BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1414 - Wolk Hearing Date:
April 29, 2014 S
As Amended: March 28, 2014 FISCAL B
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DESCRIPTION
Current law requires all load-serving entities (LSEs include
investor-owned utilities, electric service providers and
community choice aggregators) to maintain sufficient electric
generation to meet demand for electricity and ensure the safe
and reliable operation of the grid. This is called Resource
Adequacy or RA. (Public Utilities Code § 380)
This bill requires that demand reduction also be used to satisfy
the RA requirement of LSEs and requires the California Public
Utilities Commission (CPUC) to ensure that demand response
products are deployed and economically dispatched.
Current law requires electrical corporations (investor-owned
utilities or IOUs) to file, and the CPUC to review and approve,
long-term procurement plans to ensure that the IOUs have
sufficient and diverse short and long-term electricity and
demand reduction resources that are cost-effective, reliable,
and feasible to serve its customers. The plans must show that
the IOU will achieve Renewables Portfolio Standard (RPS)
requirements and first meet unmet resource needs with energy
efficiency and demand response resources that are cost
effective, reliable, and feasible. This is called long-term
procurement planning or LTPP. (Public Utilities Code § 454.5)
This bill requires IOUs to include in LTPPs time-variant demand
reductions to minimize purchase of on-peak generation resources,
and specific measures to reflect time-variant wholesale
procurement costs in retail electrical rates.
BACKGROUND
Resource Adequacy (RA) - Along with LTPP, these two proceedings
are the state's primary regulatory programs for addressing and
overseeing electric reliability issues. The CPUC's RA program
annually establishes minimum capacity obligation requirements
for LSEs on a one year-ahead basis at both the system and local
level. The current RA program identifies the amount of capacity
resources needed to maintain reliability and requires LSEs to
supply that amount of capacity resources to the CAISO energy
markets. In order to identify the amount of capacity needed, the
CPUC undertakes a process with cooperation of both the
California Energy Commission (CEC) and the California
Independent System Operator (CAISO). The CEC forecasts the
amount of load that is expected in a year and the CAISO
forecasts the amount of resources that are needed system-wide
and in local areas. The CPUC considers both inputs, determines
the appropriate level of reliability, and then orders load
serving entities to procure capacity resource to that level. The
forecasted need for system and local resources is split as RA
procurement obligations among LSEs in proportion to their
coincident share of utility service area annual peak demand.
LSEs are required to supply capacity resources to meet the
forecast needs. The key RA obligation is that a resource counted
as "RA capacity" must bid into the CAISO energy markets and be
available to produce electricity when needed. Each day, the
CAISO runs a day ahead integrated network model and dispatches
resources efficiently to meet expected demand. All capacity
designated as RA capacity can be scheduled to deliver energy by
the CAISO if needed to maintain reliability. Each year, the RA
program requires LSEs to submit year-ahead filings (due in
October) and twelve month-ahead filings (due monthly) during the
compliance year. The year-ahead filings show that load serving
entities have procured capacity to meet 90% of the forecast
system need (the system need equals the forecast plus the 15%
reserve) during the five summer months (May-September) and 100%
of the forecast local needs. The month-ahead filings require
LSEs to show 100% of system need (again the system need equals
the forecast plus the 15% reserve). The CPUC staff and the CAISO
staff evaluate annual and monthly filings to ensure adequate
reserves.
The current RA proceeding (R.11-10-023) is considering proposals
to add a flexibility requirement to the RA program. If adopted,
LSEs would be required to procure, and report in their
year-ahead and month-ahead filings, specific amounts of capacity
resources that are considered flexible.
Long Term Procurement Planning (LTPP) - The LTPP proceeding
develops assumptions and forecasts of resource availability and
determines if the existing planned mix of resources is
sufficient to meet future needs. The CPUC has designed the LTPP
proceeding to occur every two years and look at least ten years
forward. The LTPP proceeding has three main functions: to
determine if a sufficient amount of resources will be available
in the future to meet reliability needs over the long-term; if
insufficient resources are available, to authorize the
procurement of new resources to meet the identified needs; and
to examine, revise, and authorize the rules that the three
largest electrical corporations - Pacific Gas & Electric,
Southern California Edison, and San Diego Gas & Electric - must
follow when procuring resources for bundled customers.
What is Demand Response (DR)? - DR is defined as changes in
electricity use by customers from their normal consumption
pattern in response to changes in the price of electricity,
financial incentives to reduce consumption, changes in wholesale
market prices, or changes in grid conditions. DR programs take
two forms:
1) Customer-focused programs and rates which reshape or
reduce electrical load by indirectly reducing the resource
adequacy requirement and take the form of, for example,
time-of-use rates; and
2) Supply-side resources that meet local and system
resource planning and operational requirements, which can
be scheduled and dispatched into the CAISO energy markets
when and where needed.
DR programs have existed in different forms for many years and
are considered a first-choice resource in the loading order
along with energy efficiency but that priority is not
necessarily reflected in the IOU portfolios. In the last decade
the state's energy entities have come together three times
(2003, 2005, 2008) to develop joint goals for California's
energy future and set forth a commitment to achieve those goals
through specific actions which are reflected in an "energy
action plan" (EAP). In 2005 Energy Action Plan II called for
identifying and adopting new programs and revising current
programs as necessary "to achieve the goal to meet five percent
DR by 2007 and to make dynamic pricing tariffs available for all
customers."
However, in joint testimony presented to the Little Hoover
Commission this month, the CPUC, CEC and CAISO, reported that
the goal had not been met and that "price-responsive DR programs
represent approximately 2.5% of peak load" but noted the
importance of elevating the role of DR:
The electricity grid's operational and reliability
complexities: - San Onofre retirement, approaching
once-through-cooling requirements, and the increasing need for
flexibility to integrate intermittent renewable resources - as
well as the long-term challenge of responding to the impacts
of climate change, dictate that DR play a much larger and
substantially different role in electricity demand management
and reliability enhancement than today. Given the long lead
time required to develop generation and transmission, the need
to capture the value of DR's potential is urgent.
CPUC Action - In the fall of 2013 the CPUC initiated a
rulemaking to enhance the role of DR programs in meeting the
state's long-term clean energy goals while maintaining system
and local reliability. Earlier analyses of DR programs revealed
that the programs were not being utilized to their full
potential reporting underutilization of DR programs by IOUs
which dispatched power plants to meet peak demand far more
frequently in comparison to DR programs and a potentially large
'free-ridership' problem in peak time rebate programs where
incentives were paid to customers without providing significant
load reduction.
The CPUC identified several major challenges in the structure
and efficacy of DR programs it intends to address in the
proceeding:
1) Program design and operation: There is an ongoing
tension between the supply-side and demand-side
requirements for demand response. DR as RA resources should
be held to the same requirements as generation resources
for system reliability and economic efficiency. On the
other hand, the needs and technical capabilities of
customers and providers need to be considered in program
design;
2) Demand response delivery: The current demand response
delivery model is utility-centric, where all demand
response programs are retail-oriented and marketed and
operated by the IOUs. Other models deserve consideration;
3) Regulatory challenges: Short funding cycles and changes
in DR programs and funding amounts introduce uncertainty
and may lead to barriers to the development of robust DR
resources;
4) Planning challenges: Limited regulatory oversight of the
forecasting process and lack of geographical targeting in
DR programs create local and system resource planning
challenges, especially in long-term planning where DR and
other short-term resources are difficult to forecast; and
5) Customer participation: With rapid changes in
technology, regulations, and programs, customers need to be
educated, motivated, and engaged.
COMMENTS
1. Author's Purpose . SB 1414 clarifies and codifies the
state's emphasis on the important role that demand response
plays in meeting the state's energy needs. Specifically, SB
1414 does this by requiring the three utilities and
regulators to include demand response in resource adequacy
plans, which currently only include generation resources.
SB 1414 further clarifies its role in LTPP by: expanding
the utilities' existing required competitive bid process to
include demand response; clarifying that the utilities
shall include demand response in their currently required
portfolio of short and long term demand reduction
strategies; and requiring utilities to incorporate demand
response in their currently required risk management
strategies.
2. Clarity of Purpose . The author has brought to the fore
a significant challenge before the CPUC- demand response is
an under-utilized resource and should be given greater
weight in RA and LTPP proceedings. However, some clarity
of the author's goals is recommended to ensure that the
focus remains on DR as a supply side resource, elevates its
priority to the CPUC by the Legislature, and it is not
confused with time of use rates as well as clarifying that
DR is a resource that can be used, if reliable, for more
than off-setting peak demand. The author and committee may
wish to consider the following amendments to achieve those
goals:
a. Page 3, lines 16 -17, strike "economic dispatch of
time-variant electrical" and strike line 17, and insert:
cost-effective use of demand response.
b. Page 4, strike lines 39-40, and insert:
(6) Inclusion of demand response that is reliable
and cost-effective in achieving environmental or
demand reduction goals or grid reliability.
c. Page 6, line 21, strike "reduction" and add
"response"
d. Page 7, line 7, strike "time-variant demand", strike
line 8, and add:
demand response that is reliable and cost-effective
in achieving environmental or demand reduction goals
or grid reliability.
e. Page 7, strike lines 14-15.
POSITIONS
Sponsor:
Environmental Defense Fund
Support:
Alarm.com
Clean Coalition
Comverge, Inc.
EnergyHub
EnerNOC, Inc.
Environment California
Oppose:
Southern California Edison, unless amended
Kellie Smith
SB 1414 Analysis
Hearing Date: April 29, 2014