5. Guiding Principles
This decision addresses the overall programmatic framework for the EPIC program, beginning with guiding principles. The staff proposal included a suggested set of guiding principles that would govern investment of EPIC funds. Those were as follows:
Ratepayer and Societal Benefits - Consistent with the Commission's legal authority to establish the EPIC, as further discussed in D.11-12-035, a key overarching principle governing the use of EPIC monies is that any supported activities must provide clear electricity ratepayer benefits and societal benefits, where we define benefits in terms of the extent to which the funded activities promote greater reliability, lower costs, increased safety, and/or enhanced environmental sustainability in the specific context of the provision of energy services. In general, staff suggested that activities should be able to be mapped to the different elements of the electricity system "value chain" which was characterized as consisting of:
· Grid operations/market design
· Generation
· Transmission
· Distribution
· Demand side management.
AB 325 and Executive Order S-3-05 - Supported activities should advance the objectives of AB 32 and/or also address medium- and longer-term emission reduction objectives as identified in Executive Order S-3-05, which established a goal of reducing emissions to 80% below 1990 levels by 2050. Pursuant to AB 32, the California Global Warming Solutions Act of 2006, the state is required to achieve emissions reductions such that total GHG emissions are at or below 1990 levels by the year 2020. In December 2008, California Air Resources Board adopted a scoping plan which identified a suite of measures that taken together would result in achievement of the 2020 emission reduction goal. Whereas AB 32 establishes goals through 2020, this goal represents only the initial set of steps down the path toward long-term sustainability, which involves the near complete de-carbonization of the energy system by 2050, as articulated in Executive Order S-3-05.
The Loading Order - Supported activities must be consistent with the state's "loading order." Adopted in the 2003 Energy Action Plan by the state energy agencies, the loading order establishes the preferred or priority set of resources and technologies on which the state should rely in the provision of energy services. The loading order identifies energy efficiency and demand response as the resources of first choice, followed by renewable energy, both distributed generation and utility scale, followed by clean fossil generation, if necessary. A number of state laws have codified or otherwise specified the loading order investments. For example, § 454.5(b)(9)(C) requires utilities prioritize demand-side resources in meeting unmet resource needs, and the recent Senate Bill (SB) 2 (1x) (Simitian, Stats. 2011, Ch. 1) required 33% of energy need be met by renewable resources by 2020.
Low-Emission Vehicles/Transportation - Supported activities should be consistent with and/or advance the objectives codified by SB 626 (Kehoe, Stats. 2009, Ch. 355) as § 740.2 which directs the Commission to adopt rules to "evaluate policies and develop infrastructure sufficient to overcome any barriers to the widespread deployment and use of plug-in hybrid and electric vehicles."6
Safe, Reliable, and Affordable Energy Services - Supported activities must be consistent with the objective of providing safe and reliable energy services at reasonable cost.
Economic Development - Supported activities should benefit the California economy to the greatest extent practicable. Given the profound economic challenges the state currently faces, it is incumbent upon the Commission to seek to maximize the economic benefits that accrue to California as a result of any ratepayer-funded activities.
Efficient Use of Ratepayer Monies - In addition to the above guiding principles, funding should not be used to support activities or efforts that are duplicative of efforts that are being undertaken elsewhere or that are more expensive than necessary to achieve the goals. Furthermore, administrative costs need to be minimized to the greatest extent practicable without compromising programmatic oversight functions and efficacy.
5.1. Parties' Comments
A small number of parties provided comments on the above guiding principles proposed by staff. PFT/WRTC, as well as Waste Management, generally support the guiding principles laid out in the staff proposal. The Joint Environmental Groups also support the principles, with the linkage to providing ratepayer benefits, which they suggest should be broadly defined.
SDG&E also generally supports the "ratepayer nexus" principle and believes that it should be the primary goal of the EPIC program. Specifically, SDG&E states, "because IOU electric utility customers provide all EPIC funding, any benefits resulting from EPIC programs should directly benefit the IOUs' electric utility customers." SDG&E believes that AB 32 goals should only be part of EPIC's principles if EPIC activities directly benefit IOU customers by reducing the costs of GHG compliance obligations. For the principle related to the "loading order," SDG&E points out that § 454.5(b)(9)(C) requires that activities are "cost-effective, reliable, and feasible" and that the principle should be refined to include this requirement. Finally, SDG&E disagrees that economic and/or workforce development should be a key principle for EPIC, stating that "workforce and economic development will happen organically as part of RD&D and renewable programs...which should not take the focus away from the prime directive of ensuring direct benefits to our electric consumers."7
PG&E argues that the Commission should adopt the statutory criteria in § 740.1 and § 8360, which govern utility expenditures in the areas of RD&D and smart grid.8
Both CFC and SDG&E suggest that the principles need further refinements and mapping between activities and electricity ratepayer benefits, as well as auditing to ensure that the principles are being adhered to.
MEA suggests one additional principle of "fair and equitable allocation of benefits" to ensure that use of EPIC monies does not benefit IOU customers exclusively or tilt the playing field toward the IOUs in competition for retail customers.
SCE generally argues that these principles do not substitute for Commission authority to establish the EPIC program. Further, SCE argues that AB 1338, a budget bill signed into law by the Governor on September 30, 2008, prohibits the Commission from authorizing funding for EPIC. The exact language of AB 1338 reads as follows:
The Commission shall not execute an order, or collect any rate revenues, in Rulemaking 07-09-008 (Order Instituting Rulemaking to establish the California Institute for Climate Solutions), and shall not adopt or execute any similar order or decision establishing a research program for climate change unless expressly authorized to do so by statute.9
AB 1338, § 27(b) goes on to state that passage of AB 1338 was not necessary because it did not "constitute a change in, but is declaratory of, existing law."
As a result of this language, SCE argues that EPIC would include research related to climate change (as evidenced by the staff proposal to include AB 32 as a guiding principle) and that the Commission cannot establish such a research program unless expressly authorized to do so by statute.
5.2. Discussion
The guiding principles recommended by staff are consistent with Commission policy in general. As pointed out by several parties, providing electricity ratepayer benefits must be mandatory and the most important guiding principle of the EPIC program overall. We also agree with PG&E that § 740.1 and § 8360 provide useful guidance on expending ratepayer funding for RD&D. We will not formally adopt these criteria to apply to EPIC, but we will require that the administrators address the applicability of this statutory guidance in each investment plan. Consideration of specific investment plans in the future is the best time for further refinements to these principles as suggested by CFC and SDG&E. We will require that the administrator(s) map planned investments to the electricity system value chain described above, including the following categories:
· Grid operations/market design
· Generation
· Transmission
· Distribution
· Demand side management.
We will address MEA's concern about a level playing field among retail providers further below, but do not find that this issue rises to the level of creating an additional guiding principle for the EPIC program overall.
In summary, we will operate the EPIC program under the mandatory principle of providing electricity ratepayer benefits. In comments on the proposed decision, CFC points out that it could be useful for the Commission to define what we mean by electricity ratepayer benefits, and suggests the following: "Promote greater reliability, lower costs, [and] increased safety."10 This is a useful clarification and we will adopt it. In addition, CFC and the Joint Environmental Groups, in comments on the proposed decision, point out that the additional principles articulated below, rather than being subordinate to electricity ratepayer benefits, are actually components of those benefits. We agree with this clarification as well.
The following guiding principles are adopted as complements to the key principle of electricity ratepayer benefits:
· Societal benefits;
· GHG emissions mitigation and adaptation in the electricity sector at the lowest possible cost;
· The loading order;
· Low-emission vehicles/transportation;
· Economic development; and
· Efficient use of ratepayer monies.
The mandatory guiding principle of ratepayer benefits and the complementary principles will guide the EPIC program to ensure that it is just and reasonable to ratepayers
We disagree with SCE's argument that the 2008 budget bill, AB 1338, prohibits the EPIC program altogether. The plain language of AB 1338, as well as its legislative history, indicates that it was intended to apply only to Commission decisions or orders approving the California Institute for Climate Solutions (CICS) or a similar climate change program. The CICS, as approved by the Commission, was structured as a standalone institute with RD&D focused solely on solutions to address climate change and without a requirement for energy-ratepayer-specific benefits in all circumstances.
EPIC, on the other hand, was established by D.11-12-035, as a Commission program under long-standing Commission authority which is not being delegated. It is also not a standalone entity. Further, as we have already stated, providing electricity ratepayer benefits is a mandatory principle under which the EPIC program will operate.
In addition, a comparison between the EPIC program's ratepayer-focused RD&D and clean technology investment and the CICS is logically flawed. AB 1338 does not prohibit Commission programs for RD&D in the electricity sector, nor does it prevent the Commission authorizing funding for projects that provide a ratepayer benefit that is also related to electricity sector climate change mandates. AB 32's mandate for GHG emissions limits and reduction measures includes requirements that directly affect the provision of electricity services to IOU ratepayers and consequently the cost responsibility of ratepayers for GHG emissions caused by electricity consumption.11
One key consideration is that the EPIC activities provide a benefit to help the Commission-regulated electricity sector meet its compliance obligations for AB 32 in the form of reduced GHG at the lowest possible cost. This is consistent with the argument made by SDG&E that "any EPIC funds provided in support of AB 32 must fund technologies that help utility customers meet GHG obligations at a lower cost than other available options."12
The Commission has always had authority, and continues to have authority, to fund RD&D activities, unless expressly limited in particular areas by the Legislature. In the case of the CICS, in the order vacating the CICS decision,13 the Commission stated that AB 1338 "represents a new and explicit constraint on our authority"14 which was entirely related to the establishment of the CICS or a similar entity designed expressly and only to conduct climate change research. EPIC is not such a program or entity.
5 AB 32 (Nunez, Stats. 2006, Ch. 488).
6 SB 626, Kehoe, 2009. http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0601-0650/sb_626_bill_20091011_chaptered.pdf
7 SDG&E comments, March 7, 2012, at 11.
8 § 740.1 states:
The commission shall consider the following guidelines in evaluating the research, development, and demonstration projects proposed by electrical and gas corporations:
(a) Projects should offer a reasonable probability of providing benefits to ratepayers.
(b) Expenditures on projects which have a low probability for success should be minimized.
(c) Projects should be consistent with the corporation's resource plan.
(d) Projects should not unnecessarily duplicate research currently, previously, or imminently undertaken by other electrical or gas corporations or research organizations.
(e) Each project should also support one or more of the following objectives:
1. Environmental improvement.
2. Public and employee safety.
3. Conservation by efficient resource use or by reducing or shifting system load.
4. Development of new resources and processes, particularly renewables resources and processes which further supply technologies.
5. Improve operating efficiency and reliability or otherwise reduce operating costs.
§ 8360 states:
It is the policy of the state to modernize the state's electrical transmission and distribution system to maintain safe, reliable, efficient, and secure electrical service, with infrastructure that can meet future growth in demand and achieve all of the following, which together characterize a smart grid:
(a) Increased use of cost-effective digital information and control technology to improve reliability, security, and efficiency of the electric grid.
(b) Dynamic optimization of grid operations and resources, including appropriate consideration for asset management and utilization of related grid operations and resources, with cost-effective full cyber security.
(c) Deployment and integration of cost-effective distributed resources and generation, including renewable resources.
(d) Development and incorporation of cost-effective demand response, demand-side resources, and energy-efficient resources.
(e) Deployment of cost-effective smart technologies, including real time, automated, interactive technologies that optimize the physical operation of appliances and consumer devices for metering, communications concerning grid operations and status, and distribution automation.
(f) Integration of cost-effective smart appliances and consumer devices.
(g) Deployment and integration of cost-effective advanced electricity storage and peak-shaving technologies, including plug-in electric and hybrid electric vehicles, and thermal-storage air-conditioning.
(h) Provide consumers with timely information and control options.
(i) Develop standards for communication and interoperability of appliances and equipment connected to the electric grid, including the infrastructure serving the grid.
(j) Identification and lowering of unreasonable or unnecessary barriers to adoption of smart grid technologies, practices, and services.
9 AB 1338, § 27(a).
10 CFC opening comments on proposed decision, May 14, 2012, at 5.
11 See Health and Safety Code §28562(b), as well as Pub. Util. Code §8341(a), which require the establishment of GHG emissions performance standards for all baseload generation of load serving entities.
12 SDG&E comments, March 7, 2012, at 10-11.
13 D.08-11-060, which vacated D.08-04-039 and was corrected by D.08-04-054.
14 D.08-11-060 at 5.
