Issues Associated with Utility-run Interruptible Programs

One of the major purposes of this rulemaking is to examine the role of customers on a utility's interruptible tariffs in ensuring reliable and reasonably-priced electric service within California, especially for the Summer of 2001. The goal should be to retain existing interruptible customers as well as to attract new customers to the program.

This goal can be accomplished in a number of ways including;

· Providing incentives for customers to reduce their energy usage;

· Encouraging customers to voluntarily reduce usage;

· Requiring customers to reduce energy usage; or

· Some combination of all of the above.

One option to increase program participation may be to increase the financial payments to interruptible customers. In crafting such a program the Commission should ensure that it is not overpaying for demand reductions and that it is adequately evaluating supply-side options (such as paying for new incremental generation) against the incentives paid for customers to curtail.

How customers should be paid for their participation may also affect program participation. The existing interruptible program is similar to an insurance policy in that it pays customers monthly (through reduced rates) in exchange for the ability to curtail these customers for a certain number of hours. The ISO's programs, by contrast, are based more on an auction approach (either through an RFP process in the case of its Emergency Demand Responsiveness (EDR) program or through hourly ancillary service prices for its Participating Load program. In D.92-11-049 the Commission examined the possibility of changing PG&E's interruptible program from a monthly "insurance" program to a bidding approach.

The Commission will also consider whether interruptible customers with certain attributes should be paid more than other program participants.¹⁴

A factor that must be considered in evaluating these changes is the ability of the Commission to alter the pricing incentives paid to interruptible customers.¹⁵

A second option to retain existing interruptible customers, or to attract new customers willing to be interrupted, is to offer non-pricing incentives such as changes in the timing, length, or frequency of curtailment. PU Code Section 743 reserves to the Commission the "right to amend [interruptible] contract[s]" and states that "Every contract subject to this subdivision shall include a provision indicating that the contract is subject to amendment by the commission." In Resolution E-3650, establishing the demand responsiveness program, the Commission utilized this authority to allow interruptible customers to participate in the utilities' demand responsiveness program.

A third option available to the Commission would be to utilize its authority under PU Code Section 743 to modify the existing interruptible contracts and restore them back to the same terms and conditions which existed when customers signed these contracts. Existing interruptible customers entered into these contracts with the understanding that they were contracting for 5-year terms.¹⁶ Enforcing the original terms of the contract would help ensure that these customers are available to help California meet its peak demands for the Summer of 2001. Requiring interruptible customers to fulfill their original contractual obligations would also appear equitable in that it ensures that these customers, who have received over $2 billion in reduced rates, are actually available when needed.

In order for the Commission to have adequate time to determine the role of existing interruptible customers in meeting reliability needs for the Summer of 2001, this Rulemaking is proposing to temporarily suspend the tariff provisions of Edison, PG&E, and SDG&E that allow customers to opt-out of their interruptible programs for the 30-day window commencing November 1. Extending the contract terms, as was originally envisioned, should minimally inconvenience existing interruptible customers because they will continue to enjoy the lower rates that interruptible customers receive. Moreover, curtailments during the winter season are unlikely. Interested parties who wish to comment on the proposed suspension of these tariffs may do so by filing comments in this docket. The comments must be received by the Assigned Commissioner within 7 days of this decision.

Finally, the need for voluntary incentives should not be overlooked. Organizations such as the California Retailers Association, state Department of General Services, and the Silicon Valley Manufacturer's Group have taken the lead in developing voluntary load reduction programs.

¹⁵ PU Code Section 743.1 states in relevant part that: "In no event shall the level of the pricing incentive for interruptible or curtailable service be altered from the levels in effect on June 10, 1996, until March 31, 2002.