VI. Demand Response

Demand response, like energy efficiency, is a demand-side resource for the utilities. While energy efficiency resources can often meet baseload procurement needs, demand response can fill on-peak requirements. In D.02-10-062, we directed the utilities to consider all cost-effective investment in demand response that meets their procurement needs. We also stated that the Commission, CEC, and CPA are cooperating in a joint rulemaking, R.02-06-001, to design strategies, tariffs, and programs for additional demand response resources and, in the course of that proceeding, expect to identify quantitative targets for utilities to procure in demand response resources. Further, we directed that the targets adopted in R.02-06-001 should be integrated into the utilities long-term plans.

Our EAP places a top priority on energy efficiency and demand response programs in its "loading order" of energy resources. Specifically, the plan states:

· Implement a voluntary dynamic pricing system to reduce peak demand by as much as 1,500 to 2,000 MW by 2007.

· Improve new and remodeled building efficiency by 5 percent.

· Improve air conditioner efficiency by 10 percent above federally mandated standards.

· Make every new state building a model of energy efficiency.

· Create customer incentives for aggressive energy demand reduction.

· Provide utilities with demand response and energy efficiency investment rewards comparable to the return on investment in new power and transmission projects.

· Increase local government conservation and energy efficiency programs.

· Incorporate, as appropriate per Public Resources Code Section 25402, distributed generation or renewable technologies into energy efficiency standards for new building construction.

· Encourage companies that invest in energy conservation and resource efficiency to register with the state's Climate Change Registry.

In their filings, the utilities include various interruptible programs, the Commission's traditional, reliability-based demand response programs, and newer, price-triggered demand response programs such as the Critical Peak Pricing (CPP) tariff currently being implemented for larger customers, and tested for smaller customers in the Statewide Pricing Pilot (SPP).

In D.03-06-032, the Commission adopted demand response goals for each utility and directed that the IOUs include the MW targets for calendar years 2003 through 2007 in their procurement plans, specifically stating the filings in this proceeding should include: numeric targets coinciding with the findings in this decision; documentation of the amount of demand response (price-triggered) to be achieved by July 1 of each calendar year (with the exception of 2003, where the goals shall be met by the end of the calendar year); which programs and/or tariffs the IOU will rely upon to achieve the targets; and a contingency plan for covering capacity needs should the utility fall short of meeting the demand response goals.

The MW targets for each utility are set forth in Table 1 of D.03-06-032:

Table 1. Demand response goals

Year	PG&E	SCE	SDG&E
2003	150 MW	150 MW	30 MW
2004	400 MW	400 MW	80 MW
2005	3% of the annual system peak demand
2006	4% of the annual system peak demand
2007	5% of the annual system peak demand

Funding for price-responsive demand response programs is also addressed in D.03-06-032. In Ordering paragraph 22, we state:

"The total cost expenditures authorized as a result of this decision are capped at $33.0 million over the two calendar years, exclusive of revenue shortfalls and costs related to "other incentives" which are part of the DWR revenue requirement. Each IOU shall use the cost recovery mechanisms previously adopted in D.03-03-036 as applicable to all Phase 1 programs."

PG&E's long-term plan includes its existing demand reduction programs and three price-responsive programs already authorized in D.03-06-036. No additional funding is requested here. PG&E provides a conservative forecast, testifying on the difficulty of estimating demand reduction levels from new DR programs given various uncertainties. ORA testifies it reviewed the request and supports PG&E's filing on this issue. We adopt PG&E's demand reduction proposal.

SDG&E's plan reflects an aggressive demand response forecast and encourages the Commission to consider an incentive mechanism for all demand-side programs. SDG&E does not request any funding authorization here.

In its "preferred plan," SCE requests $40 million in pre-approved funding for seven years and approval of a "new and improved" Airconditioning (A/C) Cycling Program (ACCP). Further, SCE states program review should not be subject to after-the-fact reasonableness review. ORA testifies the expected peak load reduction from this program seems unrealistic and does not support the funding request. CEC recommends this program be referred to R.02-06-001 for in-depth examination.

We agree with CEC and ORA's recommendation that new ACCP programs need to be reviewed in R.02-06-001 or its successor demand response rulemaking. This allows for program specifics to be carefully examined and for the necessary evaluation and measurement standards to be adopted. The Commission can then directly authorize funding in that proceeding. SCE's proposed program is an emergency-demand response program, and the future of these programs, in relation to price-response programs, is a policy issue for R.02-06-001 or its successor. We do not approve SCE's request for funding.