Resolution E-3689 August 3, 2000

Edison AL 1465-E/jeh

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3689

August 3, 2000

RESOLUTION

Resolution E--3689. Southern California Edison Company (Edison) proposes to reopen its commercial and industrial interruptible program to new customers and to new load. Approved as modified.

By Advice Letter 1465-E Filed on July 10, 2000.

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Summary

This Resolution approves with modifications the request of Southern California Edison Company (Edison) to reopen its interruptible tariffs to new customers and to new load from existing customers. We are approving Edison’s request as an “insurance policy” to help minimize the possibility that firm customers will be curtailed. Edison’s estimates of 315 mW of new load participating in the program appears to be significantly overstated, particularly given the incentives offered and program participation rates of other recently developed curtailment/demand responsiveness programs. These programs, such as the California Independent System Operator’s (ISO’s) Emergency Demand Relief (EDR) and Ancillary Services (A/S) Load Programs and Edison’s own Voluntary Power Reduction Credit (VPRC) program, all offered pricing incentives comparable to participation in Edison’s interruptible load program yet to date have achieved participation levels significantly below forecasted levels. Adoption of Edison’s proposal has a potential to duplicate many of these programs. Therefore, we are proposing safeguards to ensure that reopening of Edison’s program attracts new load willing to be curtailed and does not take customers away from other existing programs.

We are also concerned that Edison’s estimate of 315 mW of new load overstates the available pool of customers willing to be curtailed. Edison currently has almost 3,000 megawatts of its industrial load on interruptible tariffs, while Pacific Gas & Electric (PG&E) with a comparable industrial base, has only 500 megawatts on its interruptible tariffs.

Edison’s claimed program cost-effectiveness of $14 million in ratepayer savings in 2000 and $60 million in 2001 rely on faulty and uncertain assumptions and significantly overstate the cost-effectiveness of Edison’s programs. Using realistic estimates show that Edison’s program is not cost-effective based on energy cost savings. Using Edison’s own estimates of the economic value that firm customers place on reliable service (known as value-of-service studies) show that the program is only marginally cost-effective. Under certain scenarios, Edison’s programs are not cost-effective even using Edison’s value-of-service studies. As previously mentioned, we are approving Edison’s program primarily as an “insurance policy”, albeit an expensive one, and as one of many weapons in an arsenal of programs that we are developing to ensure that firm-service customers will not be curtailed.

Edison’s program is approved subject to certain modifications. The purpose of these modifications are to 1) increase program participation; 2) allow the Commission and the ISO to develop coordinated demand relief programs for the Summer of 2001; 3) address equity concerns between new and existing interruptible customers; 4) ensure that new customers signing-up for the program will actually curtail when called upon to do so; and 5) minimize duplication with other programs.

New customers should be allowed to sign-up for summer 2000 only (customers will be on the program for the period August 3, 2000 through May 31, 2001). This should improve program participation and allow the Commission and the Independent System Operator (ISO) to develop better programs for 2001.

New customers are to be curtailed only after existing interruptible customers are curtailed. We believe that this will improve program participation and address equity concerns between new and existing interruptible customers. Edison or the Commission may re-close the program to new customers at its discretion at any time if it believes it has achieved sufficient participation rates.

New customers signing up for the program who fail to curtail when called upon to do so by Edison will be back-billed for all discounts received under the interruptible tariffs in addition to applicable non-compliance penalties contained in the existing tariffs.

Edison is required to work with Pacific Gas & Electric (PG&E)[1] and the California ISO to examine the ISO’s policy of pro-rata curtailments, its effect on deterring interruptible program participation in the PG&E service area, and the possibility of developing a state-wide curtailment policy.

Edison should reopen its interruptible tariffs for agricultural customers. Edison should also consider extending its interruptible program to smaller customers (less than 500 kW) and shall file a detailed analysis on the cost-effectiveness and feasibility of this with the Energy Division by September 15, 2000.

Edison’s request to use public purpose funds for the administrative costs of the interruptible program is denied. Edison has not presented any justification why these costs should not be subject to ratemaking treatment under Edison’s existing Performance-Based Ratemaking (PBR) mechanism, adopted by the Commission in D.96-09-092.

Edison’s Advice Letter 1465-E was protested by the California Energy Commission (Energy Commission), Natural Resources Defense Council (NRDC), Office of Ratepayer Advocates (ORA), Supply Side Energy Solutions (SSES), and The Utility Reform Network (TURN).

The California Large Energy Consumers Association (CLECA) and Utility Savings & Refund Services (US&R) filed comments that were supportive of Edison’s proposals.

Issues raised in the protests included; 1) There is no need to sign-up new customers as Edison, in response to ISO curtailment calls, has yet to use more than about ½ of the interruptible load that it already has under contract; 2) Edison’s program will only take customers away from other curtailment programs being developed by Utility Distribution Companies (UDCs), the Independent System Operator (ISO) and others; 3) New customers signing up for the program will not actually curtail when called upon by Edison to do so; 4) Edison’s estimates of cost-effectiveness are significantly overstated; 5) public purpose funds should not be used for program administration; and 6) Edison’s request should be considered as part of the Summer 2000 initiative.

Other modifications suggested by parties included; 1) Requiring new customers to be curtailed based on price, not operating reserves; 2) expanding the program to include agricultural and smaller commercial/industrial customers; and 3) requiring Edison to refund installation costs to customers who had signed up for the program in the past two-years.

In order to resolve Edison’s request in time for its expected periods of peak energy demand this summer, this Resolution determines under Rule 77.7(f)(9) of the Commission’s Rules of Practice and Procedure that public necessity requires waiver of the 30-day comment period required by Public Utilities (PU) code Section 311(g).

Background

In this Advice Letter, Edison proposes to re-open its existing interruptible tariffs to all customers and to existing customers who wish to increase the amount of their load that is participating in the interruptible program.[2] This would require Edison to modify its Interruptible Program’s associated tariffs and contract forms[3]

Edison’s goal is to increase the amount of curtailable load in order to address the possibility of “shortages of generating capacity” that might occur this summer. According to Edison, the ISO is forecasting a 4-9% probability that energy supplies this summer will be insufficient and that firm customers may be curtailed. Edison believes that an additional 315 mW of new load may sign up for Edison’s interruptible tariffs if the programs are reopened.

The current interruptible tariff programs were developed by the Commission during the mid-1980’s. Under these programs, customers could receive discounted rates in exchange for the utility’s ability to curtail these customers under certain conditions.

Edison currently has about 3,000 Mw of industrial load signed up on interruptible tariffs. This figure represents the maximum non-coincident peak demand of each customer.[4] Because not all of these customers are expected to be operating at their peak demand when called upon to curtail, Edison estimates that about 2/3rd s of this demand (1,900 Mw) will be available when needed.[5]

Edison’s practice during the summer months is to initiate its A/C cycling program prior to curtailing interruptible industrial load. Edison estimates that an additional 400 Mw of curtailable demand is available from its agricultural pumping and air conditioning (A/C) cycling programs.[6]

As Edison notes, the ISO has declared Stage II “emergencies” [7] for three days in June (26th, 27th, 28th). Subsequent to Edison’s filing on July 10, 2000, the ISO declared a Stage II emergencies on July 19, 2000 and August 1, 2000. The amount of Edison’s interruptible industrial load curtailed on these same days was 0 mW, 245 mW, 145 mW, 960 mW, and somewhere between 1,000-1,200 mW. These curtailments were from an available pool of 3,000 mW.[8]

In exchange for the ability to be curtailed, interruptible customers on Edison’s industrial rate schedules receive discounted rates that are equal to about $60,000 to $70,000 per mW of interruptible load. The cost of Edison’s interruptible rate program is approximately $180 million per year.[9]

Edison’s interruptible program has been closed to all customers as of November 26, 1996, other than new customers locating in the Edison service territory and existing customers who have added new load. [10] PU Code Section 743.1 requires that the existing interruptible tariffs will expire as of March 31, 2002.

Edison believes that by reopening its interruptible tariffs it could increase the amount of curtailable load by 315 MW. 250 mW of this increase would come form Edison achieving a 10% increase above the current effective program level of 2,500 mW by reopening the existing tariffs. Edison also states that recent interruptible load surveys indicate that approximately 130 MW is currently designated as firm service or non-interruptible load for the program. Edison assumes an additional 50 % of this load may be available for further curtailments for an additional 65 MW of available load.

Program Costs and Benefits

Edison estimates the cost of its program at approximately $70,000 for each mW of load signed up[11] (or $22.5 million/year for 315 mW) plus $500,000 per year in administrative costs for program years (PY) 2000 and PY2001.

Edison states that its program is cost-effective on an ex ante (before-the fact) basis.

Edison determines the level of benefit achieved from reducing energy demand during the summer peak period. Edison used a proxy value of $500 per MWh, representative of the then current energy price cap and applied this price to all peak hours occurring in the summer. Under this methodology, Edison estimates program benefits (from 315 mW) of $37.8 million for PY2000 and $82.2 million for PY2001. Taking into account program costs of $23 million per year, net program benefits, according to Edison, are approximately $15 million in PY2000 and $60 million in PY2001.

On August 1,2000 the ISO voted to lower the price cap level to $250/mWh.

In addition to the above benefits, Edison claims there would be additional benefits from avoiding the curtailment of firm-service customers. Based on value-of-service studies conducted by Edison, Edison estimates that commercial and industrial customers would be willing to pay $97.00/kWh (or $97,000/mWh) during a summer weekday to avoid a 1-hour afternoon service interruption.

Ratemaking Treatment

Edison is proposing that the costs of the reduced rates that new interruptible customers receive should be subject to the same ratemaking and tariff treatment that already exists for the interruptible program.

Program Administrative Costs

Edison is proposing that its administrative program costs for its interruptible program should be recovered through the use of Energy Efficiency Public Purpose Program (PPP) funds. Edison states that it will exclude its interruptible program costs and energy reductions for purposes of calculating its performance awards associated with the use of its energy efficiency funds.

Change in metering/telemetry requirements

Edison’s existing interruptible customers are required to install a Remote Terminal Unit (RTU) communication device and a dedicated telephone line. Installation costs for this equipment are in the range of $20,000-$30,000. To minimize the cost for new program participants, Edison proposes that these customers would only be required to install and maintain a dedicated telephone line that can be used by Edison to activate a curtailment.

Waiver of PU Code 311(g) Comment Period

In its Advice Letter filing, Edison requests that the 30-day comment period required by PU code Section 311(g) be waived in order to allow Edison to implement this program in time for the peak demand periods expected this summer.

Rule 77.7(f)(9) of the Commission’s Rules of Practice and Procedure permits the waiver of the 30-day period for public review and comment where the Commission determines that public necessity requires reduction or waiver.

Notice

Notice of Edison Advice Letter 3689-E was made by publication in the Commission’s Daily Calendar. Edison states that a copy of its Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A and to all parties of record in Application (A.)99-09-049. In order to provide timely and adequate notice, Edison also served its filing electronically on all appearances of record in A.99-09-049.

Protests

In its Advice Letter Edison requested a shortened protest period in order that the Commission could consider Edison’s request at its August 3, 2000 meeting. This would provide that Edison’s proposal, if adopted, could be made available to “help ameliorate the capacity shortage for a significant part of the summer.”[12] By a letter to Edison dated July 11, 2000, Executive Director Wes Franklin granted a shortened protest period with protests to the advice letter due July 20, 2000 and responses to the protests due by July 25, 2000.

Edison’s Advice Letter 1465-E was protested by the Energy Commission, NRDC, ORA[13], Supply Side Energy Solutions (SSES)[14], and TURN[15].

CLECA and Utility Savings & Refund Services (US&R)[16] filed comments that were supportive of Edison’s proposals.

Edison responded to the protests on July 25, 2000.[17]

The following is a summary of the major issues raised in the protests, and Edison’s response.

There is no need to sign-up new customers

As TURN notes, Edison has between 2,500 to 2,900 mW of load already signed up on interruptible rate schedules.[18] The largest amount of load that Edison has ever had to curtail in response to an ISO curtailment call has only been about ½ of the load that Edison has under contract. TURN believes that it is highly unlikely that Edison would ever reach the point that it would have to curtail all of its interruptible customers and that there is no need for Edison to sign-up new load.