1

An Overview ofDemand Response

in California

July 2011

What is Demand Response (DR)?

2

DR is set of action taken to reduce electric loads when:

Contingencies, such as emergencies or congestion, occur that threaten the supply-demand balance

-OR-

Market Conditions occur that raise electric supply costs

The goals are to improve electric grid reliability and lower use of electricity during peak demand

DR is high priority electricity – second only to Energy Efficiency in the Energy Action Plan’s “loading order”

Evolution of Demand Response Until 2005, most of the demand response (DR) was provided by Large

Industrial customers in response to a California Independent System Operator (CAISO) emergency

After the 2006 summer heat wave, the CPUC expanded the DR customer base to provide price-responsive DR before a CAISO emergency:

Utilities offered a wide variety of DR programs such as Air Conditioning (AC) cycling, programs providing energy payments only, and programs that provide both capacity and energy payments

Beginning in 2007, several established third-party aggregators were allowed to participate directly in the utility programs and through bi-lateral DR contracts with the utilities

Beginning in 2009, the CAISO started considering DR as a generation resource similar to a Combustion Turbine (CT) and developed specific products in the wholesale markets suitable for DR which are still waiting approval from FERC

As early as 2012, a limited roll-out for HAN devices are expected to enable additional DR options for residential customers

3

Demand Response Rulemaking

CPUC instituted four phases for R.07-01-041: Phase 1: Load Impact Protocols (D.08-04-

050) Phase 2: Cost-Effectiveness Protocols (D.10-

12-024) Phase 3: Transition of Emergency-triggered

programs to Price-responsive programs (Settlement: D.10-06-034)

Phase 4: Direct participation of DR in the CAISO’s wholesale markets (Open)

4

Examples of DR Triggers

CAISO or IOU forecasts indicate that the CAISO system load will meet or exceed certain MW threshold (e.g., 43,000 MW for PG&E)

CAISO issues - or IOU expects the CAISO to issue - a Stage 2 or Stage 3 emergency or local transmission emergency

IOU expects to require the dispatch generation facilities with heat rates of 15,000 BTU/kWh or greater for the day-ahead or hour-ahead market

An actual or anticipated localized emergency (e.g., loss of generation or transmission resources)

Average forecasted peak temperature of San Jose, Concord, Redding, Sacramento, and Fresno meets or exceeds 94 degrees Fahrenheit on a program day (example for PG&E territory)

5

Load Duration Curve During

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

1

262

523

784

1,04

5

1,30

6

1,56

7

1,82

8

2,08

9

2,35

0

2,61

1

2,87

2

3,13

3

3,39

4

3,65

5

3,91

6

4,17

7

4,43

8

4,69

9

4,96

0

5,22

1

5,48

2

5,74

3

6,00

4

6,26

5

6,52

6

6,78

7

7,04

8

7,30

9

7,57

0

7,83

1

8,09

2

8,35

3

8,61

4

Hour

Hou

rly A

ve. D

eman

d

50,085 MW Peak 7/24/06

Greater than 45,000 MW 57 hours or 0.65%

Winter Peak 33,275 MW 12/14/05

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2006 Heat Wave: September 2005 to September 2006

Types of Demand Response Load response for reliability purposes:

Direct load control, partial, or curtailable load reductions (e.g., Air Conditioning Cycling)

Complete load interruptions Use of AutoDR technologies

Price response by end-use customers: Time Varied Rates: Real-Time Pricing (RTP), Critical Peak

Pricing (CPP), Time-of-Use rates (TOU) Demand Bidding Programs Capacity Bidding Programs Aggregator Managed Programs

Programs that bid directly in the CAISO’s wholesale markets

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Potential Penalties for Non-compliance

Time-Varied Rates No penalty, just pay higher cost for energy during

peak

Interruptible Tariffs Capacity payment and penalty for non-compliance

Incentive-Based Programs Price-responsive

If no capacity payment – no penalty With capacity payment – penalty for non-compliance

Emergency-triggered Capacity payment and penalty for non-compliance

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Ex Ante Load Impact for Utility Demand Response Programs

2012(MWs)

2013(MWs)

2014(MWs)

5% DR Goal

(MWs)

Emergency-triggered Programs 869 900 933 N/A

Price-Responsive Programs 2,281 2,467 2,410 2,5001

Total 3,150 3,367 3,343 N/A

[1] 5% of an assumed 50,000 MWs of system peak demand – illustration purposes only.

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10

DR Budget Request 2012-2014 Cycle

(a) Total authorized funding from DR cycle and SmartAC proceedings

(b) Includes SCE request to apply $20M in unspent funds approved in 2009-2011 DR cycle

IOU Budget Request for 2012-2014

Authorized Budget for 2009-2011

Increase In Budget Request

PG&E $228.0M $186.9Ma 22.0%

SCE $249.0Mb $233.6M 6.6%

SDG&E $68.1M $ 55.1M 23.6%

Total $545.1M $475.6M 14.6%