TURN recommends reducing the multiplier in the out years as the market structure (e.g., physical hedges brought about by the utilities' retaining portions of their generation) changes.

The CEC supports TURN's 4.0X escalator for PYs 2001 and 2002 and a 2.5X escalator for PYs 2003 and 2004. ORA states that the CEC's MCP should be used, which presumably means that it disagrees with the use of any escalators. It does not provide the rationale for its position.

The cost-effectiveness analysis for PY 2001 programs should use the escalator values proposed by TURN. TURN's recommendations are based upon a recently completed study entitled Cost Curve Analysis of the California Power Markets performed by W. B. Marcus and G. Ruszovan, JBS Energy, Inc. (JBS Study.) The JBS study persuasively shows that a reduction in load shifts the demand curve, which results in a lowering of market clearing price and creates a "consumer surplus." Thus, the reduction in load has an impact on market price and a system value. The escalators are determined by looking at the "load reduction value" or "consumer surplus" relative to the market price and taking a ratio. The escalators are multiplied by the market price - either during peak or off-peak -- to arrive at system value.

The JBS Study is competent and persuades us to include on-peak escalators in the avoided cost analysis to capture the system value of load reductions on market price.6 Further, TURN's proposed escalators are supported by the study, and are conservative values, since they were refined to include the effects of physical hedges (utility retention of generation assets), which reduced the on-peak multiplier from 5.0 to 4.0. The utilities did not present any evidence or rationale to support its differing values.

For PY 2001 programs, the utilities should use the following on-peak escalators: 1) PYs 2001-2002: 4.0X; 2) PYs 2003-2005: 3.5X; and 3) PYs 2006-2025: 3.0X. The utilities should all use the same "on-peak" interval. The utilities should include the proposed definition of "on-peak" and "off-peak" in the analysis.

6 Indeed, in the Workshop Report, no party disputed the viability of the JBS Report.

Previous PageTop Of PageNext PageGo To First Page