21. Permanent Load Shifting
The phrase "permanent load shifting" refers to the shifting of energy usage by one or more customers from one-time period to another on a recurring basis. Permanent load shifting often involves storing electricity produced during off peak hours and then using the stored energy to support load during periods when peak energy use is typically high. Examples of permanent load shifting technologies include battery storage and thermal energy storage. Thermal energy storage draws electricity during off-peak hours, which it stores in the form of thermal energy in ice, chilled water or a eutectic salt solution. That stored energy can be used during peak hours, generally to cool buildings without drawing additional electricity from the power grid during the day.
In D.06-11-049, the Commission noted that permanent load shifting may not fit within the definition of energy efficiency if the technology used does not reduce overall energy consumption. Similarly, permanent load shifting is not like most demand response programs in that it is not usually dispatched on a day-ahead or day-of basis, nor does it respond to short-term price fluctuations. Still, permanent load shifting, like demand response, can reduce summer peak demand and is reasonably considered in the context of demand response programs that produce a similar end result. The Commission recognizes that permanent load shifting could "reduce the likelihood of shortages during peak periods and lower system costs overall by reducing the need for peaking units."237
Further, in D.06-11-049, the Commission directed the utilities to pursue a Request for Proposal (RFP) and bilateral arrangements to solicit five-year commitments with third parties for permanent load shifting projects that would conserve or reduce energy during critical peak periods starting in the summer of 2007. In response to D.06-11-049 all three utilities, PG&E, SCE and SDG&E, issued RFPs and now have ongoing permanent load shifting programs through 2011. SCE has three contracts, and PG&E and SDG&E each have two contracts. SCE's and PG&E's programs use thermal energy storage technologies to create permanent load shifting.
In various filings and discussions, the utilities refer to their permanent load shifting programs as pilots. Pilot programs are generally designed to test technologies or answer questions about the uses and applications of those technologies. In the case of the permanent load shifting activities, however, it is not clear what aspects of the technologies are being tested or what questions are being explored. For this reason, we consider the permanent load shifting activities discussed in this section to be programs, not pilots. Actual pilots, including some involving permanent load shifting, are discussed in Section 11 (for most pilots) and Section 22.1 (for the Small Commercial Aggregation Pilot) of this decision.
21.1. Utility Permanent Load Shifting Proposals
The utilities' applications focus on existing rather than new permanent load shifting activities. Most existing permanent load shifting activities were approved by the Commission in previous decisions and resolutions. In order to maintain existing permanent load shifting contracts and activities, PG&E requests $138,000 for additional administrative costs related to its already-approved permanent load shifting activities;238 SCE requests approval to carry forward $4.4 million in unspent funds approved for permanent load shifting contracts; 239 and SDG&E requests an additional $300,000 for administer its ongoing programs.240 The only utility that proposes to go beyond its already approved permanent load shifting activities is PG&E, which asks for authority to issue an RFP in 2011 in order to ensure new permanent load shifting is in place when the utility's current permanent load shifting contracts expire on December 31, 2011.241
Two parties, Ice Energy and Transphase, submitted comments on the utilities' permanent load shifting proposals. Neither of these parties oppose the continuation of existing permanent load shifting activities or argue against permanent load shifting in general; in fact, both recommend that the Commission expand the availability of permanent load shifting through the approval of additional activities and funding beyond that requested by the utilities. Their proposals are addressed in Sections 21.2 and 21.3, below.
Benefits of permanent load shifting highlighted in the record include its ability to reliably and persistently lower on peak demand, 242 to reduce carbon dioxide and nitrous oxide emissions243 to the extent fossil fuel plants are displaced during peak hours, and to utilize energy generated during off peak hours by wind resources.244 The attributes of thermal energy storage not disputed in the record are the reliability of these technologies, which have been operational for up to 20 years, 245 and the ability to effectively measure equipment performance.246
Cost effectiveness results for permanent load shifting activities provided by PG&E estimate that PG&E's existing Shift and Save program is cost effective.247 SCE does not include detailed cost effectiveness analyses of its permanent load shifting activities in these applications, presumably because the activities and funding have already been approved. Like SCE, SDG&E notes that it provided cost effectiveness analyses of its permanent load shifting activities when it requested approval of its existing permanent load shifting activities. Still, permanent load shifting has many benefits enumerated in the testimony, and the funding requested in these applications to support permanent load shifting is relatively minor and in most cases is intended to support internal administration of permanent load shifting contracts that have already been approved. Though permanent load shifting is not currently integrated with the CAISO's new markets, and does not have flexible trigger mechanisms, it does provide a reliable load drop at peak times, and some permanent load shifting technologies have been proven to provide benefits for years, or in some cases decades, after initial installation.
The contracts under which the utilities are providing permanent load shifting have already been approved by the Commission, and it is logical to continue these permanent load shifting activities for the terms of their existing contracts. We approve the funding requested by the utilities to maintain their existing contracts in these applications. Specifically, PG&E is authorized to spend an additional $138,000 beyond its existing funding for permanent load shifting, SDG&E is authorized to spend an additional $308,371 beyond its existing funding, and SCE is authorized to carry forward $4.4 million in unspent funding that was approved for SCE's permanent load shifting contracts.
We do not approve PG&E's proposal to issue a further permanent load shifting RFP in 2011. Many circumstances relevant to the expansion of permanent load shifting are likely to change by 2011. For example, it is likely that AMI meters and dynamic rates will be in broader use by 2011 and 2012, and the utilities are expected to be preparing their next demand response applications to cover the 2012-2014 period. In addition, it is not clear whether an RFP process will be appropriate in the future whether a permanent load shifting standard offer should be considered. It is reasonable to defer decisions on the place of permanent load shifting in future years until more information is available.
21.2. Ice Energy Proposal
Ice Energy supports the current efforts of each utility, but requests that the Commission encourage the utilities to expand the scope of permanent load shifting as a component of demand response.248 Ice Energy supports PG&E's request to issue a new RFP on permanent load shifting in 2011, and recommends that SDG&E follow PG&E's example by issuing an additional RFP, and integrating permanent load shifting with renewable technology.249 Ice Energy also recommends that SCE expand its current permanent load shifting activities beyond 2011. In general, Ice Energy encourages utilities to open permanent load shifting tariffs and activities to direct access customers, increase rebate levels for installation of permanent load shifting, and undertake more pilots on integrating permanent load shifting with sources of renewable energy.250
SDG&E characterizes Ice Energy's proposal as a "set aside," and asserts that the Ice Energy proposal would not apply neutrally to different sorts of permanent load shifting technologies, and amounts to "a request for the Commission to direct ratepayer support for `a specific company or technology.'"251 All three utilities assert that the Commission should not direct the utilities to expand permanent load shifting until the existing permanent load shifting activities approved in 2007 are complete.
The proposals made by Ice Energy generally support expanding permanent load shifting through additional RFPs, pilot programs, and tariff changes. Few parties commented on these proposals, and SDG&E's specific comments about "set asides" do not seem to directly respond to the specifics of the proposals. Most of Ice Energy's proposals for expanding permanent load shifting are general statements of directions or principles, and are not supported by detailed implementation plans. Given this, it is not possible to evaluate the cost effectiveness or quantify the other benefits of Ice Energy's proposals. While we support the expansion of permanent load shifting, the particular strategies offered by Ice Energy are not sufficiently supported by analysis and details to evaluate here. For the same reasons that we deny the PG&E request to issue an additional RFP on permanent load shifting in 2011, we reject the Ice Energy request to require SCE and SDG&E to issue their own similar RFPs. Issues related to tariff development should be addressed in appropriate rate design proceedings.
21.3. Transphase Proposal: Thermal Energy Storage Standard Offer
Like Ice Energy, Transphase supports the continuation and expansion of permanent load shifting as a portion of the utilities' demand response portfolios. Unlike Ice Energy, Transphase does not support the RFP process used by the utilities to procure permanent load shifting in the past, and instead proposes an alternative that it hopes would encourage customers to purchase permanent load shifting systems directly. Transphase proposes a Thermal Energy Storage Standard Offer that would provide incentive payments to any utility customer that purchases a Thermal Energy Storage system.252
Under the Standard Offer proposal described by Transphase, each utility would offer a payment of $800 per kilowatt to the vendor of an installed Thermal Energy Storage system, in addition to $300 per kilowatt to be paid from the customer to the vendor.253 In addition, the company proposes a $200 per kilowatt incentive for each of the first three years after the technology is installed, contingent on the installed system providing verified savings at an agreed-upon level.254 Combined, the $800 per kilowatt installation payment and three years of $200 per kilowatt incentive payments total $1,400 per kilowatt. Based on current time of use rates in each service territory, Transphase estimates a one to three year payback for customers;255 Transphase asserted at hearings that, in order for the Standard Offer to be successful at encouraging the level of expansion of Thermal Energy Storage that Transphase hopes for, the Standard Offer "would... give the customer a tremendous payback."256
Transphase estimates that under the standard offer new Thermal Energy Storage projects would ramp up over the next several years, and could provide a total of 65 megawatts of peak demand reduction statewide by 2011. The company used the 1996 California Energy Commission report, "Source Energy and Environmental Impacts of Thermal Energy Storage," which estimated 2,500 megawatts of Thermal Energy Storage were available in California by 2005, to estimate 65 megawatts of load could be shifted from thermal energy storage by 2011.257 If the 65 megawatts goal were reached by 2011, the funding needed to support the standard offer, including administrative costs for the utilities, would be approximately $111 million.258
If the Commission does not adopt the Thermal Energy Storage Standard Offer, Transphase proposes that customers with Thermal Energy Storage be eligible for funding through the technical incentives programs if they also participate in the Capacity Bidding Program or the Base Interruptible Program. Like the Thermal Energy Storage Standard Offer, this Transphase proposal focuses specifically on Thermal Energy Storage technologies rather than all forms of permanent load shifting.
The utilities focus on two problems with the standard offer proposal made by Transphase. First, they and TURN argue that the $1,400 total incentive amount proposed in this standard offer is simply too high. The utilities argue that the proposed standard offer would not ensure procurement at the lowest possible cost, because there are a variety of technologies even within the thermal energy storage industry with different features and capital costs, many of which cost less than $1,400 per kilowatt.259 Transphase estimates the costs of various types of Thermal Energy Storage technologies at between $200 and $800 per kilowatt, though costs may vary more widely.260 Transphase proposes an initial incentive of $800 per kilowatt, equal to the maximum estimated cost of the technology, with an opportunity for additional payments of up to $600. Based on this comparison, the utilities and TURN both assert the proposed standard offer of $1,400 per kilowatt is not competitively priced. PG&E further argues that vendors will propose different price levels through an RFP process, possibly enabling utilities to procure permanent load shifting at a lower price.261 PG&E acknowledged in hearings that a standard offer would allow a customer to solicit competitive offers from a variety of vendors; however, PG&E argued that a competitive solicitation will yield a lower price.262 The utilities jointly argue that the proposed standard offer would not ensure procurement at the lowest possible cost, because there are a variety of technologies even within the thermal energy storage industry with different features and capital costs, some of which cost less than the $1,400 per kilowatt. However, PG&E also acknowledges that a standard offer would allow customers to solicit competitive offers from a variety of vendors.263
The utilities also note that the cost effectiveness used by Transphase does not conform to the Consensus Framework used by the utilities and accepted in this decision for estimating cost effectiveness of programs, and makes several other non-standard choices in its analysis. 264 Because of these differences, the utilities argue that it is not possible to know if Transphase's standard offer proposal is actually cost effective.
21.3.2. Discussion of Transphase Thermal Energy Storage Standard Offer Proposal
At this point, it is not clear whether the standard offer proposal as described by Transphase is cost effective or in the public interest. On the one hand, PG&E found its own ongoing permanent load shifting pilot (Shift and Save) to be cost effective, despite the fact that the program has an incentive of up to $1,950 per kilowatt, which is higher than the $1,400 per kilowatt proposed by Transphase.265 Ice Energy also argues that its units are cost effective because they deliver load shifting over the 15-year life of the equipment, helping to offset the initial cost.266 These points suggest that even if the proposed $1,400 per kilowatt standard offer is unnecessarily high, a program with this incentive level could still be cost effective. In order to be in the public interest, however, cost effectiveness of a program may not be enough. For this proposed expenditure of ratepayer money, the incentive should be set at the lowest level possible that will stimulate investment in the technology. If a standard offer is set too high, the utilities assert that the availability of the incentive payment could insulate permanent load shifting providers from competition with other technologies with a result that is not be in the best interest of ratepayers.
In the case of permanent load shifting, as in many demand response activities, it is not always clear what is the lowest incentive that will be effective in motivating participation or stimulating investment, and this complicates the review of many activities. In this proceeding, for example, some parties argue that incentive levels on some programs are unnecessarily high, while other parties argue that they may be too low to attract continuing participation.
By Transphase's own estimate, the $800 initial payment to a vendor in many cases will cover (or more than cover) the cost of the equipment installation, meaning that many Thermal Energy Storage providers will receive more from the incentive payment than they would charge a private customer for the same system. Transphase further proposes that the customer will pay the Thermal Energy Storage vendor an additional $300 beyond the $800 utility incentive payment, meaning that the vendor could receive up to $300 more than the installed cost of the system itself. Beyond this, the customer and/or vendor would be eligible to receive an additional $600 over three years if the system functions as intended, beyond any savings the customer would accrue from shifting its load to an off peak time. It would not be correct to describe the benefits to the customer as a return on the customer's investment, because the much of the cost of the system installation would be paid by the utility incentive (and therefore, the ratepayers). A standard offer set at a level higher than needed to encourage investment in Permanent Load Shifting would represent a transfer of funds from ratepayers to Permanent Load Shifting vendors and purchasers. More investigation of the costs and benefits of different mechanisms for supporting Permanent Load Shifting is warranted before the investment of ratepayer money supporting Permanent Load Shifting is expanded. Setting the maximum payment too high could encourage Thermal Energy Storage vendors to overcharge for their systems, which would not be in the public interest. In the case of the Transphase proposal, a comparison of the incentive amount with objective measures such as the cost of the initial investment in Thermal Energy Storage equipment makes a compelling case that the incentive may be too high.
The RFP process conducted by the utilities in 2007 did not result in rapid installation of permanent load shifting projects in time for the summer of 2007 or in subsequent years. For example, PG&E proposed 3.9 megawatts of demand response for its permanent load shifting programs during the time period covered by the permanent load shifting contracts, but as of January 2009, only 40 kilowatts were installed and operational.267 Given these lower-than-expected results, it is possible that, as Transphase argues, a standard offer will promote competition at the customer level that will result in operational permanent load shifting sooner than if the utilities go through an RFP process. In addition, a standard offer would enable customers to choose from any vendor that offers thermal energy storage technologies, rather than from the one to three vendors that the utility selects through an RFP, and having more options to choose the technology and vendor that best suits the needs of their facility may encourage more customers to participate in permanent load shifting.
Unfortunately, no party to this proceeding proposed an alternative (lower) standard offer, and the record in this case does not contain sufficient information to determine an appropriate or optimum level of incentives for a Thermal Energy Storage-specific or a more general permanent load shifting standard offer, or to determine if any incentive for Permanent Load Shifting is necessary or appropriate.
Transphase argues in comments on the proposed decision that Sections 454.5 and 454.55 of the California Public Utilities Code require the Commission to meet its unmet resource needs through all forms of energy efficiency and demand reduction resources that are cost effective, reliable, and feasible. Transphase appears to interpret this to mean that if any demand reduction proposal is cost effective as proposed, as it argues that its standard offer proposal may be, the Commission is obligated to adopt the proposal, regardless of the proposal's cost or other implications. This logic is flawed in several ways. First, Section 454.5 directs utilities in the development of their overall procurement plans, and does not directly address Commission approval of specific resources proposals. The provisions cited by Transphase require development of energy efficiency and demand reduction strategies and technologies more broadly, rather than the adoption of every specific proposal for increasing demand response. In addition, this section states that adopted resources must be cost effective, reliable, and feasible, and allows for the rejection of proposals that do not meet all three criteria. In this case, it is not clear that the Transphase proposal is cost effective.
As discussed above, the Commission is already pursuing permanent load shifting activities through a Commission-ordered RFP process and resulting contracts for Permanent Load Shifting installations. This decision orders further study of possible strategies for increasing the availability of Permanent Load Shifting in the future. This is consistent both with the provisions of the public utilities code and with the Commission's responsibility to spend ratepayer funding effectively and efficiently.
Based on information provided by parties in this proceeding we do not have enough information to make decide whether a RFP process to solicit contracts with third parties or a standard offer eligible to all types of permanent load shifting vendors is the best answer going forward for permanent load shifting. Additionally, no parties addressed whether a standard offer could be effective for all types of permanent load shifting or if it would need to be limited to thermal energy storage. Because Thermal Energy Storage and Permanent Load Shifting appear promising, we order the utilities to work with parties to examine ways of expanding the availability of permanent load shifting. A standard offer proposal that could apply generally to any permanent load shifting technologies including, but possibly not limited to, thermal energy storage, should be considered in this study. This study should also consider other ways of encouraging permanent load shifting, including modifications to time of use rates or another RFP process. The utilities should prepare and serve on the service list for this proceeding a report exploring the possibility of a standard offer program. This report should contain a summary of permanent load shifting standard offers available throughout the United States, as well as an evaluation of what incentive payment would be appropriate for a future standard offer. This report shall be served on the most recent service list for this proceeding, and provided to the director of the Commission's Energy Division not later than December 1, 2010. The utilities could then be directed to seek authorization to implement either a general permanent load shifting or Thermal Energy Storage standard offer programs, additional permanent load shifting RFPs, or other recommended strategies, as part of their 2012-2014 applications, or utilities could revise their rate schedules in an appropriate proceeding. This report shall inform proposals to expand the use of permanent load shifting in the 2012-2014 applications.
237 Order Adopting Changes To 2007 Utility Demand Response Programs, D.06-11-049, November 30, 2006, p. 49.
238 PG&E Exhibit 201, Chapter 1, p. 13.
239 SCE Exhibit 1, pp. 53-54.
240 SDG&E Exhibit 102, p. 64.
241 PG&E Exhibit 201, Chapter 1, p. 40.
242 Transphase Exhibit 1025, p. 18 and p. 20.
243 Transphase Exhibit 1025, Chapter 2, p. 31.
244 PG&E Exhibit 201, Chapter 2, p. 33.
245 References to lifetime of technologies: Transphase Exhibit 1025, pp. 21, 28, 29, 46, 75, 76, and 78.
246 Transphase Exhibit 1025, p. 72.
247 PG&E Exhibit 205 (Tables 6-4 and 6-5 in Appendix 6-A).
248 Ice Energy, Inc. Exhibit 901, p. 10.
249 Comments of Ice Energy Inc. on the Application of San Diego Gas & Electric Company for approval of Demand Response Programs, Goals and Budgets for 2009-2011, July 9, 2008, p. 2; and Comments of Ice Energy Inc. on the Application of Southern California Edison Company for approval of Demand Response Programs, Goals and Budgets for 2009-2011, July 9, 2008, p. 2.
250 Ice Energy Exhibit 901, pp. 9-10.
251 SDG&E Opening Brief, pp. 69-70.
252 Transphase Sponsored Testimony, Exhibit A, p. 7.
253 Transcript from hearing, Day 5, Volume 5, p. 651.
254 Opening Brief, p. 41.
255 Transphase Exhibit 1025, p. 12.
256 RT Day 5, p. 678.
257 Transphase Exhibit 1025, p. 671.
258 Transphase Exhibit 1025, p. 9.
259 Joint Opening Brief of Pacific Gas and Electric Company, San Diego Gas & Electric Company and Southern California Edison Company on Proposal of Transphase, February 4, 2009.
260 Transphase Exhibit 1025, p. 75.
261 RT Volume 4, p. 518.
262 RT Volume 4, p. 518.
263 RT Volume 4, p. 518.
264 Joint Opening Brief of Pacific Gas & Electric Company, San Diego Gas & Electric Company and Southern California Edison Company on Proposal of Transphase, February 4, 2009, pp. 8-10.
265 PG&E Amended Testimony, Exhibit 205, Appendix 6A, p. 3.
266 Ice Energy, Inc. Exhibit 902, p. 10.
267 RT 4, p. 498.
