II. Background
"Demand response" is defined as changes in electricity consumption by customers in response to signals in the form of electricity prices, incentives, or alerts during periods when the electricity system is vulnerable to extremely high prices or compromises to reliability. We have generally categorized DR programs according to whether their purpose is to address spikes in market prices (day-ahead/economic DR) or to relieve threats to system reliability
(day-of/emergency DR).
DR programs are an essential element of California's resource strategy, as articulated in the State's Energy Action Plan II (EAP II). EAP II has determined how energy resources should be deployed to meet California's energy needs and ranks DR programs second in the "loading order" after energy efficiency programs. The EAP II emphasizes the need for DR programs that result in cost-effective savings and the creation of standardized measurement and evaluation mechanisms to ensure verifiable savings. It directs the utilities to subscribe at least 5% of system peak demand to DR programs by 2007.
The Commission undertook a major effort to adopt effective DR programs in a previous rulemaking, R.02-06-001. Since the issuance of R.02-06-001, the Commission has significantly improved the role of DR programs in meeting California's energy needs. Part of the work in R.02-06-001 included the adoption of a pilot program to determine the demand elasticities of residential and small commercial customers by placing them on time-of-use and critical peak pricing tariffs. Decision (D.) 03-06-032 adopted price-responsive DR programs for large customers and set annual participation goals for utility DR programs. The rulemaking also initiated the Commission's exploration of advanced metering, "real-time" pricing, default critical peak pricing tariffs and other DR program planning and implementation issues. The utilities have since submitted applications seeking deployment of advanced metering systems for all of their customers.
D.05-11-009 recognized the need for additional work to integrate DR programs into the resource planning process, and evaluate and measure the effect of DR programs. In response to D.05-11-009, the Commission's Energy Division and the California Energy Commission (CEC) staff jointly issued draft protocols for estimating load response from DR programs that identified outstanding issues and listed several types of program and incremental costs that should be tracked.1 The staff also conducted one scoping workshop on
cost-effectiveness issues. Taking into consideration the comments provided by stakeholders at the workshop and those submitted in response to the draft protocols, the staff recommended that the Commission conduct a formal proceeding to develop load impact protocols for DR programs, develop a
cost-effectiveness methodology for DR programs and reassess the megawatt (MW) goals for DR programs, including further guidance as to what load reductions count toward achievement of those goals.
DR programs have also become a focal point of the CAISO's wholesale market development. On September 21, 2006, the Federal Energy Regulatory Commission (FERC) conditionally approved the CAISO's Market Redesign and Technology Upgrade (MRTU) proposal and directed the CAISO to incorporate price-responsive DR programs in the MRTU. In our comments2 to FERC, we indicated our support for this effort and recommended that the CAISO account for existing demand response in a way that does not promote procurement of redundant supply-side resources. We also signaled our support for a stakeholder working group process which could be used to identify how to best align existing utility DR programs with wholesale markets. As the CAISO's efforts in this area progress, we expect that existing utility DR programs may require modification. Such program changes may be considered in this rulemaking.
All of this provides the backdrop for our work in this proceeding.
1 The draft load impact protocols, comments on the protocols and the presentations from the cost-effectiveness scoping workshop can be found at:
http://www.cpuc.ca.gov/static/hottopics/1energy/_drce.htm
2 Comments and Proposal of the California Public Utilities Commission for Incorporation of Demand Response into the CAISO Markets in Accordance with the Commission's September 21, 2006 Order Conditionally Accepting the California Independent System Operator's Electric Tariff Filing to Reflect Market Redesign and Technology Upgrade, dated November 20, 2006.
