PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION*					RESOLUTION E-3667
                                					            MAY 18, 2000	 

RESOLUTION

Resolution E-3667.  San Diego Gas & Electric (SDG&E) seeks authority to offer new demand responsiveness programs to pay large customers to curtail energy use during periods of high-energy prices.  Approved as modified.      

By SDG&E Advice Letter 1199-E filed on November 4, 1999
 
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Summary

This Resolution approves with modifications the demand responsiveness programs for the year 2000 proposed by San Diego Gas & Electric (SDG&E). SDG&E’s program is similar to demand responsiveness programs the Commission recently approved for Southern California Edison (Edison) and Pacific Gas and Electric (PG&E) in Resolution E-3650.  SDG&E, unlike either PG&E or Edison, however, is no longer subject to the legislatively mandated rate freeze imposed by Assembly Bill (AB)1890.  Rather than charge SDG&E’s large customers at the hourly energy price, however, SDG&E continues to charge its largest customers on an average monthly price.  This mitigates many of the price signals that end-use customers should face in a competitive energy market.  It is the inability of end-use customers to receive accurate price signals that necessitates the use of demand responsiveness programs such as those proposed by SDG&E.

The Commission’s recently released proposed decision in its Post Transition Ratemaking (PTR) proceeding (A.99-01-016 et al) would require that “All customers with hourly interval meters shall be billed using hourly data once the rate freeze ends.”  Adoption of this decision would eliminate the need for SDG&E’s proposed program.  In order to ensure that some price responsive behavior is in place prior to implementation of the Commission’s PTR decision, there is a need for SDG&E’s program.  SDG&E’s demand responsiveness program should end once hourly pricing for SDG&E’s larger customers is implemented as proposed in A.99-01-016.

Allowing SDG&E’s large customers to respond to hourly price signals, as proposed in A.99-01-016, will result in far greater price responsiveness and reliability benefits than would adoption of SDG&E’s program. 

Ending SDG&E’s program after the imposition of hourly pricing upon SDG&E’s customers is implemented is consistent with the Commission’s policy, first established in its Preferred Policy Decision ([D]ecision 95-12-063, D.96-01-009) that customers should directly face hourly price signals once the rate freeze ends and will respond appropriately.   The Commission reiterated this policy in Resolution E-3650. 

Allowing SDG&E’s large customers to respond to hourly price signals also gives the Commission first-hand experience of how customers respond to a wide variety of actual economic market conditions.  SDG&E’s proposed demand responsiveness programs, similar to those of PG&E and Edison, attempt to impose economic incentives on top of the frozen rate structures of the utilities and for limited time-periods.  Customer response to actual market conditions will be exceedingly useful to the Commission in crafting rate design policies for Edison and PG&E in their own Post-Transition Ratemaking applications. 

The Alliance for Retail Markets (ARM), California Energy Commission (Energy Commission) and the Office of Ratepayer Advocates (ORA) all protested SDG&E’s Advice Letter.  All three parties state that exposing customers to hourly price signals is the preferred approach to encourage demand responsiveness. 

The Energy Commission and ORA, while preferring the use of hourly price signals, are supportive of SDG&E’s program provided that a number of modifications are made to the program should the Commission approve it.  Both parties also state that any program should be done on a transitional basis and only for the summer of 2000.

 ARM opposes SDG&E’s program believing that it is anti-competitive; hinders the development of a competitive energy marketplace; and pre-judges the role of the utility as default provider once the transition period ends.  The  Energy Commission shares ARM’s concerns about potential anti-competitive effects.  

Background

SDG&E seeks authority to establish a demand responsiveness program.  Under its proposal, SDG&E would establish a pool of customers willing to voluntarily curtail their energy use in exchange for an incentive payment when energy prices in the PX are expected to be high.  Unlike the programs the Commission recently approved for Edison and PG&E that are triggered when the day-ahead PX price is equal to or greater than 25 cents/kWh, SDG&E is proposing to retain complete discretion as to when to trigger a curtailment event. 

When SDG&E initiates its voluntary curtailment program, it will notify all customers who had expressed an interest in curtailing their load.  These customers could “bid in” load reductions for the following day’s on-peak hours.  SDG&E would select which customers would be curtailed on a first-come, first-served basis; thereby ensuring that no customer receives preferential treatment.  Customers would be paid the market-clearing price for the amount of load they curtailed.  The amount of curtailment would be determined by comparing each customer’s energy usage during the curtailment event against a baseline of his or her historical energy usage.     

By having these participating customers reduce their energy usage, the total demand for energy is reduced, putting downward price pressure on the market clearing prices of the Power Exchange.  The savings from the reduced energy prices are intended to outweigh the costs incurred in getting these customers to voluntarily curtail.  This is intended to result in net savings to ratepayers. 

Customers participating in the program may voluntarily commit but are not required to reduce load. 

The proposed programs would be open to the first 100 customers to express interest.  The program is limited to SDG&E’s largest customers because there is a need to monitor the energy usage of customers participating in the program on an hourly basis to ensure compliance.  These large customers already have the necessary hourly metering equipment.  

SDG&E states that its demand responsiveness program would benefit ratepayers by reducing the total price that the utilities must pay for their energy purchases from the PX .   

SDG&E estimates the start-up and on-going costs of its program at approximately $250,000.  This includes $20,000 in administrative costs (100 customers @ $200/each) plus incentive payments estimated at around $200,000 based on an assumed 400-1,000 MWh of curtailed energy.  SDG&E is proposing to track these costs in a memorandum account for future recovery.  

SDG&E also seeks approval of contract forms that would be needed for customers to sign-up for the program.

Notice 

Notice of SDG&E Advice Letter 1199-E was made by publication in the Commission’s Daily Calendar.  SDG&E states that a copy of its Advice Letter was distributed in accordance with Section III-G of General Order 96-A.  
Protests

SDG&E’s Advice Letter 1199-E was timely protested by ARM, the Energy Commission, and ORA.  

SDG&E responded to the protests of ARM and the Energy Commission, but not ORA, on April 5, 2000.  

The following is a more detailed summary of the major issues raised in the protests. 

The Use of Hourly Prices is Preferable to SDG&E’s Proposed Program

ARM, the Energy Commission, and ORA all state that imposing hourly prices upon customers is the preferred way to achieve demand responsiveness.  As ORA notes: 

One underlying reason for the lack of demand responsiveness is that customers have not been exposed to market prices.  Rather, under the rate freeze customers were assessed the frozen total rate, while their price [of] energy was calculated as a monthly average price.  SDG&E has carried forward [after the end of its rate freeze] charging customers based on a monthly average price.
…..
SDG&E fails to address the larger question: If the PX day-ahead price can be used to pay customers, why not charge all similarly situated customers on a comparable basis.

ORA recommends that all of SDG&E’s bundled large power customers should face market prices starting on June 1, 2000 and that Schedule PX should be modified so that large power PX rates are assessed on an hourly basis.

The Energy Commission echoes ORA’s concern stating that:

A far more appropriate means to acquire demand responsiveness is to impose hourly CalPX flowthrough pricing on all customers, or perhaps initially, all medium sized and larger customers.
 
According to the Energy Commission, demand responsiveness programs such as those being proposed by SDG&E are an “Artificial…program to overcome inappropriate rate design.”

 ARM also states that “the objectives of [SDG&E’s] program would best be achieved by another approach…that is allowing real time market prices to shine through to end users.”  ARM argues that this is “absolutely essential” to encouraging price-responsive demand for energy.

The Energy Commission cautiously supports adoption of SDG&E’s proposal but only as a transition program and under the assumption that SDG&E’s customers will not be subject to hourly pricing.  ORA also cautiously supports SDG&E’s program but only as a transition program and only if hourly pricing is imposed on SDG&E’s largest customers as of June 1, 2000.

SDG&E responds that it filed its program in response to concerns from the ISO and PX on the need for additional demand responsiveness in the market.

SDG&E’s Program is Anti-competitive

ARM, the Energy Commission, and to a lesser extent ORA raise the issue that SDG&E’s proposed program is anti-competitive.  As the Energy Commission states:

The ability of SDG&E to offer this program rests solely on its unique position as the incumbent utility with a large number of customers and a large aggregate load. SDG&E can identify a subset of its customers that are willing to participate in such a program and derive benefits for all of its remaining bundled service customers…No ESP can accomplish the same result. 

ARM states that SDG&E can use its program to inappropriately leverage its incumbent advantage to the detriment of competition.  ARM cites as an example SDG&E’s ability to allocate program costs over its entire captive customer base.  An ESP attempting to offer a similar service must attempt to recover its program costs solely from those customers participating in the ESP’s program even if it “effected the same kind of reduction in PX clearing prices” as SDG&E’s program. 

Allowing the utilities to offer demand responsiveness programs, according to ARM, also changes the role of the utility as a “disinterested” provider of energy services.  Currently the utility has no financial incentive to encourage a customer to either choose direct access or remain a bundled utility customer. ARM fears that the utility will use the demand responsiveness programs as a “customer retention” tool to deter customers from switching to direct access. ORA and the Energy Commission raise a related concern that it is unclear how SDG&E’s program would interact with SDG&E’s proposed Performance Based Ratemaking (PBR) mechanism for its energy procurement costs.

SDG&E responds by stating that it is only proposing this program in response to requests from the ISO to increase the level of demand responsiveness at the retail level and that SDG&E does not intend to offer the program for the summer of 2001.  Adoption of the program for the summer 2000 would provide “valuable insights” to all parties, including ESPs, if they choose to offer similar programs in the future. 

Other Program Modifications

ARM appreciates SDG&E’s proposal that its program costs will be booked to SDG&E’s Purchased Electric Commodity  Account (PECA) and therefore will only be collected from SDG&E’s bundled customers.  ARM suggests going a step further and requiring SDG&E to recover its program start-up and administrative costs through a service fee paid solely by program participants.  This would mitigate the anti-competitive impacts of the program and prevent cost shifting. SDG&E believes that its accounting treatment is equitable since all customers who purchase energy from the PX benefit from the program’s operations.  

The Energy Commission suggests that program costs should be booked to the PECA as they are incurred monthly, subject to adjustment based on final recovery in rates. This would ensure that SDG&E’s energy costs for each month reflect all costs of energy procurement.  SDG&E responds that given the small cost of the program, the additional accounting costs needed to do this are not justified.  

The Energy Commission suggests further workshops to better define when SDG&E’s program should be triggered so as to maximize the program’s operation.  It states that “unless more specific triggering mechanisms can be devised” the Commission “should place all, or a lion’s share, of the costs of triggering the program on SDG&E’s shareholders…” through some form of reasonableness review. 

SDG&E responds that it does not believe that a workshop is warranted at this late date and that “the probability of net beneficial outcomes is greatest if SDG&E has the discretion as to when to trigger the program.”  

ARM argues that once SDG&E initiates a curtailment event, the utilities are overpaying customers to curtail.  As ARM states, the utilities have proposed an incentive payment equal to the full day-ahead PX price multiplied by the amount of curtailed load.  The actual savings directly attributable to the load curtailment is this gross amount, less the revenue the customer would have paid SDG&E had it not curtailed load.  Because it reflects gross savings rather than net savings, SDG&E’s proposed incentives exceed the savings attributable to the load curtailment.  ARM suggests that if adopted SDG&E’s program should subtract the otherwise applicable energy charge from the day-ahead PX price when computing the curtailment incentive.  

ORA suggests that the program be expanded to include more than the 100 customers.   

The Energy Commission opposes the 5-day baseline that SDG&E will use to calculate the amount of load each customer curtails.  It believes that SDG&E’s  proposal utilizes too short of a time period with the result that some customers will be able to game the system and earn curtailment payments for reductions in load that would have occurred anyway.  The utilities’ baseline calculations do not adequately reflect either normal fluctuations in energy load or circumstances where a customer’s load is trending downward due to declining business conditions.  The Energy Commission recommends that the utilities use a 15-day average rather than the 5-day average proposed by SDG&E.  

SDG&E replies that use of a 5-day average is sufficient to prevent gaming and that SDG&E seeks to retain discretion to change the baseline if needed. 

Discussion

As the Energy Commission notes, SDG&E filed its Advice Letter in a “good faith effort” to respond to concerns from the ISO and others for the need for demand responsiveness programs.  While we appreciate SDG&E’s response, events occurring subsequent to SDG&E’s filing of its Advice Letter require that SDG&E’s proposal should be approved only until hourly pricing for SDG&E’s larger customers is implemented.  The Commission’s recently released proposed decision in its Post Transition Ratemaking (PTR) proceeding (A.99-01-016 et al) would require that “All customers with hourly interval meters shall be billed using hourly data once the rate freeze ends.”  The Commission’s adoption of this decision would eliminate the need for SDG&E’s proposed program.  In order to ensure that some price responsive behavior is in place prior to implementation of the Commission’s PTR decision, there is a need for SDG&E’s program.  SDG&E’s demand responsiveness program should end once hourly pricing for SDG&E’s larger customers is implemented as proposed in A.99-01-016.
   
Although SDG&E’s program is similar to demand responsiveness programs the Commission recently approved for Edison and PG&E in Resolution E-3650, SDG&E, unlike either PG&E or Edison, is no longer subject to the legislatively mandated rate freeze imposed by AB1890.  

As Resolution E-3650 itself concluded, the need for utility-run demand responsiveness programs is almost exclusively due to the presence of the rate freeze which insulates retail customers from high prices occurring in the wholesale market.

As Resolution E-3650 states:

In a competitive marketplace, it is the interaction of supply and demand that sets the price.  During the rate freeze period for California’s electric industry, only the supply portion of the above equation operates when energy prices are high. Due to the rate freeze, the demand side of the equation is largely unaffected by higher prices.
…..
Demand responsiveness programs attempt to instill some pressure on the demand side of the equation to reduce the overall price of energy.  Since most customers are insulated from increasing energy prices due to the rate freeze, during the rate freeze period demand responsiveness programs generally must pay customers to voluntarily curtail their energy usage. 

As some of the protestants to the utilities Advice Letter note, the need for demand responsiveness programs such as those proposed by Edison and PG&E is much less once the rate freeze ends.
…..
The adoption of rate design policies that directly impose the cost of hourly energy prices upon the end-use consumer is a better alternative to the use of demand responsiveness programs but such policies cannot be implemented until after the rate freeze ends.

Customers who are on rate schedules where they are exposed directly to hourly prices do not need utility-run demand responsiveness programs to have an incentive to curtail.  The high hourly prices that they face during periods of peak demand provide a better incentive for these customers to curtail when energy prices are high.  It is precisely for this reason that Edison and PG&E excluded all customers who were on real-time rate schedules from participating in their demand responsiveness programs

At the time that SDG&E filed its Advice Letter in November 1999, even though SDG&E’s rate freeze had ended SDG&E continued to charge customers based on a monthly average of their energy price.  The Commission directed SDG&E, along with Edison and PG&E,  however, to address rate design issues for the post-rate freeze period via separate applications.

On March 17, 2000, the Proposed Decision of ALJ Angela Minkin was issued in  
A.99-01-016 et al, which would require that:

All customers with hourly interval meters shall be billed using hourly data once the rate freeze ends.  

As the Proposed Decision concludes:

A fundamental objective of electric restructuring has been to increase the customer’s ability to respond to market signals, which will foster greater market efficiency, the expectation being that greater efficiencies would serve to prompt lower overall market prices.
…..
…Allowing customers to experience PX price variations will…provid[e] an incentive for customers to shift load to non-peak periods.

Adoption, and implementation of the Proposed Decision would negate the need for SDG&E’s proposed program.  At the time SDG&E filed its Advice Letter the Proposed Decision had not been issued. Depending upon when the Commission chooses to adopt the Proposed Decision, hourly pricing could be in place close to the start of the summer season for SDG&E.  Hourly pricing would provide better reliability and pricing benefits than would SDG&E’s proposed program.  However, since we cannot be sure at this time either when the Proposed Decision will finally be adopted and implemented or if the final decision will still require the use of hourly prices, there may be a need for SDG&E’s program during the summer of 2000. SDG&E ’s request to establish a demand responsiveness program should be approved only until hourly pricing is implemented for SDG&E’s larger customers.
 
Allowing SDG&E’s large customers to respond to hourly price signals, as proposed in A.99-01-016, will result in far greater price responsiveness and reliability benefits than would adoption of SDG&E’s program.  As SDG&E itself states in a companion Advice Letter filing (AL-1198-E) many of SDG&E’s larger customers have previously had experience in responding to high prices and have adjusted their energy usage accordingly.  Imposing hourly prices on those customers with hourly meters would better serve the requests of the PX’s Market Monitoring Committee and the ISO’s Market Surveillance Committee for more demand responsiveness from retail customers, the primary reason that SDG&E filed Advice Letter 1199-E in the first place.   The program proposed by SDG&E is a poor substitute for the use of hourly pricing.

Approving SDG&E’s request only until the implementation of hourly pricing is also consistent with the Commission’s long-standing policy, first established in its Preferred Policy Decision ([D]ecision 95-12-063, D.96-01-009) that customers should directly face hourly price signals once the rate freeze ends and will respond appropriately. 

Allowing SDG&E’s large customers to respond to hourly price signals also gives the Commission first-hand experience of how customers respond to a wide variety of actual economic market conditions.  The recently adopted demand responsiveness programs of PG&E and Edison by contrast, attempt to impose economic incentives on top of the frozen rate structures of the utilities and for limited time-periods.  Customer response to actual market conditions will be exceedingly useful to the Commission in crafting rate design policies for Edison and PG&E in their own Post-Transition Ratemaking applications.

Program Implementation and Modifications

Since we are approving SDG&E’s program until the implementation of hourly pricing for SDG&E’s larger customers, we must address implementation issues.  The Energy Commission, and to lesser extent ARM and ORA propose a number of modifications to SDG&E’s program.  The Commission, in the demand responsiveness programs it approved for Edison and PG&E in Resolution E-3650, previously addressed many of these same issues.

Resolution E-3650 approved as reasonable the use of 25 cents/kWh as the day-ahead PX price at which PG&E and Edison would initiate their demand responsiveness programs.  As Resolution E-3650 noted, echoing concerns previously expressed by the Commission in Resolutions E-3619 and E-3624, the Commission is reluctant to grant utilities complete flexibility as to when to initiate the program.  Therefore, SDG&E’s request for flexibility as to when to trigger its program should be denied.  Similar to the programs approved for Edison and PG&E, SDG&E should be allowed to initiate its program only when the day-ahead PX price equals or exceeds 25 cents/kWh.

We agree with the Energy Commission’s concern regarding the potential for customers to “game the system” and receive curtailment payments from the utility for reductions in load that would have occurred anyway.  Even SDG&E admits that the use of a 5-day average may not be sufficient. We believe that a 10-day average, the same methodology approved in Resolution E-3650, strikes a good balance between the need to prevent gaming while ensuring that it is not overly difficult for program participants to volunteer to curtail load.  There is also a further potential for gaming to the extent a customer participates in other demand responsiveness programs in addition to those run by the utilities, since each program appears to use somewhat different formulas and criteria. We will require SDG&E, as part of its compliance filing, to identify and/or propose necessary safeguards to prevent customers from receiving more than one payment for the same curtailed load.  

We also agree with ARM’s suggestion that the utilities incentive payments to program participants should be based upon the market clearing price less the otherwise applicable energy price the customer would have paid.  This avoids overpaying the customer for curtailing and helps maintain a competitive balance between the utilities’ and the ESP’s demand responsiveness programs. 

The demand responsiveness programs approved for Edison and PG&E in Resolution E-3650 excluded customers who were already on real-time rate schedules.   SDG&E should make a similar change to its program.

The Commission in Resolution E-3650 rejected ARM’s suggestion that program costs should only be collected from program participants and we see no reason to reach a different conclusion for SDG&E.  Similarly, we agree with the Energy Commission’s recommendation that program costs should be booked monthly to SDG&E’s PECA account as they are incurred.  This is similar to the treatment applied to Edison and PG&E.  By defining explicit program criteria as to how SDG&E’s program should work we do not see a need for reasonableness review of the program’s operation.  Recovery in rates of SDG&E’s program costs, will of course require further review and approval by the Commission since they are being booked to a memorandum account.  Resolution E-3650 required Edison and PG&E to perform a detailed report of their program operation and its economic impact in reducing energy prices.  SDG&E should file a similar report. 

ARM and the Energy Commission have raised a number of issues regarding the potential anti-competitive aspects of SDG&E’s program.  These concerns are identical to the concerns these same parties raised in protesting the demand responsiveness programs of Edison and PG&E and we do not see a need to repeat our reasoning here.

  As Resolution E-3650 concluded in reviewing these concerns:

The ability of the ESPs to compete with the utilities, coupled with the         modifications to the utilities’ programs we are proposing and the limited duration of the utilities’ program help address the concerns raised by the protestants regarding competitive issues. 

Comments

The draft Resolution of the Energy Division in this matter was mailed to parties in accordance with Public Utilities Code Section 311(g) on April 18, 2000.  Comments were received from SDG&E and ARM  on May 1, 2000.

SDG&E agrees that the “Commission’s adoption of [the PTR] decision would eliminate the need for SDG&E’s proposed Demand Responsiveness Program.”  SDG&E believes that the PTR decision is likely to be adopted by the Commission in the near future and that “it is not prudent to incur costs for the proposed program that will likely be terminated before it can be implemented.”  Therefore, SDG&E “respectfully declines to participate in the Demand Responsiveness Program as [it] requested.”

ARM, in its comments, “urges the Commission to approve draft Resolution E-3667 as written.” ARM “agrees wholeheartedly with the Draft Resolution’s conclusion that allowing customers to respond to hourly price signals will result in far greater price responsiveness and reliability benefits than would adoption of SDG&E’s program.”
 
Findings

1.	San Diego Gas & Electric (SDG&E) in Advice Letter 1199-E proposes to establish a demand responsiveness program for the summer of 2000.
 
2.	The purpose of SDG&E’s new rate schedules is to identify a group of customers who are willing to voluntarily curtail their energy usage in exchange for monetary compensation during time periods of high day-ahead Power Exchange (PX) prices. 

3.	SDG&E ’s request to establish a demand responsiveness program should be approved only until hourly pricing is implemented for SDG&E’s larger customers.

4.	SDG&E filed its Advice Letter in a “good faith effort” to respond to concerns from the ISO and others for the need for demand responsiveness programs and several months prior to the issuance of the Proposed Decision in the Commission’s Post-Transition Ratemaking proceeding (A.99-02-016 et al). 

5.	At the time that SDG&E filed its Advice Letter in November 1999, even though SDG&E’s rate freeze had ended SDG&E continued to charge customers based on a monthly average of their energy price.

6.	SDG&E, unlike either PG&E or Edison, is no longer subject to the legislatively mandated rate freeze imposed by AB1890.  Therefore, SDG&E’s customers, unlike customers of PG&E and Edison, can directly face the higher energy prices of either the Power Exchange (PX) or the competitive energy market during periods of peak demand.  

7.	Resolution E-3650 states that the need for utility-run demand responsiveness programs is almost exclusively due to the presence of the rate freeze which insulates retail customers from high prices occurring in the wholesale market.

8.	Resolution E-3650 concluded that the adoption of rate design policies that directly impose the cost of hourly energy prices upon the end-use consumer is a better alternative to the use of demand responsiveness programs 

9.	ARM, the Energy Commission, and ORA all state that imposing hourly prices upon customers, or perhaps initially all medium sized and larger customers, is the preferred way to achieve demand responsiveness.

10.	Customers who are on rate schedules where they are exposed directly to hourly prices do not need utility-run demand responsiveness programs to have an incentive to curtail.  Edison and PG&E excluded all customers who were on real-time rate schedules from participating in their demand responsiveness programs.

11.	The Proposed Decision of ALJ Angela Minkin in A.99-01-016 et al addresses post-rate freeze issues and would require that: “All customers with hourly interval meters shall be billed using hourly data once the rate freeze ends.”

12.	Adoption of the Proposed Decision would negate the need for SDG&E’s proposed program.    

13.	Allowing SDG&E’s large customers to respond to hourly price signals, as proposed in A.99-01-016, will result in far greater price responsiveness and reliability benefits than would adoption of SDG&E’s program. 

14.	Imposing hourly prices on those customers with hourly meters would better serve the requests of the PX’s Market Monitoring Committee and the ISO’s Market Surveillance Committee for more demand responsiveness from retail customers.

15.	Imposing hourly prices upon SDG&E’s larger customers is consistent with the Commission’s policy, first established in its Preferred Policy Decision (D.95-12-063, D.96-01-009) that customers should directly face hourly price signals once the rate freeze ends and will respond appropriately. 

16.	Many of SDG&E’s larger customers have previously had experience in responding to high prices and have responded accordingly.

17.	Allowing SDG&E’s large customers to respond to hourly price signals would provide the Commission first-hand experience of how customers respond to a wide variety of actual economic market conditions.

18.	SDG&E’s proposed demand responsiveness program, similar to those of PG&E and Edison, attempt to impose economic incentives on top of the frozen rate structures of the utilities and only for limited time-periods.

19.	We cannot be sure at this time either when the Proposed Decision in A.99-02-016 et al will finally be adopted and implemented or if the final decision will still require the use of hourly prices.

20.	The Commission, in the demand responsiveness programs it approved for Edison and PG&E in Resolution E-3650, previously addressed many of the same implementation issues raised by ARM, the Energy Commission, and ORA.  

21.	SDG&E’s request for flexibility as to when to trigger its program should be denied. SDG&E should be allowed to initiate its program only when the day-ahead PX price equals or exceeds 25 cents/kWh.

22.	Use of a 10-day average to calculate a customer’s baseline energy usage strikes a good balance between the need to prevent gaming while ensuring that it is not overly difficult for program participants to volunteer to curtail load.

23.	There is a potential for gaming to the extent a customer participates in other demand responsiveness programs in addition to those run by the utilities, since each program appears to use somewhat different formulas and criteria. SDG&E should identify and/or propose necessary safeguards to prevent customers from receiving more than one payment for the same curtailed load.  

24.	SDG&E’s incentive payments to program participants should be based upon the market clearing price less the otherwise applicable energy price the customer would have paid.  This avoids overpaying the customer for curtailing and helps maintain a competitive balance between the utilities’ and the ESP’s demand responsiveness programs. 

25.	SDG&E should exclude customers who are already on real-time rate schedules from participating in its program. 

26.	The Commission in Resolution E-3650 rejected ARM’s suggestion that program costs should only be collected from program participants and we see no reason to reach a different conclusion for SDG&E.

27.	SDG&E’s program costs should be booked monthly to SDG&E’s PECA account as they are incurred.

28.	By defining explicit program criteria as to how SDG&E’s program should work we do not see a need for reasonableness review of the program’s operation. 

29.	Recovery in rates of SDG&E’s program costs, will require further review and approval by the Commission since they are being booked to a memorandum account.

30.	Resolution E-3650 required Edison and PG&E to perform a detailed report of their program operation and its economic impact in reducing energy prices.  SDG&E should file a similar report. 

31.	ARM and the Energy Commission have raised a number of issues regarding the potential anti-competitive aspects of SDG&E’s program.  These concerns are identical to the concerns these same parties raised in protesting the demand responsiveness programs of Edison and PG&E.  

32.	Resolution E-3650 concluded: “The ability of the ESPs to compete with the utilities, coupled with the  modifications to the utilities’ programs we are proposing and the limited duration of the utilities’ program help address the concerns raised by the protestants regarding competitive issues. 

33.	The protests of the Alliance for Retail Markets, California Energy Commission, and the Office of Ratepayer Advocates are granted in part, and denied in part as discussed in this Resolution.

Therefore it is ordered that:

1.	The request of San Diego Gas & Electric Company in Advice Letter 1199-E to establish a demand responsiveness program is approved as modified. 

2.	Should SDG&E choose to implement its program as modified in this Resolution, it shall file a supplemental advice letter with tariff sheets consistent with the Resolution within 20 days.  The tariff sheets shall be effective after Energy Division has reviewed them for compliance with this Resolution.

3.	SDG&E’s supplemental advice letter filing, should it choose to submit one, shall contain the following modifications to its current proposals:

•	SDG&E shall initiate its program only when the PX day-ahead price is equal to or greater than 25 cents/kWh
•	The administrative costs of its program shall be subject to reasonableness review; 
•	The baseline for calculating energy reductions shall be changed from 5 days to 10 days;
•	SDG&E shall identify and/or propose necessary safeguards to prevent customers from receiving more than one payment for the same curtailed load; 
•	SDG&E shall record its program costs as they are incurred monthly to its Purchased Electric Commodity  Account (PECA);
•	SDG&E shall subtract the “otherwise applicable energy charge”, calculated as the per kWh energy charge as reflected in each utilities’ rate structures, in determining the level of incentive payment; 
•	SDG&E shall exclude from program participation all customers who are on rate schedules that use hourly billing components

4.	Should SDG&E implement a demand responsiveness program it shall provide to the Commission’s Energy Division and other interested parties a detailed economic study on the total costs of the program and its economic benefits.  This study shall include detailed information on the effect of the program, if any, in lowering the day-ahead PX price; an economic study of the reasons for the high PX prices during the hours the program is in operation; the effect of the program on all other energy markets operated by the ISO; elasticity estimates of the price-responsiveness of load to energy prices; the available operating reserves (calculated both before and after subtracting out customers on interruptible rate schedules) during times of program operation; and any other information useful in evaluating the program.  This report shall be due no later than February 10, 2001 and cover the program’s operation through the summer of 2000. 

5.	SDG&E’s demand responsiveness programs shall expire as soon as hourly pricing is implemented for customers with hourly meters is implemented, such as the proposal being considered in A.99-02-016 et al.  In no event shall SDG&E’s program continue beyond October 1, 2000. 

6.	The protests of the Alliance for Retail Markets, California Energy Commission, and the Office of Ratepayer Advocates are granted in part, and denied in part as discussed in the Findings section of this Resolution. 

7.	This Resolution is effective today.  

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on May 18, 2000; the following Commissioners voting favorably thereon:

					_____________________
		                                                    WESLEY M. FRANKLIN							                         Executive Director

LORETTA M. LYNCH
          							           President
HENRY M. DUQUE 
JOSIAH L. NEEPER 
RICHARD A. BILAS
							CARL W. WOOD
							     Commissioners