3. Major Issues in the Development of Cost-Effectiveness Protocols
The development of protocols for estimating the cost-effectiveness of demand response activities was a highly technical effort, requiring expertise in both the principles of measurement and evaluation of electricity demand-side management and in the design and characteristics of existing and potential future demand response activities. Though parties agreed on several general concepts, including the desirability of basing the demand response cost-effectiveness methods on the existing cost-effectiveness methods for energy efficiency programs as adopted in the California Standard Practice Manual (SPM),3 the specific modifications needed to apply the SPM tests to demand response activities were the subject of much debate. The cost-effectiveness protocols attached to this decision as Attachment 1 (hereafter referred to as the 2010 Protocols) are a revised form of the 2008 Staff Proposal, which was in turn developed from the Consensus Framework supported by most parties in November 2007. The 2010 Protocols modify and expand the 2008 Staff Proposal and the Consensus Framework to address concerns raised in party comments on these earlier documents. Like the Consensus Framework, these protocols use a marginal cost approach to the estimation of the cost-effectiveness of demand response activities. The 2010 protocols generally follow the same procedures and recommendations as the Consensus Framework, but include additional direction and detail to ensure consistency in calculations.
The main substantive difference between the Consensus Framework and the 2010 protocols is that these protocols replace individual utility-generated avoided cost models with one required statewide model. This change was made in response to our recognition in D.09-08-027 that parties to the demand response program and budget applications for 2009-2011 (A.08-06-001 et al.), including parties involved in development of the Consensus Framework, had considerable doubt about the accuracy of the utility-generated models and continuing concerns about their lack of transparency.4 The concerns about the implementation of the Consensus Framework in A.08-06-001 et al. are summarized in Section 7.1. of D.09-08-027, and include the fact that the utilities used different input assumptions to compute avoided costs, making it difficult to compare the cost effectiveness of the same programs across different utilities.
As an initial test of the Consensus Framework, the 2009-2011 applications revealed the method's strengths and weaknesses. In order to incorporate this experience into the process of developing these protocols, several of the filings made in D.08-06-001 et al. relevant to the implementation of the cost effectiveness framework were added to the record in this proceeding through an ALJ ruling issued on November 19, 2009. The ruling allowed parties to comment on the usefulness of those filings in the development of cost effectiveness protocols, and parties including PG&E, Ice Energy, CLECA, TURN, DRA, and SCE filed comments. The 2010 Protocols generally avoid other changes in the basic structure of the Consensus Framework. The most contentious aspects of the protocols, and a description of how those have been resolved, are discussed in detail in this section.
3 See drrc.lbl.gov/pubs/CA-SPManual-7-02.pdf.
4 D.09-08-027 at 14-15.
