19. Shareholder Incentive Mechanism
Due to the significant number and magnitude of the disputes that arose in implementing the Risk/Reward Incentive Mechanism in the 2006-2008 portfolio cycle and the 2009 bridge year, the Commission took up the issue of making reforms to the mechanism in R.09-01-019. Initially, the focus of that proceeding was formalizing the process of freezing ex ante savings parameters, how to lock in certain values in the mechanism given the "unknowns" associated with custom projects, and how to adjust the incentive level given the reduced risk associated with a mechanism that had no penalty provisions or other consequences for ex post determination of errors in the ex ante parameters.
One of the "unintended consequences" of this proceeding is that utilities were encouraged to place greater emphasis on measures with high annual savings levels even if their design lives were relatively short, with the result that the majority of 2006-2009 portfolio savings (and a significant portion of projected 2010-2012 program savings) derived from one measure - basic Compact Fluorescent Lamps. While flooding the California lighting market with deeply discounted Compact Fluorescent Lamps achieved a significant amount of short-term savings, it was not the intention of the incentive mechanism. The goal of the incentive mechanism is to ensure that energy efficiency is viewed through the same financial lens as supply-side investments, to foster creativity within the utilities' engineering and management and to ensure that energy efficiency savings (not merely savings accounting) became a top priority for the utilities.
Consequently, the scope of R.09-01-019, and now its successor proceeding, R.12-01-005, considers, consistent with the overall direction of this guidance decision, how the mechanism might place "greater emphasis on programs designed for deeper savings, measures with higher up-front costs and longer design lives, and market transformation efforts (with correspondingly increased challenges associated with program participation levels and achieving savings from these programs)."505 While an incentive mechanism for the 2013-2014 portfolio will be considered in R.12-01-005, we direct the utilities to reflect in their applications any relevant guidance that is proposed or adopted before the application filing deadline (e.g., the identification of programs in the portfolio that address harder-to-achieve savings versus those with easier-to-achieve savings).
505 Assigned Commissioner's Ruling Seeking Further Comments and Production of Data Regarding Energy Efficiency Incentive Reforms, R.09-01-012, filed 12-16-11 at 3.
