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that translated into average rates that substantially exceeded marginal costs. Proposals by
utilities to implement programs that increase sales had prompted the need for additional
procedures for estimating program cost effectiveness. These procedures maybe applicable in
a new context. AB 970 amended the Public Utilities Code and provided the motivation to
develop a cost-effectiveness method that can be used on a common basis to evaluate all
programs that will remove electric load from the centralized grid, including energy
efficiency, load control/demand-responsiveness programs and self-generation. Hence, self-
generation was also added to the list of demand side management programs for cost-
effectiveness evaluation. In some cases, self-generation programs installed with incremental
load are also included since the definition of self-generation is not necessarily confined to
projects that reduce electric load on the grid. For example, suppose an industrial customer
installs a new facility with a peak consumption of 1.5 MW, with an integrated on-site
1.0 MW gas fired DG unit. The combined impact of the new facility is load building since
the new facility can draw up to 0.5 MW from the grid, even when the DG unit is running.
The proper characterization of each type of demand-side management program is essential to
ensure the proper treatment of inputs and the appropriate interpretation of cost-effectiveness
results.
Categorizing programs is important because in many cases the same specific device can be
and should be evaluated in more than one category. For example, the promotion of an electric
heat pump can and should be treated as part of a conservation program if the device is
installed in lieu of a less efficient electric resistance heater. If the incentive induces the
installation of an electric heat pump instead of gas space heating, however, the program
needs to be considered and evaluated as a fuel substitution program. Similarly, natural gas-
fired self-generation, as well as self-generation units using other non-renewable fossil fuels,
must be treated as fuel-substitution. In common with other types of fuel-substitution, any
costs of gas transmission and distribution, and environmental externalities, must be
accounted for. In addition, cost-effectiveness analyses of self-generation should account for
utility interconnection costs. Similarly, a thermal energy storage device should be treated as a
load management program when the predominant effect is to shift load. If the acceptance of a
utility incentive by the customer to, install the energy storage device is a decisive aspect of
the customer's decision to remain an electric utility customer (i.e., to reject or defer the
option of installing a gas-fired cogeneration system), then the predominant effect of the
thermal energy storage device has been to substitute electricity service for the natural gas
service that would have occurred in the absence of the program.
In addition to Fuel Substitution and Load Building Programs, recent utility program
proposals have included reference to "load retention," "sales retention," "market retention,"
or "customer retention" programs. In most cases, the effect of such programs is identical to
either a Fuel Substitution or a Load Building program — sales of one fuel are increased
relative to sales without the program. A case may be made, however, for defining a separate
category of program called "load retention." One unambiguous example of a load retention
program is the situation where a program keeps a customer from relocating to another utility
service area. However, computationally the equations and guidelines included in this manual
to accommodate Fuel Substitution and Load Building programs can also handle this special
situation as well.