4.2.2. Costs Specific to Participants

The costs that a ratepayer must incur to participate in demand response programs include the capital costs of equipment, transaction costs, and the value of service lost. While the calculation of capital costs is straightforward, calculation of the other participant costs is not. However, participant costs must be determined for the purpose of calculating the TRC and Participant tests.

As described more fully in the 2010 Protocols, transaction costs are the opportunity costs associated with education, equipment installation, program application, energy audits, developing and managing a load shed plan, and other activities required for participation in a specific program. Examples of transaction costs are the personnel costs associated with time spent on activities such as filling out a demand response program application, making decisions about whether or how to install demand response equipment, and shutting off equipment during a demand response event.

The value of service lost through participation in demand response includes any losses in productivity that occur because of demand reductions, as well as "comfort costs," which are the losses in comfort participants may experience or perceive when particular end-uses become unavailable. Examples of lost productivity costs are revenue losses incurred when a business is shut down during a demand response event. Examples of comfort costs include having to walk further to use a copy machine, feeling too hot or too cold because of changes in a thermostat setting, and the cost of having to change one's work hours.

These value-of-service costs may be significant to the participant, but are difficult to quantify. The protocols acknowledge that estimates of these costs are likely to be highly uncertain. Because it is necessary to calculate participant costs for the purposes of the TRC test, the utilities have in the past used incentives paid plus bill reductions minus capital costs as a proxy for measurement for participant costs. However, as explained in the protocols, this is not an accurate estimate of participant costs because it assumes that participant benefits are equal to participant costs. Instead, the protocols establish the quantity

incentives + bill reductions - capital costs

as the maximum value for the total of transaction and lost value of service costs. Because the value of these costs is uncertain, the 2010 Protocols require a sensitivity analysis to show how the different possible values of these participant costs affect the final results. The value calculated above shall be used as the maximum value for the purpose of the sensitivity analysis, with a lower value used as the standard value for this quantity.