V. Demand Response (DR)
Demand response programs can be used to help achieve both system efficiency and reliability goals. There are two general types of demand response programs that the IOUs use to reduce demand when energy prices are high or when supplies are tight: `price-responsive' programs (in which customers choose how much load reduction they can provide based on either the electricity price or a per-kW or kWh load reduction incentive), and emergency-triggered programs (in which customers agree to reduce their load to some contractually-determined level in exchange for an incentive, usually a commodity discount). Both types of programs motivate customers to reduce their loads in exchange for some type of benefit - such as reduced energy rates, bill credits or exemptions from rotating outages. For purposes of clarification, the term `demand response program' should be interpreted in this decision to mean `price-responsive' programs for which the Commission has established specific MW targets to be incorporated into the IOU's LT procurement plans.
Price-responsive programs have been the subject of R.02-06-001. D.03-06-032 adopted price-responsive programs, set target goals and directed the utilities on how to integrate demand response goals into their procurement plans. As of July 2004, the IOUs have a combined total of 519 MWs50 enrolled in the authorized programs.51 D.03-06-032 also adopted demand response goals for years 2003 - 2007. The 2005 goal is 3% of `annual system peak demand', increasing to 4% in 2006 and 5% in 2007. The adopted goals apply only to `price-responsive' demand response programs. MW savings generated by interruptible programs do not count toward the demand response goals articulated in the Energy Action Plan. Enrollment in interruptible programs is capped at 2,500 MW.
D.03-06-032 also directed the IOUs to include the adopted demand response MW goals in their procurement plans, along with documentation of the amount of MWs to be achieved by July of each year, the programs and/or tariffs they will rely on to achieve the MW targets and a contingency plan for covering capacity needs should they fall short of meeting the MW goals.
On October 15, 2004, the IOUs submitted demand response program proposals for the purpose of meeting their 2005 goals. These proposals include modifications to existing demand response programs as well as new programs. If their proposals are approved by the Commission, the IOUs anticipate enrollment of the following amounts of demand response MWs by July 2005:
PG&E complies with D.03-06-032 in that its LT procurement plan contains demand response MW goals that are derived by applying the appropriate percentages to its forecasted system peak demand for future years (PG&E assumes the 5% is applicable to the years after 2007) for the low, medium and high scenarios. In terms of specific MWs, PG&E assumes 450 MWs of price-responsive demand response for year 2005 (medium load scenario). PG&E acknowledges that it does not know if achieving this MW goal or future years goals are feasible, implying that its demand response component is not an accurate forecast of the future, but rather an attempt to be in regulatory compliance with D.03-06-032.
In contrast to PG&E, SCE's LT procurement plan does not assume the adopted 3% of annual system peak demand response will occur but provides a modest forecast of 358 demand response MWs for future years. SCE's forecast reflects what it believes is realistically achievable for the programs. This constitutes less than 2% of SCE's annual system peak demand in 2005.
Like SCE, SDG&E's LT procurement plan acknowledges that it will be short of achieving the Commission's demand response MW goals. Specifically, SDG&E estimates 27 MWs of demand response MWs by 2007. SDG&E's plan reflects what it believes is realistically achievable for these programs.
All three IOUs question the achievability and cost-effectiveness of the demand response MW goals, noting that there may be more cost-effective alternatives to meet their loads. The IOUs also note that it is currently unknown as to how many MWs demand response programs can actually produce, and that current methods of measuring their effect may need to be revised. In addition, all three IOUs, in particular PG&E, advocate an annual review of the demand response goals and adjustments to the goals based on the performance of the demand response programs and their cost-effectiveness relative to other procurement options.
Since D.03-06-032 established the parameters of the demand response program, the only issue in this proceeding is whether the IOUs are implementing the adopted goals in their LTPPs and how they treat the load savings. ORA observes that PG&E categorizes demand response as a supply resource, while SCE and SDG&E consider it a `load modifier'. SDG&E rebuts ORA's observation, noting that it categorized demand response as a supply resource.
In this proceeding, the utilities provide an estimate of the number of MWs that constitute 3% of their annual system peak demand. The following are the MW targets for the year 2005:
PG&E: 450 MW
SCE: 628 MW
SDG&E: 125 MW
It is clear that the utilities have used inconsistent definitions of annual system peak in arriving at their MW targets for price-responsive demand. For each utility, the "annual system peak' should be the annual system peak for their respective service territories, inclusive of all customers taking service within those boundaries. We direct the utilities to verify in their compliance filing, detailed below, that the numbers reported above are consistent with this definition, or provide updated targets that reflect this definition.
It is too early to judge whether or not the current demand response goals are achievable or not. Rather than adjust them now or institute an annual review/adjustment process as suggested by the IOUs, the Commission will retain the current 3% of annual system peak goal and further encourage the IOUs to continue with their best efforts in reaching them. Cost-effectiveness of demand response programs is also important to the Commission, and future demand response proposals will be evaluated for their cost-effectiveness in the demand response rulemaking (R.02-06-001) or its successor.
The Commission recognizes that by keeping demand response MW goals at their current levels there may not be, at some point, any program that is cost-effective relative to alternative supply resources. As stated above, we believe it is premature to make that judgment today. Because demand response programs are currently voluntary, the challenge of designing cost-effective programs while in pursuit of greater amounts of demand response MWs each year may very well prove to be an impossible task. If and when that point becomes evident, the Commission will need to either reduce its demand response MW goals or begin consideration of mandatory demand response programs and tariffs.
SCE's and SDG&E's LT plans provide demand response MWs that they believe are realistically achievable, as opposed to incorporating the Commission's demand response MW goals into their plans. PG&E's 2005 program plans would meet the MW goal for 2005, but it is not clear that the 3% figure PG&E calculated is based on its "annual system peak" as defined herein. In fact, the LTPPs for SCE and SDG&E reflect an even lower amount of MWs than the utilities expect to enroll in programs by July 2005. This decision's approval of the IOUs' LT plans is not an affirmation that the utilities are no longer required to pursue the more aggressive demand response goals, rather they are expected to continue to explore and find ways to meet those goals until otherwise directed. As part of their compliance efforts, within 30 days of this decision, each utility shall propose additional programs in R.02-06-001 that will allow them to enroll sufficient customer load to reach the adopted 2005 goals for price-responsive demand response programs described above. The Commission will consider whether or not to approve specific proposed programs in
R.02-06-001.
50 290MW for PG&E, 205 MW for SCE and 24 MW for SDG&E, derived from utility demand response/interruptible monthly reports.
51 The IOUs currently have a combined total of 1,500 MWs of potential interruptible MWs from programs authorized by previous Commission decisions.
52 R.02-06-001 Proposal of Pacific Gas and Electric Company (U 39-E) Concerning Working Group 2 Programs and Related Issues, Public Version, October 15, 2004, Appendix C, p. 2.
53 R.02-06-001 Southern California Edison Company's (U338-E) Demand Response Program Proposals for 2005-2008, October 15, 2005, p. 64.
54 R.02-06-001 Filing of San Diego Gas & Electric Company..., October 15, 2004, p. 8.
