4.1.2. Section 1.B: Input Data and Method Used to Estimate Costs and Benefits
Section 1.B describes both the method used to estimate the costs and benefits of demand response activities, and the input data required to do so. The avoided costs will be derived using a slightly modified version of the Avoided Cost Calculator approved by the Commission as part of the Distributed Generation Avoided Cost Framework used for determining the cost-effectiveness of distributed energy generation. The Avoided Cost Calculator has been modified to be consistent with demand response programs.27 These modifications are discussed in detail in the 2010 Protocols. The Avoided Cost Calculator generates avoided costs of generation capacity, energy, T&D, and greenhouse gas (GHG) emissions. These avoided costs will be statewide, but several adjustment factors can be used to adjust the avoided costs for individual demand response programs.
The model used to report cost-effectiveness results for each demand response program is the Demand Response Reporting Template, which is in the form of a spreadsheet accessible through the internet.28 This spreadsheet contains the avoided cost inputs from the Avoided Cost Calculator, along with other data such as each utility's line losses and the Weighted Average Cost of Capital (WACC).29 Each utility's after-tax WACC will be used as the discount rate to determine the net present value of each cost and benefit.30 The utilities and other LSEs will specify additional data for each program, such as administrative costs, capital costs and amortization period, and load impacts. The protocols also allow LSEs the option to specify five adjustment factors to the avoided costs, as well as several optional demand response benefits.
The load impacts provided by the LSEs should be based on the demand response Load Impact Protocols, and should be consistent with those used for Resource Adequacy (RA), to the extent possible. The protocols provide a detailed description of how those load impacts should be calculated. Cost-effectiveness calculations based solely on ex ante forecasts may be used for proposed new demand response activities, but may be subject to review when ex post data on program impacts become available.
27 http://www.ethree.com/public_projects/cpucdr.html.
28 http://www.cpuc.ca.gov/PUC/energy/Demand+Response/Cost-Effectiveness.htm.
29 The WACC for PG&E, SDG&E, and SCE was determined in D.07-12-049 ( http://docs.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/76920.htm).
30 The appropriate WACC to use in these calculations was the subject of some dispute in the comments on the proposed decision; we find that for demand response activities, the after-tax WACC best reflects the costs borne by ratepayers for demand response activities, and is therefore the appropriate discount rate.
