II. Background
The DRP is a demand response program developed by the CPA and the California Department of Water Resources (DWR). In 2002 CPA and DWR executed a five-year contract, the Demand Reserves Purchase Agreement,1 that allows DWR2 to secure power though reductions in demand, rather than generation.
A. Program Operation
There are various supporting contracts, called "Demand Reserves Provider Agreements," which underlie the Demand Reserve Purchase Agreement. These contracts, between the CPA and eight third-party aggregators, specify the terms and conditions under which the aggregators provide power to the CPA. The terms of the supporting contracts basically mirror the terms of the Demand Reserve Purchase Agreement, except for the prices paid by DWR to the CPA. The aggregators, or "Demand Reserve Providers," in turn, have individual agreements with electricity customers who provide the actual demand reduction. The CPA does not negotiate those agreements and is not privy to their contents.
The Demand Reserve Purchase Agreement enables DWR to purchase power from CPA when energy supplies are short or when it is economic to do so.3 DWR electronically notifies CPA and (and its contractor Automated Power Exchange (APX)) how much power it needs. CPA and APX then notify the aggregators, who notify participating customers. Participating customers curtail their load and make power available for the customers of the utilities.
In exchange for their participation in the DRP, customers receive a monthly capacity payment (based on the amount of load committed for reduction) along with an energy payment (actual amount of energy reduced).
The program operates year-round, but is designed to provide power during summer months when it is most needed. In Summer 2002, the program had 15 megawatts (MW) of capacity; by Summer 2004, the program's capacity increased to 356 MWs.4 The Demand Reserves Purchase Agreement provides for two more summers of operation (2005 and 2006).
B. The Commission Directed the DRP to Be Incorporated Into the Utilities' Scheduling and Dispatch Functions
In Decision (D.) 03-06-032, the Commission recognized the DRP as a viable and important program, and the only demand response program that allowed participation by direct access customers. The Commission therefore directed PG&E, Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E) (the utilities) to develop implementation plans with DWR and the CPA to ensure that the utilities dispatch DRP power when it is cost-effective to do so. The demand response MWs generated by the DRP are credited to the utilities' attainment of their demand response MW goals,5 adopted also in D.03-06-032.
In July 2004, the utilities reported that they were in negotiations with DWR on prospective agency agreements, which would govern the terms of how and when DWR and the utilities could schedule and dispatch the DRP. The utilities would act as agents to DWR, enabling them to schedule and dispatch the DRP when it was cost-effective, as well as assisting DWR with other tasks such as verifying the invoices DWR receives from the CPA.
One key area of dispute in the negotiations was DWR's insistence that it retain its authority to schedule and dispatch the DRP, with that authority limited to reliability or testing purposes. Commission Resolution E-3875 addressed this issue by absolving the utilities from least-cost dispatch penalties when DWR triggers the program for reliability or testing purposes. Resolution E-3875 also resolved several other issues of disagreement between the utilities and DWR and directed the utilities to file final agency agreements for Commission approval.6 Upon the Commission approval of the proposed agency agreements between each of the utilities and DWR, the utilities would be agents of DWR for the DRP.
1 The Demand Reserves Purchase Agreement has been amended yearly, most recently in August 2004. The name of the agreement and its terms changed with each amendment, but for purpose of this decision, we refer to the DWR-CPA agreement by its original name, and summarize the terms that are currently in effect. 2 During the 2000-01 Energy Crisis, DWR began securing power on behalf of investor-owned utilities (IOUs) some of whom were not creditworthy. 3 Currently the price of power under the Demand Reserve Purchase Agreement is $80 per megawatt-hour (MWh). As discussed in Section II.B of this decision, the utilities have pending agency agreements with DWR that would enable them, as agents to DWR, to also schedule and dispatch the DRP when it fits within their least-cost dispatch requirements. 4 Utilities' monthly demand response reports for the month of August 2004. 5 The MW goals are based on a percentage of the utilities' annual system peak demand. For 2005, the utilities are directed to attain demand response MWs that equate to 3% of their annual system peak demand. 6 The utilities filed advice letters 2563-E (PG&E), 1720-E-B (SCE) and 1512-E-B (SDG&E) on October 8, which contain their proposed agency agreements with DWR. On October 26, DWR informed the Commission that it has not reached agreement with SDG&E and thus will not sign the draft proposed by SDG&E in its advice letter.
