5. Adopted Improvements to Current Interruptible Programs and New Programs

Parties' comments and reply comments on the Energy Division Report were extensive and constructive. We concentrate in the following sections on our adopted programs and the chief points of contentions. We do not try to summarize or address every argument or nuance in the comments and reply comments.

5.1 Opt-Out and Realignment of Firm Service Level

Probably the most contentious issue is whether or not to continue the temporary suspension adopted in D.00-10-066 of the portions of SCE's interruptible tariffs that would otherwise allow customers to either opt out of the program or change their firm service level. For the many reasons stated in the Energy Division Report, we are persuaded to require customers to meet their tariff obligations, but with reasonable flexibility.

SCE interruptible customers have received more than $900 million in reduced rates since the beginning of 1996.⁵ In exchange, other ratepayers expect interruptible customers to interrupt when demand otherwise exceeds supply, or pay penalties consistent with their agreement. This commitment and bargain is not inconsequential. For example, each megawatt-hour of interruptible load is equivalent to 1,000 homes that are not subject to rotating outages for one hour. Allowing interruptible customers to opt out or adjust their firm service level without consequence would transfer the responsibility of bearing outages from the interruptible customers (who voluntarily signed-up for the program and enjoyed reduced rates) to all other ratepayers (who have not enjoyed reduced rates).

Further, allowing customers to opt out or adjust firm service levels without consequence would reward those customers who made bad judgments. That is, over 78% of all customers on SCE's program signed up for 99% of their load being subject to interruption. This was a decision they freely made based on their best business and professional judgment after assessing all known risks. Interruptible customers should not be exempted from the consequences of over-nominating their load. Allowing these customers to opt out or adjust firm service level without consequence would again transfer the risk of bearing outages from those who voluntarily selected that risk and were compensated by reduced rates to all other ratepayers. This is unreasonable.

The underlying premise of SCE's program was that interruptible customers were allowed to opt out or adjust firm service level with advance notice of 5 years. The program was closed to new customers in November 1996. Any customer enrolled in 1996 knew of the five year obligation.

The 5 year notice was relaxed in 1998. In November 1998 and November 1999, SCE customers had the option to opt out or adjust firm service level. The opt-out option was suspended in D.00-10-066 and did not occur in November 2000.

Parties such as the City of Huntington Beach ask that the Commission restore interruptible customers to the position they held prior to D.00-10-066 (i.e., back to an annual opt-out). After giving this careful consideration, we affirm the reasoning in D.00-10-066 that suspended the opt-out provision, and restore them back to the original terms of the tariff.

That is, customers had a five year obligation. Any customer who gave notice in November 1996 before the program was closed may opt out during November 2001. All customers were given the opt-out option in November 1998 and again in November 1999. Any customer who did not elect to opt out or make an adjustment as late as 1999, however, must essentially honor the longer notice requirement that was a foundation of the reduced rates.

On the other hand, many interruptible customers say they made careful judgments and analyses of the risks and rewards before making their decisions based on realistic assumptions. They argue that the electricity system is now operating outside any reasonable bounds that could have been used in their analyses, and this fact justifies allowing everyone an opportunity to readjust.

The electric system may or may not be operating outside the range of realistic assumptions they could have been expected to use in their analyses. We have no easy ways to address the complex situation in which we find ourselves, however, and simply excusing SCE customers without any restriction would be unreasonable. Nonetheless, we will allow SCE's interruptible customers reasonable flexibility as they meet vital tariff obligations to get us through the State of Emergency proclaimed by Governor Gray Davis. ⁶

To do this, we allow SCE's interruptible customers to opt out or adjust their firm service level during a 30-day window beginning upon service of notice to customers of this option. SCE must provide written notice to each affected customer within 10 days of the date the tariff becomes effective.

We make the effective date of the opt-out or adjustment effective back to January 1, 2001 to reflect the fact that electricity market experience during January 2001 was far from any normal expectation (with almost a constant Stage 3 emergency during this winter month).⁷ We also do so because the suspended November 2000 opt-out would have otherwise taken effect for most customers by January 1, 2001.⁸ Also, a calendar year basis for opt-out promotes reasonable administrative ease.

We allow opt-out or adjustment in firm service level in one of four ways. First, the customer may pay back a portion of the discounts received. We limit this repayment to 2000 and 2001, with interest. Second, the customer may invest in and install energy efficiency equipment by July 1, 2001 in an amount of money equal to or greater than the total discount in 2000 and 2001, with interest.⁹ Third, the customer may participate in the Commission's Voluntary Demand Response Program (VDRP-a pay-for-performance program) providing the same amount of kWh load reductions that would be required under SCE's Schedule I-6 obligation. Participation in the VDRP would be without payment until the Schedule I-6 obligation is met. The details are stated in Attachment A.

Fourth, for some customers upon whom public health, safety and welfare depend, we allow an opt-out or firm service level realignment without condition. We decline to adopt the program recommended in the Energy Division Report of a limited review mechanism for public health, safety and welfare. (Report, page 47.) Such program would require utilities to file advice letters within a certain number of days on behalf of some customers, and involve a potentially complex delegated regulatory system not fully open to public view, with an appeal process to the full Commission. SCE objects to filing advice letters for others, and the delegation of judgment to staff in a manner not fully open to public inspection. We agree that a simpler system should be used in this State of Emergency.

Thus, we conclude that any public or private school, college, university, hospital or prison now on SCE Schedule I-6 may elect to opt out or realign its firm service level during a 30-day window without penalty. This exception is necessary to protect public health, safety and welfare. We caution these customers to carefully consider this option now, however, since it is unlikely to be given again to these same customers independent of whatever we allow for all interruptible customers.

We do not allow customers who opt out during this 30-day window to participate for one year in either any other program that pays a capacity payment (dollars per kW), or the ISO Ancillary Load Services Program.¹⁰ We apply this restriction because a customer who can perform should perform in the existing program. If the customer cannot perform here, the customer is unlikely to successfully perform in another similar program. The restriction will minimize unreasonable turnover from one program to another without benefit to the state.

5.2 Other Modifications

We make other modifications to existing programs, largely as recommended by Joint Parties. First, we extend the programs of PG&E, SCE and SDG&E to December 31, 2002. Existing tariffs are otherwise scheduled to expire (sunset) on March 31, 2002. We agree with Joint Parties that the need for these programs is unlikely to end in 2001, or by March 31, 2002. To the extent these programs are successful, they should be continued at least through the Summer of 2002, and we think reasonably to December 31, 2002.

At the same time, many structural changes are being made to the electricity market. We hope these changes will soon be successful in realigning demand and supply, and bringing prices back to just and reasonable levels. Interruptible programs are very expensive. We cannot reasonably extend expensive programs without limit. Rather, we extend the sunset for a specific, limited duration to December 31, 2002, and will reconsider extensions and program redesign as necessary for use beyond December 31, 2002.

We also limit program use to one 6-hour event per day, and 40 hours total per month. We do this to reasonably extend the programs in light of the experience in January 2001. In January 2001, interruptible customers were asked to curtail load almost continuously. As a result of that experience, in late January 2001 we suspended interruptible program penalties, along with the tolling of events and hours. (D.01-01-056.) PG&E's program was almost completely exhausted before it was suspended.

PG&E and SCE customers were in particular pressed to the limit by the number and duration of interruption calls. Customers faced an irreconcilable dilemma of choosing to curtail electric service almost continuously, or paying significant penalties. (D.01-01-056, mimeo., pages 5-6.) This is simply not acceptable. It places unreasonable expectations on customers, and too quickly exhausts programs in a manner not necessarily in the best interests of the State. As a result, we limit exposure to interruptions to reasonable limits per day and month so that the remaining portions of these programs are useful for the remainder of 2001 and 2002, without unreasonable burdens on customers.

Joint Parties also propose that the utility may terminate the customer's subscription under the interruptible tariff and return the customer to the otherwise applicable rate schedule if the customer does not achieve its firm service level for three consecutive curtailment events. We decline to adopt this proposal. This vehicle could otherwise be used strategically by a customer to transfer to another rate schedule without reasonably fulfilling its obligations. We think the better approach is to make existing programs more reasonable, as we do above, including limited opt-out and firm service level adjustments available during a 30-day window.

5.3 Insurance

We also address the issue raised by Caliber One Indemnity Company (Caliber One). Caliber One requests a Commission determination of whether or not interruptible customers have the option of willfully refusing to comply with interruption notices without breaching their obligations. Caliber One contends that willful refusal to curtail undermines or defeats the goals of the interruptible service program, or renders an interruptible tariff and its rate structure unlawful, unjust, unreasonable, or discriminatory. Caliber One raises this concern in particular with SCE's Schedule I-6. Additionally, if the Commission finds such behavior constitutes breach or violation, Caliber One requests that the Commission act to fix the Schedule I-6 tariff, interruptible rate contracts, and, if deemed appropriate, the insurance policies between SCE's customers and Caliber One.

We agree with PG&E's response on these issues. (February 26, 2001, page 4.) There is nothing in current interruptible tariffs that limits a customer's right to continue using electricity during curtailment periods. The customer makes the choice to curtail or not curtail based on any number of factors, including safety and economics. Customers are subject to substantial penalties for failing to curtail, however, and apply appropriate caution when making such decisions.

Caliber One asks that the Commission "determine, at a minimum, whether willful refusal to comply with Interruption Notices constitutes a breach of the Interruptible Service Contract and renders the I-6 Tariff and its rate structure unlawful, unjust, unreasonable or discriminatory." (Opposition of Caliber One, March 2, 2001, page 2.) We find that under current interruptible tariffs it does not.

Moreover, we agree with PG&E that the existence of this contract right not to curtail has been crucial to the efficient and effective administration of this program. For example, the existence of this provision has forestalled a great number of separate petitions for individual tariff deviations that might otherwise have been engendered over the course of each summer during which these programs have been operated.

Caliber One cites Public Utilities Code Sections 701, 728 and 743(f) in support of its position, alleging that these sections give the Commission jurisdiction over the insurance agreement between an SCE customer and Caliber One. We disagree for the reasons stated by SCE and the Internal Services Department of County of Los Angeles (ISD/LAC).¹¹ These code sections give the Commission authority to regulate public utilities. Customers of SCE are generally not public utilities.¹² Caliber One does not claim to be, and is not, a public utility.

We also regulate contracts between utilities and customers to ensure that:

"...utility management has not agreed to provide service under unreasonably favorable terms and conditions to the contracting individual or entity. Such an agreement, potentially subsidized by customers subject to regulated rates, would indicate management was acting to violate Pub. Util. Code §§ 451 and 453 which, respectively, prohibit unjust and unreasonable rates and undue discrimination among customers." (D.99-07-014, 1999 Cal. PUC LEXIS 481.)

We may require a public utility to file contracts between the utility and its customers. We may examine a private contract to the extent it is between a utility and a customer and might involve utility violations of the Public Utilities Code. The contract between a utility customer and an insurance company, however, even if it incorporates a regulated tariff, does not fall into this category.

Caliber One contends that the Commission must determine whether the Schedule I-6 tariff is unlawful, unjust, unreasonable, discriminatory or preferential when customers willfully refuse to curtail, including "rules, practices or contracts affecting such rates or classifications..."(Pub. Util. Code § 728, emphasis added). Caliber One argues that the insurance policies and agreements incorporate the Schedule I-6 tariff, and thereby bring the insurance contract under Commission jurisdiction. We disagree. We regulate the terms and conditions of interruptible tariffs, and contracts between utilities and customers. We do not regulate agreements between a customer of a public utility and another party, third party contracts not involving a public utility, or agreements between non-public utilities, whether or not the agreement references a regulated rate or tariff.

Caliber One asks that parties be given a chance to submit written comment on the issue framed by Caliber One's intervention. While we could give additional notice and opportunity for comment, we will not burden parties and the Commission further on this matter. Parties had the opportunity to file responses to the December 14, 2000 Caliber One motion to intervene and statement of issues. Parties had the opportunity to address Caliber One's issue in additional comments filed and served on December 21, 2001.¹³ Caliber One raised its issue in comments filed on the Energy Division Report. Parties had the opportunity to file reply comments on February 26, 2001.¹⁴ Moreover, ISD/LAC filed a motion on February 20, 2001 to strike Caliber One's statement of issues, Caliber One responded in opposition on March 2, 2001, and LAC replied on March 8, 2001. Adequate notice and opportunity to comment have been given on this issue. We need nothing further from parties on either our jurisdiction or their recommendations before we make our decision.

We address one aspect of this issue going forward. There is no dispute that the Commission has jurisdiction over interruptible tariffs, and eligibility for those tariffs. We find that current tariffs do, and future tariffs should, allow customers to make the decision whether or not to curtail.

We agree with Caliber One that willful refusal to curtail, however, may defeat the public purpose goal of the interruptible program in the specific instance where the customer shifts the risk of penalties from itself to others by use of an insurance policy. We do not expect customers to subscribe to an interruptible tariff for the purpose of obtaining a rate discount but with no intention of honoring an interruption request. Customers now and in the future may willfully refuse to interrupt for any number of reasons, and pay the penalty. Unless there are reasonable eligibility restrictions, however, some customers might buy insurance against non-compliance penalties. This could result in the interruptible customer failing to interrupt to the detriment of all other ratepayers.

To cure this possible defect, we adopt SCE's proposal to modify eligibility for interruptible tariffs by way of an affidavit. Existing and new customers will not be eligible for continued or new subscription to interruptible tariffs unless they file an affidavit under penalty of perjury with the utility. The affidavit must state that the customer does not have, and will not obtain, any insurance for the purpose of the insurance paying non-compliance penalties for willful failure to comply with requests for curtailment. Any customer with this insurance after the effective date of this tariff eligibility condition will be terminated from the tariff, and will be required to pay back the rate discount for the period covered by the insurance. If the period cannot be determined, the recovery shall be for the entire period the customer was on the tariff.

For SCE interruptible customers, the refund will be the larger of the rate discount for the period covered by the insurance, or for 2000 and 2001 until terminated from the interruptible schedule. We apply this condition to prevent an unreasonable incentive wherein the penalty might be less than the cost from voluntary opt-out. Otherwise, some customers might use the insurance provision to leave the interruptible program at less cost than voluntary opt-out. We do not intend for customers to have this choice.

Respondent utilities shall provide written notice to each potentially affected customer of this condition within 10 days of the effective date of the tariff. The affidavit will be due to be filed with the utility within 30 days of the service of notice, and this tariff condition shall become effective 30 days after service of notice to the customer.

There may be situations where insurance is still reasonable, however, such as loss of business, or damage resulting from a curtailment. Insurance may be obtained for such other purposes.

5.4 Lift Suspension of Penalty Provisions

With these modifications and improvements to the interruptible tariffs, we lift the suspension of penalty provisions imposed by D.01-01-056. That is, the tariffs filed pursuant to this interim order shall include penalty provisions for interruptible electricity service customers when a customer fails to curtail for any reason at the request of utility. The tariffs shall include the tolling of hours and number of curtailment events against program maximums, and any other related elements of the tariffs, which were suspended by D.01-01-056. Each respondent utility shall notify each affected customer within 3 days of the date the tariff becomes effective. The penalties, tolling of hours, tolling of numbers of curtailment events, and other provisions, will become effective 3 days after the date of service of the notice.

5.5 New Base Interruptible Program

The Energy Division Report shows that traditional interruptible programs give reliable load reductions, and important benefits to both interruptible customers and the State. For example, PG&E's program has a very high compliance rate with about 400 MW of interruptible load. SCE has had a lower compliance rate, but has produced about 1,200 MW of dependable interruptible load. SDG&E has had good compliance with about 40 MW of interruptible load. Interruptible customers have enjoyed about $220 million per year in reduced rates or payments, and the State has had the benefit of over 1,600 MW of performing interruptible load.

PG&E's program has been nearly fully exhausted for 2001, however, based on its extensive use in January 2001. Similarly, SCE's program is about half exhausted, and may be fully exhausted in a few months. Further, a new program may be more attractive to some new customers than the existing program. Thus, a replacement program is necessary.

Therefore, we adopt a modified version of the "enhanced interruptible program" proposed by Joint Parties. (Item II.B.4 in the February 14, 2001 Joint Proposal.) To distinguish this from other programs, we call this the new Base Interruptible Program (BIP). This program will be operative all year. Program details are stated in Attachment A.

Among other benefits, this program provides some security of monetary benefit (i.e., a fixed capacity payment in dollars per kW-month). This type program has a place in an overall portfolio of programs. For example, customers who incur up-front costs for program participation (e.g., investment in equipment or facilities to produce load reductions) are assured of at least some financial return for making their resources (i.e., load reduction) available.

We decline to adopt the provision that three consecutive failures to comply will result in the participant being removed from the program. For the reasons stated above, we believe this provision may be used strategically by a customer to transfer to another rate schedule without reasonably fulfilling its obligations. That is, after obtaining several months of benefits, a customer might fail to comply in order to be transferred. Under some conditions, the customer would benefit, but other ratepayers would not. As a result, we do not adopt this provision absent further information to assure us of its reasonableness.

5.6 Voluntary Demand Response Program

We also adopt a modified version of the "day ahead" and "day of" programs proposed by Joint Parties. (Items II.B.1 and II.B.2 in the February 14, 2001 Joint Proposal.) To identify this program from other programs, we call this the Voluntary Demand Response Program (VDRP). This program will be operative all year. Program details are stated in Attachment A.

Among other benefits, this program provides flexibility for customer participation, with payments based on performance. This type of program also has a place in an overall portfolio of programs.

This program will be implemented by respondent utilities. We decline to adopt a price determined by the "market" (e.g., bidding by participants, or reliance on a "market maker" such as an entity like the former Power Exchange). We do not use a market approach since we are not convinced we have an efficient market which will result in just and reasonable prices.

At the same time we are convinced by parties that we need a reasonably simple approach for this program to be successful. Most customers, even big customers, state that their business is conducting their business, not buying and selling electricity, and not constantly monitoring the electricity market to make decisions about buying electricity or curtailing their operations.¹⁵ We determine that a fixed rate is necessary, subject to modification as needed, to balance efficiency and simplicity.

We decline to adopt Energy Division's recommendation of $0.15/kWh as too low given the reality of prices in the currently dysfunctional market. We similarly decline to adopt Joint Parties recommendation of $0.50/kWh to $0.75/kWh as too high. While prices are in this high range (or even higher) at some times in today's broken market, we cannot sanction continuation at these unacceptable levels. Moreover, we reject Joint Parties recommendation of $0.50/kWh for day ahead, and $0.75/kWh for day of, markets. A dual rate is needlessly complex, and will unreasonably encourage customers to withhold supply, waiting for the higher rate.

We balance competing proposals and adopt a rate of $0.25/kWh. This rate may be offered on a day ahead, or day of, basis as respondent utilities determine necessary, reasonable and useful. Respondent utilities may accept or reject bids based on need, order received, and experienced reliability with the customer.

Participating customers will enjoy not only the $0.25/kWh, but also the savings for the amount of electricity they do not buy from the utility. If an energy rate otherwise not paid is $0.05/kWh, for example, the customer enjoys a total of $0.30/kWh.

Respondent utilities may file advice letters as necessary to adjust this rate. Because we need to respond with some dispatch, we will reduce the protest period to 10 days. Based on the urgency for a rate change, we may also reduce the comment period on the draft resolution at the time it is issued.

We will not authorize rate adjustments often, however, absent exceptionally compelling justification. Rather, we seek to promote stability at a reasonable rate in this market. If anything, we think $0.25/kWh may be unreasonably high, and we look forward to the market stabilizing at a lower rate, with utilities filing advice letters to lower the rate. We will consider rate increases, however, if the market continues to be dysfunctional, and higher rates are needed to promote public health, safety, welfare and system reliability.

Customers incur cost and inconvenience for participating in this program. As a result, we adopt a modified version of Joint Parties recommendation for a minimum payment to promote equity and efficiency. It is equitable to compensate customers for at least some of their cost and inconvenience for participation. Moreover, without some minimum payment, we are persuaded by parties that fewer customers will participate, and some efficiency would be lost. Thus, once a bid is accepted, we authorize respondent utilities to pay the customer even if the interruption is cancelled at the lesser of the hours bid, the hours requested, or 2 hours.

5.7 Air Conditioner Cycling Programs Plus Agricultural Pumping Programs

We adopt Joint Parties recommendation to allow respondent utilities to reopen and expand current air conditioner cycling programs for residential and commercial customers. Since only SCE has an existing program, we authorize SCE to reopen its current program to all residential and commercial customers at all cycling options.¹⁶ (See Attachment A.)

SCE's current program is limited to 15 interruptions of up to 6 hours. We are persuaded that additional options are necessary. Therefore, we adopt Energy Division's recommendation and authorize SCE to offer a new program. The new program will pay double existing rates for an unlimited number of events, but no more than 6 hours of interruption in any one day.

We adopt the 6 hour limitation because we are convinced by TURN and others that satisfaction and participation will decline if the program is overused. At the same time, we balance competing interests and decline to adopt a limitation that the program cannot be used more than 3 days in a row for any one customer. If the program is needed, it must be available to the State. We rely on customers electing the cycling option (e.g., less than 100%) with a limitation of 6 hours per day as a reasonable balance.

PG&E and SDG&E continue to object to air conditioner cycling programs, claiming they are not cost-effective, and that neither utility has the necessary infrastructure for program rollout. We are not convinced.

The CEC estimates that 14,000 MW of air conditioning load (28% of total load) occurs during the state's summertime peak demand of 50,000 MW, with about 7,000 MW (14% of total load) commercial, and about 7,000 MW (14% of total load) residential. Nearly 5,000 MW of reduced load could be achieved at peak if all air conditioners could be cycled at 33%, or if 33% of air conditioners could be cycled at 100%.

TURN strongly advocates air conditioner cycling programs as a cost-effective option. Comverge Technologies, Inc. reports that it can provide full responsibility for turnkey projects. Comverge says it can take the financial risk on a pay-for-performance basis, and can use existing paging companies for radio communication. Moreover, signals can be used with a wide range of appliances, from air conditioners to electric water heaters, pool pumps, or other electric motors in residential, commercial or industrial settings.

This is a potentially vast, untapped source of interruptible electricity. Properly partnered with companies such as Comverge, respondent utilities and ratepayers can enjoy benefits with the providing company taking the financial risk. This opportunity needs further exploration.

Therefore, we order PG&E and SDG&E to explore reasonable options for implementing air conditioner cycling, and other electric motor interruption, programs targeted to residential and commercial customers. We similarly order SCE to explore reasonable alternatives for implementing an electric motor (in addition to air conditioner) interruption program, targeted to residential and commercial customers. PG&E, SCE and SDG&E shall each file and serve an advice letter no later than May 1, 2001. The advice letter shall analyze and report on alternatives, and seek approval of the most reasonable alternatives, including proposed tariffs for implementation. The analysis of each alternative shall include cost, amount of load reduction, means to verify load reductions, and timeliness of implementation.

We similarly adopt Joint Parties recommendation to reopen current interruptible tariffs for agricultural and pumping customers. SCE's tariff was generally closed to new customers in November 1996. We reopen SCE's interruptible tariff to all agricultural and pumping customers. Further, it is due to expire March 31, 2002. We extend it to December 31, 2002, just as we do above for all existing interruptible programs.

5.8 Optional Binding Mandatory Curtailment Program

Parties generally support an Optional Binding Mandatory Curtailment (OBMC) program if it is properly designed and operated. We adopt the OBMC program stated in Attachment A.

An OBMC program exempts customers from Stage 3 rotating outages in exchange for partial load curtailments during every rotating outage period. The customer is required to file an acceptable binding energy and load curtailment plan with the utility in which the customer agrees to curtail electricity use on its entire circuit by specified amounts. The customer's plan must show how reduction on the entire circuit can be achieved in 5 percent increments to a total of 20 percent, and how compliance can be monitored and enforced. The burden is on the customer to demonstrate that the proposal is realistic, workable, measurable, and enforceable. At the same time, we direct respondent utilities to use the OBMC program as an opportunity to work with each interested customer to reach a solution not only in the best interest of that customer, but in the overall best interest of the electrical system.

The program protects large customers from the significant economic harm they might otherwise experience during a rotating outage. OBMC customers receive no payment. Rather, they benefit by exclusion from rotating outages.

Since the goal is load reduction on an entire circuit, several customers on a single circuit may file a joint binding plan guaranteeing the required curtailment on the entire circuit. We require utilities to facilitate joint curtailment plans by notifying customers of the program, and coordinating communication between customers on the circuit when any one customer expresses its intent to participate. Notification shall be performed by May 1, 2001 to customers of 500 kW or more average peak demand.

Parties raise concern over measurement of the baseline. For example, it may be measured over the last 10 days, or compared to consumption one year earlier. Failure to account for conservation efforts reduces the incentive to participate, while failure to recognize reasonable growth in demand from any number of factors may similarly penalize participation.

No single baseline measure is perfect. We balance competing interests by measuring 5% increments against usage over the last 10 days. This is the most up-to-date measurement reflecting current conditions when actual system conditions otherwise require mandatory curtailments. On the other hand, we measure the 20% total required reduction against the prior year's usage for the same month, average peak. As CMTA points out, this allows for some recognition of yearly variations and does not penalize customers for near term demand reduction efforts (e.g., conservation and efficiency in response to the Governor's February 2001 request for 10 percent conservation).

5.9 SDG&E HVAC Program

There is broad theoretical appeal and interest in using market-based approaches to balance supply and demand, including real time meters and real time prices. In particular, the CEC supports wide use of market-based solutions.

When markets are dysfunctional, however, there are equity and efficiency problems with this approach. Moreover, there are other unresolved problems, such as the balancing of earned revenues with the revenue requirement.

Nonetheless, there is room in our adopted portfolio of approaches addressing the current crisis for the SDG&E heating, ventilation, and air conditioning (HVAC) program, as a variation on market based solutions. As such, we adopt Energy Division's recommendation for further study of SDG&E's potentially useful HVAC program. To facilitate this further study, we will provide meters and communication equipment without charge to customers who participate in the VDRP.