- 1 - BEFORE THE PUBLIC UTILITIES COMMISSION OF ... - BOMA SF

BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
Application of Pacific Gas and Electric Company
for Authority to Implement Default CPP Rate
Options For Large Customers
Application No. 05-01-016
(Filed January 20, 2005)
Southern California Edison Company’s (U 388-E)
Application for Approval of Rate Design Proposal
For Large Customers
Application No. 05-01-017
(Filed January 20, 2005)
Investigation on the Commission’s Own Motion
into the Rate, Operations, Practices, Service, and
Facilities of Southern California Edison Company
Application No. 05-01-018
(Filed January 20, 2005)
OPENING BRIEF
OF
THE BUILDING OWNERS AND MANAGERS ASSOCIATION
OF SAN FRANCISCO,
AND
THE BUILDING OWNERS AND MANAGERS ASSOCIATION
OF CALIFORNIA
March 14, 2005
Bill F. Roberts, Ph.D.
ECONOMIC SCIENCES CORPORATION
1516 LeRoy Avenue
Berkeley, CA 94708
(510) 841-6869
bill@econsci.com
For:
THE BUILDING OWNERS AND MANAGERS
ASSOCIATION OF SAN FRANCISCO AND,
THE BUILDING OWNERS AND MANAGERS
ASSOCIATION OF CALIFORNIA
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
Application of Pacific Gas and Electric Company
for Authority to Implement Default CPP Rate
Options For Large Customers
Application No. 05-01-016
(Filed January 20, 2005)
Southern California Edison Company’s (U 388-E)
Application for Approval of Rate Design Proposal
For Large Customers
Application No. 05-01-017
(Filed January 20, 2005)
Investigation on the Commission’s Own Motion
into the Rate, Operations, Practices, Service, and
Facilities of Southern California Edison Company
Application No. 05-01-018
(Filed January 20, 2005)
OPENING BRIEF
OF
THE BUILDING OWNERS AND MANAGERS ASSOCIATION
OF SAN FRANCISCO,
AND
THE BUILDING OWNERS AND MANAGERS ASSOCIATION
OF CALIFORNIA
In accordance with the procedural schedule established by the
Presiding Administrative Law Judge 1 , the Building Owners and Managers
Association of San Francisco (BOMA SF) and the Building Owners and
Managers Association of California (BOMA Cal) hereby respectfully submit their
conclusions, recommendations and supporting arguments regarding the
implementation of default Critical Peak Pricing (CPP) rates for large customers.
INTRODUCTION
This Proceeding was predicated on regulator concerns stated in ACR
02-06-001, “…that during the summer of 2005 there may be insufficient
1 Administrative Law Judge’s Ruling Setting Prehearing Conference and Addressing Procedural Issues
(February 1, 2005), page 4.
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generating capacity to meet system peak demand 2 ”. The ACR further
expressed concern that existing demand programs do not provide a rational way
to plan to serve an anticipated, ongoing supply shortage. The ACR ordered
Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San
Diego Gas and Electric (SDG&E) to file proposals for new default rate schedules
for all customers over 200KW demand that provide strong peak demand signals
while also preserving class revenue neutrality. The ACR further described the
overall goal of the required filing as follows: “Our goal in directing the filing of
applications for a new default rate structure is to provide sufficient economic
incentive to large customers to predictably and systematically move their usage
out of the critical peak period, and if they do not do so, have them pay an
increased rate for usage during that narrow set of hours”.
Responding to the ACR, the three utilities filed Critical Peak Pricing
Applications which included various combinations of critical peak period charges,
credits for usage during non critical peak periods, and hedging premiums for
customers wishing to opt out of the CPP program. The Office of Ratepayer
Advocates (ORA) also submitted a proposal for imposing CPP tariffs.
Responding to a request from the Presiding ALJ, the three utilities also provided
some analyses of the bill impacts of their proposals. ORA did not provide similar
information claiming lack of customer data on which to perform the analysis.
Testimony responding to these proposals has been filed in this Proceeding by
the California Independent System Operator (ISO) and 16 other Parties
2 Assigned Commissioner and Administrative Law Judge’s Ruling Directing the Filing of Rate Design
Proposals for Large Customers (December 8, 2004), page 1.
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epresenting various end use customers and customer associations. Consistent
with the record that has been established in this Proceeding, BOMA SF and
BOMA Cal offer the following conclusions and recommendations:
Conclusion 1- A Summer 2005 Capacity Shortage is Unlikely
Recommendations:
1A - Stay the course – develop voluntary demand response
programs
1B - Resolve regulatory issues that impede infrastructure
development
Conclusion 2 - CPP tariffs will not reduce summer 2005 peak demand
Recommendations:
2A - Expand and refine existing demand response programs
2B - Revise Rule 18
Conclusion 3 - CPP tariffs distort cost signals
Recommendations:
3A – Re-establish cost of service ratemaking principles
3B – Make non cost based rates voluntary
3C - Begin implementing market based real time pricing
Conclusion 4 - CPP tariffs discriminate against office buildings
Recommendation:
4 - Avoid policies that target end uses
Conclusion 5 – ACR 02-06-001 amplifies regulatory uncertainty
Recommendation:
5 – Return to fundamental cost of service rate policies
Explanations and supporting arguments for these conclusions and
recommendations are provided below.
CONCLUSIONS AND RECOMMENDATIONS
Conclusion 1- A Summer 2005 Capacity Shortage is Unlikely
The fundamental ACR 02-06-001motivating concern, that there may be
insufficient generating capacity to meet summer 2005 system peak demand, has
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not been corroborated in this proceeding. To the contrary, PG&E Witness
Alvarez testified that “Northern California reserves are expected to exceed
required operating reserve levels in summer 2005 and for several years after,
even under extreme hot weather conditions” (Exhibit 1, page 2-2). Neither SCE
nor SDG&E offered evidence of an impending summer 2005 capacity crisis for
Southern California. However, ISO Witness Perez, in arguing for continuation of
interruptible programs, testified that, “The CAISO shares the Commission’s
‘substantial interest’ that capacity margins in California will be tight for summer
2005” (Exhibit 215, page 3). In his Rebuttal Testimony, Witness Perez (with
regard to Southern California), made reference to a CEC presentation entitled
California’s Energy Situation: Summer 2005 (February 22, 2005) that he
suggested, “continued to find a potential deficiency of approximately 1966 MW’s
for September 2005”, (Exhibit 216, page 3). However, an examination of the
CEC presentation (slide # 7) reveals that the deficiency referenced by Mr. Perez
is a deficiency in maintaining the targeted 7% reserve margin, which is only
expected to occur under 1-in-10 hot summer conditions. In conclusion, the
record does not support the assumption of an impending capacity crisis for
summer 2005 that might rationalize such drastic emergency measures as the
imposition of hastily designed mandatory CPP tariffs.
Recommendations:
1A - Stay the Course - Develop Voluntary Demand Response
Programs
BOMA SF and BOMA Cal support PG&E’s preferred recommendation to
“stay the course” in summer 2005 with existing demand response programs
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(Exhibit 1, pages 1-1 through 1-11). The Commission should focus on
strengthening voluntary programs through enhanced (but cost effective) benefits
for participation.
1B – Resolve Regulatory Issues That Impede Infrastructure
Development
The fact that ACR 02-06-001 was issued on the expressed concern about
insufficient generating capacity is stark testimony to the fact that regulatory
uncertainty continues to impede needed investment in California’s generation
and transmission infrastructure, four years after the great California Energy
Crisis. Demand management can help reduce California’s need for expanded
infrastructure but it can not do it all. Investment in generation and transmission
will be necessary to support a growing California economy. Therefore, BOMA
SF and BOMA Cal strongly urge the Commission and the Legislature to
accelerate efforts in resolving remaining issues of energy policy and market
structure so that investment is encouraged, and unnecessary emergencies can
be avoided.
Conclusion 2 - CPP Tariffs Will Not Reduce Summer 2005 Peak Demand
While the goal of ACR 02-06-001 was the reduction of summer 2005 peak
demand, all but one CPP proposal was silent on declaring the level of 2005 peak
demand reductions that were expected from the proposed CPP tariff. Only
SDG&E offered an estimate (20-28 MW) and that estimate was not supported by
anything more than a statement that a consultant’s model (CRA) had been used
to estimate the potential demand reductions from the default CPP (Exhibit 9,
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page JM-6). While SDG&E did what they could to provide some estimate, it must
be recognized that there is virtually no relevant data sample available to provide
a basis for verifying the applicability of the CRA model to measuring the impact of
the SDG&E default CPP tariff. As a foundation for rational policy, this estimate
must be considered as little more than a shot in the dark.
SCE included a description of an after the fact econometric study to
estimate the impact of their CPP tariff but did not venture a forecast.
PG&E also did not offer any specific demand savings estimates. This fact
was acknowledged by PG&E Witness Bell in his cross-examination testimony. In
his response to a question by Ms Woo, Mr. Bell stated, “Several parties have
noted that PG&E has not provided a forecast of how much CPP response would
result from – if our proposal were adopted. I don’t know how many customers
would opt out. I don’t know how customers would respond, how those customers
that did not opt out would actually respond to the new prices” (Transcript ,
February 25, page 167). He then went on to speculate an upper bound of 100
MW savings based on multiple assumptions, but did not provide a forecast.
ORA also offered a CPP tariff proposal, but ORA did not provide any
estimates of the demand savings that their proposal might achieve. In fact, ORA
Witnesses Ross and Liang-Uejio, under cross examination from Mr. McCrea,
revealed that the ORA proposal was not designed to meet demand reduction
objectives but was designed to send an efficient price signal (Transcript,
February 25, pages 96-100).
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While the record shows no credible estimates of summer 2005 peak
demand savings that might result from the imposition of mandatory CPP tariffs,
the record is replete with testimony from various end users and end user
associations that explain why the customers that they represent could not
significantly adjust their summer 2005 demand (BOMA, CLECA, CMTA, EPUC,
BART, Walmart, J.C. Penny, Costco, CLFP, WPTF, ICP, CCEA, CIPA /COPE
and CFBF). The primary reasons given were, first that end users have already
made investments, adopted efficient energy practices, and have few remaining
options for reducing demand. And, second, it takes too long to develop
investment justifications, get budget approval, and accomplish physical
implementation for additional demand savings to be realized by summer 2005.
In summary, the logical conclusion to reach from this record is that the imposition
of CPP tariffs will not be useful in pursuing the ACR 02-06-001 goal of reducing
summer 2005 peak demand.
Recommendations:
2A - Expand and Refine Existing Demand Response Programs
The Commission should preserve, refine and expand existing interruptible
and other demand response programs as proposed by PG&E in its stay the
course recommendation. The Commission should also make an aggressive
effort to identify smaller office buildings that have not yet adopted efficient energy
practices and tailor technical support, rebates and financing plans to encourage
greater energy efficiency.
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2B - Revise Rule 18
CPUC Rule 18 currently prevents commercial building owners from sub
metering tenant electricity usage and billing tenants in accordance with
measured usage. As was mentioned in BOMA SF’s Opening Testimony (Exhibit
210, page 8), this Rule shields tenants from TOU price signals and hampers the
realization of the energy efficiency benefits that such signals can be expected to
produce. Modification of Rule 18 may be one of the simplest and cost effective
ways of obtaining additional energy efficiency savings. This issue is being
considered in Proceeding 04-08-038.
Conclusion 3 - CPP Tariffs Distort Cost Signals
CPP tariffs further distort the cost signals in TOU electricity prices. The current
TOU rate schedules were thrown out of alignment with cost of service in 2001
when most of the energy crisis costs were piled onto the commercial and
industrial rate classes, and most heavily on the summer peak periods, without
any attempt at cost of service justification. This was explained by PG&E Witness
Bell during cross examination by Ms. Hasbrouck as follows:
“Our on-peak rates for the Schedule E-19 and E-20 customers were nearly doubled in 2001 by
the surcharges that were applied then and were applied in a proceeding that was conducted
under a very short time line, rather like this one, and there was no cost basis to how those
were added into the rates. We're trying to work them down over time. But, as a result, if you
look at the rates that applied to on-peak service now, I don't think that you can say anything about
them being cost-based. They are tariffs that were originally set before the rate freeze back in our
1996 general rate case and were held fixed for a period of five or six years, and then we had what
was referred to as the 3-cent rate increase adopted in 2001 that was actually more like 4, 4-1/2
cents for these customers, and it wasn't applied on an equal-cents-per-kilowatt-hour basis, it was
heavily tilted towards the on-peak period, and there wasn't a cost basis for how it was tilted
toward the on-peak period. There was some hope that it would create a new price signal for the
summer of 2001, but people were working around the clock to try and make the new rates work
across Edison and PG&E -- I don't think that San Diego was part of that case, but it was really a
case very similar to this one, and I think we created a lot of unintended consequences; and I
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don't think that our current on-peak rates have any relationship to costs right now”
(Transcript, February 25, page 174)(emphasis added)..
Now the CPP rates add additional charges on those schedules and peak rate
periods, again without cost of service justification. While the utilities have tried to
quickly design ACR 02-06-001 mandated tariffs there has been very little attempt
to justify these tariffs as being cost based. ORA registered attempts at arguing
that their CPP price signals are cost based while ignoring the current
misalignment of commercial and industrial rates from cost of service. In
conclusion, current commercial and industrial rates are not cost justified and
possess neither the properties of efficient price signals nor of equitable service
cost allocation factors.
Recommendations:
3A – Re-establish Cost of Service Ratemaking Principles
The implications of electricity price distortions from true cost of service are
both inequitable assignment of costs across customers and inefficient
consumption of electricity. Both of these implications also imply drags on the
productive operation and growth of the California economy. The CPUC is
arguably the most significant economic policy entity in the state, and it is
important for economic recovery that the CPUC move immediately to re-establish
cost of service ratemaking principles and correct the damage caused by past
policy decisions. BOMA SF and BOMA Cal urge the CPUC to seriously consider
the many pleas for a cost of service basis in electric rates that have emerged in
this Proceeding.
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3B – Make Non-Cost Based Rates Voluntary
Cost of service principles have been the foundation for electricity
regulation in the United States for many decades, so much so that non cost
based rates are not generally accepted by ratepayers as legitimate. That has
certainly been born out in this Proceeding. The overwhelming majority of Parties
have questioned, or made references to, the cost of service basis of CPP rates.
While a cost of service basis is essential for default rates, there may be
legitimate reasons to provide optional rates that are designed to promote
administrative objectives that are not consistent with service costs. Such rates
should only be offered to ratepayers as voluntary options. This includes any
version of CPP rates that the Commission may wish to retain.
3C - Begin Implementing Market Based Real Time Pricing
BOMA SF and BOMA Cal urge the Commission to transform its interest in
dynamic pricing into the design and implementation of market based real time
electricity pricing for all bundled utility customers. We believe that modern
metering and communications technologies make universal real time electricity
pricing both feasible and in the public interest. In contrast to CPP (which is not
cost based, is discriminatory, and distorts efficient prices), market based real
time pricing provides a true cost foundation for electricity pricing and the most
equitable means of allocating electricity commodity costs across all utility
customers. Market based real time pricing also provides the most efficient price
signals for guiding energy consumption decisions and for evaluating public
efficiency and demand management programs.
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With the ISO’s new market implementation on the horizon, It is time to
begin taking retail electricity commodity pricing out of the contentious and
politically charged hearing room, and allow prices to be resolved by the impartial
wholesale markets. It is our view that every utility customer should have the right
to receive timely information about the costs of the power that he or she is
consuming and to manage their power costs as they choose. Today, the
provision of such information should be as much a part of the electric system
infrastructure as are hookups and meters. Armed with timely, accurate
information, consumer’s independent decisions will yield an efficient, demand
responsive electricity market to the joint benefit of all consumers.
Conclusion 4 - CPP Tariffs Discriminate Against Office Buildings
The penalty/credit structure of CPP tariffs has been designed to
discriminate against the end uses of commercial office buildings on unsupported
assumptions about the discretionary nature of air conditioning and lighting load,
and about the impact of peaky daily load shapes on peak demand growth.
Numerous references in the testimony of the parties, hearing transcripts, and
even the ACR, appear to assign blame for California’s peak demand growth on
consumers with peaky daily load shapes that are the result of their discretionary
air conditioning and lighting end uses (particularly commercial office buildings).
For example, the ACR states the following: “Customers between 200 and 500
KW may have more air conditioning load, and their class load profiles generally
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align more closely with the system peak than the largest customers, so they may
have more load capable of shifting off the critical peak” (ACR, page 4).
In his cross examination by Mr. Yates, PG&E Witness Mayers explicitly
mentioned targeting office buildings as follows: “What we try to do is we tried to,
as best we could, minimize the impact on customers taking into effect the
processing and manufacturing. In fact, we -- we followed the suggestion in the
ACR which suggested that between 200 and 500 kW generally air-conditioning
load is more prevalent and more discretionally -- discretionary load is available
for those customers, and that's on a general matter there's nothing in those rates
to differentiate a manufacturing customer from, say, a -- an office building, for
instance “(Transcript, February 25, page 140).
Using these same unsupported assumptions about air conditioning and
load shapes, representatives of industrial, agricultural and other energy users
have attempted to deflect the application of CPP from their constituents by
arguing that the flat or inverted daily load shapes of their constituents do not
contribute to peak demand.
BOMA SF and BOMA Cal believe that the basic assumptions that lead to
this discriminatory targeting of commercial office building end uses are false, and
the CPP rate design that derives from those assumptions is both misguided and
harmful to California business. First, air conditioning and lighting loads in
commercial buildings are not discretionary. This point was made in BOMA’s
Rebuttal Testimony as follows: “While often referred to as discretionary comfort
and convenience services, air conditioning and lighting in commercial buildings
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are actually critical components of the services that buildings provide to support
the business operations of their tenants. For both practical business productivity
reasons and contractual reasons, these services must be provided within very
narrow tolerances of temperature and lighting levels” (Exhibit 211, page 5).
While it may be true, that some air conditioning loads for some customers
are discretionary and incentive programs might be effective in reducing such
usage. However, it is simply bad policy to use a broad brush assumption that all
air conditioning and lighting load is discretionary and set tariffs to punish those
customers who do can not or will not reduce those end use loads.
The second false assumption that appears to drive the discriminatory
CPP rate design is that peaky load shapes are the cause of the growth of
California’s system peak demand. The fact is that the shape of daily load
curves is irrelevant to peak demand growth. California’s peak demand
problem is one of year to year demand growth so the only aspect of a customer’s
load that is relevant to peak demand growth is the annual change in customer’s
load that is coincident with the system annual peak. To examine this issue,
assume that three utility customers (A, B, & C), each have demand of exactly 1
MW at the time of the annual system peak (say 4:00 P.M. on August 20).
Suppose also that Customer A has a peaked daily load shape that hits its peak at
4:00 P.M., Customer B has a perfectly flat daily load curve that is always exactly
1MW, and Customer C has an inverted daily load curve that reaches its minimum
of 1 MW at 4:00 P.M. Each of the three customers account for exactly the same
demand at the system peak and impose the same costs on the system.
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Whatever happens to the load levels of the three customers on either side of the
peak is of no significance to peak demand or the system costs at peak demand.
Thus, the only portion of the daily load shape is relevant to system peak demand
and cost is the quantity of demand on the load curve that is coincident with the
system peak. Furthermore, it is only the year to year growth of the single point on
the daily load curve that is coincident with the next annual peak that is relevant
for assigning responsibility for peak demand growth and cost. The year to year
growth may be more likely to come from the customers with the flat or inverted
daily load curves (from sales growth and expanded operations) than from a full
occupancy commercial office building that has the same peaky load every
business day of the year. A detailed discussion of the peaky but stable load
curves of efficient office buildings was presented in BOMA SF’s Opening
Testimony (Exhibit 210, pages 4-6). This said, there may be some office
buildings that have not adopted best energy management practices such that
their buildings show substantial seasonal variations in load that could be modified
over time, given adequate investment. However, focusing punitive behavior
modifying tariffs on all commercial buildings on the false assumption that peaky
daily load shapes are the cause of system peak demand growth distracts the
Commission from discovering the true nature of the problem and devising more
effective policies.
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Recommendation:
4 – Avoid Policies That Target End-Uses
It is not the role of the Commission to decide what end uses should consume
electricity and which should not. It is the role of the Commission to set just and
reasonable rates that consumers factor into their own choices as to how much
electricity that they will consume. Devising rate policy that discriminates for or
against any end use is a slippery slope that does not have a positive outcome
and should be avoided by the Commission.
Conclusion 5 – ACR 02-06-001 Amplifies Regulatory Uncertainty
The intent of the ACR is widely interpreted, at least by commercial building
owners, as one of designing punitive rates to force consumers to modify their
behavior in a manner that suits administrative goals. Both the stated goal of the
ACR and the CPP tariff structures that the utilities have developed in response to
the ACR lend support to that interpretation.
The ACR also rekindles fears of another capacity shortage four years after
the energy crisis, and puts focus on the failures of California policy makers to
resolve the policy issues that continue to hinder the development of an
infrastructure that would provide adequate capacity. For both of the above
reasons, the ACR has significantly increased business uncertainty about the
productivity, rationality, fairness, and stability of CPUC. This increased
uncertainty will undoubtedly have a dampening impact on business investment in
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California at a time when the economy is struggling to pull out of the worst
recession in decades.
Recommendation:
5 – Return to Fundamental Cost of Service Rate Policies
The best outcome of this Proceeding is for the Commission to reject all of
the CPP Applications, to reaffirm a commitment to cost of service ratemaking
principles, and to begin the development of plans for the implementation of
universal market based real time pricing.
BOMA San Francisco and BOMA California appreciate the opportunity
to provide this input to the Commission.
Respectfully submitted,
Bill F. Roberts
President
Economic Sciences Corporation
1516 LeRoy Avenue
Berkeley, CA 94708
(510) 841-6869
bill@econsci.com
for:
The Building Owners and Managers Association of San Francisco and,
The Building Owners and Managers Association of San Francisco
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CERTIFICATE OF SERVICE
I hereby certify that I have this day served a copy of the Opening Brief of
the Building Owners and Managers Association of San Francisco and the
Building Owners and Managers of California on all known parties of record in
this proceeding by delivering four copies and one original to the CPUC’s San
Francisco Docket Office and via email to all parties on the service list.
Executed on March 14, 2005 at Berkeley, California.
___________________
Valborg T. Roberts
Economic Sciences Corporation
1516 LeRoy Avenue
Berkeley, CA 94708
(510)841-6869
vali@econsci.net
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