5. DR Issues

5.1. Allocating DR to Local Areas

The RA program currently allows dispatchable DR resources to be "taken off the top" of an LSE's System RA procurement obligation. D.06-06-064 determined that dispatchable DR credit should also be allocated to each local area and counted for Local RAR to the extent feasible, but it recognized that it may not be possible for the 2007 compliance year due to the technical problems of mapping DR credits to local areas. It was possible to assign a DR allocation for the SDG&E service area since that area corresponds to a defined local area. It was not possible to do so for 2007 in the PG&E and SCE areas. In the Track 1 workshops PG&E and SCE presented and explained their proposals for allocating DR to local areas beginning with the 2008 compliance year.

SCE evaluated two allocation methods-estimation of customer impact by zip code and by substation. The former approach presents accuracy limitations and the latter requires a data intensive effort. SCE determined that under the zip code method, approximately 70 percent of its total DR resources would apply to the Local Area. PG&E believes that it will be able to determine the amount of DR that is located within each load pocket. Both IOUs are confident that the DR allocations can be completed in time for data to be evaluated as part of the DR allocation process for the 2008 RA compliance year.

We reiterate our policy preference that dispatchable DR programs should be counted as Local RA resources to the extent feasible. We recognize the technical issues involved in mapping these resources to local load pockets, and we are encouraged that both PG&E and SCE have identified mechanisms that can be implemented for the 2008 compliance year. While mapping according to zip codes may be less precise than alternative approaches, we find that this approach yields acceptable precision in allocations. We direct the IOUs to continue working with the CEC, the CAISO, and the Energy Division so that the policy implementation can be carried out to completion for 2008.

5.2. Emergency and Interruptible DR Programs

DR programs reduce load and therefore reduce the need for generation resources. There are two basic types of DR programs-reliability programs that are activated during periods of system stress and price responsive programs where energy users are paid to reduce consumption when energy prices are high. Both types DR programs are recognized as RA resources, subject to conditions and counting protocols determined in D.05-10-042.

The CAISO contends that interruptible and other DR programs that are not sufficiently coordinated with its market processes should not count for RA purposes. The CAISO takes the position that only those DR programs that can be committed a day-ahead should be allowed to count. The CAISO requests that the Commission reverse its prior decision to allow emergency and interruptible DR resources to count for RA compliance purposes.

Several parties responded in opposition to this request of the CAISO. They note that the emergency and interruptible programs have proven reliable and have considerable operational value that allows the CAISO to avoid shedding load. CLECA and CMTA are concerned that if the programs do not count for RA purposes, the IOUs will have less interest in pursuing them despite their operational value. Some parties indicate concerns about paying for the costs of DR programs if they do not count for RA.

We recognize the underlying concern of the CAISO regarding these DR programs. Despite their widely recognized value for operational purposes, the interruptible and emergency programs do not mesh well with the CAISO's day-ahead market processes. On a day-ahead basis, the CAISO must plan to dispatch resources to avoid emergencies and load shedding. A resource that is available only in an emergency, or that by its nature constitutes load shedding, cannot be dispatched a day ahead as are generation resources. On the other hand, as CLECA and CMTA point out, the CAISO knows on a day-ahead basis that these programs will provide it with reliable, dispatchable reserves to meet its needs the following day.

It appears that at least one preferred solution to this mismatch of resources and CAISO market rules would be to craft DR programs that are both attractive to customers and closely coordinated with the CAISO's day-ahead market processes. Subject to an appropriate transition mechanism that gives recognition to current arrangements entered into in good faith reliance on IOU tariff provisions, it may be appropriate to work toward the eventual exclusion of emergency based DR programs from the RA program. Such a determination cannot reasonably be made at this time, however.

R.07-01-041 was established to address various DR program issues, including consideration of modifications to DR programs needed to support the CAISO'S efforts to incorporate DR into market design protocols. Pending the outcome of R.07-01-041 regarding this issue, we find it is at best premature to order a reversal of our earlier decision to allow emergency and interruptible DR programs to count for RA purposes.¹²

¹² We find additional support for this approach in Order Granting In Part And Denying In Part Requests For Clarification And Rehearing, issued April 20, 2007 in FERC docket No. ER06-615 at p. 222, ¶ 560, which reads in part, "[w]e believe that the CAISO must be allowed to make technical determinations as to whether a particular resource (whether a generator or demand response) can support grid reliability. However, we agree that the CAISO should respect California's determination that energy efficiency and demand-side resources receive the highest priority in meeting future reliability needs. We therefore direct the CAISO to coordinate with the [California Public Utilities Commission] to minimize the potential for disagreements as to whether particular demand-side resources qualify on a technical basis in meeting resource adequacy requirements."