CPUC Settlement Could Unlock California’s Demand Response Potential

California Public Utilities Commission has an opportunity to approve a plan to drive deployment of cost-effective demand response.
Published: Thu 02 Oct 2014

Currently, demand response programmes have been a failure in California when compared to other states and regions. Demand response was expected to account for 5% of peak demand by 2007 but today, the state has yet to reach even 4%. [Engerati-Demand Response is Failing in California.]

The lack of development is due to various roadblocks that inhibit demand response. One of these challenges is that the true value of demand response has never been fully identified. The actual benefits that the resource can provide have never been properly identified. In addition, various types of demand response have been treated differently, with some types receiving attention and pathways for use while others are left on the back burner.

Additionally, California Independent System Operator (CAISO), which operates and manages California’s electrical grid, only ‘sees’ a small minority of demand response, meaning it cannot take advantage of most of the demand response that currently exists.

About the settlement and how it could develop California’s demand response

In response to this growing need for demand response in California, a diverse group of organizations submitted a settlement agreement on the future of demand response in California to the California Public Utilities Commission for its approval. The settling parties – including EDF, Clean Coalition, Environmental Defense Fund, California investor-owned utilities, CAISO, consumer groups, and others – recommend, for the first time, a way to properly value, realize, and account for demand response.

If this settlement is approved, the changes will have the potential to increase the role of demand response in meeting California’s growing energy demands, and improve grid operations.

The settlement recognizes the increased value of demand response and it supports a cost-effective move to adopting more renewable energy. It also acknowledges that existing market and regulatory mechanisms fail to monetize all benefits demand response provides to consumers such as deferring distribution investments and decreasing the need for flexible capacity.

"As California progresses towards its 2020 renewable energy goals, it is critical that demand response providers have access to compensation for meeting system needs," says Stephanie Wang, policy director for the Clean Coalition. "This settlement recognizes that we need smarter market and regulatory mechanisms to drive the deployment of cost-effective demand response."

Working towards the 2015 demand response roadmap

Use of load modifying demand response is one of the least expensive ways California can address system balancing issues as the State approaches its 33% by 2020 Renewable Portfolio Standard.

As part of the settlement agreement, a working group will be established to guide full monetization of load modifying demand response and provide recommendations for the demand response roadmap that will be developed in 2015.

While this settlement does not set new deployment goals for demand response, parties agreed to the parameters of a study that will determine firm goals in the near future. Future goals will be designed to meet system needs and state objectives, rather than being based solely on a percentage of peak needs as has been done in the past. The study will also examine the potential to integrate demand response with other distributed energy resources, such as electric vehicles and solar, to meet a broader range of system needs.

Until future goals are determined, the settlement maintains a floor for demand response at 5% of the sum of the peak demands for all three investor owned utilities (Pacific Gas and Electric, San Diego Gas and Electric, and Southern California Edison) by 2020. The utilities are collectively at 3.9%, according to load impact reports filed in April 2014. Together, the utilities need to bring another 640MW of demand response online by 2020 to meet 5% of current projections for peak needs.

CPUC will decide on the settlement agreement in December 2014.