BILL ANALYSIS �
SB 1414
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Date of Hearing: June 23, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 1414 (Wolk) - As Amended: June 18, 2014
SENATE VOTE : 31-0
SUBJECT : Electricity: demand response resource adequacy
SUMMARY : This bill requires utilities and regulators to
include demand response (DR) in resource adequacy plans and
long-term procurement planning proceeding, as specified.
Specifically, this bill :
1)Requires each load-serving entity to maintain either
electrical demand reductions or physical generating capacity
adequate to meet its load requirements.
2)Requires the California Public Utilities Commission (PUC) to
determine the most efficient and equitable means to sure the
inclusion of DR that is reliable and cost effective in
achieving environmental or demand reduction goals or grid
reliability.
3)Specifies that the utilities proposed procurement plan include
a competitive procurement process that would also allow the
electric corporation to request bids for demand-side response
services.
4)Specifies that the plan's diversified procurement portfolio
include DR that is reliable and cost-effective in achieving
environmental goals and electrical grid reliability.
5) Requires the CPUC to establish, in an existing or new
proceeding, a mechanism to value the development and
deployment of load modifying demand response resources that
can reduce a load serving entity's resource adequacy
obligation.
6)Makes findings and declarations about the benefits of DR
programs.
EXISTING LAW:
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a)Requires all load-serving entities to maintain sufficient
electric generation to meet demand for electricity and ensure
the safe and reliable operation of the grid. (Public Utilities
Code � 380)
b)Requires electrical corporations to file, and the PUC 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.
(Public Utilities Code � 454.5)
FISCAL EFFECT : Unknown
COMMENTS : According to the author, "SB 1414 will help ensure
that regulators and utilities utilize cost-effective demand
response programs to change their demand for electricity during
key times. With DR, in exchange for changing their electricity
use, participating customers receive incentives for providing a
clean resource to the system. Their reductions in demand
(consumption) mean there can be less supply (generation),
providing clean energy, reducing the need for "peaker" power
plants and helping to integrate renewables. California currently
lags behind other parts of the nation in utilizing demand
response".
1)The loading order : Since 2003, California's energy policy has
recognized an electricity "loading order" as the preferred
sequence for meeting electricity demands. The loading order
lists energy efficiency and demand response first, renewable
resources second, and clean and efficient natural gas-fired
power plants third.
2)What is demand response ? DR refers to a family of programs
that seek to achieve electric load reductions via actions
taken though end-use electric customers during a given time
period, in response to a price signal, or to address a
situation where reliability or safety of the electricity grid
is at risk. Various programs provide incentives or rate
discounts, or both to customers who participate in a DR
Program. Examples of DR programs include: PG&E Smart Rate,
SDG&E Peak Time Rebate Program, SCE Summer Discount Program,
and Business Interruptible Programs.
DR programs are administered by the investor-owned utilities
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(IOUs): Pacific Gas & Electric (PG&E), Southern California
Edison (SCE), and San Diego Gas & Electric (SDG&E). Most of
the utility DR programs target large commercial and industrial
customers that are equipped with meters that are capable of
measuring and reporting energy usage in one hour intervals or
less. The utilities also administer third-party DR programs
known as an aggregator managed program. The utilities contract
with a DR provider who works with a variety of end-use
customers to deliver the necessary demand reductions when
called upon by the utility. These contracts are negotiated
between the utility and the third-party DR provider.
The theory of DR is that savings are achieved through reduced
demand for electricity which offsets the need to build new
generation and infrastructure to meet electricity needs. As a
result, payments from nonparticipating ratepayers can be
provided to these programs participants based on the expected
savings.
For the most part, DR programs have been limited to the
commercial and industrial users, who have been on time-of-use
rates for some time. With the extensive deployment of
residential smart metering, the residential customer is likely
to become a larger focus of DR programs.
The PUC has an open proceeding underway to address ways to
enhance the use of DR in meeting energy needs. In a recent PUC
decision (D. 14-03-02, March 2014) the PUC determined that DR
can be characterized in one of two ways: DR as load modifying
or DR as supply resource. As a follow up to the PUC's
decision, the PUC is seeking comments on which types of DR
programs are to be categorized as Load Modifying or Supply
Resources (DR as a Supply Resource would be treated as if it
was a generation facility). Ultimately, utilities will be
authorized to develop DR programs that can be bid into the
California wholesale electricity market. In exchange, the
wholesale DR products could receive payments for Resource
Adequacy, Capacity, or other attributes that might normally be
paid only to traditional generators.
3)Long-term procurement planning and resource adequacy : This
bill appears to circumvent the PUC's proceeding by changing
the IOUs existing required competitive bid process for
generation to include demand response that is cost-effective
and helps to achieve electrical grid reliability and
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environmental goals. To address this, the bill includes a
finding that states this bill is not intended to hinder or
supersede options that the PUC is or may be pursuing in
furtherance of demand response.
Current law requires the IOUs to file, and the PUC to review
and approve long-term procurement plans (LTPPs) 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 service its
customers. The plans must show that the IOU will achieve
Renewable Portfolio Standard requirements and meet remaining
unmet resource needs with energy efficiency and DR resources
that are cost-effective, reliable and feasible. Once these
procurement options are addressed, then the IOU may propose
other types of generation to meet need (such as natural gas
generation).
4)Resources Adequacy. This bill requires all load serving
entities to incorporate DR in resource adequacy plans.
The PUC's Resource Adequacy (RA) program was established to
ensure sufficient generation is available to the grid to
ensure the safe and reliable operation of the grid in real
time. Second, it is designed to provide appropriate
incentives for the siting and construction of new resources
needed for reliability in the future. Each load serving entity
is required to meet RA obligations and report them to the PUC
on an annual basis. Currently the RA payment level is
established administratively by the PUC. The PUC has proposed
a method to establish the RA payment competitively to reduce
the ratepayer cost of RA.
The current RA proceeding (R.11-10-023) pending at the PUC is
considering proposals to add a flexibility requirement to the
RA program. If adopted, load serving entities would be
required to procure (i.e., pay for ), and report in their
year-ahead and month-ahead filings, specific amounts of
capacity resources that are considered flexible.
5)Business interruptible program : This bill adds a provision
that requires the PUC to establish, in an existing or new
proceeding, a mechanism to value the development and
deployment of load modifying demand response resources that
can reduce a load serving entity's resource adequacy
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obligation.
6)Can Demand Response be gamed ? Unfortunately, paying for DR has
a potential to be "gamed' by participants. A recent example of
this is the Baltimore Orioles baseball stadium. Witnesses in
Baltimore noticed that on September 24, 2010 the Maryland
Sports Authority (MSA) turned on stadium lighting at its
Camden Yards baseball park used by the Baltimore Orioles on a
non-Orioles game day immediately after a declaration of an
electric emergency event scheduled to start two hours later.
An allegation was made that increasing MSA's load in the two
hours prior to the emergency event could artificially increase
the amount of demand reduction provided by MSA, thereby
inflating potential payments (or eliminating potential
shortfall penalties). The Federal Energy Regulatory Commission
ultimately fined the DR provider a combined penalty of more
than $1 million.
Another challenge is a method used to reduce demand - some
entities may use back-up generators to achieve reduced
deliveries from the grid. If those generators use fuel that is
not as clean as the California grid in terms of air pollution
and GHGs, then ratepayer could be paying for undesirable
generation. The PUC has not yet addressed how to track and
monitor back-up generators that might participate in DR
programs. In an East-Coast electricity market this activity
resulted in a penalty imposed by the Federal Energy Regulatory
Commission on a company that provides Demand Response services
to utility customers and resulted in new rules for monitoring
and reporting for demand response participants within
electricity market. Given the potential air quality
implications of diesel, natural gas, or other types of
combustion generation, the PUC should establish rules to
address how and when backup generators can be used within a DR
program and monitoring requirements.
Another other issue with DR is whether customers or third
party vendors would be compensated for something they would
have done anyway. In a study of a DR program at Anaheim
Utility, Professor Frank Wolak found that: ?"the vast majority
of rebates paid for reductions relative to the customer's
reference level for peak period consumption would occur
without the incentives provided by the CPP [Critical Peak
Price] program".
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He goes on to state: "The existence of a mean consumption
reduction associated with a CPP [Critical Peak Price Day] day
is a necessary condition for universal critical peak pricing
for residential customers."
The author may wish to consider an amendment directing the PUC
to establish rules for how and when backup generation may be
used within a DR program and to establish reporting and data
collection to verify compliance with these rules.
The author may wish to consider an amendment directing the PUC
to establish a method to be used to calculate the customer's
reference level for peak consumption at time intervals that
are the same as those time intervals the customer would be
eligible for DR program payments or credits.
The author may wish to consider an amendment that requires
monitoring of technologies used in DR programs to ensure
compliance with federal and state environmental laws.
7)Is demand response effective? If a demand response program
pays or incentives a customer to take action to reduce
electricity consumption then there is a likely ratepayer
benefit that accrues. However, if a customer is paid and does
not provide that demand reduction, then the ratepayer has paid
for something but does not receive a benefit.
Recent PUC evaluations of several demand response programs
indicates that not all demand response programs are effective,
which seems to indicate that the ratepayer is not getting what
they paid for. One of the major concerns with authorizing
payments and incentives to participants in Demand response
programs or third-party demand response providers is
illustrated in a recent analysis<1> funding through the
statewide ratepayer-funded energy efficiency programs.
"The analysis discusses the impact of the 2013 Flex Alert
Program. Flex Alerts are issued by the California
Independent System Operator (CAISO) and are calls for
voluntary load reduction to address a situation that could
help address a potential electrical emergency.
-------------------------
<1>
http://www.calmac.org/publications/2013_Flex_Alert_-_Impact_Eval_
-_Final_20140228.pdf
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"The primary finding from this study is that no
statistically significant (i.e., measurable) reductions in
energy consumption could be attributed to the Flex Alerts.
The individual hourly load impact estimates range widely,
from one value representing a 220 MW (1.2 percent) load
reduction to another representing a 600 MW load increase."
The study also references prior evaluations of Peak Time
Rebate Programs and found the results are consistent.
"These findings are consistent with previous Flex Alert
evaluations conducted on a statewide-basis in 2008 and with
the Peak Time Rebate (PTR) evaluations done for San Diego
Gas & Electric (SDG&E) and Southern California Edison (SCE)
in 2012."
If ratepayers are to be expected to pay for demand response,
it should not pay for programs that cannot or do not deliver
measurable results. It would seem appropriate for the PUC to
ensure that the programs deliver expected results.
The author may wish to consider an amendment to require the
PUC to ensure that demand response programs approved for RA
deliver expected results and ensure customers that benefit
from promoting and maintaining grid reliability share in the
costs of demand side resources.
The author may wish to consider an amendment to establish
metering, monitoring and consumer protection policies for DR
programs involving third party DR providers.
The author may wish to consider an amendment which requires
the PUC to establish customer protection rules with respect to
participation, cost of participation, and ability to opt-out
of the program without cost.
8)Technical amendments:
Undefined terminology used in the bill:
a. Clean
b. Environmental
The author may wish to consider the following amendments:
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a) Strike the word "clean" in the Legislative findings
in para (a) (3) and (b)
b) Strike the word "environmental" in findings (b), 380
(b)(1), (h)(6), new section 3 in amendments, 454.5 (9)(B)
and replace with "California Air Resources Board AB 32
goals."
c) On Page 8, strike line 35, after the period, then
strike lines 36-37.
1)Support and opposition. Supporters state that California lags
behind much of the nation in implementing demand response
programs, and misses the opportunity to reduce costs and power
plant emissions, and that this bill would encourage utilities
to make better use of demand response programs to save money
for ratepayers. There is no opposition on file.
REGISTERED SUPPORT / OPPOSITION :
Support
Breathe California
EnerNOC, Inc.
Environment California
Environmental Defense Fund (EDF)
Natural Resources Defense Council (NRDC)
Office of Ratepayer Advocates (ORA)
Sierra Club California
Union of Concerned Scientists (UCS)
Opposition
None on file.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083