Cost-Effectiveness Protocols for
Demand-side Energy Programs


The CPUC evaluates the cost-effectiveness of Energy Efficiency and Demand Response portfolios and programs proposed by California’s investor owned utilities by comparing the actual costs of the program to the estimated benefits provided by the programs. To ensure that ratepayer dollars are invested wisely, the CPUC has adopted specific protocols for evaluating program cost-effectiveness.  

In September 2013, the CPUC opened a Rulemaking to address cost-effectiveness issues in demand-side energy programs.   

CPUC Proposal to Update Cost-Effectiveness Protocols

On June 19, 2015 the CPUC issued a Ruling outlining proposed revisions to the 2010 Cost-Effectiveness Protocols, intended to correct deficiencies and further refine the Protocols, including: 

  • A new model for the Availability factor and avoided generation capacity cost allocation. 
  • A new model for avoided Transmission & Distribution costs based on the model used in the Net Energy Metering study. 
  • Refined definitions in the cost-effectiveness calculator for Notification Time, Trigger, and Distribution factors. 
  • Refined definitions and guidelines on the allocation of support program budgets, qualitative analysis and demand response portfolio. 
  • The creation of two new factors: Flexibility and Geographic.  
  • Non-Energy Benefits. 
  • Additions to address Dual Participation. 
  • A revised calculation of Capital Costs with a high and a low value for sensitivity analysis. 
  • New requirement that utilities evaluate cost-effectiveness based on actual results (ex post). 


Demand Response Valuation Working Group Recommendations

A group of stakeholders that form the Load Modifying Resource Demand Response Valuation Working Group was tasked with recommending how load modifying resources should be valued after 2018. The Working Group also provided input to inform quantification of Demand Response values for the Protocols. The Working Group recommended: 

  • The A Factor should be modified to incorporate the loss of load probability/loss of load expectation approach using publicly available information and more accurately quantify the capacity value of demand response programs by more accurately reflecting the value of the highest peak hours. 
  • Creating a process for valuing load modifying resources for transmission and distribution benefits and incorporating that process into the Protocols.  
  • Calculating the amount of locational avoided cost credited to each kW of load modifying Demand Response load impact will be determined by the effective load carrying capacity of the load modifying Demand Response program, or its equivalent. 


ORA Position

ORA advocates that the cost-effectiveness of demand-side programs should be evaluated with accuracy, transparency, and consistency.    

  • Evaluation of demand-side cost-effectiveness should be aligned with supply-side evaluation, to the greatest extent possible so that demand-side resources can be integrated into the utilities’ resource plans, and thereby reduce or defer supply-side costs.  
  • Cost-effectiveness should be assessed from multiple perspectives:  
    • Individual program-level evaluations should be based on the costs and benefits that accrue to customers who participate in the program, as well as the costs and benefits to Californians as a whole.   
    • Portfolio-level evaluations should be based on the costs and benefits that accrue to the program administrator and the program’s impacts on non-participating ratepayers.  

Proceeding Docket

See the Proceeding docket.  

Visit the CPUC docket to subscribe to proceeding updates.   


Other Resources

CPUC webpage on Energy Efficiency Cost-Effectiveness    

CPUC webpage on Demand Response Cost-Effectiveness    

CPUC Demand Response Workshops:  Webpage for resources regarding cost-effectiveness and related issues, including load impact evaluation   

CPUC’s California Solar Initiative (CSI) Program Evaluation and Small Generator Incentive Program (SGIP) reports webpages include cost-effectiveness evaluations of customer-side Distributed Generations programs