Valuing Conservation and Demand Response: Using the CPUC's Avoided Cost Methodology

June 29, 2005 - 12:00pm
Bldg. 90

Background: The CPUC recently adopted new, more disaggregated, avoided costs to be used in evaluating conservation programs implemented in California over the period from 2006 through 2008. The new methodology provides location-specific (by climate zone and utility) avoided costs for each hour of the year over a 20-year forecast period. The avoided costs are constructed from separately estimated marginal costs of generation, transmission and distribution. Adders are included to cover the costs of ancillary services, residual emissions, and the impact of reducing load on the market price of power. The approach was widely recognized as a significant improvement over the existing California-system-wide avoided costs that were used in the past. --The CPUC has initiated a broader proceeding, R.04-04-025, to develop avoided costs in a ""consistent and coordinated manner across Commission proceedings, including but not limited to R.02-06-001 (Demand Response), R.04-03-017 (Distributed Generation), and R.01-08-028 (Energy Efficiency)."" The initial phase of this proceeding adopted the new avoided costs for evaluating conservation programs in April of this year. Phase 2 of this proceeding is focused on QF pricing. Phase 3 will revisit many of the issues of the avoided cost methodology, as well as considering the appropriateness of the methodology for evaluating dispatchable resources like demand response and distributed generation. --Energy and Environmental Economics (E3) was hired by the CPUC's energy division to develop the avoided costs forecast, and expects to be actively involved in Phase 3 of the CPUC's avoided cost proceeding. Ren Orans and Snuller Price, two of the primary authors of new E3 Avoided Cost methodology, will summarize the methodology as well as many of the pivotal costing issues. For those who would like more background on this issue prior to coming to the lunch, the full report and spreadsheet can be viewed on the E3 website at or the CPUC's decision adopting the approach can be viewed at For more information about this seminar, please contact: JoAnne Lambert 510.486.4835, or send e-mail to

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