Thought Leadership

CCA and Demand Response: Uncertainties and Opportunities

 

By Stephen Gunther

April 7, 2020

Demand response (DR) presents a significant opportunity for Community Choice Aggregation (CCA) programs to reduce greenhouse gas (GHG) emissions from electricity usage, lower energy costs, and improve grid reliability. Many CCAs are exploring ways to incorporate DR into their community energy programs; however, to-date, most DR programs in California are still administered by the investor-owned utilities (IOU).

Uncertainties around overlap with existing IOU programs and complicated billing structures remain a barrier to widespread, scalable CCA DR programs. While regulatory frameworks have been established to address some of these issues, many rules have yet to be tested in the real world, and most program offerings are only just being piloted, leaving unanswered questions. As CCAs, which currently serve over 10 million customers in California, continue to serve more customers throughout the state, enabling them to tailor DR programs to their communities will be an essential strategy in meeting climate and energy goals.

Current Regulatory Direction

One of the more complicated issues regarding DR programs is cost recovery, i.e., how the costs of implementing a program will be recovered by the entity incurring the expense. For IOU DR programs, the California Public Utilities Commission (CPUC) has adopted a cost allocation principle in which a DR program available to all customers (bundled and unbundled) should be paid for by all customers and therefore allocated to distribution rates. However, this creates a barrier for CCAs and Direct Access providers that want to offer a DR program because, as explained by MCE within CPUC Rulemaking (R.)13-09-011, they cannot justify creating such programs at ratepayer expense when their customers are already being charged for the IOU-offered programs. In response to this, CPUC Decision (D.)14-12-024 adopted the Competitive Cost Neutrality Principle in 2014, ordering the following:

    • Any DR program or tariff that is available to all customers shall be paid for by all customers. If a DR program or tariff is only available to bundled customers, the costs for that program or tariff can only be borne by bundled customers.
    • Once a Direct Access or community choice provider implements its own DR program, the competing utility shall, no later than one year following the implementation of that program: i) end cost recovery from that provider’s customers for any similar program; and ii) cease providing the similar program to that provider’s customers.

After adoption of the Competitive Cost Neutrality Principle, the CPUC followed-up with D.17-10-017 in 2017 to establish a definition of “similar program” and a process for implementation. Despite these seemingly favorable decisions for CCAs, in which a CCA DR program would effectively take precedent over an existing IOU program, no CCA has completed the regulatory process for implementing the Competitive Cost Neutrality Principle, although it should be noted that the Competitive Cost Neutrality Principle does not apply to pilots.

Remaining Questions

While the CPUC developed rules and a process to reduce barriers for CCAs that want to offer DR programs where there are existing IOU programs, there continues to be uncertainty as questions remain as to how this process will actually play out. For example, the requirements for deeming a program to be “similar” are broad enough to necessitate interpretation by the CPUC. There is also skepticism about the willingness of IOUs to cooperate in implementing the process of ending cost recovery and notifying customers of the change in a way that is seamless to customers. Similarly, concerns have been raised regarding the complexities this would create for the billing systems and their capabilities to accommodate these changes, as well as what additional coordination would be required between the IOUs and CCAs.

As implementation unfolds, additional issues and questions will likely be raised. For example, some IOU incentive programs for flexible technologies require enrollment in a DR program for a specified period of time. This eligibility requirement may be complicated if the IOU must cease providing that DR program in the event that a CCA begins offering a similar program. Some correspondence has indicated that the CPUC would require the IOUs to expand that eligibility requirement to include a CCA program, but again, this has not yet been implemented in the real world. For example, in response to issues raised by CCA stakeholders, Southern California Edison (SCE) updated a proposal for its Charge Ready DR pilot program to clarify that the requirement to participate in a DR program could also include a DR program offered by a CCA provider. However, the CPUC’s approval noted that because there has yet to be any approved similar programs by non-IOUs, it is not yet an issue and unnecessary for SCE to update its tariff sheets for the pilot.[1]

How these types of issues are resolved will have important implications for the value of CCA DR programs and their successful roll-out, and the first CCA to take this on will likely have to address several challenges. For example, as in the SCE example noted above, changes to the customer experience resulting from a new CCA program could lead to customer confusion and even impact their decision to opt out of a CCA should the rollout not go smoothly. As with any new endeavor, being a pioneer means bearing additional risks, but this also comes with a point of pride in providing a replicable model for other CCAs to offer programs to increase reliability, decrease costs, and reduce GHG emissions.

CCA DR Activity To-date

While a CCA has yet to trigger the Competitive Cost Neutrality Principle process by offering a DR program similar to an existing IOU program, this is not to say that CCAs have not been active in DR and other load management activities. Several CCAs have approached DR through pilots, programs that target niche markets and technologies, or offer incentives differently than existing IOU programs. For example, Sonoma Clean Power (SCP) launched its GridSavvy Community in August 2018, offering rewards to customers for installing smart devices, including EV charging stations, smart heat pump water heaters, and smart thermostats, in exchange for allowing SCP to remotely control these devices to help manage the grid. In its first iteration, which only covered EV charging stations, the GridSavvy program resulted in the shipment of nearly 2,500 EV charging stations to SCP customers as of June 2019. Rather than incentivizing specific smart devices, East Bay Community Energy’s (EBCE) DR pilot developed an optional rate available to commercial customers that offers an opportunity to receive a payout in exchange for responding to price signals. Similarly, the Clean Power Alliance (CPA) recently rolled out the CPA Power Response Program, which offers bill credits to commercial, industrial, and municipal customers who connect smart thermostats and battery storage systems to a management provider based on a minimum capacity commitment and participation in DR events. 

Lessons learned from these early programs and pilots help unlock innovation and demonstrate the value of CCA DR programs, but these lessons will need to be paired with widespread implementation to fully realize the climate and cost savings benefits of DR. If history is any indicator, once the first CCA tests the CPUC rules around offering a DR program similar to an IOU program, other CCAs will likely follow and build upon that experience. The question remains – who will be first to forge a path so that others may follow?

 

[1] California Public Utilities Commission Energy Division Letter Approving Southern California Edison Company’s (SCE) Advice Letters (AL) 3773-E and 3773-E-A, December 14, 2018, available at https://library.sce.com/content/dam/sce-doclib/public/regulatory/filings/approved/electric/ELECTRIC_3773-E-A.pdf

Stephen Gunther

Distributed Energy Resources Policy Manager

Stephen engages at the regulatory and legislative level to inform policy on energy efficiency, demand response, building decarbonization, building codes and standards, and other demand-side programs. He serves as the subject matter expert on policy areas related to DER and supports the programs…

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