Background on Existing Utility Interruptible Programs

California's investor-owned utilities have operated interruptible load programs since the mid-1980's. Under these programs, customers received a discount off of their electric rates in exchange for the ability of the utility to curtail these customers for a certain number of hours per year.¹ The current cost of these programs, through reduced rates offered to program participants, is over $220 million per year.² Program participants receive a discount of about $60,000 to $70,000 per year for each megawatt (MW) that they agree to curtail.³ This is equivalent to about a 15% reduction in that customer's electric bill compared to the otherwise applicable rate for firm service. Over the past ten years, California ratepayers may have paid close to $2 billion for the operation of this program.

In return for this expenditure, California ratepayers expected to be able to rely upon these customers to curtail when needed in order to meet reliability and/or price criteria. Previous Commission decisions treated interruptible customers the same as any other energy resource (such as a power plant) for purposes of resource planning. Prior to 1998, customers on an interruptible tariff were required to sign three to five year contracts in order to participate in the program. The length of the contract was designed to give the utilities sufficient lead-time to acquire alternative generating resources if a customer left the interruptible rate schedule.

Because California utilities possessed sufficient energy resources to meet demand throughout much of the 1990's, the utilities' interruptible programs were seldom if ever used until the Summers of 1998 and 2000. Edison for example did not need to curtail its interruptible industrial customers for almost 14 years (from 1986 until June of this year)⁴ PG&E also has needed to make few, if any, curtailments throughout the 1990's, until it issued five curtailments in 1998 and two in 1999.

In 2000, however, the growth in electric energy usage combined with tight

energy supplies resulted in the ISO calling 15 Stage I events (when operating reserves are expected to fall below 7%) and 10 Stage II events(operating reserves less than 5%). One method to address tight energy supplies, and the subject of this Rulemaking, is to utilize and develop interruptible, curtailable and demand responsiveness programs that encourage consumers to utilize less energy during periods of high energy demand.

The stated⁵ ability to reduce peak-demand of the utilities' interruptible program was previously estimated by the ISO at approximately 2,800 MW. Actual operation of these programs over the past Summer, however, shows that some customers (800-1,000 MW) on these rate schedules are not curtailing when called upon to do so and instead are choosing to pay non-compliance rates⁶ rather than curtail.

PG&E's interruptible program has been closed to all customers as of February, 1993,⁷ other than new customers locating in the PG&E service territory and existing customers who have added new load. Edison's interruptible program has been closed as of November 26, 1996.⁸ Therefore, almost all interruptible customers (other than new load entering the service territory) have enjoyed the benefits of lower interruptible rates for at least eight years in the case of PG&E and almost four years in the case of Edison.

In Resolution E-3689 and E-3696 (August 3, 2000), the Commission allowed Edison and PG&E respectively to reopen their interruptible program to new loads, subject to certain conditions.⁹ As a result of these conditions Edison chose to implement its program while PG&E declined to do so.

In Resolution E-3650 (April 6, 2000), the Commission approved demand responsiveness programs for PG&E (E-BID) and Edison (Voluntary Power Reduction Credit). The purpose of these programs is to allow customers to voluntarily curtail their energy usage anytime the Power Exchange (PX) day-ahead price is greater than $250/hour.¹⁰

With the Commission's restructuring of the electric industry effective on April 1, 1998, the utilities continue to operate and administer the program but the decision to decide when to curtail interruptible customers was transferred from the utilities to the ISO.¹¹

⁹ The programs were approved subject to certain modifications designed to: 1) increase program participation; 2) allow the Commission and the ISO to develop coordinated demand relief programs for the Summer of 2001; 3) address equity concerns between new and existing interruptible customers; 4) ensure that new customers signing-up for the program will actually curtail when called upon to do so; and 5) minimize duplication with other programs.