3.2. Choice of a Consistent Model for Overall Cost-Effectiveness Calculations
In the utilities' initial straw proposal submitted in the summer of 2007, the utilities proposed use of their own utility-specific analytical methodologies for both the overall framework for calculation of the various cost-effectiveness tests, and calculation of specific inputs into these frameworks. In general, all three utilities argue that the use of their individual (in some cases proprietary) models best reflect their particular situations, including issues of program design, as well as each company's specific local and business conditions.
Both the Consensus Framework and the 2008 Staff Proposal specified, on a qualitative level, the inputs and considerations to be included in calculation of results from each SPM test, but allowed utilities to use their own overall frameworks for calculating the results, within the broad guidance provided. As described in Section 3.1 above, the results of the utilities' cost-effectiveness analyses were not consistent with one another or easily compared.10 Use of different frameworks, each based on a different set of assumptions, is one among several possible reasons for this. Documents filed by the utilities during this proceeding indicated that the three utilities had made different assumptions about factors such as the lifetime of the simulated combustion turbine used to estimate avoided costs, the discount rate used to calculate the net present value of each cost and benefit, and the load impact of the programs. These documents contained little or no rationale for these choices. Like the use of proprietary models and confidential data described above, the use of inconsistent frameworks made interpretation of the results more difficult by obscuring the specific differences between the utilities' calculations. We find likewise that any potential increase in accuracy that may be gained through the use of individual or proprietary utility models for overall cost-effectiveness calculations, or for calculation of specific inputs, is outweighed by the lack of both consistency and transparency introduced by the use of these differing models.
To address this concern, the 2010 Protocols in Attachment 1 provide for use of a single framework developed by Energy Division and its consultants, to be used by all utilities, and provides for the results to be calculated with the Demand Response Reporting Template described below. This framework is non-proprietary, and will be available to all parties interested in the evaluation of demand response activities, along with non-confidential data sources, as required in Section 1.C of the 2010 Protocols. This requirement for the use of consistent overall calculation frameworks, along with the use of consistent, non-confidential data sources, will increase the transparency of the utilities' cost-effectiveness calculations and results, allowing parties to better understand, and if desirable, to replicate the utilities' calculations. As a result, parties will be better able to confirm the accuracy of cost-effectiveness calculations, and potentially to suggest modifications or alternative calculations if there are disagreements about specific inputs to or results of the calculations in a given proceeding in which the cost effectiveness results are provided. For example, parties may substitute short-term for long-term avoided costs or alternative values for other inputs in the Demand Response Reporting Template for comparison with the results of the analysis performed according to the protocols.
This approach is consistent with the approach adopted in D.09-08-026 for estimating the cost-effectiveness of distributed generation, which also adopted a consistent cost-effectiveness model for use by different utilities or other Load Serving Entities (LSEs). As provided in Section 1.B of the attached 2010 Protocols, cost-effectiveness calculations shall utilize the Demand Response Reporting Template spreadsheet11 for the calculation of results for each of the SPM tests. As discussed below, the 2010 Protocols also require the use of specific models or values for the development of many inputs into that overall framework, in order to increase consistency and therefore comparability among the utilities' results.
10 D.09-08-027 at 15-16.
11 See http://www.cpuc.ca.gov/PUC/energy/Demand+Response/Cost-Effectiveness.htm.
