How Do California Demand Response Cost Effectiveness Protocols Work?

California seems to be taking the lead in thinking about how to evaluate demand reponse programs at a high level as compared to the other states we address below.  It has its own set of Cost Effectiveness protocols developed by the CPUC.  Before this, each IOU had its own set of criteria by which to judge their programs and their methodology was somewhat opaque, driven in part by proprietary models and data.  This is an attempt to standardize and make transparent the process by which these programs are judged.


Protocols are meant for programs that produce measurable load reductions, not permanent load shifting programs (ie energy efficiency) because these programs are not dispatchable.  It may be applicable to rates such as CPP.  


All IOUs must use the publicly available DR reporting template, a spreadsheet model with various preloaded specifications such as avoided energy and capital costs.  IOUs enter in their own data such as load impacts and energy savings.


The framework for the analysis includes four different cost benefit tests that examine the effects of DR programs for different actors.  Listed are also examples of what these costs and benefits are likely to be.

1) Total Resource Cost Test:  This attempts to examine the net effect on society as a whole, where society is defined as the LSE or IOU plus all of its customers. 

§  Benefits:  LSEs avoided cost of electricity, market revenue, environmental benefits

§  Costs: Increased supply costs

2) Program Administrator Cost Test:  This attempts to examine the net effect on the LSE or IOU alone

§  Benefits:  LSEs avoided cost of electricity

§  Costs: Incentives paid, administrative and capital costs

3) Ratepayer Impact Measure:  Examines the effect on Ratepayers

§  Benefits: Avoided cost of supply electricity, Market revenue, other market benefits

§  Costs: administrative costs, incentives paid out, increase in supply costs (where applicable)

4) Participant Test:  Examines the effect on Ratepayers who are also enrolled in DR programs

§  Benefits: bill reductions, incentives earned, tax credits

§  Costs: bill increases, capital and O&M of DR equipment installed, value of lost service (due to reduction in energy consumption), transaction costs