3. Proposed Settlement

The Settlement is included at Appendix A to this decision.

In the Settlement, the Settling Parties propose changes to the emergency-triggered and reliability-triggered DR programs that will make the programs more useful and cost-effective. We will discuss the key provisions of the Settlement in this section.

The Commission reviews the Settlement under the requirements set forth in Article 12, Rules 12.1 - 12.7 of the Commission's Rules.

Rule 12.1(a) requires parties to submit a settlement by written motion within 30 days after the last day of hearing. There were no evidentiary hearings on Phase 3 issues in this proceeding. Therefore, the time limits in Rule 12.1(a) are inapplicable to the situation at hand.

Consistent with Rule 12.1(b), on January 20, 2010, the Settling Parties provided public notice of a settlement conference. A settlement conference was convened on January 29, 2010. Participating parties were the Settling Parties and AReM. The Settling Parties report that after the settlement conference, the Settling Parties worked to finalize their settlement efforts, resulting in the Settlement attached hereto as Exhibit A. The Settling Parties also report that although AReM did not join the Settlement, it has indicated it does not oppose the Settlement. Thus, the Settlement meets the requirements of Rule 12.1(a) and 12.(b).

Finally, Rule 12.1(d) provides that, prior to approval, the Commission must find a settlement "reasonable in light of the whole record, consistent with law, and in the public interest." We will discuss the terms of the Settlement and make a determination as to whether it meets this standard.

The material terms of the settlement include a statement regarding to whom the Settlement applies; a program for transitioning customers to a price-responsive DR production; caps on the amount of reliability-triggered DR which counts towards RA requirements; the details of a "Wholesale Reliability Demand Response Product" that the CAISO agrees to develop; and provisions relating to contingencies that arise from regulatory reviews. We discuss each briefly.

3.2.1. Applicability of Settlement

The Joint Motion states in great detail the applicability of the settlement to companies and programs:

The Settlement applies to all IOU emergency-triggered DR programs, which are referred to in the Settlement as "emergency-based" or "reliability-based DR programs," and are described as "programs in which customer load reductions are triggered only in response to abnormal and adverse operating conditions, such as imminent operating reserve violations or transmission constraint violations (i.e., emergencies)." The reliability-based DR programs subject to the Settlement are:

· Air Conditioning Cycling programs of PG&E and SCE (A/C Cycling);

· Agricultural and Pumping Interruptible Programs of SCE (AP-I); and

· Any future reliability-based DR program offered by an IOU.

DR programs that are not triggered strictly for emergencies are not considered by the Settlement to be "emergency-based" or "reliability-based," even if they include emergency-based (or reliability-based) triggers.14

These are all the programs that were the subject of this phase of this proceeding.

One goal of this Settlement is to reduce the amount of emergency-triggered or reliability-triggered DR that counts for RA from the current 3.5% of system peak to 2% of system peak, consistent with the CAISO's estimate of the amount of reliability-triggered DR that is useful to its management of the California grid while still retaining the customers as part of the DR program in ways that can decrease the cost of system peaks.

To achieve this reduction, the Settlement plans to transition many customers onto price-based DR products that can bid into the MRTU. The Joint Motion describes the current and planned efforts to move customers to price-based Demand Response programs as follows (quoting directly from a bulleted list in the Joint Motion):

· San Diego Gas & Electric (SDG&E's) A/C Cycling program (called Summer Saver) is already price responsive, and is not considered a reliability-based DR program;

· Pacific Gas and Electric (PG&E) has proposed to transition customers on its existing reliability-based A/C Cycling program (called SmartACTM) to a program that includes a price trigger in A.09-08-018. PG&E will begin the transition SmartACTM to the price-responsive option upon the Commission's approval of A.09-08-018; and

· SCE will propose a voluntary, price-responsive option for its A/C Cycling program (called Summer Discount Plan (SDP)) by the end of the second quarter 2010, including an option to allow SDP to be bid into the ISO market. Implementation of transition is expected to occur over the 2011-2014 timeframe. SCE agrees to actively promote customer transition to the price-responsive option through customer communications and by decreasing incentives from current levels for reliability-based MW.15

The Settlement envisions that many customers will transition from the current emergency-triggered DR program to these fully price-responsive programs that will participate in the MRTU.

The transition to price-responsive DR is part of the Settlement's strategy to meet the caps on the size of emergency-triggered or reliability-triggered DR programs that count for RA. Specifically, as part of the Settlement, the Settling Parties have agreed to the following caps on reliability-triggered DR that counts for RA:

· A limit on reliability-triggered DR that counts for RA, calculated as a percentage of system peak as follows:

    · In 2012, 3% of system peak;

    · In 2013, 2.5% of system peak; and

    · In 2014, 2% of system peak.

· A compliance process whereby a utility measures and reports on its success in meeting the targets.

· A penalty mechanism for failure to meet targets.

· An allotment of the total reliability-triggered DR between the three utilities, thereby creating individual targets and caps.

· Other conditions relating to enforcement and modification of agreement terms.16

Although the Settlement adopts firm caps on the size of the emergency-triggered or reliability-triggered DR that counts for RA, a condition of the settlement is the elimination of the May 2010 enrollment caps on reliability-triggered or emergency-triggered DR.17 Thus, the reliability-triggered DR programs will become and remain open even as the utilities must manage a reduction in the size of these programs to meet the Settlement's caps on reliability-triggered DR programs that count for RA.

In addition, the Settlement includes terms by which parties can bring the issues in this proceeding back to the Commission if the CAISO is unable to establish a Reliability-Triggered Demand Response Product (RDRP product) by the end of 2011 or if there are "major changes in load, resource, regulatory or economic conditions from those anticipated at the time of the Settlement."18 Furthermore, the Settlement does not preclude IOUs from proposing other reliability-triggered DR products, but any product that counts for RA would count against the cap. Any new product would require Commission approval.

Another key element of this settlement is the design of a new reliability-triggered DR product that will serve as the mechanism through which the IOU emergency-triggered and reliability-triggered programs will be integrated into the CAISO market. A goal of this new product is to improve the cost-effectiveness of reliability-triggered DR by enabling it to work better in the CAISO's dispatch sequence. Specifically, a reliability-triggered DR product should enable the CAISO to use this resource before buying "exceptional dispatch" energy or capacity.

As part of the Settlement, CAISO commits to the development of just such a product. The Joint Motion describes this RDRP product as follows (quoting directly):

Section A of the Settlement describes the ISO's development of a wholesale reliability DR product (RDRP) that will be compatible with the IOUs' reliability-based DR programs and enable those programs to be bid into the RDRP product. The key features of the RDRP product are:

· Its design will accommodate the primary features of the existing IOU reliability-based DR programs;

· RDRP capacity will count for RA, subject to a MW limit specified in Section C of the Settlement;

· The amount of RDRP capacity will not be limited; however, the amount of RDRP capacity that can count for RA will be limited, as specified in Section C of the Settlement...;

· RDRP can be triggered at the point immediately prior to the ISO's need to canvas neighboring balancing authorities and other entities for available exceptional dispatch energy or capacity. Once triggered, RDRP will be economically dispatched by location and quantity through the ISO's Automated Dispatch System (ADS);

· RDRP will not preclude the IOUs' use of the RDRP capacity for transmission and local distribution purposes;

· RDRP will allow for an annual test event; however an actual event in a given year is expected to eliminate the need for a test event for that year; and

· RDRP will be open to all qualified DR providers.

Thus, following the adoption of this Settlement, those customers who desire to receive resource adequacy treatment for their re-configured emergency- and reliability-triggered DR programs must integrate those programs into the wholesale market using this new product, and the programs, as reconfigured, will be reviewed by the Commission in the new 2012-2014 program cycle.

As is common for a settlement, the Settling Parties have committed themselves to the settlement as written. The Joint Motion states as follows:

The Settling Parties agree that the Settlement should be approved in its entirety and without modification. Any Settling Party may withdraw from the Settlement if the Commission modifies it, subject to good faith negotiations to try to restore the balance of benefits and burdens of any modified settlement adopted by the Commission.20

14 Joint Motion at 8, footnotes omitted.

15 Joint Motion at 9-10.

16 See Joint Motion at 10-12 for a fuller discussion of these terms.

17 See Joint Motion at 10-12.

18 Joint Motion at 12.

19 Joint Motion at 8-9.

20 Id.

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