Dynamic Pricing Proposals of Southern California Edison Company in Compliance with D

Transcription

1 Application No.: Exhibit No.: Witnesses: A.-0- SCE-01 Russ Garwacki Robert Thomas Lisa Vellanoweth (U -E) Dynamic Pricing Proposals of Southern California Edison Company in Compliance with D Before the Public Utilities Commission of the State of California Rosemead, California September 1, 0

2 Table Of Contents Section Page Witness I. DYNAMIC PRICING OVERVIEW AND POLICY...1 R. Garwacki A. Background...1 B. SCE s Dynamic Pricing Proposals... C. Common Design Features of New CPP Program Limits on Customer s Exposure To CPP Rates.... Occurrence and Duration of CPP Events... D. Dynamic Pricing Proposals By Rate Groups Commercial and Industrial Customers.... Agricultural and Pumping Customers.... Residential Customers... E. Customer Transition Issues Customer Education and Outreach...1. Energy Management and Rate Analysis Tools...1. The Transition Process...1 F. Proposal To Defer Implementation of New Default and Optional Dynamic Pricing and Mandatory TOU Rates...1 G. Revenue Requirements Issues Interim Rate Changes due to Revenue Requirement Changes...1. Revenue Allocation Changes as a Result of this Application...1. Cost Recovery...1 II. DYNAMIC PRICING RATE PROPOSALS...0 R. Thomas A. Dynamic Pricing Rate Design Principles i-

3 Table Of Contents (Continued) Section Page Witness B. Common CPP Design Features CPP Event Period Energy Charges and Credits...1. CPP Event Frequency.... CPP Event Period and Triggers.... CPP Capacity Reservation Options... a) Customers with Maximum Demands Equal to or Greater Than 00 kw... b) Customers with Maximum Demands Less Than 00 kw.... Final Line Transformation Costs... C. Proposed Mandatory TOU Rates Mandatory TOU Rates For Commercial and Industrial Customers With Maximum Demand of Less Than 00 kw...0. Proposed Mandatory TOU Rates For Agricultural and Pumping Customers... D. Proposed Rates For Residential Customers... E. Real Time Pricing Introduction.... MRTU Pricing Does Not Include Capacity.... RTP Rate Proposal... III. TRANSITION PROCESS AND BILL PROTECTION...1 L. Vellanoweth A. Overview...1 B. Transition Rules Residential Customers.... Commercial and Industrial Customers... -ii-

4 Table Of Contents (Continued) Section Page Witness a) Opt-Out Process For Default CPP-Lite/TOU Customers... b) Capacity Reservation Level Process For Customers With Demands Greater Than 00 kw.... Agricultural and Pumping Customers... C. Customers Not Subject To Default CPP/TOU... D. Customers That Are Ineligible For CPP/TOU... E. Bill Protection... Appendix A Present and Proposed Rates Appendix B Example Of Subtransmission Level RTP Hourly Prices Based On 1 Months of MRTU Market Data Through June 0 Appendix C Analysis Of Bill Impacts Appendix D Witness Qualifications -iii-

5 I. DYNAMIC PRICING OVERVIEW AND POLICY A. Background In compliance with Decision (D.) 0-0-0, this application requests approval of Southern California Edison Company s (SCE s) proposals to implement additional default or optional dynamic pricing rates and mandatory time-of-use (TOU) rates for certain non-residential and residential customers, which the Commission ordered to be effective January 1, It minimizes changes to the methods adopted in D to determine marginal costs, the allocation of SCE s authorized revenues among different rate groups, and the basic design of the dynamic pricing rates that were approved in that decision. The most significant aspect of this application is the extension of default dynamic pricing rates and mandatory TOU rates to large numbers of non-residential customers whose default or mandatory rates up until now have not been differentiated by the time period when electricity is used. The Commission provided rate design guidance relevant to this application in Attachment H to D.0-0-0, which replicated the guidance provided previously in D As discussed in this testimony, for a customer to be placed on a default dynamic pricing rate or a mandatory TOU rate, the customer (1) must have an advanced meter capable of providing and recording hourly usage, and () must have had access to at least 1 months of such interval data prior to being served on a default dynamic pricing rate or a mandatory TOU rate. For purposes of this testimony, these two criteria will 1 D was issued in Phase of SCE s 00 General Rate Case, which is the triennial proceeding in which the Commission adopts rates based on revised marginal costs and allocation of SCE s authorized revenues to each of SCE s rate groups. In this testimony, it will be referred to as SCE s 00 GRC Phase. Changes to the underlying rate design should normally be considered in SCE s 01 GRC Phase application. However, in this application, SCE allocated costs associated with final line transformers to distribution capacity costs instead of customer costs, as was the case in SCE s 00 GRC Phase. In addition, as discussed in Sections I.D., and in Chapter II., to better align the proposed dynamic pricing rates for agricultural and pumping customers with the Commission s guidance, SCE has reconfigured the four existing agricultural and pumping rate groups into two rate groups one for customers with maximum demands greater than 00 kw and the other group for customers with maximum demands of less than 00 kw. The proposed optional dynamic pricing rates also require an advanced meter but do not require access to 1 months usage data because the customer voluntarily chooses the optional rate. In addition, the customer must receive generation (Continued) -1-

6 be referred to as the Eligibility Criteria. A dynamic pricing rate means either a rate schedule where (1) rates or charges vary by TOU periods during the day and by season with a much higher-priced energy charge that applies to some or all of the customer s energy usage during a critical peak pricing (CPP) event period, and a credit is provided to usage outside critical peak periods; or () rates vary by hour and are correlated in some manner to electricity market prices, which is known as a real-timepricing (RTP). A default rate schedule for a rate group means that each customer in the rate group who meets the Eligibility Criteria is transferred to the default rate schedule unless the customer affirmatively chooses to opt-out from the default schedule. When there is a mandatory rate schedule, all customers meeting the Eligibility Criteria must be placed on the adopted mandatory rate schedule unless they receive service on an allowable alternative dynamic pricing schedule or they are ineligible for other reasons. In accordance with D.0-0-0, beginning January 1, 01, each customer who has met the Eligibility Criteria would begin the process of being placed on the adopted default dynamic pricing rate applicable to the customer s rate group unless the customer elects to opt out from the default dynamic pricing schedule to a mandatory TOU schedule. However, as discussed below in Section I.F., while SCE is preparing to begin this process and implement these rate changes on January 1, 01, SCE proposes to defer implementation of the new dynamic pricing rates until October 1, 01. Ordering Paragraph 1 of D specified that the following dynamic pricing rates should be considered in this application: For residential customers, optional CPP rates that operate in conjunction with TOU rates, i.e., CPP/TOU rates. Continued from the previous page service from SCE, i.e. direct access (DA) and community choice aggregation (CCA) customers are ineligible for service on these rates. Ordering Paragraph 1 in D further directs SCE to propose default CPP/TOU for residential customers if the AB 1X rate protections have been removed or materially changed to allow default or mandatory time-variant rates. This is discussed in Section I.D., below. --

7 For commercial and industrial customers with maximum demand below 00 kilowatts (kw), one or more default CPP /TOU rate schedules. Such customers may opt out of a default CPP/TOU rate, but shall be required to take service on a rate schedule with TOU rate components. For agricultural customers with maximum demand below 00 kw, mandatory TOU rates, with optional CPP/TOU rates. For agricultural customers with demand equal to or greater than 00 kw, one or more default CPP/TOU rates. Such customers may opt out of the default CPP/TOU rate but will be required to take service on a rate schedule with mandatory TOU rate components. For all customer classes, optional real time pricing (RTP) rates. While the Commission has previously approved a number of dynamic pricing rates as options for all customers, only relatively small numbers of SCE s customers have been required to take service on TOU rates. SCE s commercial and industrial customers with maximum loads in excess of 00 kw have been required to take service on TOU rates since the early 10s. The demand threshold requiring service on a TOU rate was reduced to 00 kw in 00. In D.0-0-0, for the first time, the Commission approved default CPP/TOU rates in conjunction with mandatory TOU rates for SCE s commercial and industrial customers with loads equal to or greater than 00 kw, effective October 1, 00. These default options provide bill protection for one year, allow customers to opt out to a mandatory TOU rate, and have been in effect for less than one year. SCE s proposals in this application would extend default CPP/TOU pricing to large numbers of customers comprised of (1) nearly 00,000 commercial and industrial customer accounts with maximum loads less than 00 kw; and () approximately 1,00 agricultural and pumping customer accounts with Currently, approximately 1,000 of SCE s. million customers are on a mandatory TOU rate. See Advice -E, approved December, 00. This total is comprised of approximately 0,000 customers whose demands are less than 0 kw and are served on the GS-1 schedule which has a customer charge and an energy charge which is differentiated by summer and winter seasons, and,000 customers served on the GS- rate schedule, which contains energy and seasonally (non-time) differentiated demand components for demands up to 00 kw. --

8 loads equal to or greater than 00 kw. The proposals also make TOU pricing mandatory for all nonresidential customers. These rate changes will be significant for large numbers of customers who have not been served on rates that vary by TOU periods. As required by D.0-0-0, no customer will be defaulted to a CPP/TOU rate or transferred to a mandatory TOU rate until the customer has met the Eligibility Criteria. Customers who have met the Eligibility Criteria by January 01 would begin the defaulting or mandatory transfer process in January 01. However, because SCE will be installing advanced meters through 01, customers who first receive their advanced meters in 0 or 01 would not begin this process until 1 months later in 01 or 01, respectively. In addition, CPP/TOU customers will be provided one year of bill protection relative to their otherwise applicable tariff, which in these cases would be the new mandatory TOU rate without the CPP rate components. As recognized in D.0-0-0, three components of the rate design guidance first specified in D are subject to additional review in this proceeding: (1) the timing of CPP events; () the requirement that CPP rates not have summer generation demand charges; and () the timing for implementation of new RTP options based on experience with Market Redesign and Technology Update (MRTU). Item (1) is discussed in Section I.C., which explains why SCE proposes to retain its current four-hour CPP event period but to extend CPP events outside the summer season. Item () is discussed in Chapter II, Section II.B, which explains why SCE proposes to retain some small amount of cost recovery in CPP summer generation demand charges. As explained in Chapter II, Section II.F., due to the lack of sufficient price movements in the wholesale energy markets related to the apparent lack of generating capacity valuation present in the MRTU prices, SCE s RTP rates should not be indexed to the wholesale market but instead should be based on SCE s existing RTP- rate structure. In addition, it is premature to offer optional RTP to residential customers effective January 1, 01. The same bill protection principle applies to CPP-Lite/TOU rates discussed in Section I.C.1. D.0-0-0, p.. --

9 SCE s testimony is organized into three chapters. Chapter I is an overview of SCE s dynamic pricing rate proposals and its plans for customer outreach and education. Chapter II discusses SCE s dynamic pricing proposals in greater detail while Chapter III addresses customer eligibility requirements, the process of transferring customers to optional or mandatory rates, and bill protection for customers taking service on dynamic pricing rates. B. SCE s Dynamic Pricing Proposals As described in Commission decisions and in SCE s testimony in SCE s 00 GRC Phase, TOU pricing provides more accurate pricing signals than flat, energy-only or seasonal energy rate designs. Time-differentiated energy rates provide price signals to customers that are better correlated to energy costs, which vary as least-cost resources are supplemented by less efficient, more expensive resources as system loads increase. Generation capacity costs are also allocated to TOU periods and are typically recovered via time-differentiated demand charges. While SCE s basic TOU rate structures aggregate these energy and capacity costs into five TOU periods (on-peak, mid-peak, and off-peak periods during the summer; and mid-peak and off-peak periods in the winter), dynamic pricing designs further refine this pricing concept for the highest peak period costs by recovering a portion of these high generation costs (generally associated with capacity costs that are recovered via demand charges) in energy charges applied to usage during the very highest, critical peak periods. C. Common Design Features of New CPP Program 1. Limits on Customer s Exposure To CPP Rates Many of the large number of nonresidential customers affected by the proposed dynamic pricing rates are unfamiliar with time-variant rates or the purpose of critical peak pricing. The vast majority of these customers currently take service on non-time differentiated rates. Time-of-use and CPP rates are new concepts for these customers and it will take time and considerable education for customers to understand and accept these new rates. One means of facilitating customer acceptance is to mitigate bill impacts by designating a portion of the customer s usage that will not be subject to the See SCE s Marginal Cost and Rate Design Exhibits in SCE s 00 GRC Phase. --

10 high-priced CPP event charge overlay. The Commission expressed this concern in its CPP rate design guidance and recommended the use of a capacity reservation charge, or similar feature that would allow a customer to pay a fixed charge for a predetermined amount of its load and pay the dynamic price for consumption in excess of the reserved capacity. SCE proposes to achieve this goal in different ways for different rate groups. For customers with demands of 00 kw or more who are presently subject to default CPP/TOU as ordered by D.0-0-0, SCE is proposing a new capacity reservation level (CRL) option. To use this option, the customer would select a CRL stated in kilowatts. The reserved capacity level would remain only subject to the customer s otherwise applicable TOU tariff. Usage above the CRL would be billed on the CPP/TOU tariff. These larger customers comprise a relatively small percentage of SCE s customers and are generally more sophisticated business operations that are familiar with risk management techniques. Thus, a capacity reservation option is appropriate for these customers. For commercial and industrial customers with loads less than 00 kw, however, there are obstacles to offering a practical and cost-effective capacity reservation option. Unlike SCE s larger customers, the majority of these customers particularly the 0,000 GS-1 customers with demands of less than 0 kw are generally not familiar with terms like demand, capacity, or the difference between kilowatts and kilowatt-hours. Offering a full range capacity reservation option would add complexity to the default CPP/TOU rate and the concept would be another challenge for such customers to overcome. The large number of accounts in the GS-1 and GS- customer segments also makes capacity reservation a costlier option to administer. Consequently, SCE proposes to introduce default CPP/TOU pricing to these customers through an alternative in which CPP event energy rates and capacity credits applied outside of the CPP event periods are set at approximately 0 percent of the full marginal capacity cost levels that are currently in effect and that apply to customers with demands greater than 00 kw. This default structure is called CPP-Lite/TOU in this testimony. 1 Customers D.0-0-0, Attachment A, p. 1; D.0-0-0, Attachment H. 1 SCE expects to develop a change to the CPP-Lite/TOU nomenclature used in this testimony when SCE begins developing communications materials and marketing and outreach to customers. --

11 whose demands are less than 00 kw will also have the option of being served on a CPP/TOU rate at the full marginal capacity cost values with bill protection relative to the otherwise applicable TOU rate.. Occurrence and Duration of CPP Events The Commission s CPP rate design guidance recommends calling CPP events throughout the calendar year. In D.0-0-0, the Commission noted that customers preferred shorter CPP periods under the premise that they would be more accepting of CPP rates in general and provide greater levels of demand response if CPP event periods were as short as possible. 1 D approved settlement agreements which specified that CPP events would be limited to summer weekdays during the hours of :00 p.m. to :00 p.m. and would range from a minimum of nine to a maximum of fifteen CPP events during the summer period. SCE began defaulting customers with maximum demands greater than 00 kw to critical peak pricing rates effective October 1, 00 and used this same -hour CPP event period for all optional CPP rate schedules. SCE now proposes to revise its current CPP program to follow the guidance adopted in D and D.0-0-0, which provides the ability to call CPP events throughout the calendar year. While SCE s current CPP program limits CPP events to the summer season (June through September), allowing CPP events to be called any non-holiday weekday year-round will increase the demand response value of SCE s CPP program. With respect to the CPP event period, SCE notes that a recent decision, D.-0-0, in the resource adequacy rulemaking proceeding, R.0--0, suggests that demand response programs that do not span the period from 1:00 p.m. to :00 p.m. during the summer season (along with specific winter season designations that do not align with SCE s tariff definition of winter), may not count toward resource adequacy requirements. While D.-0-0 provides an exception for rate structures in place prior to 01, it appears that D.-0-0 could require that SCE s CPP periods either be expanded or run the risk of either not being counted or being de-rated in terms of resource value based on the partial non-alignment of SCE s CPP event period with its own resource adequacy counting 1 See D.0-0-0, at page. --

12 periods. SCE considered expanding its CPP event period to completely align with the entire summer TOU on-peak period from 1:00 p.m. to :00 p.m. However, SCE concluded that the negative customer impacts associated with changing the current CPP event period after a significant portion of customer load has already transferred to CPP rates warranted leaving the CPP event period unchanged. It is unclear whether this minor difference in CPP event periods is significant. D. Dynamic Pricing Proposals By Rate Groups 1. Commercial and Industrial Customers Although this application is directed primarily at customers whose maximum demands are less than 00 kw, in order to enhance customer understanding and consistency, SCE proposes to apply the new CPP program criteria to the commercial and industrial customers with demands of 00 kw or greater who are now served on CPP/TOU in the TOU- and the TOU-GS- rate groups. Thus, all commercial and industrial customers served on CPP/TOU rate schedules will be subject to 1 CPP events, which may occur on non-holiday weekdays throughout the year, instead of a variable number of events ranging from nine to fifteen occurring only in the summer. The full CPP event energy charge will remain at its current level of roughly $1. per kwh and the CPP event period will remain from :00 p.m. to :00 p.m., with the CPP credits provided as demand charge offsets during the summer season. As explained in Section I.C.1, above, customers with demands greater than 00 kw will only have the option to designate a fixed kw CRL. Two CPP rate options (CPP-Lite and the full CPP/TOU rate) will be available to customers with demands less than 00 kw. Consistent with the guidance provided in D.0-0-0, SCE proposes to make a lowerpriced CPP rate in conjunction with TOU rate components (i.e. CPP-Lite/TOU) the default rate schedule for commercial and industrial customers with maximum peak demands of less than 00 kw. For CPP-Lite/TOU, energy charges of approximately $0./kWh will apply when a CPP event period occurs. Customers who meet the Eligibility Criteria will be defaulted to CPP-Lite/TOU but such customers who choose to opt-out of the CPP-Lite/TOU rate schedule must be placed on a TOU rate schedule. SCE proposes two TOU rate schedules, Options A and B, for these commercial and industrial customers. Customers who remain on the default CPP-Lite/TOU rate will be provided one year of bill --

13 protection relative to the applicable TOU rate schedule. A customer who meets the Eligibility Criteria but chooses to transfer to a TOU rate schedule will not receive bill protection relative to the non-time differentiated rates that may have formerly applied to the customer. In addition to the reasons discussed in Section I.F., to further facilitate the transition to the new CPP/TOU program for customers already on the current CPP/TOU rate, SCE proposes to defer the implementation of the new CPP/TOU program until October 1, 01, instead of January 1, 01. At that time, SCE s rates will again be revised in Phase of SCE s 01 GRC. Deferring the implementation date from January 1, 01 to October 1, 01 will avoid making two program or rate changes in one year which would be burdensome for customers then enrolled in the CPP program. SCE s proposed rate structure for commercial and industrial customers is summarized as follows: All customers who have met the Eligibility Criteria will be subject to default CPP/TOU rates with bill protection. Customers with maximum demand of less than 00 kw who have met the Eligibility Criteria but choose to opt out of default CPP/TOU will be subject to mandatory TOU with no bill protection based on the customer s choice of one of two TOU rate schedules or RTP with no bill protection. Each customer on CPP/TOU with maximum demand greater than 00 kw may choose to reserve a portion of the customer s load specified in kw that will be exempt from the CPP overlay to the TOU rates. Customers with maximum demand less than 00 kw will be defaulted to the CPP-Lite/TOU rate and billed with the CPP rate components set at 0 percent of the design level, i.e., approximately $0. per kwh energy charge and a credit at 0 percent of the design level. Such customers may choose service on an optional CPP/TOU rate schedule, with the CPP rate components set at 0 percent of the design level with bill protection. --

14 Customers with advanced meters may choose service on an applicable RTP rate schedule. The Commission should defer the implementation of new default CPP/TOU, mandatory TOU, and optional RTP rates from January 1, 01 to October 1, 01.. Agricultural and Pumping Customers To align rate groups with the Commission s default CPP/TOU guidance, SCE is proposing to divide the four current agricultural and pumping rate groups into two new rate groups: customers with maximum demands below 00 kw, and customers with maximum demands equal to or greater than 00 kw. The two agricultural and pumping rate groups will have TOU rates designed based on costs to serve each group. SCE has used an average cost approach to allocate costs to each of the two new rate groups. However, creating two new rate groups from the existing rate groups will require more detailed cost studies for the two groups to more precisely allocate the revenues between the groups and derive forecasted billing determinants. While SCE is preparing to implement these changes effective January 1, 01, SCE proposes to defer the implementation of default dynamic pricing rates for agricultural and pumping customers until October 1, 01 so that its implementation would align with rates implemented as a result of SCE s 01 GRC Phase which is where SCE will present such more precise cost studies. Agricultural and pumping customers with maximum demands of more than 00 kw will default to a CPP/TOU rate schedule. Agricultural and pumping customers with maximum demands of less than 00 kw may choose optional CPP/TOU service at any time after an interval meter has been installed. Customers who do not choose the CPP/TOU rate must be served on a TOU rate schedule after an account has met the Eligibility Criteria. As contemplated in D.0-0-0, SCE will offer optional RTP rates to all eligible non-residential customers who have the appropriate metering in place. SCE s proposal for agricultural and pumping customers is summarized as follows: All customers with maximum demand greater than 00 kw will be subject to default CPP/TOU at full CPP rate levels with bill protection. --

15 Each customer who defaults to CPP/TOU with maximum demand greater than 00 kw may choose to reserve a portion of the customer s load specified in kw that will be exempt from the CPP overlay to the TOU rates. All customers not served on CPP/TOU must be served on a TOU or an RTP rate schedule with no bill protection. Customers with maximum demand of less than 00 kw may choose service on a CPP/TOU rate schedule with CPP components at the full design level with bill protection. Customers with advanced meters may choose service on an optional RTP rate schedule. The Commission should defer the implementation of new default CPP/TOU, mandatory TOU, and optional RTP rates from January 1, 01 to October 1, 01.. Residential Customers D directs SCE to offer optional CPP/TOU rates to residential customers. Ordering Paragraph 1 of D further specifies that SCE shall propose default CPP/TOU rates for residential customers if the Assembly Bill 1X (AB 1X) rate protections have been removed or have been materially changed to allow default or mandatory time-variant rates at the time SCE files this application. For the reasons discussed in SCE s application, SCE cannot implement default or mandatory time-variant rates for residential customers to be effective on January 1, 01. SCE will address default or mandatory time-variant rates for residential customers and related rate design issues in a future rate design proceeding or separate application. Moreover, SCE believes any default TOU/CPP rate structures for residential customers should not occur until 01 at the earliest. For the purposes of this application, SCE proposes to continue offering its default peak time rebate (PTR) program 1 and new optional CPP/TOU rates to residential customers as authorized by 1 PUC Section (a)() excludes PTR from its definition of time-variant pricing. Thus, a default PTR program is not prohibited at this time. --

16 D Unlike SCE s current optional CPP rate that applies standard, non-time-differentiated, tiered rates to usage outside of CPP event periods, SCE now proposes CPP rates with an underlying TOU rate. To encourage customer participation, SCE will continue to offer one year of bill protection to customers who opt in to the CPP/TOU rate. While SCE has developed optional RTP rates for all customer groups, RTP rates should not be offered to residential customers at this time. The vast majority of SCE s more than four million residential customer accounts will receive service on standard tiered rates that do not vary by time of use, day of use, or season. Only a very small percentage of residential customers have been introduced to the concept of time-variant pricing. Residential customers need to gain an understanding of other non-standard rates such as PTR, TOU, and CPP before being introduced to more advanced rates like RTP. SCE is also concerned about inundating customers with too many dynamic rate options as this would likely lead to confusion and dissatisfaction with the rates. SCE s proposal for residential customers is summarized as follows: Customers who have an advanced meter may choose service on an optional CPP/TOU rate schedule with bill protection relative to the standard residential rate schedule. Customers who have an advanced meter may choose an optional TOU rate schedule, without bill protection. E. Customer Transition Issues 1. Customer Education and Outreach SCE plans to conduct an extensive customer education and outreach campaign to ensure customers are prepared for the rate changes to be effective on January 1, 01. The campaign will target customers who are most impacted by the changes, i.e., the commercial customers with demands of less than 00 kw who will be transferred to a default CPP-Lite/TOU rate, and that subset of customers who subsequently opt out of the default CPP/TOU rate and transfer to a mandatory TOU rate schedule. Education and outreach efforts will introduce customers to mandatory TOU and default CPP rate concepts, explain how these rates work, and how customers can benefit from them. The key messages -1-

17 that will be communicated to customers include the fact that (1) available rate options will change; () the new rates are significantly different from existing rates, e.g., the rates vary by time of use and day of use; and () customers will need to manage their energy use to avoid high on-peak charges and to manage their energy costs under these rates. SCE expects it will take some time for customers to begin to understand the new rates, and that extensive communications will be required to facilitate this understanding. The customers affected by the January 1, 01 rate changes represent a broad range of businesses and industries located throughout SCE s service territory. At one end of the spectrum are the mass commercial segments mom and pop small businesses with limited experience with complex utility rates and limited resources for managing day-to-day energy use. Most of these 0,000 customer accounts currently take service on non-demand, non-tou rates and represent the majority of customers most impacted by the January 1, 01 rate changes. At the other end of the spectrum are the large agricultural and pumping customers, most of whom already take service on TOU rates. These customers have a more advanced understanding of utility rates and are generally familiar with concepts like time of use, peak period, and demand. As a result, these customers will likely require less education. With roughly 1,00 customers in this large agricultural and pumping rate group, however, the number of customers in this segment is relatively small. Finally, there are the approximately,000 medium-sized business accounts that fall somewhere in between these two extremes in terms of experience with complex utility rates. To address the needs of a diverse customer base, SCE plans to launch targeted, educational campaigns specific to each affected rate group that recognizes their current understanding of complex rates. SCE plans to reach customers through a mix of channels and media, and in multiple languages. Customer education and outreach efforts will include a series of pre- and post-implementation communications. Prior to the implementation of default dynamic pricing and mandatory TOU rates, SCE will communicate key information to customers primarily through bill onsert messages, educational video vignettes, direct mail, and outbound calls targeting customers most impacted by the rate changes. SCE also plans to hold events, classes, and conduct outreach events in partnership with -1-

18 key business leadership organizations. After implementation of the new rate structures, SCE plans a series of follow-up communications to confirm rate changes and remind customers what they need to do to get the most benefit from time variant rates. The communications will re-enforce key messages such as the importance of managing energy use during high cost periods (e.g., summer on-peak). A variety of communications media will be used for this purpose including: Enrollment postcards informing customers that they can be notified of CPP events via text, or phone; and bill onserts; Events, classes, and community outreach; and Reminders when bill protection will end. The education and outreach campaign will initially focus on customers who are subject to default CPP-Lite/TOU or mandatory TOU rates. For small business customers, SCE will provide frequent communications prior to the customer s scheduled rate transition date and then also provide reminder notifications before the beginning and throughout the first summer season. SCE s communications will demonstrate the benefits of the new rate options for customers and offer solutions to help customers best utilize the rates. To avoid confusion that could result from too many (seemingly duplicative) communications, SCE will integrate its dynamic pricing outreach efforts with existing business customer marketing efforts. SCE s plans and related request for recovery of customer education and outreach costs will be reviewed in the 01 General Rate Case application which SCE plans to file in November 0. In SCE s notice of intent for that application, SCE has requested $ million for customer education and outreach for the period from 01 to 01.. Energy Management and Rate Analysis Tools The new rate options proposed in this application are much more complex than the default rate options in place today. To assist customers in selecting a beneficial rate, SCE plans to enhance its website SCE.com to provide additional rate information, rate analysis capabilities, and energy management tools. With the launch of the redesigned SCE.com website, Edison SmartConnect- -1-

19 enabled customers will have access to more detailed energy usage information that can facilitate their understanding of usage patterns and help them manage their electricity costs. One of the enhancements SCE has planned for the website is a rate analysis tool to assist customers in evaluating various rate options based on their previous twelve months of usage patterns and historical peaks. The tool will perform the analysis based on historical usage to estimate for illustrative purposes what the customer s annual billing costs might be under other available rate plans. This will help customers who are defaulted to a CPP rate to decide whether to stay on the rate or opt out to a TOU rate. In addition to the rate analysis tool, SCE.com will offer enhanced versions of existing energy cost management tools and make these tools available to a broader population. The rate analysis and energy cost management tools will also be available to Call Center Representatives and account representatives for those customers who require assistance. These tools are described in SCE s 01 General Rate Case. In the notice of intent to file that application, SCE requested an estimated $. million for capital costs related to implementing these new dynamic pricing rates. This includes all system changes to enable billing of the new rates, automate the default process, add opt out and the capacity reservation option, develop reporting capabilities, integrate with other systems, enhance the system training environment, create the rate analysis tool, and enhance the energy cost management tools. Consistent with the requirements of D.0-0-0, SCE is preparing to implement the new dynamic pricing rates described in this application on January 1, 01. However, due to system and resource constraints, SCE will not be able to implement the rate analysis tool and enhanced energy cost management tools until the second half of 01.. The Transition Process Consistent with the guidance provided in D.0-0-0, customers who have met the Eligibility Criteria and are in the rate groups subject to default CPP/TOU rates will be defaulted to a CPP/TOU rate. 1 To commence the transfer process, SCE will: (1) notify the customer of the pending 1 The terms interval and advanced meter are used synonymously to refer to a meter capable of recording usage data in at least one hour increments. SCE s SmartConnect deployment strategy calls for non-residential customers to have 1- (Continued) -1-

20 change to CPP/TOU; () explain what rate options are available; and () explain what the customer must do if they choose not to take service on the CPP/TOU rate. Customers will have 0 days to opt out or they will be defaulted to a CPP/TOU rate. Consistent with the Commission s guidance and SCE s current practices, SCE will provide one year of bill protection to customers who are defaulted to the CPP/TOU rate. In order to promote the CPP/TOU rate, SCE also proposes to provide one year of bill protection to residential and small agricultural and pumping customers who choose service on the optional CPP/TOU rate. Additional details on SCE s proposed default and bill protection rules are provided in Chapter III. F. Proposal To Defer Implementation of New Default and Optional Dynamic Pricing and Mandatory TOU Rates While this application complies with the requirements of D to implement new dynamic rates beginning January 1, 01, SCE notes that there are good reasons to defer the implementation date to October 1, 01. First, SCE will be filing its application in Phase of SCE s 01 GRC in February 0, which will establish new marginal cost structures for rates to become effective October 1, 01. Aligning the implementation dates for these two applications would avoid a migration of several hundred thousand customers to dynamic pricing rate structures designed under one set of cost structures and rate group definitions in January 1, 01 only to potentially have them change significantly nine months later. In this application, SCE proposes a split in the existing Agricultural and Pumping customer class at 00 kw to align with the Commission s dynamic pricing guidance but, in order to do this, SCE has relied on certain rate and costing assumptions it would not make if the split was made concurrently with Phase of SCE s 01 GRC. 1 Continued from the previous page minute interval metering with residential customers having hourly interval metering. In general, once a SmartConnect meter is installed, it is cut-over to operation within months with interval data made available for viewing via SCE.COM at that time. It is 1 months after this cut-over period when SCE plans to begin the default process. 1 As an alternative, pending new cost studies, SCE proposes to at least defer any dynamic pricing rate migration for Agricultural and Pumping customers until October 01, corresponding to the 01 GRC Phase rate implementation. (Continued) -1-

21 Second, the on-line CPP/TOU rate comparison tools that customers will need to meaningfully assess their rate options are currently scheduled for a mid-01 deployment. While customers may meet the Eligibility Criteria for default CPP/TOU, the lack of on-line tools will limit customers ability to interpret this data and view bill impacts under these alternative rate structures, thus hindering their ability to make informed choices regarding dynamic rates. SCE may also incur more costs with an implementation date of January 1, 01 than for an October 1, 01 implementation date because SCE will need to field more customer inquiries through phone calls and manual efforts because the on-line, self-help resources will not be available on January 1, 01. Third, by combining this application with SCE s 01 GRC Phase, the Commission and parties would have one less case to manage over the next two years. Indeed, by concentrating efforts on a single (highly correlated) case, a better outcome is likely as resources would not be diluted. The final reason is also related to historical customer rate migration policy and effective communications. The rate case plan, D.-0-00, calls for an October 1 implementation date (every three years) in part to soften bill impacts which are generally more significant in the summer by implementing rate design and cost structure changes on the first day of the winter season, which is October 1. As stated above, by delaying the implementation of these new dynamic pricing rates to October 1, 01, virtually all customers will have met the Eligibility Criteria and would have migrated to the dynamic rate structures in time for the 01 summer season. Based on SCE s current SmartConnect meter deployment projections, only about one-third of our customers with demands less than 00 kw customers will be eligible for CPP/TOU rates by June 01, while nearly all customers will be eligible by June 01. This will make the transition communication more difficult as two separate transition messages will need to be managed. It would be more effective to communicate a Continued from the previous page In addition, SCE s allocation of costs associated with final line transformers as a component of distribution and not customer cost is typically considered in Phase of SCE s GRCs. -1-

22 single rate transition message to customers at the same time rather than separately over two summer seasons. While SCE presented some of these arguments in comments to an Assigned Commissioner s Ruling Commission in Phase of SCE s 00 GRC (and was supported by comments of DRA), D ordered a January 1, 01 implementation date. The concerns expressed by the Commission in D about deferring the implementation date have been addressed and, as discussed above, SCE believes there are real cost benefits and customer acceptance benefits to be achieved by this short delay. Thus, SCE now asks the Commission to defer implementation of the rates proposed in this application until October 1, 01. G. Revenue Requirements Issues 1. Interim Rate Changes due to Revenue Requirement Changes The rate proposals presented in this application are based on revenue requirements authorized as of September 1, 0. Any changes in distribution and generation revenue requirement between now and when the rates presented in this application are authorized shall be allocated according to the functional character of the revenue requirement change on a System Average Percent Change (SAPC) basis using the specific allocation methods adopted in D Revenue Allocation Changes as a Result of this Application SCE designed the dynamic rates in this application to be revenue neutral to each rate group under the assumption of no load response to the dynamic pricing signals. Any revenue deficiency or shifting of revenues due to actual response by customers will flow through the Energy Resource Recovery Account (ERRA) balancing account mechanism. This is a simplifying assumption that preserves the revenue allocation settlement provisions of D.0-0-0, and it is also a practical approach to implementing these changes. Consistent with D.0-0-0, bill protection revenues shall be allocated back to the responsible rate group. Thus, any revenue requirement shift between rate groups should be a function of net impact of each rate group s response to dynamic price signals. This net effect is presumed small for two reasons. First, the dynamic price signals only impact the generation capacity component of the -1-

23 1 1 1 customer bills. This generally represents less than 1 percent of a customer s total bill. By fixing the number of CPP events at 1, revenue imbalances as a result of deviation from design number of calls is eliminated. Second, the impacts of demand response that result in less revenue collection should also result in less cost. To the extent that this cost reduction stems from one rate group more than the other, a revenue reduction is warranted. The ERRA balancing account mechanism preserves this net cost reduction by recovering the net revenue differential from all customers.. Cost Recovery In this application, SCE does not request recovery of the incremental capital-related costs or operations and maintenance (O&M) costs it will incur to extend the availability of these dynamic rates to new customer groups. As discussed above, SCE will seek recovery of the costs related to the implementation of these proposals for the period from 01 to 01 in Phase 1 of SCE s 01 GRC Phase 1 application that it will file later this year and may include certain O&M costs in a future Demand Response application. This approach is consistent with the Commission s general directive to request recovery of these costs in a General Rate Case proceeding. 1 1 See discussion related to D.0-0-0, Ordering Paragraph 1, p. 0; and D.-0-0, Ordering Paragraph, p

24 II. DYNAMIC PRICING RATE PROPOSALS A. Dynamic Pricing Rate Design Principles SCE s dynamic pricing proposals are consistent with the rate design guidance set forth in Attachment H to D or are consistent with proposals that have been previously adopted by the Commission. The proposals follow established rate design principles that are generally reflected in the settlement agreements adopted in D Table II-1 lists the Commission s guidance for design of CPP/TOU rates and RTP rates. Table II-1 Commission Guidance for CPP/TOU and RTP Rate Structures Dynamic Pricing Guidance Established by D and D Rate design should promote efficient decision-making. To promote economically efficient decision-making, rates should be based on marginal cost. Other objectives, such as energy efficiency, and legal requirements, such as baseline allowances, should be addressed when designing specific rates, and any deviation from marginal cost should be minimized. Rates should also seek to provide stability, simplicity and customer choice. If customers on a particular rate reduce their usage in a manner that reduces a utility s costs then the customers on that rate should see a commensurate reduction in their bills. Dynamic pricing rates should include a capacity reservation charge, or a similar feature, that allows a customer to pay a fixed charge for a predetermined amount of its load and pay the dynamic price for consumption in excess of the reserved capacity. Customers should have the opportunity to opt out of a default dynamic pricing rate to another timevariant rate Utilities should offer optional bill protection to customers on default dynamic pricing rates The utilities should bid demand reductions due to dynamic pricing into the California Independent System Operator s (CAISO s) day-ahead market Critical Peak Pricing D.0-0-0/D CPP Event Price: The critical peak price should represent the marginal cost of capacity used to meet peak energy needs plus the marginal cost of energy during the critical peak period. D , Conclusion of Law. Summer Demand Charges: CPP rates should not have summer generation demand charges. 1 This guidance is identical to the guidance provided in Attachment A to D

25 D.0-0-0, Conclusion of Law 0. Over/Under Collections: If customers reduce their usage, then they should see a commensurate reduction in their bills. D.0-0-0, Conclusion of Law 1. Number of CPP Events and Timing: Utilities should be able to call a variable number of CPP events each year, and the rate should be designed based on the number of events that would be called during a typical year. CPP events should be called any day of the week, year round. D.0-0-0, Conclusion of Law. CPP and TOU. CPP should include a critical peak price during CPP events and TOU rates during non-critical periods. D.0-0-0, Conclusion of Law. Real-Time Pricing D.0-0-0/D The energy charge should be indexed to the CAISO s day-ahead hourly market prices At least initially, RTP should be based on day-ahead hourly market prices that have been aggregated across PG&E s service territory. As the market develops, locational prices should be considered. The Commission should determine the degree to which the marginal cost of capacity is not incorporated into the CAISO s day-ahead hourly market prices To the extent possible, SCE s proposals are intended to reflect and to not modify the principles reflected in the revenue allocation, marginal cost, and rate design settlement agreements approved by D However, SCE has modified the cost approach reflected in the settlements adopted by D in two areas: (1) where the costs associated with the final line transformer are reflected in rates for the rate groups addressed herein, and () by creating two new agricultural and pumping rate groups to replace the four existing agricultural and pumping rate groups. B. Common CPP Design Features This section discusses CPP design features common to all rate groups. 1. CPP Event Period Energy Charges and Credits CPP rates are intended to encourage customer load reductions by charging a significantly higher energy charge during CPP event periods. In exchange, a customer on a CPP rate is provided a credit applied to usage or demand during on-peak hours outside of the CPP event periods. SCE determined the proposed CPP event charges and credits using the Avoided Capacity Valuation (ACV) methodology which was reflected in the settlements approved by D The ACV 1 The Avoided Capacity Valuation Methodology was originally developed as part of the DR Cost-Effectiveness Proceeding (R ), to determine capacity benefits for various demand response and dynamic pricing schedules. -1-