16. Penalty Proposal
In its testimony and briefs, TURN recommends that if the Commission chooses to adopt the settlement agreement, that it should also adopt a penalty mechanism under which SCE would be required to pay a penalty in the event that it failed to reach 65% of its forecast demand response.70 TURN recommends a penalty mechanism equal to one-half of the annualized cost of a peaking power plant adjusted for losses and multiplied by the unachieved savings.71 Using this mechanism, the further SCE is below its estimated savings from demand response, the greater the penalty SCE would pay. SCE argues that it would be unreasonable to impose a penalty. Among other reasons, SCE notes that many of the circumstances necessary to reach its forecasts are not under its control; for example, the exact return SCE can expect from its demand response programs depends on the specific rates and rate designs in place over the years that the AMI meters are in use.72 The details of these rates have yet to be adopted by the Commission, and may change over time.
As discussed above, any forecast of costs and benefits that goes out far into the future is subject to great uncertainty. We approve the settlement agreement based on the best available current information, but many of the rates and programs assumed for the purposes of the business case have not been adopted by the Commission, and must ultimately be considered on their merits when specific proposals are made. Similarly, we have used the best available estimates for program participation in the business case analysis, but because CPP and PTR rates are not currently in widespread use for residential customers in California, these estimates, too, are subject to uncertainty. Future information on customer behavior in response to these or other dynamic rates may provide more accurate information on participation rates and demand elasticities, but we must analyze the settlement agreement based on the information available today. For these reasons, it is not reasonable to penalize SCE for failing to meet the forecasts made in the business case.
It is, however, reasonable and desirable to determine how closely the demand response, conservation, and load control forecasts, and forecasts of associated benefits, match the forecasts made here. The collection of data the actual demand response achieved with the AMI system will provide us with valuable information on customer behavior, and enable us to track progress towards state energy policy goals associated with AMI, DR, and related issues. For this reason, in addition to approving the settlement agreement, we require SCE to report to the Commission on the energy savings and associated financial benefits of all DR, load control, and conservation programs enabled by AMI, including PCT programs, Peak Time Rebate programs, and other dynamic rates for residential customers. SCE should work with Energy Division develop a reporting format for this information, and should file annual reports in April of each year in R.07-01-041 or a successor proceeding until April 2019. If no successor proceeding exists, SCE should send these reports to the Director of the Energy Division and serve the service list of the most recent Commission demand response rulemaking. To the extent possible, SCE shall base its estimates of energy savings on the Commission's adopted load impact protocols contained in D.08-04-050 or successor protocols adopted in the future.
70 Marcus, Exhibit 200, pp. 19-20.
71 TURN Opening Brief, p. 48.
72 SCE Opening Brief, pp. 53-54.
