D1012024 Adopting a Method for Estimating the Cost-Effectiveness of Demand Response Activities

4.2. Section 2: Calculation Framework and Input Values and Section 3: Costs and Benefits of Demand Response

Section 2 describes the modified SPM tests that will be used to determine demand response cost-effectiveness, and defines the specific costs and benefits that should be used in each of the four tests. These tests are:

1. the Total Resource Cost (TRC) test, which measures a program's impact on society;

2. the Program Administrators Cost (PAC) test, which measures the costs and benefits of the program from the perspective of the program administrator (usually an LSE);

3. the Ratepayer Impact Measure (RIM) test, which measures the program's impact on rates; and

4. the Participant Test, which measures the costs and benefits of the program from the perspective of a participant.

Section 3 provides detailed descriptions of each DR cost and benefit and how they are calculated. Table 1 below shows the costs and benefits that will be used as inputs for each SPM test. For each DR program, the output from each test includes a benefit/cost ratio based on the net present value of each of the costs and benefits, discounted over the lifetime of the resource. To the extent users of these protocols must use additional data beyond that contained in the prescribed models, the cost-effectiveness calculations shall be based on the most recent expected values for all inputs. The discounted costs and benefits are calculated in the Demand Response Reporting Template spreadsheet. These costs and benefits are further explained in the sections below.

The 2010 protocols do not determine or analyze the relative merits or uses of any of the four SPM tests described above, nor do they address the means by which the Commission will use the 2010 Protocols to determine whether to pursue various DR programs, activities or policies, including which SPM tests will be considered and the relative weight given to each. This determination will be made in other Commission proceedings in which DR budgets are approved.

Table 1: Costs and Benefits Considered in the Four SPM Tests

	TRC	PAC	RIM	Participant
Administrative costs	COST	COST	COST
CAISO market participation revenue	BENEFIT	BENEFIT	BENEFIT
Avoided costs of supplying electricity	BENEFIT	BENEFIT	BENEFIT
Bill Increases				COST
Bill Reductions				BENEFIT
Capital costs to LSE	COST	COST	COST
Capital costs to participant	COST			COST
Environmental benefits	BENEFIT
Incentives paid		COST	COST	BENEFIT
Increased supply costs	COST	COST	COST
Market benefits	BENEFIT	BENEFIT	BENEFIT
Non-energy/monetary benefits	BENEFIT			BENEFIT
Revenue gain from increased sales			BENEFIT
Revenue loss from reduced sales			COST
Tax Credits	BENEFIT			BENEFIT
Transaction costs to participant	COST			COST
Value of service lost	COST			COST

Shaded rows indicate those costs and benefits which are not included in the SPM but have been added to these protocols for demand response.

(Cells are left blank when the particular cost or benefit is not used in a given test).

Several of the costs and benefits used in the 2010 Protocols have generally accepted definitions and need not be explained in detail here. The protocols provide detailed definitions of each of these costs and benefits so that it is clear which budget items should be included in each category and calculation when an LSE files its cost-effectiveness analysis. Major costs and benefits defined in the protocols but not discussed in detail here include:

· Administrative costs

· Bill increases and reductions

· Capital costs to LSE

· Capital costs to participant

· Incentives paid

· Revenue gain from increased sales and revenue loss from reduced sales

· Tax credits

Costs and benefits included in the 2010 Protocols that are less accepted or less clearly defined are discussed in the sections below.