20. BluePoint Proposal: Backup Generation

In its initial comments²²⁵ on the utilities' applications, BluePoint introduces the concept of "backup generation with enhanced controls" (BWEC). According to BluePoint, BWEC involves the use of proprietary enabling technology to harness a certain type of mandated test generation from some backup generators. In its testimony, BluePoint asserts that its BWEC technology meters, monitors, and dispatches backup generation from meter tests that is currently wasted, and allows this generation to be dispatched from a central location, making that energy available during peak demand.²²⁶ By enabling the use of this energy, and dispatching it at peak times, BluePoint argues that properly configured backup generation such as BWEC has characteristics of demand response in that it can decrease net load on demand, allowing it to function as participating load, and can respond to price signals, scarcity pricing, and variability of production by renewable energy sources.²²⁷ BluePoint further advocates for the Commission to allow cost effective backup generation resources to receive technical assistance and technology incentives funding as a demand response resource. Specifically, BluePoint considers backup generation to be a demand-side resource because it is typically owned by a customer, not a utility or other load-serving entity, and is operated for that customer's own benefit. ²²⁸

BluePoint argues that backup generation, as a demand-side resource that has the characteristics of demand response, should be considered a valid demand response option that is eligible to receive demand response funding, including Technical Assistance and Technology Incentives funds. BluePoint further argues that the technology used to reduce load is less important than the load reduction itself, and that when load curtailment is present with behind the meter generation that uses clean and efficient use of fuels for load reductions, as it contends is the case for BWEC, it is reasonable to make such activities eligible for TA/TI funds.

BluePoint further contends that BWEC is environmentally friendly, both because it does not increase greenhouse gases or other harmful emissions if the generators use renewable energy or otherwise minimize emissions, but also because BWEC captures energy from required generator tests that would be run in the absence of BWEC, converting wasted energy into a useable resource.

All three utilities and TURN oppose the BluePoint proposal. TURN asserts that BWEC is not a demand response proposal, but a proposal that would use demand response funds to subsidize generation.²²⁹ TURN also disputes the contention by BluePoint that BWEC is "green" or environmentally friendly, noting that an early study of demand response suggested that demand response programs could actually increase net emissions by encouraging the use of diesel-fueled backup generators. ²³⁰ In addition, TURN disputes the assumptions made by BluePoint about the number of hours in which BWEC from generator tests could be available up to 250 hours per year, saying that a much lower number is more likely.²³¹ TURN suggests that the Commission require the collection of this information as part of the 2009-2011 program evaluation activities.²³²

SDG&E asserts that BluePoint failed to meet its burden of proof that the BWEC proposal addresses the Commission's concerns about backup generation, and that BluePoint has failed to meet this burden through its testimony in this proceeding.²³³ SDG&E states that if the Commission believes that BluePoint has met its burden of proof, BWEC related projects that meet all other program requirements could be eligible to receive Technical Assistance and Technology Incentives funding. PG&E notes that the Commission has rejected previous proposals to use demand response funds on backup generation on the grounds that backup generation is not true demand response, and encourages the Commission to reject the BluePoint proposal in this proceeding on the same basis.

20.1. Discussion

In at least two previous decisions, the Commission has stated it does not consider backup generation to be a type of demand response, and has rejected requests to use demand response funds to support backup generation. In D.06-11-049, the Commission considered and rejected a PG&E proposal to add emissions control technologies to diesel engines. The Commission stated that, "... Our objective in funding demand response programs is to reduce system demand, not to substitute system electricity with electricity generated by off-grid facilities. We previously found in D.05-01-056 that backup generation is not a true demand response resource."²³⁴ Similarly, in D.05-01-056, the Commission found that backup generation is not a demand response resource, and expressly stated that, "... in future years, [backup generation demand response programs] should not be funded through the demand response program budgets."²³⁵ The Commission has also expressed concern that backup generation, such as diesel generators, contradicts the Energy Action Plan's loading order preference and represents one of the dirtiest generation sources available.²³⁶

BluePoint has not provided sufficient new information to persuade us that backup generation actually provides demand response by reducing load, rather than substituting energy from a different source. As TURN notes, we do not have information on the frequency with which participants in demand response programs use backup generation to meet their energy needs when called upon to reduce load as part of a demand response program, and it is possible that this is occurring on a regular basis. The issues here are not whether this should happen or how often it happens, but whether the Commission should encourage this substitution by facilitating the substitution with demand response funding. As a policy matter, we have already found that subsidizing backup generation with demand response funds is not appropriate; we prefer to reserve these funds for activities that reduce total energy use. Consistent with this policy, we are not persuaded that it is appropriate to use demand response funds on backup generation, and we will not adopt the BluePoint proposal to recognize backup generation as demand response nor use technical assistance and technology incentives information for BWEC.

The Commission has never fully evaluated the extent to which participants in current demand response activities may be using backup generation to meet their demand response commitments. Gathering information on this issue would enable us to gauge whether demand response load impacts represent energy that is truly saved or shifted to off peak hours, or whether it is merely supplied by unregulated sources, and whether demand response has an inadvertent negative environmental impact. While we decline to require utilities to gather information from participants in demand response activities during 2009-2011, we encourage the Demand Response Measurement and Evaluation Committee to study this issue.

²²⁵ Response of BluePoint Energy, filed July 9, 2008, in A.08-06-001 et al. (BluePoint July response).

²²⁶ BluePoint July Response, pp. 2-3.

²²⁷ BluePoint Opening Brief, filed January 28, 2009, p. 3 (BluePoint Reply Brief).

²²⁸ BluePoint Opening Brief, p. 3.

²²⁹ Exhibit 421, p. 7.

²³⁰ TURN Opening Brief, p. 13.

²³¹ Exhibit 421, p. 7.

²³² Ibid.

²³³ SDG&E Reply Brief, p. 73 and Exhibit 122, p. 8. SDG&E does not specifically describe the Commission concerns about backup generation to which it refers.

²³⁴ D.06-11-049, p. 58.

²³⁵ Ibid.

²³⁶ Ibid.