VIII. Assignment of Proceeding
Michael R. Peevey is the Assigned Commissioner and Michelle Cooke is the assigned Administrative Law Judge in this proceeding.
1. The DRP is a demand response program created in 2002 by the CPA and the DWR.
2. The foundation of the program is the Demand Reserves Purchase Agreement, a five-year contract between the CPA and the DWR. The Demand Reserves Purchase Agreement enables DWR to purchase power from CPA when energy supplies are short or the cost is lower than other available resources.
3. The utilities have pending agency agreements with DWR, which would enable them, as agents to DWR, to also schedule and dispatch the DRP when it fits within their least-cost dispatch requirements.
4. The pending agency agreements enable DWR to call the program for reliability reasons or for testing purposes.
5. There are various supporting contracts, called "Demand Reserves Provider Agreements," which underlie the Demand Reserves Agreement. These contracts, between the CPA and several third-party aggregators, specify the terms and conditions of how aggregators provide power to the CPA.
6. The Demand Reserve Providers, in turn, have individual agreements with electricity customers who provide the actual demand reduction.
7. In exchange for the reduction in load, participants are paid a monthly capacity payment (based on the amount of load committed for reduction) along with an energy payment (actual amount of energy reduced).
8. In Summer 2002, the program had 15 MW of capacity; by Summer 2004, the program's capacity increased to 356 MWs. The contract between DWR and CPA provides for two more summers of operation (2005 and 2006).
9. The demand response MWs generated by the DRP are credited to the utilities' attainment of the demand response MW goals adopted in D.03-06-032.
10. Commission Resolution E-3875 absolved the utilities from least-cost dispatch penalties when DWR triggers the program for reliability or testing purposes.
11. 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.
12. A letter from CPA Acting Chair Sunne McPeak dated November 5, 2004, to Commission President Michael R. Peevey requested the Commission's assistance in ensuring the continued functioning of the DRP.
13. The CPA operating fund will be exhausted by November 30, 2004.
14. The Governor's administration supports the DRP as an important contributor to meeting the state's electric reliability needs and has indicated that the DRP should continue after the CPA's operating funding is depleted.
15. The IOUs are well-suited to take over the CPA's contractual responsibilities since they regularly buy and sell power, and therefore requests that the Commission takes the steps necessary to transfer responsibility for the DRP to one or more of the IOUs.
16. The Demand Reserves Delivery Agreements are designed to ensure that the ESPs of DA customers are willing and able to move the power (made available by the customer's reduction in demand) to the IOU who would be triggering the program.
17. The Demand Reserves Delivery Agreements each reflect the varying circumstances of the customer and the ESP. These contracts expire at the end of 2004, and must be renewed by the CPA or its successor in order for DA customers to participate in the program in 2005.
18. The CPA typically does not interact with end-users, as it relies on the aggregators to enroll end-users that are interested in participating in the DRP. The one exception to this is the SWP, which is an end-user DRP participant that has a contract directly with the CPA.
19. Purpose of the CPA-ISO contract is to bind the CPA to follow the terms and conditions of the ISO tariff with respect to load that CPA brings to participate in the ISO ancillary service market.
20. The DRP currently is not operating the component known as Non-Spin Ancillary Services as the technical details of how this particular product will be provided are still in the design phases with the utilities and other parties.
21. APX is a consulting firm that provides software communication and scheduling coordination services to the CPA for the DRP.
22. APX is compensated directly by the CPA for development costs and all other fees charged by APX are based on program enrollment.
23. The CPA has contracts with three individuals for managerial, legal, and administrative services for the DRP. These contracts are in effect until May 2007.
24. The largest costs for the DRP are the payments due to the aggregators for demand response provided under the contracts. These costs will fluctuate depending on the amount of MWs that the aggregators can nominate.
25. The administrative costs for the DRP are largely based on the contract with APX (which has both development costs (at least through 2004) and operational costs that fluctuate based on participation levels), the management services contracts, and marketing costs.
26. Each year DWR provides to the Commission its estimated annual revenue requirement to cover the costs of the energy supply contracts that it signed, including the costs of paying for the Demand Reserves Agreement with the CPA.
27. For the 2005 calendar year, DWR estimates that it will need approximately $16.9 million to pay for the Demand Reserves Purchase Agreement.
28. As of October 2004, the program has actually accumulated a reserve of about $2 million. That reserve is kept in the DRP Fund, which is a sub-account of the CPA Fund.
29. The CPA anticipates that the DRP will increase its capacity to 500 MWs in future years and generate positive gross margins in 2005 and 2006.
30. Ratepayers benefit from the demand response provided by participants in the DRP.
31. In 2004 DWR triggered the program at least five times: June 30, July 22, August 11, September 7, September 23, and October 27.
32. After November 30, 2004, the CPA will continue to legally exist, along with the CPA Fund which is also set forth in statute. The CPA fund is continuously appropriated by statute and is where the DRP Fund resides.
33. The CPA will secure a Fiscal Agent, most likely located in the state Business, Transportation and Housing Agency, who will have signatory authority to approve payment from the DRP Fund to the CPA's DRP contractors and counterparties who will have authority to finalize an agreement with PG&E.
34. An agreement authorizing PG&E to run the DRP, under the ultimate direction of the CPA Fiscal Agent, is the best interim solution for continuing the program.
1. Given its importance in providing demand response capability for either economic or reliability reasons, the Commission should ensure that the benefits of the DRP are not lost after the CPA's operating budget has been exhausted.
2. PG&E should continue negotiations with the CPA on the terms of an agreement, which would enable PG&E to operate, manage, and maintain the CPA's responsibilities for the program effectively.
3. Utilities regularly purchase and sell energy, so having a utility assume the CPA's role in operating and managing the program for the next two summers is something the Commission must consider given the importance of demand response as a key part of the Energy Action Plan's loading order.
4. Directing one utility to negotiate an agreement (as opposed to directing all three) is the most pragmatic means of transferring the responsibility of the program in as seamless a manner as possible.
5. PG&E is the most appropriate choice from among the three affected utilities because the majority of MWs generated by the DRP are in its territory.
6. Securing a Fiscal Agent is critical, as it will enable the DRP to have access to the DRP Fund and therefore continue after November 30.
7. The CPA's Fiscal Agent should retain the APX contract and the DRP managerial/administrative contracts for at least an interim period of time.
8. PG&E should file and serve by November 30, 2004 a term sheet, which would contain the general principles it has agreed to with the CPA for the DRP post-November 30.
9. PG&E should submit to the Commission for final approval its proposed agreement with the CPA. The proposed agreement shall reflect the final terms agreed to by both PG&E and the CPA's Fiscal Agent, and shall at least reflect a commitment by PG&E to maintain and operate the DRP prudently and in the interest of the ratepayers.
10. PG&E should submit a cost-effectiveness analysis of the DRP using the recently renegotiated terms of the Demand Reserves Purchase Agreement as described in this decision.
11. This decision is an interim step to keep the DRP intact, and that all stakeholders will still have an opportunity to provide their input when the draft agreement is submitted.
12. Energy Division should suspend PG&E's advice letter filing seeking approval of its DRP agency agreement with DWR and begin discussions with PG&E and DWR on a revised agency agreement direct Energy Division, PG&E, and DWR to begin discussions on a revised agency agreement that addresses any potential conflicts of interest.
13. The public necessity requires that we waive the normal public review and comment period for this decision.
IT IS ORDERED that:
1. Pacific Gas and Electric Company (PG&E) shall, by November 30, 2004, file and serve on the service list of Rulemaking (R.) 02-06-001, a term sheet containing the general principles it has agreed to with the California Power Authority for the future operation and management of the Demand Reserves Partnership (DRP) program.
2. PG&E shall by February 1, 2005, file and serve on the service list of R.02-06-001, or its successor proceeding, its draft agreement with the California Consumer Power and Conservation Financing Authority (CPA), reflecting the final terms agreed to by both PG&E and the CPA's Fiscal Agent, which shall at least reflect a commitment by PG&E to maintain and operate the DRP prudently and in the interests of ratepayers. Comments on the draft agreement are due on February 15 and replies are due on February 22.
3. PG&E shall by February 1, 2005, file and serve on the service list of R.02-06-001, or its successor proceeding, a revised cost-effectiveness analysis of the DRP using the same methodology that was employed in Decision 03-06-032. Comments on the analysis are due on February 15 and replies are due on February 22.
4. Energy Division shall suspend PG&E's advice letter filing seeking approval of its agency agreement with the California Department of Water Resources (DWR) and begin discussions with PG&E and DWR on a revised agency agreement that addresses any potential conflicts of interest.
This order is effective today.
Dated November 19, 2004, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
SUSAN P. KENNEDY
Commissioners
I dissent.
/s/ CARL W. WOOD
Commissioner
I reserve the right to file a dissent.
/s/ LORETTA M. LYNCH
Commissioner
