California To Reduce Power Demand Through New Demand Response Program

In late August 2014, the California Assembly and Senate unanimously voted in favor of Senate Bill 1414 (“SB 1414”), which was introduced by Senator Lois Wolk and co-authored by Assembly Members, Kevin Mullin and Das Williams[1].  On September 29, 2014, California Governor Jerry Brown signed SB 1414 into law.  SB 1414 requires utilities to adjust their resource adequacy[2] plans and utilize cost-effective demand response (“DR”) programs to change their demand for electricity during key times.  In exchange for adjusting their electricity consumption, participating DR customers will receive incentives for providing a clean resource to the grid.  The reduced demand for electricity will require less generation, which in turn will reduce the need for new power plants and help integrate renewable sources of energy.

Existing Law

The California Public Utilities Code (the “Act”) requires the California Public Utilities Commission (the “CPUC”), in consultation with the California Independent System Operator, to establish resource adequacy requirements for all load-serving entities[3] in accordance with specified objectives.  The Act requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements to provide reliable electric service.  The Act further requires the CPUC to determine the most efficient and equitable means for achieving the prescribed objectives.

SB 1414

In establishing resource adequacy requirements for all load-serving entities, the CPUC is mandated to achieve all of the following objectives: (1) facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed, (2) establish new or maintain existing DR products and tariffs that facilitate the economic dispatch and use of DR that can either meet or reduce an electrical corporation’s resource adequacy requirements, as determined by the CPUC, (3) equitably allocate the cost of generating capacity and DR in a manner that prevents the shifting of costs between customer classes, (4) minimize enforcement requirements and costs, and (5) maximize the ability of community choice aggregators to determine the generation resources used to serve their customers.

From the California utilities’ perspective, SB 1414 requires each load-serving entity to maintain physical generating capacity and electrical DR to adequately meet its load requirements, including, peak demand and planning and operating reserves, and to meet the most recent minimum planning reserve and reliability criteria approved by the Board of Directors of the Western Systems Coordinating Council or the Western Electricity Coordinating Council.  The CPUC is required to determine the most efficient and equitable means to ensure that the investment is made in new generating capacity, that existing generating capacity that is economic is retained, that the cost of generating capacity and demand response is allocated equitably, and that the investments are made in new and existing demand response resources that are cost efficient and help to achieve electrical grid reliability and the state’s goals for reducing emissions of greenhouse gases.

Further, in establishing a DR program, the CPUC has been tasked with all of the following: establishing rules consistent with state and federal law for how and when back-up generation may be used within the program and establishing reporting and data collection requirements to verify compliance with those rules, ensuring that the program approved for resource adequacy requirements delivers the expected results and provides taxpayer benefits, and establishing customer protection rules regarding the participation, cost of participation, and ability not to enroll in the program before the implementation of such program.

Theory Behind Demand Response

SB 141 declares that DR will reduce demand for electricity during peak hours (thus reducing reliance on fossil fuel peaking plants), will help integrate clean energy by shifting electricity usage to times when abundant renewable electricity is available, and help provide additional electricity capacity in southern California.  As implemented in California, DR includes a number of programs whose main purpose is to reduce electricity consumption through the actions of end customers who positively respond to an incentive, a rate discount, or both.  In California, there are multiple DR programs, including Smart Rate, Peak Time Rebate Program, and Summer Discount Program.  SB 1414 envisions that a residential customer who does not enroll in the DR program will lose eligibility for rebates, discounts, and other incentives offered to customers who participate in the program.

Conclusion

With this new DR program, California seeks to position itself to meet its goal of 33% of energy from renewable sources by 2030 and to make more capacity available in southern California after the closure of the San Onofre Nuclear Generating Station and natural gas generating facilities that employ once-through cooling.

Looking ahead, with the enactment of SB 1414, we can expect the CPUC will implement new rules and procedures in keeping with its mandate to establish resource adequacy requirements for load-serving entities.  These new rules are anticipated to include rules for the use of back-up generation, including compliance reporting and data collection requirements, as well as consumer protection rules regarding participation in DR programs, the cost of such participation, and the right not to enroll in a DR program.