9. Assignment of Proceeding

Rachelle B. Chong is the assigned Commissioner and David Gamson is the assigned ALJ in this proceeding.

1. After cost-effective energy efficiency, Energy Action Plan II identifies cost-effective demand response as the State's preferred means of meeting growing energy needs.

2. The Contracts collectively are not cost-effective under the energy efficiency SPM TRC test, the RIM test, or the PAC test, either for 2008 or any other year.

3. The Commission is currently considering development of a more robust cost-effectiveness methodology for demand response programs in R.07-01-041.

4. A Demand Response Cost Effectiveness Evaluation Framework (Framework) was filed on November 19, 2007 in R.07-01-041 as a consensus document among parties. Among other things, this Framework incorporates additional benefits beyond the TRC test, including a default transmission and distribution adder, updated avoided cost values, and changes to the avoided cost calculation. The Commission has yet to reach a decision in R.07-01-041 on whether to approve the Framework.

5. Only the two Ancillary Service Coalition, LLC Contracts meet the proposed Framework's cost-effectiveness test.

6. Under each of the cost-effectiveness tests in the record, the ASC Contracts have the best cost-effectiveness scores.

7. The two ASC contracts, together with the NAPP and ECI day-ahead contracts, are cost-effective on a portfolio basis.

8. D.07-12-052 found there was no need for new physical resources in Southern California during the period of the Contracts.

9. The Commission must balance the EAP's preference for demand response against total resource needs of SCE.

10. There is factual support for TURN's argument that SCE does not have a contractual need for the Contracts in order to meet its bundled customers' System or Local Resource Adequacy requirements in 2008 or 2009.

11. The Contracts are not needed for reliability purposes in 2008.

12. Approval of four of the demand response contracts will further the commission's goal of increasing cost effective demand response while balancing the need to guard against shortages during summer peak periods.

13. The Contracts would help achieve the Commission's goals for price responsive DR in 2008 and beyond.

14. The Contracts contain innovative demand response features.

15. Participants under the ASC Contracts will receive a greater part of their incentive monies for performance as opposed to reservation of capacity.

16. The two ASC Contracts will provide more overall benefits than the other Contracts based upon their combination of superior program design and cost-effectiveness.

1. The Contracts should not be rejected solely on the basis of energy efficiency-based tests of cost-effectiveness, as these energy efficiency-based tests are not fully appropriate for demand response contracts.

2. The Contracts should not be rejected solely based upon not passing the cost-effectiveness test based on the proposed Framework in R.07-01-041, nor should any contract be approved based on passing this test, because the Commission is considering the proposed Framework in R.07-01-041.

3. Cost-effectiveness under the Framework should be a factor, but not the only factor, in considering approval of some or all of the Contracts.

4. Cost-effectiveness can be measured on either an individual contract basis or on a portfolio basis.

5. To the extent that the Contracts do not meet other critical criteria, they should not be approved solely to move toward the Commission's 5% demand response goal.

6. While a supporting factor in consideration of the Contracts, it is not sufficient that the Contracts are innovative.

7. The two ASC Contracts, the NAPP contract and the ECI day-ahead Contract should be approved. The other four contracts should not be approved at this time.

8. SCE's proposed ratemaking is reasonable because it ensures that SCE recovers no more and no less than the actual, reasonable capacity payments and administrative costs of the Contracts.

9. SCE's cost recovery mechanism should apply only to the four approved Contracts.

10. The demand response reductions that occur as a result of the four approved Contracts should be counted toward resource adequacy requirements, consistent with Commission decisions.

11. ALJ Gamson's Ruling of January 10, 2008 denying DRA's Motion for evidentiary hearings, and all other rulings in this case, are affirmed.

12. Because no evidentiary hearings were held, we will not entertain TURN's request for oral argument, in accordance with Rule 13.13(b) of the Commission's Rules of Practice and Procedure.

ORDER

IT IS ORDERED that:

1. Four Southern California Edison Company (SCE) proposed Contracts, (Alternative Energy Resources, Inc.; EnergyConnect, Inc. day-of; Energy Curtailment Specialists, Inc.; EnerNOC, Inc.) are not approved at this time. SCE may consider resubmiting these four Contracts as part of its June 1, 2008 application for 2009 through 2011 demand response programs, consistent with the cost-effectiveness direction and other program goals to be developed in Rulemaking 07-01-041.

2. The two SCE Contracts with Ancillary Services Coalition, LLC are approved. The North American Power Partners, LLC Contract is approved. The EnergyConnect, Inc. day-ahead Contract is approved.

3. SCE may recover costs for the four approved Contracts as discussed herein. The approved costs are those delineated in SCE's Confidential Appendix D of its October 17, 2007 testimony for the four approved Contracts, plus associated administrative costs.

4. The demand reductions achieved by the four approved Contracts count towards the Commission's goals for SCE's demand respond program portfolios if and to the extent such goals are adopted by the Commission.

5. Application 07-10-013 is closed.

This order is effective today.

Dated March 13, 2008, at San Francisco, California.

I reserve the right to file a separate statement.

/s/ RACHELLE B. CHONG

Commissioner

Concurrence of Commissioner Rachelle Chong

Southern California Edison Company's (U338E) Application
for Approval of Additional Demand Response Resource
Purchase Agreements

Order Approving Four Southern California Edison Company Demand Response Contracts - Item 22

March 13, 2008

I support today's decision. I have long been an advocate for more demand response, which is second in this agency's loading order only behind energy efficiency. This Commission has repeatedly and strongly advocated for demand response resources as a tool to help alleviate the continued need for clean and reliable energy resources for California. In the first Energy Action Plan, we set a goal of five percent of peak demand to come from price responsive demand response by 2007. In the Energy Action Plan II, this Commission and the Energy Commission recognized that the State's peak energy demand is growing even faster than the State's total energy. This peak energy growth, occurring primarily during the hot summer months, often means that less efficient peaking units contribute disproportionately to greenhouse gas emissions and local air pollution. We therefore have a strong general conviction to encourage and approve as much demand response programs as is possible.

With this decision, we support Southern California Edison's efforts to add 190 more megawatts of price responsive demand response programs. Edison requested an additional 438 megawatts of demand response, but unfortunately, we cannot see a way to grant the other demand response programs at this time for the cost effectiveness reasons enunciated in the decision. In our November 2006 decision adopting changes to the utilities' 2007 demand response programs, we opined that seeking proposals directly from aggregators could potentially unleash innovative and cost-effective demand response technologies and activities. On the other hand, we also cautioned that we do not pre-authorize yet-to-be identified contracts or specific cost-recovery mechanisms. Instead, we directed Edison to move forward with its proposal to run a Request for Proposals or seek bilateral contracts.

In this application, SCE presented to us eight demand response contracts for approval. After careful consideration and balancing our responsibility to fulfill the preferred loading order with our responsibility for cost containment on behalf of ratepayers, we determined that, on a portfolio basis, only four of the contracts should be approved. It is unfortunate that we cannot approve more contracts at this time in light of our need for such programs. We have recognized that simply approving more demand response programs, in isolation of other necessary undertakings, will not achieve our desire to increase demand response. In EAP II, we said that to increase demand response in California, we must simultaneously orchestrate the development of well-designed dynamic pricing tariffs. As the parties know, the Commission is hard at work on the development of dynamic pricing tariffs and making great strides in this area, but we are not done with this challenging task yet.

Our action here is in no way meant to signal a Commission preference for or against third party aggregators in our overall Demand Response program. We continue to encourage third party aggregators to enter the California market, and to deliver these services in a cost effective manner. Indeed, we see many benefits to moving forward with programs that are administered by both third parties as well as our utilities. Fair competition between them should be our goal.

On February 27th, we provided guidance to parties in the demand response rulemaking on what we expect in the utilities 2009-20011 demand response program applications, that are due by June 1st of this year. Nothing in this ruling prevents SCE from continuing bilateral negotiations in order to improve the cost effectiveness of the contracts we do not approve at this time, and resubmitting contracts for approval in advance of or in their program applications as well.

Dated March 13, 2008, at San Francisco, California.

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