Societal Cost Tests and Greenhouse Gas Adder

An October 9, 2015 Administrative Law Judge Ruling introduced a four-phase Commission staff proposal for updating the Commission’s cost-effectiveness framework:

  • Phase 1: Improve the existing cost-effectiveness framework.
  • Phase 2: Coordinate with the Distributed Resources Plan proceeding (Rulemaking (R.) 14-08-013) to improve the relationship between cost-effectiveness and actual system conditions.
  • Phase 3: Develop improved cost-effectiveness models and methods to more accurately reflect California policies and goals.
  • Phase 4: Expand the demand-side cost-effectiveness framework, in coordination with supply-side models, to create an all-source, all-technology valuation framework.

The CPUC Energy Division later developed a proposal, “Distributed Energy Resources Cost Effectiveness Evaluation: Societal Cost Test, Greenhouse Gas Adder, and Greenhouse Gas Co-Benefits” (Staff SCT Proposal). A workshop was held to discuss the proposal on September 22, 2016.

The Judge issued a subsequent Ruling on April 3, 2017 proposing an interim Greenhouse Gas Adder given the urgency of updating the Avoided Cost Calculator before the next Energy Efficiency Potential and Goals Study. The adder would be used in the Avoided Cost Calculator when analyzing the cost-effectiveness of distributed energy resources. The Ruling included a proposal from the Energy Division that assigned a value of the adder from 2018 to 2030 based on outputs from the RESOLVE model, based on unspecified inputs and assumptions. After receiving party comment, the Commission issued Decision (D.) 17-08-022 on August 24, 2017 that adopted a series of values based upon the California Air Resources Board Cap-and-Trade Allowance Price Containment Reserve (APCR) Price as an interim greenhouse gas adder value with a sunset date of May 1, 2018, with the option to extend for up to one year. Development of a permanent greenhouse gas adder would be considered in the future, in coordination with the Integrated Resource Planning proceeding (R.16-02-007).

ORA Position

In response to the ALJ Ruling regarding a Societal Cost Test (SCT), ORA recommended the Commission should continue work to elaborate the SCT to use as a key measure of DER cost-effectiveness and adopt guiding principles to orient its reexamination of the DER cost-effectiveness framework. ORA recommended that the cost-effectiveness framework should be consistent with state policy goals and objectives and consistent across DERs to enable optimal allocation of resources. Furthermore, ratepayer funded DERs should broadly benefit society as a whole, while guarantying that ratepayers do not bear an unreasonable burden for California’s societal goals and benefit both program participants and non-participants. ORA also underlined that the cost-effectiveness tests chosen should be based on the DER’s respective intended use. Finally, ORA agreed that cost-effectiveness should be evaluated before approval of rate-payer funded DERs, but that the Commission should also require verification of the cost-effectiveness after projects are implemented.

In response to the Energy Division Staff SCT proposal, ORA commented that the RESOLVE model's inputs and assumptions have not been published by Staff, vetted by stakeholders, or entered into the record of R.16-02-007. The Utilities and ORA recommend the use of the Cap-and-Trade APCR Price as an interim value for the greenhouse gas adder. The Cap-and-Trade APCR Price is a cost-containment mechanism, which includes a set-aside pool of allowances that can only be purchased by covered entities at set prices. ORA supported the adoption of a date certain for the interim value to end. ORA suggested this sunset date should be either the deadline for the next scheduled update of the avoided cost calculator or the adoption of an applicable greenhouse gas abatement marginal cost in R.16-02-007.

Click here for ORA’s comments on the February 9, 2017 Ruling.

Click here for ORA’s comments on the April 3, 2017 Ruling.

Click here for ORA’s replies to party comments on the April 3, 2017 Ruling.