three of the aggregators amended their contracts to extend the approval deadline to June 30, 2009; ECI did not approve an extension, and allowed its contract to terminate under this provision. The ECI contract is therefore no longer under consideration in this proceeding.
On February 23, 2009, SCE filed a motion for approval of a settlement agreement the contracts between SCE and EnerNOC, and between SCE and AER. The Settlement Agreement is between DRA, SCE, and these two contractors; the redacted public version of this settlement agreements are included with this decision as Attachment A.219 ECS, which was not a party to this settlement, filed comments on March 25, 2009, opposing the settlement unless several modifications in the settlement were also applied to ECS's own contract with SCE. Both DRA and SCE filed comments opposing the request to apply some (but not all) modifications made to the AER and EnerNOC contracts to the ECS contract.
On April 17, 2009, SCE and ECS filed a joint motion to withdraw the ECS contract from consideration in this proceeding. No parties filed responses to this motion, which remains unopposed. The motion to withdraw the ECS contract is granted, and only the EnerNOC and AER contracts as modified in the February 23, 2009, proposed settlement remain at issue in this proceeding.
19.2. DRA Analysis of the Proposed Contracts
The only party in this proceeding that provided detailed independent analysis of these proposed aggregator contracts is DRA. Based on its analysis, DRA asserts that the four aggregator contracts as originally proposed in SCE's application are substantially similar to the contracts rejected by the Commission in D.08-03-017. DRA argues that these contracts are poorly structured, not cost effective, and do not include substantially better ratepayer protections than the four aggregator contracts that the Commission rejected in D.08-03-017.220 DRA also states that the payment and penalty history of the current SCE contracts shows that in the months an event is not called, the aggregator is paid for capacity it has not shown it can deliver,221 and that the penalty structure and the basic capacity and energy payment structure in the proposed contracts are identical to the ones in the existing contracts, as well as the rejected contracts.222 DRA also states that the Commission should direct the utilities to require that all proposed third-party contracts contain provisions that adjust capacity payments based on an aggregator's most recent performance in a Test, Re-Test, or dispatch event to ensure that payments during the ramp-up period and beyond are commensurate with actual performance.223 DRA alleges that the four contracts as originally submitted have significant potential to overpay aggregators for demand reductions rarely if ever delivered.
19.3. Discussion
In order to adopt the settlement agreement, it is necessary to find that "the settlement is reasonable in light of the whole record, consistent with law, and in the public interest."224 The settlement of the EnerNOC and AER contracts in this case is essentially uncontested. The only objection to the settlement was from ECS, which objected to certain provisions unless they could also be applied to the ECS contract. Because the ECS contract has been withdrawn, this issue is no longer relevant. To determine the reasonableness of this uncontested settlement, we analyze it within the context of the initial litigation positions of the parties.
We find the settlement reasonable in light of the whole record, consist with the law, and in the public interest. The terms of the contracts under the proposed settlement are significantly improved from the originally proposed terms: they are likely to be less susceptible to gaming by the contractors, and more likely to deliver the promised capacity when called. The prices to be paid by SCE have also been lowered.
In its application, SCE initially estimated the benefit to cost ratios of these two contracts to be close to or exceeding 1.0, depending on the amount of transmission and distribution benefits included in the analysis.
By lowering the costs to be paid by SCE while not reducing the benefits under the contracts, the modifications made in the settlement are likely to improve the benefit to cost ratios of these two contracts, which were already close to (or exceeding) one. Because the settlement effectively addresses the gaming concerns of DRA and is likely to improve the contracts' cost effectiveness, it is reasonable to approve the settlement, and approve the contracts between SCE and AER, and SCE and EnerNOC as modified under that settlement. We also approve the associated funding for these two contracts, totaling $38,773,160.
We note that the baseline and multi-program participation rules agreed upon in these contracts are not consistent with the rules adopted for other programs elsewhere in this decision. We adopt the settlement and approve the contracts as proposed, but in the future we expect parties to comply with the principles for baseline calculation and the multi-program participation rules established in this decision.
219 The Settlement Agreement is Exhibit A of Joint Motion of Division of Ratepayer Advocates, Southern California Edison Company, EnerNOC, Inc., and Alternative Energy Resources, Inc., for Adoption of Settlement Agreement, filed February 18, 2009.
220 DRA, Exhibit 316 at 8.
221 DRA, Exhibit 316 at 10.
222 DRA, Exhibit 316 at 12.
223 DRA, Opening Brief at 23.
224 Commission Rules of Practice and Procedure, Rule 12.1(d).
