3.4. Inclusion of "Overhead" Costs such as Education and Marketing
In the past, most of the discussion of cost-effectiveness analysis of demand response has focused on calculating the avoided costs of demand response programs approved by this Commission. However, the calculation of several other costs and benefits of demand response has also been contentious. As noted by the aggregators involved in this proceeding, the utilities operate a number of programs, mostly marketing and education programs, that serve to lead customers into utility demand response programs. However the costs of these programs are not included in the calculations of the cost-effectiveness of specific demand response activities because they are funded separately. As noted by the aggregators, although the additional funding for these programs may support utility programs or lead customers to participate in utility programs, if those costs are not included in the program-level analysis this could artificially inflate the benefit-to-cost ratio of a program by underestimating program costs.20 Aggregators express concerns that the methods adopted here could be used to assess non-utility administered programs, and if those programs are compared to utility programs that benefit from general outreach, education, and marketing associated with utility programs, non-utility activities would appear less cost effective in comparison.
To address this concern, the 2010 Protocols require that when a utility calculates the administrative costs of each program, it must include all costs attributable to the program, including those costs that may be included in a separate budget category. Costs that shall be considered in these calculations include, but are not limited to, the costs of program design, development, marketing, outreach, overhead, and information technology. Costs that promote demand response in general and are not specific to or caused by an individual program, such as statewide marketing program costs, should only be included in the evaluation of the utility's overall demand response portfolio.
In comments on the proposed decision, the Joint Parties state that the costs of the Technical Assistance/Technical Incentives program should not be included in the cost-effectiveness evaluation of DR programs because these activities are designed to encourage participation in nascent DR programs and is not intended to be a permanent incentive. PG&E and TURN respond that Technical Assistance/Technology Incentives costs should be included because they generate load impacts. TURN specifically states that the Technical Assistance/Technology Incentives "costs are real and significant costs that are expended only to support DR programs. They should be assigned to the programs in which customers participate."
We find that Technology Incentives costs should be considered in the cost-effectiveness analysis of demand response programs. Because customers receiving rebates as part of the Technical Incentives program are required to enroll in a DR program, the cost of those rebates and other costs related to them should be included as a capital cost of the program. In contrast, the Technical Assistance program provides audits to customers who may or may not enroll in DR programs; we find that the costs of this program do not have to be attributed to individual DR programs. However, the costs of the Technical Assistance program should be included in the cost-effectiveness analysis of each LSE's portfolio.
To ensure that costs are appropriately included in the cost-effectiveness analysis of each activity, the protocols require the utilities to work with the Commission's Energy Division staff to properly categorize all administrative costs, and to disclose the allocation methodology along with all costs in the final cost-effectiveness analyses. Specific overheads and their allocation among programs will be a subject of discussion during the workshop process to validate and update the protocols in advance of the periodic demand response program and budget applications, described in Section 7.1. below. We expect this approach to ensure that the vast majority of costs that support a particular program are included in the analysis, and will minimize any advantage that the utility programs may receive from costs that are budgeted separately.
20 Comments of EnerNoc, Inc., EnergyConnect, Inc., and ComVerge, Inc., on the Staff Draft Demand Response Cost-Effectiveness Protocols, filed in R.07-01-041 on April 25, 2008 at 7-8.
