9. Comments on Proposed Decision

The proposed decision of ALJ Hecht in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. CLECA, DRA, the Joint Parties, PG&E, SCE, SDG&E, and TURN filed comments on the proposed decision on November 12, 2010. DRA, the Joint Parties, PG&E, SCE, SDG&E, and TURN, filed reply comments on November 19, 2010. Comments ranged from requests for a further process to validate inputs into the demand response reporting template to suggestions for technical corrections to several aspects of the protocols. Technical corrections and changes have been made as appropriate throughout the decision and the protocols in response to the comments.

Findings of Fact

1. The cost-effectiveness protocols adopted in this decision use the tests described in the California SPM (which was developed to measure the cost-effectiveness of energy efficiency programs), to provide the basis for comparing the costs and benefits of demand response.

2. Modifications and additions have been made to selected elements of the SPM tests to better adapt them for use with demand response.

3. Use of publicly available data will increase both the transparency and consistency of the calculation of demand response costs and benefits.

4. Use of common models to determine both the avoided costs and the cost-effectiveness of demand response based on non-proprietary data will enhance both the transparency and consistency of the calculation of demand response costs and benefits.

5. Avoided electricity costs, which include energy, capacity, and potentially other costs, are the most significant benefit of demand response.

6. Because demand response programs are mostly active at times of peak electricity demand, when electricity costs tend to be high, the avoided electricity cost values used in demand response cost-effectiveness calculations should reflect the value of electricity in those peak hours.

7. The Avoided Cost Calculator, created by E3 to determine the avoided costs of distributed generation, as modified in the 2010 Protocols, provides a reasonable estimate of avoided electricity costs at peak hours when demand response is likely to be needed, as well as at non-peak hours when demand response might be needed.

8. The Avoided Cost Calculator explicitly calculates gross margin values, obviating the need for a separate, specific calculation of gross margins, and allows for more consistent and reliable results across utilities.

9. The Avoided Cost Calculator calculates the avoided costs of T&D.

10. The avoided costs of T&D are a benefit of demand response, and should be considered in cost-effectiveness calculations, as appropriate.

11. The load impacts used to determine cost-effectiveness should be consistent with RA requirements, to the extent possible.

12. Certain general activities such as administration, education, and marketing may support utility programs, even if the funding for those activities is not listed within the program's approved budget.

13. Program costs are correctly captured in the cost-effectiveness calculation only if all costs attributable to a particular program, whether they are included in the program's budget or a separate category, are considered in the cost-effectiveness analysis of that program.

14. Sensitivity analyses on key variables will illustrate the range of circumstances under which programs may be cost effective.

15. Qualitative analyses of factors that may affect the cost-effectiveness of a program but are difficult to quantify will improve our understanding of those factors and inform future decisions on the importance of quantifying those factors.

16. The cost-effectiveness protocols adopted in this decision are designed for use by the utilities in analyzing Commission-approved demand response activities and potential future demand response activities.

17. The cost-effectiveness protocols adopted in this decision may be suitable for use by other LSEs, including small utilities and demand response aggregators, in analyzing existing and potential future demand response activities.

18. A workshop and guidance process to validate the Avoided Cost Calculator and Demand Response Reporting Template models in advance of the filing of new demand response program and budget applications will ensure that the models accurately reflect the protocols at the time of the analysis.

19. Energy Division may make small technical corrections or updates to data in the Avoided Cost Calculator and Demand Response Reporting Template models outside of the periodic workshop review process described here, if necessary to ensure the models accurately reflect these protocols and remain consistent with current conditions.

Conclusions of Law

1. It is reasonable to require that cost-effectiveness calculations of Commission-approved demand response activities utilize publicly available data and data sources to the extent feasible.

2. It is reasonable to require that cost-effectiveness calculations of Commission-approved demand response activities use consistent and non-proprietary models and methods.

3. The Avoided Cost Calculator adopted in this decision is consistent with the approach adopted in previous Commission decisions for similar analyses of cost-effectiveness.

4. It is reasonable to require that any changes or modifications to the protocols or use of confidential data in calculations by the utilities be approved in advance through the workshop and guidance process for validating and updating the protocols and models before filing of regular three-year program and budget applications for demand response activities.

5. If confidential or proprietary data and analyses are used for any part of a utility's cost-effectiveness analysis, those data should be entitled to the confidentiality protections recognized in Commission decisions.

6. Each of the SPM tests should be used to describe the cost-effectiveness of both individual demand response programs and each utility's demand response portfolio.

7. It is reasonable to require the utilities to use the adopted cost-effectiveness protocols in analyses of existing or proposed demand response activities presented to this Commission.

8. The relative weight given to any Standard Practice Manual test in determining program approval or modification should be determined within demand response budget proceedings, or other application or advice letter proceedings in which a utility is requesting approval of a demand response resource.

9. The 2010 Demand Response Cost-Effectiveness Protocols found in Attachment 1, referred to as the "2010 Protocols," which summarize costs and benefits and input variables for each of the adopted cost-benefit tests, should be adopted to guide cost-benefit calculations for demand response activities, subject to future modification by this Commission.

10. It is reasonable for Energy Division to oversee the cost-benefit analysis work done according to the adopted protocols to ensure that the analyses apply the cost-benefit models adopted in this decision and the most recent data available.

11. It is reasonable to require the utilities to work with Energy Division to ensure that all costs attributable to a program, including administrative and other costs that may not be captured in the program's budget, are included in the cost-effectiveness analysis of each program.

12. It is reasonable to require sensitivity analyses on key variables, in order to illustrate the range of circumstances under which programs may be cost effective.

13. It is reasonable to require qualitative analyses of factors that may affect the cost-effectiveness of a program but are difficult to quantify.

14. It is reasonable to require Energy Division to work with parties to validate the Avoided Cost Calculator and Demand Response Reporting Template models in advance of the filing of new demand response program and budget applications, and to issue specific technical guidance on the application of the protocols, including the possibility of departures from the protocols' requirements.

15. It is reasonable to allow Energy Division staff to make technical corrections to the Avoided Cost Calculator and Demand Response Reporting Template if necessary to ensure that they reflect the most accurate and current information available.

16. It is reasonable to require the Demand Response Measurement and Evaluation Committee to provide funding not to exceed $50,000 to support validation activities related to use of the Avoided Cost Calculator and Demand Response Reporting Template for the 2012-2014 Demand Response Program and Budget Applications.

ORDER

IT IS ORDERED that:

1. Demand response activities supported by incentives and rate exemptions funded by ratepayers of Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company, shall be analyzed using the four cost-effectiveness tests described in this decision, namely, the Participant Test, the Total Resource Cost Test, the Ratepayer Impact Measure, and the Program Administrator Cost Test, and the tests shall be run with the input variables and data sources set forth in Attachment 1.

2. Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company shall use the cost-effectiveness protocols described in and attached as Attachment 1 to this decision in all future cost-effectiveness analyses of their demand response activities, until directed otherwise. These utilities shall file their Demand Response Program and Budget Applications for 2012-2014 utilizing these protocols not later than March 1, 2011.

3. Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company shall use the Avoided Cost Calculator to calculate the avoided costs used in all future cost-effectiveness analyses of their demand response activities.

4. Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company shall use the Demand Response Reporting Template to calculate the cost-effectiveness estimates for their demand response activities.

5. If Pacific Gas and Electric Company, San Diego Gas & Electric Company, or Southern California Edison Company want to depart from any of the requirements contained in Attachment 1 to this decision in a particular application, they may request such approval in writing in advance of the workshop scheduled for validating and updating the protocols and models held before the filing of the three-year program and budget application for demand response. These workshops shall be held as provided in Section 7. above.

6. Energy Division shall oversee the cost-effectiveness analyses of demand activities according to the protocols in Attachment 1.

7. Energy Division shall notify the most recent service list in this proceeding and the most recent demand response applications proceeding of any technical changes to the Avoided Cost Calculator and the Demand Response Reporting Template, and will ensure that the most current versions of the models remain accessible to all parties.

8. The Demand Response Measurement and Evaluation Committee shall make funds, not to exceed $50,000, available to support the validation process and related model maintenance for the cost effectiveness models used in the 2012-2014 application period.

9. This decision resolves all remaining issues in Phase One of Rulemaking 07-01-041.

10. This proceeding remains open to deal with pending issues in its second and fourth phases.

This order is effective today.

Dated December 16, 2010, at San Francisco, California.

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