5. Discussion

As discussed above, this Petition was filed after the 2009-2011 utility demand response applications were filed, but before the final decision, D.09-08-027, was reached in that proceeding. That decision not only adopts activities and budgets for demand response in 2009-2011, but also sets rules and policies for demand response during this time period. Expanding the ECS contract would amount to the approval of additional demand response beyond that analyzed in A.08-06-001 et al. and authorized in D.09-08-027.

Two aspects of the ECS contract are not in conformance with rules adopted in D.09-08-027. First, the ECS contract uses a baseline that is not consistent with the new baseline adopted in D.09-08-027, and second, the contract does not conform to the new multiple program participation requirements adopted in that decision. In addition to conflicting with current Commission policy on demand response activities, as described below, these inconsistencies may affect the cost effectiveness of the contract amendment, discussed in Section 5.2, below.

As in most of the existing utility-administered demand response programs approved prior to D.09-08-027, the ECS contract estimates demand response for settlement payment purposes utilizing a "3-in-10 day aggregated baseline." The baseline provides an estimate of what usage would have been in the absence of the curtailment called under the contracts. The "3-in-10" baseline methodology estimates the baseline using the three highest usage days of the past 10 days similar to the event day. The difference between the baseline usage calculated using this methodology and the actual usage during a curtailment event is the approximate number of kilowatts curtailed, and is used to calculate settlement payments (one type of incentive) under the contract.

D.09-08-027 considered the 3-in-10 baseline and other possible baseline options. That decision determined that:

It is reasonable for customers to have their baselines calculated in the same way, whether they enroll in a program through an aggregator or through a utility. Similarly, it is reasonable for customers of SCE, SDG&E, and PG&E to be subject to the same baseline. This will make the baseline methodology more consistent and transparent to customers.11

That decision cites at least two recent studies that recommended a "10-in-10" baseline that calculates a baseline by averaging use from all of the 10 most recent non-event and non-holiday days. That decision also notes that "[t]he studies uniformly suggest that there are better baselines than the current three-day unadjusted baseline" used in most demand response programs at the time, including the ECS contract. D.09-08-027 adopted a 10-in-10 baseline for the utilities' demand response activities during 2009-2011, in order to "provide customers with a relatively simple and understandable baseline that minimizes bias and the possibility of gaming by participants."12

D.09-08-027 did not require that demand response contracts use a 10-in-10 baseline, and footnote 188 on page 141 of that decision indicated that the specified baseline requirement does not apply to demand response contracts between a utility and an aggregator approved by this Commission. Accordingly, we have not required that PG&E's existing contract with ECS, with its existing megawatt commitment levels, be amended to use the newly adopted baseline. However, PG&E has not established that it is reasonable to expand the use of the 3-in-10 baseline in light of our conclusion that a 10-in-10 baseline provides a more accurate estimate of baseline energy usage.

In addition, the reasoning used in. D.09-08-027 in adopting a uniform settlement baseline for most utility demand response activities, to increase consistency among utilities and transparency to customers, supports the use of the new 10-in-10 baseline in future contracts or contract expansions during the 2009-2011 period, unless a specific reason is provided to justify a departure from the 10-in-10 baseline. PG&E provided no such justification for expanding the use of the 3-in-10 baseline to demand response beyond that allowed under the previously approved contract.

In its comments on the proposed decision, PG&E argues that it is unreasonable to expect the PG&E Petition to conform with rules adopted after the Petition was filed, or to justify its departure from such rules. PG&E's characterization that applying the rules adopted in D.09-08-027 to this petition, "would establish an impossible burden of proof for a petition for modification - that a petitioner must not only explain compliance with existing, but also with future Commission policies," is incorrect. We do not expect petitions for modification or other applications and requests to predict and comply with future Commission policies or rules. We may, however, reasonably apply established Commission policies in subsequent decisions, in order to ensure consistency with those policies and with Commission objectives.

In comments on the proposed decision, PG&E also argues that in declining to approve this petition on the grounds that the expansion is not consistent with new rules, this decision rejects the finding in D.09-08-027 that the settlement baseline (and other terms) in existing aggregator contracts need not be modified to comply with the new rules. This claim by PG&E is also incorrect. Like D.09-08-027, this decision does not require any changes to the baseline or other terms of the contract as previously approved and modified by the Commission. This decision simply declines to expand the use of these outdated terms to new demand response megawatts, consistent with direction provided in D.09-08-027.

D.09-08-027 adopted specific rules governing the extent to which a customer may enroll concurrently in more than one demand response activity. That decision requires utilities to:

allow customers to participate concurrently in up to two demand response activities, if one provides energy payments and the other provides capacity payments. These rules shall prohibit concurrent participation in programs with the same trigger (day-ahead or day-of); however, a participant may participate in one day-ahead and one day-of program.13

As in the case of the settlement baseline determination, above, D.09-08-027 provided that the dual program participation rules:

will be applied statewide in order ensure that customers throughout the state are treated similarly and fairly. These rules will also apply regardless of whether the customer is enrolled in a utility-administered program or one administered by a third-party aggregator.14

However, the ECS contract prohibits dual program participation except in very limited cases specified in the contract, inconsistent with the rules adopted in D.09-08-027.

Specifically, the contract provides that "Customers that are participating in other PG&E tariff or non-tariff DR programs (except for E-OBMC and E-POBMC)" are ineligible to participate.

Based on the rules adopted in D.09-08-027, we consider the ECS contract to be a capacity payment program, with a day-ahead trigger. Under the dual participation rules adopted in D.09-08-027, customers could participate concurrently in this ECS program and in activities that have a day-ahead trigger and provide energy payments. In its comments on the proposed decision, PG&E asserts that only its Optional Binding Mandatory Curtailment (OBMC) program is its only program with a day-of trigger that provides energy payments. On this basis, PG&E asserts that this contract is consistent with the new rules. This argument is not persuasive for two main reasons. First, PG&E's PeakChoice program allows customers to design demand response activities that meet their needs by selecting characteristics from among various program options, and it appears that customers may choose a day-of/energy payment only option through this program. In addition, clause 2.1.2.4. of PG&E's contract with ECS makes a special, limited exception for OBMC from its explicit ban on dual participation; this wording would prohibit participation in any compatible demand response activities that may be developed in the future.

D.09-08-027 recognized "that some contracts that have already been approved by this Commission, or are being approved in this decision, have concurrent program participation requirements that are not consistent with the rules adopted here."15 That decision did not require the modification of existing contracts to make them consistent with the newly adopted rules. However, it did "encourage utilities and aggregators to consider these rules when negotiating new contracts or modifying contracts that have been previously approved."16

As in the case of settlement baseline rules, PG&E has not established that it is reasonable to expand the use of incompatible dual program participation requirements given that different standard rules are now in place for 2009-2011. It is reasonable to deny the Petition based on the fact that the proposed expansion of this contract uses outdated dual program participation rules, and PG&E provided no such justification for expanding the use of the dual participation requirements to demand response beyond that allowed under the previously approved contract.

5.2. Cost Effectiveness Analysis

DRA notes that PG&E did not provide documentation in its Petition of either the total cost or the cost effectiveness of this contract expansion. In response, PG&E asserts that such documentation was included in and provided to DRA as part of the analysis supporting the utility's 2009-2011 Demand Response Program and budget application, A.08-06-003. PG&E also notes that DRA did not request cost effectiveness analysis in this proceeding, and that the Commission has not required a new cost effectiveness analysis to support previous requests to adjust the commitment levels of contracts within its aggregator-managed portfolio.17

Though PG&E states correctly that the Commission has not asked for a new cost effectiveness analysis for previous contract expansions, those contract amendments were approved before a new cost effectiveness methodology was used to assess demand response program cost effectiveness in D.09-08-027.18 It is reasonable to evaluate the cost effectiveness of modifications to existing programs using the most recent methodology and assumptions, which, in this case, are those used in D.09-08-027.

The only full cost effectiveness analysis on the record in this proceeding was conducted in 2007, and it is not clear whether that analysis utilized the same methodology or assumptions as the cost effectiveness analysis in A.08-06-001 et al. Because the updated benefit-to-cost ratios provided by PG&E in its response to DRA comments on the Petition are not accompanied by any details or analysis, it is not clear whether they utilize a methodology and assumptions consistent with those used in D.09-08-027.

In addition, the fact that the contract utilizes an outdated settlement baseline that the Commission has found to be relatively inaccurate calls into question the prior cost effectiveness calculations using that settlement baseline to determine incentive payments under the contract. To the extent that load impacts and associated incentive costs used in previous analyses of the cost effectiveness of the contract are estimated using an outdated baseline and dual participation requirements, we cannot rely on those calculations to accurately represent the cost effectiveness of the contract

5.3. Price Responsive Triggers

DRA's other substantive concern is that, though PG&E's aggregator contracts are considered to be price responsive due to their flexible triggers that allow them to be called outside of emergency situations, this contract has been called less frequently than many other price responsive programs. PG&E responds that it may call events under this (and other) demand response contracts at its sole discretion, and "absent a system or local emergency, PG&E dispatches the ... contracts when the energy strike price is economic."19 PG&E argues further that if the program were dispatched more frequently, "PG&E's ratepayers would pay more for the energy under the AMP contracts than they would pay for other resources, increasing the ratepayers' costs."20 PG&E also notes that in 2007 and 2008, it dispatched this ECS contract twice for actual events that were not during emergencies called by the California Independent System Operator (CAISO).

Based on its terms, the contract is, as PG&E claims, price responsive in that it is not limited to being dispatched only during emergency situations. The fact that this contract has been called less frequently than most other PG&E price responsive demand response activities causes us to question whether the contract has been used to its fullest potential, and whether the contract cannot be fully integrated with the CAISO's new markets. However, it is not necessary to make those determinations at this time.

5.4. Summary

The contract modification proposed by PG&E in this Petition is not consistent with current Commission policy in several respects, and should be rejected. The proposed contract expansion retains provisions that are not consistent with settlement baseline and dual participation rules adopted in D.09-08-027 for demand response activities, and PG&E does not provide a justification for why the expanded contract cannot or should not incorporate these rules. In addition, PG&E fails to provide documentation in support of its cost effectiveness analysis or even the total cost of the modified contract, making it difficult to determine whether the contract as modified would be cost effective. Based on the inconsistencies with recently adopted Commission rules and the uncertainty in the cost effectiveness analysis of the contract expansion, we find that it is not reasonable to adopt the contract modification proposed by PG&E. Accordingly, the PG&E Petition to modify D.07-05-029 is hereby denied.

11 D.09-08-027, at 141.

12 D.09-08-027, at 141.

13 D.09-08-027, Ordering Paragraph 30.

14 D.09-08-027, at 156.

15 D.09-08-027, at 157.

16 D.09-08-027, at 157.

17 Reply at 5.

18 Section 7.1 of D.09-08-027 finds the Consensus Framework methodology used in A.08-06-001 et al. adequate for the review of the cost effectiveness of demand response activities in that proceeding.

19 Reply, at 6.

20 Reply at 7.

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