STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

March 14, 2003

TO: ALL PARTIES OF RECORD IN RULEMAKING 02-06-001

Decision 03-03- 036 is being mailed without the Concurring Opinion of Commissioner Lynch. The Concurring Opinion will be mailed separately.

Very truly yours,

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

LTC:jva

ALJ/LTC/jva Mailed 3/14/03

Decision 03-03-036 March 13, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on policies and

practices for advanced metering, demand

response, and dynamic pricing.

Rulemaking 02-06-001

(Filed June 6, 2002)

INTERIM OPINION IN PHASE 1 ADOPTING PILOT PROGRAM FOR RESIDENTIAL AND SMALL COMMERICAL CUSTOMERS

Table of Contents

Title Page

INTERIM OPINION IN PHASE 1 ADOPTING PILOT PROGRAM FOR RESIDENTIAL AND SMALL COMMERICAL CUSTOMERS 1 1

I. Summary 2 2

II. Background 2 2

A. Procedural History 2 2

B. Residential and Small Commercial Customer Demand Response 6 6

III. Working Group 3's Recommendations 7 7

A. Summary of the Statewide Pricing Pilot 9 9

1. Research Objectives 9 9

2. The Statewide Pricing Pilot's Basic Features 10 10

3. The Statewide Pricing Pilot Implementation Plan and Schedule 14 14

4. Statewide Pricing Pilot Costs 14 14

5. Market Research 15 15

6. Cost-Benefit Analysis of the Statewide Pricing Pilot 17 17

B. Alternative Pilots 17 17

1. The Invensys Pilot 17 17

2. The T&D Control Pilot 18 18

C. Dissenting Viewpoints 19 19

1. TURN's Concerns 19 19

2. ORA's Concerns 22 22

3. PG&E's Concerns About the Invensys Alternative Pilot Proposal 23 23

4. Edison's Concerns About Both Alternative Pilot Proposals 24 24

IV. Discussion 25 25

A. Modifications to the SPP's Basic Features 25 25

1. The Track B Pilot Proposed by SF Co-op 26 26

2. The Track C Pilot 29 29

3. Customer Participation in SPP 29 29

4. Information Treatments 31 31

5. Technology Treatment Issues 32 32

6. Adoption of the Alternative Pilots 33 33

7. SPP Timing Issues 35 35

B. Legislative Mandates 35 35

1. Public Utilities Code Section 393 35 35

2. Senate Bill 1976 39 39

3. Public Utilities Code Section 2774.6 39 39

C. Phase 1 Cost Recovery Issues 40 40

D. SPP Tariff Design Issues 44 44

Table of Contents
(Continued)

Title Page

V. Monitoring, Reporting, and Procedure for Refinements to Pilot 49 49

VI. Comments on Draft Decision 49 49

VII. Assignment of Proceeding 53 53

Findings of Fact 53 53

Conclusions of Law 57 57

ORDER 61 61

Attachment A Glossary of Retail Electricity Rate Terms

Attachment B Table 3-2. Sample Design of the Statewide Pricing Pilot

Attachment C Experimental Residential Time-Of-Use Tariffs

Attachment D Experimental Residential Critical Peak Pricing Tariffs

I. Summary

This decision, the first of two decisions to be rendered in Phase 1 of this demand response rulemaking, adopts, with some modifications, a near-consensus proposal of the parties to undertake a statewide pricing pilot (SPP) designed to test time-of-use and critical peak pricing tariffs for a representative sample of residential and small commercial customers on an opt-out basis. The adopted pilot is designed to test the impact of such dynamic pricing tariffs on the usage patterns of a small sample of such customers randomly selected statewide. The decision also adopts cost recovery mechanisms for authorized Phase 1 demand response programs, including the statewide pilot. Finally, the decision provides necessary guidance to the staff and parties about designing tariffs that will make the impacts of usage changes clear to customers participating in the pilot.