COM/MP1/jf2 DRAFT H-10

ID#502

5/16/2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on policies and practices for advanced metering, demand response, and dynamic pricing.

R.

ORDER INSTITUTING RULEMAKING

I. Summary

We open this rulemaking proceeding to address, in a comprehensive manner, policies to develop demand flexibility as a resource to enhance electric system reliability, reduce power purchase and individual consumer costs, and protect the environment.

Through this proceeding, we hope to craft a comprehensive policy in the three investor-owned utility territories of Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (Edison), to provide options to individual consumers for reducing cost, while providing overall system benefits. We also encourage the other IOUs in California, including small and multi-jurisdictional IOUs, to participate in this rulemaking proceeding.

We emphasize that demand-responsive capabilities are important regardless of the ultimate electricity market structure that emerges in the next few years. A perfectly functioning wholesale and/or retail electricity market is not a precondition for development of demand response. On the contrary, demand-responsive capability can be a significant tool in mitigating the effects of a dysfunctional market, as well as for controlling costs, even in a completely vertically integrated and regulated market. We also acknowledge, however, that efforts occurring in parallel with this proceeding to determine future market structure, both at the state and federal level, may impact our activities here. We expect that impact primarily at the operational level and less in terms of policy; still, we will endeavor to coordinate with those efforts wherever possible.

In Section II below we outline the issues we expect to address in the course of this rulemaking. Section IV also includes a preliminary procedural schedule.