ALJ/JHE/jt2 Date of Issuance 12/21/2010

Decision 10-12-024 December 16, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking regarding policies and protocols for demand response load impact estimates, cost-effectiveness methodologies, megawatt goals and alignment with California Independent System Operator Market Design Protocols.

Rulemaking 07-01-041 (Filed January 25, 2007)

DECISION ADOPTING A METHOD FOR ESTIMATING THE COST-EFFECTIVENESS OF DEMAND RESPONSE ACTIVITIES

Table of Contents

Title Page

DECISION ADOPTING A METHOD FOR ESTIMATING THE COST-EFFECTIVENESS OF DEMAND RESPONSE ACTIVITIES 22

1. Summary 22

2. Procedural Background 22

3. Major Issues in the Development of Cost-Effectiveness Protocols 55

3.1. Use of Confidential Data and Proprietary Models and Information 77

3.2. Choice of a Consistent Model for Overall Cost-Effectiveness
Calculations 1010

3.3. Calculation of Avoided Costs 1313

3.3.1. Choice of a Consistent Model for Avoided Costs 1414

3.3.2. Appropriateness of Including an Adjustment for "Gross Margins,"
and Calculation of Such an Adjustment 1616

3.3.3. Appropriateness of Including Transmission and Distribution
Avoided Costs (and When They Should Be Included) 1818

3.3.4. Treatment of Ancillary Services in the Avoided Cost Calculator 2020

3.4. Inclusion of "Overhead" Costs such as Education and Marketing 2121

3.5. Requirements for Sensitivity Analyses and Qualitative Analyses 2323

4. Summary of the Cost-Effectiveness Protocols 2525

4.1. Section 1: General Guidance 2626

4.1.1. Section 1.A.: Intended Use of the Protocols 2727

4.1.2. Section 1.B: Input Data and Method Used to Estimate Costs and
Benefits 2828

4.1.3. Section 1.C: Confidentiality 3030

4.1.4. Section 1.D: Relationship to the Standard Practice Manual 3030

4.1.5. Section 1.E: Relationship to the Planning Reserve Margin and
Resource Adequacy 3030

4.1.6. Section 1.F: Types of Analyses Expected 3131

4.1.7. Section 1.G: Portfolio Analysis 3232

4.2. Section 2: Calculation Framework and Input Values and Section 3:
Costs and Benefits of Demand Response 3232

4.2.1. Avoided Cost Values 3535

4.2.1.1. Avoided Generation Capacity Costs 3535

4.2.1.2. Avoided Energy Costs 3636

4.2.1.3. Avoided Transmission and Distribution Costs 3737

4.2.2. Costs Specific to Participants 3838

4.2.3. Revenue from CAISO Market Participation 3939

4.2.4. Increased Supply Costs 4040

4.2.5. Benefits that are Currently Difficult to Quantify 4040

5. Purpose and Use of the New Protocols 4141

6. Departures from and Modifications to the Protocols 4343

7. Guidance for the Use of the Protocols in the 2012-2014 Demand
Response Applications 4444

7.1. Establishment of a Regular Workshop Process for Validating and Updating the Protocols and Models 4545

8. Categorization and Assignment of Proceeding 4747

9. Comments on Proposed Decision 4848

Findings of Fact 4848

Conclusions of Law 5050

ORDER 5353

Attachment 1 - 2010 Protocols

DECISION ADOPTING A METHOD FOR ESTIMATING THE COST-EFFECTIVENESS OF DEMAND RESPONSE ACTIVITIES

1. Summary

This decision adopts a method for estimating the cost-effectiveness of most Commission-ordered demand response activities. The protocols set forth in Attachment 1 shall be used in the preparation and evaluation of future applications for approval or expansion of demand response activities. This decision also adopts a workshop process for validating and updating the models used by the protocols before filing of the periodic demand response activity and budget applications. This decision completes the work in Phase 1 of Commission Rulemaking 07-01-041; this rulemaking remains open to address issues in other phases of this proceeding.