6. Discussion

6.1. Introduction

All at once, the concept of conserving water to save energy is obvious, exciting, and worthy of caution.

It is obvious that it takes energy to produce, deliver, and dispose of potable water. It can take energy to push or pull the water from the place where nature produces it to the place where it is needed. It takes energy to make the chemicals that are often needed to treat water to make it drinkable, and more energy to run the treatment plant. It often takes energy to move the water to storage or to deliver it to a customer. It takes energy to clean the water again after it becomes waste and before it can be released to the greater environment. And if it takes energy to use water, then it must save energy if one can avoid using it.

It is exciting to think of the two concepts together - saving water and saving energy - because the two delivery systems are so clearly interdependent. Not only does it take a great deal of energy to use water, it takes a tremendous amount of water to produce and deliver energy services. It is like a mirror within a mirror: to use less water means using less energy, which in turn further reduces the demand for water. In addition, water and energy customers have much in common: each relies on a limited resource, and each group should be willing to spend some amount of money today to reduce overall demand tomorrow.

The reason for caution is that relying only on that simple calculus - the observation that reducing water use must reduce energy consumption - to support a marriage of conservation and efficiency efforts may not be consistent with the interests of either, absent a transparent, technically supported methodology that appropriately values costs and benefits. Our commitment - and legal requirement - are to pursue all cost-effective energy efficiency savings. We must, therefore, have a methodology that tells us the cost and benefits of cold water savings so that we and the utilities can determine the role of such savings in the overall energy efficiency portfolio.

As of yet, we do not know enough about the energy-saving potential of conserving water to allow for a meaningful comparison of such programs to the more conventional direct energy efficiency strategies. The CEC report relies on some extremely broad observations:

1. Most of the fresh water is in the northern and central portions of the state, while more people are in southern California.

2. About half of the water used in the south comes by pipeline from the Colorado River to the west, or by State Water Project aqueduct from the north. A great deal of energy is needed to pump that water.

3. By contrast, 40% of the water used in northern California moves with the assistance of gravity, requiring little or no pumping.

4. On average, it takes much less energy to use water in the north than it does in the south.

5. A typical northern California urban water system uses 4,000 kWh per million gallons of water, while a typical urban system in the south uses 12,700 kWh per million gallons of water.

This information must be considered with caution. Strategies for producing, delivering, and disposing of water vary significantly from place to place, as do the related energy impacts. For example, the San Francisco waterworks are often considered to be net energy producers because the water is largely conveyed by gravity and the main dam system (Hetch Hetchy) includes hydroelectric generators. By contrast, many communities along the California aqueduct are dependent on pumps to deliver water. Groundwater pumping consumes a lot of energy, while water recycling consumes less. Desalination plants are highly energy-intensive because of the need to force water through a series of filters. While the figures in the CEC report may be typical, they may not accurately reflect the energy related to water use in any particular place.

It is not apparent that the amount of energy needed to use water is the same as the amount of energy saved by not using some amount of it. If we somehow stopped using water entirely, then we could avoid expending any energy at all related to water use. But what happens when we just reduce water use? The CEC report points out that the energy intensity of water varies significantly depending on its source. What is the source of the water that is not being used? If saved water would have come from the State Water Project, what happens to that water? Does someone else use it? Is it conveyed in the usual way but then stored for future use? Can the system operators turn down the pumps? The same kinds of questions apply if the saved water would have come from a well. Does it matter whether the pump in question operates at a fixed or variable speed? To what extent does the water provider where the savings occur depend on a gravity-fed system? While direct energy efficiency savings can be easily generalized (a certain more efficient light bulb would save the same amount of energy in Arcata as it would in Del Mar), the indirect savings from conserving water cannot.

Another critical question: Even if a measurable amount of energy is saved, do the benefits of the reduced energy consumption flow to the utility customers that are paying for the water conservation program? Many parties point to the numbers in the CEC report that suggest that there is much more energy consumed in conveying water to southern California than there is in distributing it to customers, and thus argue that the cost of a water conservation program must be compared to any resulting conveyance-related energy savings. While it is important to understand all of the savings resulting from a given initiative, those savings may provide little comfort to utility customers who are paying for a water conservation effort, but not seeing a direct benefit in the form of reduced energy use in their own service territory. For instance, pumps that propel water the full length of the State Water project may receive power from one of several regulated or municipal utilities along the way. It would be unfair to ask SDG&E customers to pay for a program that largely benefits customers in PG&E, SCE's, or some other utility's territory.

We are dedicated to incorporating water conservation strategies in the utilities' energy efficiency programs to the extent that such strategies benefit the utilities' customers and are consistent with the overall cost-effectiveness of the energy efficiency programs. Today we authorize the energy utilities to pursue pilot water conservation programs to stimulate innovative partnerships with water agencies and to develop a means for determining the energy savings related to saving water. When the pilots are completed, we want to be in a position to determine whether water conservation and less energy intensive water measures should be funded with utility energy efficiency dollars.¹³ In order to do this, the pilot program results must demonstrate that saving and using less energy intensive water, in fact, saves energy - not in the abstract, but in application.

Water measures will need to be cost-effective mechanisms for achieving energy efficiency savings if they are to be part of the overall utility energy efficiency portfolio. A critical element is the development of a cost-effectiveness methodology for water measures comparable to that employed for the consideration of other energy efficiency measures. The embedded energy in water methodology should be the product of a coordinated effort among stakeholders in conjunction with the pilot programs. The utilities should use the pilots to test and refine the methodology.

In order to approve the utilities' pilot proposals, we must determine whether the proposals are consistent with the nine program objectives set forth by the assigned Commissioner in her ruling dated February 16, 2007.

After reviewing the initial applications, and considering comments offered at the prehearing conference, in protests, and throughout the workshops, the assigned Commissioner concluded that the proposals seemed unlikely to meet the stated goals and directed the utilities to provide supplemental testimony proposing program revisions. We have reviewed the revised proposals and find that they still fail to ensure that the pilot process will lead to the results we need to fund future energy utility water conservation programs. However, we are committed to proceeding with this effort, and, in this decision, we approve revised programs designed to increase the likelihood that the energy utilities will be able to introduce water conservation measures during the course of the 2009-2011 program period.

6.2. Criteria for Approving the Pilot Projects

As discussed above in the Background section, in a ruling dated February 16, 2007, after considering the comments and concerns offered by various parties at the prehearing conference, the assigned Commissioner and ALJ described a series of objectives for the pilot programs and encouraged the parties to apply them when discussing the pilot proposals, and any potential modifications. The objectives are as follows:

1. Reduce energy consumption related to water use in a manner that should prove to be cost-effective for all of the customers of the sponsoring energy utilities;

2. Create a methodology for calculating cost-effectiveness and evaluating water-derived energy efficiency programs;

3. Determine if, in fact, it is cost-effective to save energy through programs that focus on cold water;

4. Better understand how energy is used in the California water system;

5. Test a diverse set of water energy programs and measures, with particular emphasis on new technologies and low-income customers;

6. Better understand what programs and measures are likely to save water and energy;

7. Provide the basis for meaningful ex-post project assessment;

8. Stimulate new partnerships; and

9. Better understand the potential benefits of pursuing each of the strategies identified in the October 16, 2006 ruling:

a. Conserving water;

b. Switching to less energy-intensive water sources; and

c. Increasing the energy efficiency of current water delivery.

These suggested objectives accurately describe our interests as we consider the merits of approving the pilot programs, and are the criteria we will apply in making that assessment.

6.3. Questions the Utilities Intended for the Pilot to Answer

In response to initial concerns that the pilot programs were insufficiently detailed to ensure that they would meet the stated goals, the utilities offered to develop a series of questions that they would strive to answer through the pilots. The questions that the utilities submitted are included as Appendix A to this decision.

The utilities have set forth many questions that are important to answer before moving beyond a pilot program to implement ongoing water conservation programs. However, there are several factors that give pause. First, the utilities have not promised that their pilots would answer these questions. Offering a series of questions that the utilities might or might not be able to address through their pilot programs does not substitute for developing programs that will answer the questions. Second, we note that the utilities' suggested approach to answer most of the questions does not depend on actual programs. Instead, the utilities would rely on studies. While this is not necessarily a flaw, it does suggest that the programs themselves, as proposed, may not be critical to determining the future for energy utility water conservation efforts.

Third, the question related to cost-effectiveness (Are the measures cost-effective?) raises special concern. This is by far the most important question to answer before embarking on more ambitious statewide programs. Yet, in its entirety, the utilities' strategy for developing the answer is as follows: "The [study] would calculate and analyze the cost-effectiveness." We have already discussed, at length, the complex interactions that affect the cost-effectiveness determination in this area. A statement that the utilities would undertake a study that produces this result does not provide sufficient assurance that the pilot process will get us where we need to go.

We have reviewed the utilities' proposals for, but have not found, a logical nexus between the various proposed programs and studies that appears likely to produce sufficiently comprehensive results. Because it remains so important to pursue appropriate energy utility water conservation programs, we set forth, in this decision, a more comprehensive study strategy to be funded by ratepayers and overseen by the Commission's Energy Division. In addition, we will permit the utilities to proceed with a limited number of pilot program offerings to explore the possibilities for meaningful, innovative partnerships between energy utilities and water agencies. The studies and programs are set forth below.

6.4. The Size of the Pilot Program Budgets

In directing the utilities to file proposals for pilot programs, the Assigned Commissioner suggested that they aim for developing a statewide budget of approximately $10 million. Rather than dictating a specific budget, this number is intended to convey a sense of both the importance of the pilot process and the need to impose discipline on program expenditures. Initially, the utility proposals closely approached the $10 million figure. The utilities later trimmed their proposed programs a bit, and reduced the budgets to slightly less than $7 million.

TURN and DRA recommend that the Commission approve the full $10 million in funding allocated among the utilities. They recommend that the Commission designate the uncommitted funds for at least two activities: (1) additional EM&V activities and studies as deemed reasonable and appropriate by the Energy Division, and (2) a statewide third-party solicitation for innovative embedded energy - water conservation project(s), managed by the Energy Division or its consultant(s).

PG&E responded by asserting that the Commission should not dedicate additional ratepayer dollars to the pilot in the absence of a clear plan for such expenditures, which TURN and DRA do not provide.

SCE acknowledges that its total proposed pilot budget of $2.665 million represents a reduction of $.762 million from the $3.427 million budget proposed in the supplemental testimony filed June 14, 2007. The total reduction is partly offset by an increase of $.334 million in SCE's EM&V budget to fund the additional studies.

SCE proposes to set aside the remaining funding within the pilot in order to meet any potential customer demand for the pilot in excess of the initial $2.665 million budget. This would allow SCE the flexibility to meet potential customer demand quickly during the pilot period.

SoCalGas and SDG&E did not comment on this point.

We appreciate TURN and DRA's support for increasing program expenditures, but have identified pilot activities for approval based not on the target budget, but on the merits of the activities themselves. The resulting budget is less than the original $10 million target yet sufficient, in our opinion, to develop the information needed for planning purposes.

6.5. Issues Related to Pilot Project Cost-Effectiveness and the Water-Energy Calculator

6.5.1. Introduction

In the October 6, 2006 ruling the assigned Commissioner directed the utilities to ensure that the pilot proposals were designed to maximize energy savings per dollar of program cost. In their January 16, 2007 filings, the utilities all used proxy embedded energy values from the December 2006 California Energy Commission Report "Refining Estimates of Water-Related Energy Use in California." In order to develop more accurate estimates of cost-effectiveness the Energy Division developed a calculator patterned after the E3 calculator used to determine cost-effectiveness of commission-funded energy efficiency measures.

6.5.2. Suitability of the Water Energy Calculator

The Energy Division conducted a workshop on May 7, 2007 in Los Angeles, California, to address the embedded energy in water calculator shortly after it was unveiled at the end of April. At this workshop, the staff introduced methodologies for measuring ex ante savings and provided an opportunity for interested parties to give preliminary feedback on the calculator.

Workshop participants identified two major aspects of the calculator that required modification. The first involved the calculation of participant cost (the cost born by the customer receiving direct program benefits). Prior to the modification, the full cost to the participant was considered to be part of the energy utility program cost while only a portion of the benefits enjoyed by the customer were counted as energy benefits (the rest were assumed to be water conservation benefits that would be part of the water utility's own cost-effectiveness calculation). Subsequently, the staff modified the formula to include a percentage of the costs and benefits equal to the percentage of total program funds contributed by the energy utility (e.g., if the energy utility contributed $75,000 and the water utility contributed $25,000, 75% of the participant cost and benefits would be included in the calculation).

The second aspect of the calculator requiring modification involved the embedded energy of water used indoors. The energy implications of indoor and outdoors water use are different, because much of the water used for landscaping or irrigation will not find its way into the wastewater system. On the other hand, most water used for cooking, bathing, toilets, cleaning, and drinking will eventually find its way into a sewage system and wastewater treatment facility. Before it was changed, the calculator only credited indoor water savings with embedded energy associated with upstream or "fresh" water, and not energy use associated with wastewater.

These two errors caused the measure savings and Total Resource Cost benefits to appear lower than they should have been.

In addition to these two adjustments, the staff added fields to the calculator for gas savings (therms), and for utilities to design programs and add their own measures. Between the May 7, 2007 workshop and the June 14, 2007, the staff revised the calculator several times.

The assigned Commissioner asked the utilities to address the suitability of the calculator in their June 14, 2007 supplemental testimony. Therein, SCE notes that the calculator contains numerous default assumptions upon which the parties had not formed consensus. PG&E argues that some assumptions were not well-defined, and gives examples of issues such as water utility load shape, net-to-gross calculations, and factors for converting water volume to kWh.

The calculation of avoided cost for embedded energy in water measures uses an average energy intensity of water within an energy utility's service territory. Both SCE and PG&E argue that using such an average undervalues the benefits of saving water since water from some sources is more costly to procure than water from other source. SCE believes the calculator should use the intra-marginal energy intensity of the water since this is the last increment of water used to meet demand and would therefore be the first reduced. PG&E, however, advocates using the energy intensity of the extra-marginal source of water under the assumption that water demand is growing, and energy savings will come from not needing to procure water from additional sources. The extra-marginal energy intensity is the energy that would be embedded in the next unit of water that the water agency would have to secure in order to meet rising demand. Many water agencies have not secured an extra-marginal source, so estimates would be based on the energy intensity of expected (rather than contracted) additional water sources.

PG&E and SCE also commented on the fact that the calculator does not include any information on energy saved outside of the funding utility's service territory. SCE argues that this undervalues benefits and results in artificially low cost-effectiveness numbers.

In comments filed after the additional supplemental testimony, interested parties responded to the utility remarks regarding the calculator. NRDC suggests the calculator should account for all energy savings regardless of where they occur, and that the current calculator is not a suitable means of evaluating the programs, since it believes that key issues regarding the costs and benefits have not yet been resolved. TURN and DRA disagree, and advocate keeping the calculator as it is. In response, SCE states that it is content to look at embedded energy outside of its service territory through the proposed studies, with the option of revisiting the calculator in the ex-post analysis. NRDC and SCE also recommend that the study include an assessment of greenhouse gas emission reduction potential from water management options.

The intra-marginal/extra-marginal debate reflects one of the more significant uncertainties related to programs in this subject area. The critical question is, what energy use is avoided when a given amount of water is conserved? If water use could never be higher than it was prior to implementing a water conservation program, then the savings stemming from the program are intra-marginal. If water use is continuing to grow, then it is more likely that the saved water is extra-marginal. In many instances, the two sources should be one and the same. However, we are not at a point where we can say, with confidence, what the avoided water source is for a given water agency. For now, the Energy Division and the energy utilities should use a given water agency's average energy intensity for the purposes of ex ante evaluation.

Up to this point, the utilities have identified their intra marginal source as their highest cost water, arguing that the water agencies are rational, cost-reducing entities that will reduce first where it will financially benefit them the most. The problem is that one source they have identified as an intra marginal source is the State Water Project water which although expensive, offers supplies that often can be put in storage. Additionally, if a water agency reduces its take from the State Water Project one year it may effect its ability to access more water the next. Clearly more than one factor goes into determining an intra marginal source.

Extra marginal analysis has the same identification issue, as well as creating a need to demonstrate that the demand curve is rising and that the water agency will continue to increase its customer base, regardless of whether additional water supplies are available. This may not always be the case.

In theory, either approach would produce better numbers than a utility's average energy intensity for water, but we cannot determine what either source is with any certainty at this time. Our hope is that the load shape and energy water relationship studies we approve in this decision will produce the information we need for this purpose. Ultimately, it would be logical to rely on extra-marginal supply assumptions for long term planning (more than one to two years in the future) and intra-marginal assumptions for the short term (one to two years ahead).

6.5.3. Cost-Effectiveness of the Pilot

Like the E3 energy efficiency calculator, which is used to review most proposed energy efficiency programs, the water energy calculator produces a total resource cost number to determine cost-effectiveness. This number is created by comparing costs and benefits, with benefits represented by avoided costs. The number is a ratio where a value of one (1), or above, indicates the item has more benefits than it costs, and a value below one (1) means the item costs more than it produces in benefits.

Below is a table showing the energy utilities' proposed programs and their respective Total Resource Cost values.

Table 2

While these proposed pilot programs are not cost-effective, SCE suggests that since the goal of the pilot is to produce information, the cost-effectiveness of the pilot should be determined by whether the pilot cost-effectively informs decision makers about the merits of implementing given strategies on a broader basis. Similarly, TURN and DRA recommend approving PG&E's programs despite negative total resource cost numbers because they expect the proposed studies to develop the information necessary to inform future water energy activities, and agree with SCE that the pilots themselves do not have to be cost-effective. NRDC believes the Commission should not require a formal cost-effectiveness evaluation since the tool for doing such testing is not yet fully developed, and might compromise early exploration and learning.

Based on the cost-effectiveness calculations submitted by all four utilities in their July 11, 2007 Additional Supplemental Testimony, all utility pilot portfolios have ex-ante cost-effectiveness ratios of less than one. SCE's cost-effectiveness ratio though, is the lowest at .10. This means that for every $100 spent on the program by all parties, $10 in benefits will be received by all parties.

The relative lack of cost-effectiveness provides at least two questions for us to resolve: Should we approve the programs anyway? How do we know that the utilities have chosen the most promising programs?

6.6. Evaluation, Measurement and Verification (EM&V)

In the July 11, 2007 additional supplemental testimony, SCE submitted an EM&V plan on behalf of all four energy utilities. In the plan, the utilities propose to conduct water studies (designed to determine how much water is saved through the implementation of a particular program), embedded energy in water studies (to determine how much energy is saved when a given amount of water use is avoided) and process evaluations (to improve the design and efficacy of a particular program or set of programs while the programs are operating). They characterize the water savings and embedded energy studies as impact evaluations (attempting to measure programs accomplishments). These would therefore fall under the jurisdiction of the Energy Division pursuant to D.05-01-055 and the August 2007 Assigned Commissioner's Ruling (ACR) in this proceeding.

6.6.1. Advisory Committee

As part of their original EM&V plan, the utilities proposed setting up an advisory committee or research working group "to provide substantial input on overall research design, specific issues to be addressed, and research methods."¹⁸ Since most of the EM&V planning has already taken place, the utilities consider that the original functions of the advisory committee have been superseded and now recommend that the current EM&V plans "include one or more Project Advisory Committees to provide input and support during the course of the studies."

All proposed studies would include a Project Advisory Committee that has the following functions:

1. Reviewing and refining the research plan.

2. Holding periodic conference calls and meetings in which participants report on any significant issues encountered in the course of the research, and offer their perspectives on how to resolve issues. Examples include changes to the EM&V plan because of: new methods or new data sources; changes in pilot programs due to findings as the programs get under way; and data collection difficulties that force a different approach.

3. Reviewing draft results and reports to provide feedback on interpretation and presentation of the data and analysis, as well as the completeness and clarity of reporting.

6.6.2. Water Studies

6.6.2.1. Commercial and Industrial Programs Direct In-line Metering End-Use Studies - $338,000 (PG&E - $123,000, SCE - $140,000, SDG&E - $75,000)

This impact evaluation would focus on commercial, industrial, and institutional customers and related applications with the greatest potential for savings or uncertainty. The primary goal of the study is to provide data on the amount, timing, and variability of the water savings derived from the water surveys and associated conservation measures. This study would examine measurements taken both before and after installation of the measure, to create a verified, daily savings profile, and would use a "strategic sampling" plan to minimize response bias.

The study would look at the following programs:

1. PG&E's Commercial Food Service, Food Processing, Hospitality Sector Laundries, and Winery processes.

2. SCE's Industrial Process Water Use Reduction (Audits) and Express Water Efficiency (PH Controllers and Commercial ET Controllers) Programs.

3. SDG&E's Large Customer Water Audits.

6.6.2.2. High Efficiency Toilets Customer Bill Statistical Evaluation - $190,000

This would involve statistical impact evaluations of the low-income high Efficiency Toilet pilot programs, as well as measurement of customer satisfaction. The primary goal of the study would be to answer questions about the amount, timing, and variability of water savings that result from the installation of high efficiency toilets. Those performing the study would collect a sample of meter readings for participating residential customers over a period of three years. Additionally, they would estimate market savings potential based on the results of this study and a definition of the target market provided by the partner water agency. They would undertake a statistical impact evaluation to determine savings, using pair-matched control and treatment groups to determine the sample.

This evaluation would look at the following programs:

1. SCE's Low-Income Direct Install High Efficiency Toilet Replacement Program, and Green Schools/Campuses Program with High Efficiency Toilets.

2. PG&E's Low-Income Direct Install High Efficiency Toilet Replacement Program.

3. SoCalGas Low-Income Multifamily High Efficiency Toilet Replacement Program.

6.6.2.3. Weather-Based Irrigation Controllers and Landscape Efficiency Customer Bill Statistical Evaluation - $70,000

This impact evaluation would assess the newer irrigation controllers in SDG&E's Landscape Management Efficiency Improvements Program and SCE's Express Water Efficiency Program (ET Controllers) for amount, timing, and variability of water savings. The evaluators would perform statistical impact analysis to determine savings, and employ pair-matched control and treatment groups with stratification to determine the sample.

6.6.3. Energy-Water Studies

As proposed, the embedded energy in water studies are designed to look at the embedded energy from a societal perspective, to determine the allocation of avoided costs, and to gather information needed for decision making.

6.6.3.1. Load Profile Study - $475,300

As mentioned elsewhere, the Energy Division and its consultants developed an embedded energy calculator to help energy utilities determine the benefits of particular efforts to conserve water. This evaluation would be designed to update the calculator to reflect the results of secondary research. Specifically, it would create a societal definition of cost-effectiveness that would include benefits for utilities other than the one sponsoring the program. The load profile study also would refine the water demand load shape and determine related changes to the energy load requirement. If feasible, this work would be coordinated with the state-wide Proposition 50¹⁹ study to be conducted by the Lawrence Berkeley National Laboratories. All of the utilities with pilot programs would sponsor this effort.

6.6.3.2. Emerging Technologies to Improve Water System Efficiency - $100,000

This study would investigate emerging technologies in water system operating efficiencies - specifically in monitoring and water systems telecommunications. PG&E would offer incentives to water agencies to test a promising technology or technologies. Specific technologies would include integration of water flow and energy monitoring in the SCADA²⁰ systems to detect water losses; integration of customer metering and SCADA to improve water distribution and energy efficiency; and a coupling of SCADA with modeling to optimize pumping efficiency. This evaluation would focus on PG&E's Emerging Technologies to Improve Water System Efficiency Program.

6.6.3.3. Analysis of Water-Energy Efficiency Measures in an Isolated Service Area (System-wide Intervention Analysis) (SCE - $64,000)

This study would collect customer-level and system-wide water use data during and following a period of intensive water-use-efficiency retrofits in Lake Arrowhead. Evaluators would compare system-wide changes in water use to system-wide changes in utility energy use to determine treatment effects. This study would evaluate SCE and SoCalGas' Lake Arrowhead Residential Indoor Outdoor Water Conservation program. The SCE portion of the study would consist of a system-wide intervention analysis. Intervention analysis contrasts what would have happened in the absence of the program with what happened with the program.

6.6.3.4. Lost Opportunities and Energy Efficiency Potential in Water/Wastewater Facilities- $200,000

This study would identify specific opportunities for direct water energy efficiency savings and conduct a benchmarking analysis of best practice standards in water distribution, treatment and waste treatment facilities (both retrofit and new construction scenarios). Evaluators would collect and analyze data on 2004 through mid-2007 utility program participation by water and wastewater facilities.

Although the study would be funded through the pilot, resulting efficiency improvements would be funded through the utilities' regular energy efficiency portfolio. The utilities would make reasonable efforts to pursue promising activities during the 2006-2008 energy efficiency program cycle, and would include them in their 2009-2011 energy efficiency program planning. At least 50% of the sites participating in the program would be in SCE's service territory.

6.6.3.5. Toilet Flapper Cost-Effectiveness Studies - $20,000

This study would assess the opportunities and cost effectiveness of promoting toilet flapper replacements as an alternative to toilet replacement. The primary goal of this study is to determine if and how the utilities could offer toilet flapper replacement as a cost-effective addition to ongoing residential and low-income programs. Cost-effectiveness would be determined through a literature review, and if existing literature is found to be inadequate, high-efficiency direct-install toilet contractors would measure leakage rates on the toilets they remove.

6.6.3.6. Water Leak/Leak Detection and Water System Loss Control Study - $200,000

This study would analyze water leakage and water system loss control programs through secondary and primary research²¹ to determine the magnitude of the problem, the potential for cost-effective measures to reduce losses, and the merits of entering into collaborative efforts with water agencies to address this problem. The evaluators collect primary data from up to three retail water agencies through rigorous water audits that would contain analyses of retail system loss control alternatives at each site. The water audits would adhere to International Water Association and American Water Works Association audit protocol. Secondary research would draw on a collection of existing water leakage and system loss control studies as well as energy data developed in the load profile research. This secondary research would provide the basis for defining the range of possible water system loss control alternatives, as well as informing other aspects of the study.

The study would distinguish between "real" losses (e.g., physical leaks) and "apparent" losses (due to meter under-registry and system paper accounting issues).

6.6.3.7. Water Energy Savings Alternatives For Low-Income Customers Study - $50,000

This study would compare water/energy savings for toilets with other water uses in low-income homes. The goals of this study would be to 1) include low-income customers in efficiency programs and 2) provide greater direct benefits to low-income customers. This study would examine the differences between the multi-family and single-family segments, and would develop separate alternatives for these segments as well as for utility bill paying customers and non utility bill paying customers (such as apartment tenants in centrally-metered buildings). The utilities did not propose a specific service area and programs to be included in this study.

6.6.3.8. (Next Generation) Embedded Energy Calculator - $139,800

As discussed above, during the review of these applications, the Energy Division and its consultants developed a "calculator" to assist the utilities in determining the cost-effectiveness of their pilot proposals. This new study would update the current version of the calculator to contain the results of secondary research with the aim of informing alternative policy choices. The focus of the study would be on the determination of cost-effectiveness.

This new generation calculator would define cost effectiveness from the following perspectives: a customer perspective, a narrow single energy utility perspective, multiple energy perspectives, multiple water and energy utility perspectives, a statewide economic perspective, and an inclusive societal perspective. Separate benefits would be associated with each perspective and would be included in the cost-effectiveness calculation to create multiple cost-effectiveness numbers for each measure.

Additionally, this study would summarize existing embedded energy calculators and evaluate their ability to produce information needed for policy decisions, specifically the objectives set forth in the February 16, 2007 ACR in this proceeding.

6.6.4. Process Studies

The utilities intend to perform process evaluations during the implementation of the following programs:

1. Commercial and Industrial Pilot Programs (PG&E, SDG&E, and SCE),

2. High Efficiency Toilet Replacement Programs (PG&E, SoCalGas, and SCE),

3. Weather-Based Irrigation Controller Programs (SDG&E and SCE),

4. Residential Indoor/Outdoor for Lake Arrowhead (SCE), and

5. General Marketing and Joint Marketing and Outreach Programs (SDG&E, SoCalGas).

6.7. Measuring and Providing Credit for Energy Savings

While it is clear to all participants that the Commission should encourage strategic integration of water and energy efficiency efforts, there is less certainty as to what changes the utilities can or should incorporate in the current program cycle. The parties disagree as to whether embedded energy savings created through the pilot programs should count towards meeting the adopted energy savings goals and the extent to which the October 6, 2006 ACR has already addressed this topic.

In that ruling, the assigned Commissioner expressed the preference that the utilities not count embedded energy in water savings as part of the overall savings resulting from the 2006-2008 energy efficiency programs. TURN argues that counting the savings toward the goals could unfairly affect the utilities' rewards or penalties since the preliminary shareholder incentive mechanism adopted in D.05-04-051 contains two elements: 1) a minimum performance threshold tied to the utilities' energy efficiency goals (established by D.04-09-060), and 2) the calculation of performance basis, currently derived from pilot portfolio net benefits (gross savings less free-riders). In D-04-09-060, the Commission stated that the savings goals were derived from studies which presented estimates of "the potential to increase the number of energy efficiency investments made by customers and businesses in specific segments over the next decade," by examining market saturation for a list of over 200 energy efficiency measures for the residential, commercial and industrial sectors.²²

The water conservation measures SCE, SDG&E and SoCalGas propose to install in their pilot programs were not among the measures considered in theses studies. Thus, when it adopted the energy efficiency goals in D.04-09-060, the Commission did not consider the potential for embedded energy savings from customers who might install cold water conservation measures. In fact, in D.04-09-060 the Commission instructed the utilities to exclude "savings by customers not included in the calculation of savings potential" when "documenting program accomplishments ... in order to ensure consistency between the basis for establishing the goals and the assessment of whether those goals have been met."²³

Nonetheless, the utilities have all argued that (or requested clarification as to whether) embedded energy savings should count towards meeting the goals. For example, PG&E is seeking to count embedded energy savings towards goals. In its July 25, 2007 reply comments PG&E defends its position that the pilot savings should count towards the 2006-2008 program goals stating that "the funds for the pilot would otherwise support activities that would secure savings that would count toward the utilities' energy efficiency goals." Furthermore, PG&E notes that a rigorous EM&V plan has been proposed and believes that the pilot will help reduce greenhouse gas emissions.

Similarly, SCE requests clarification on the topic in their amended supplemental testimony. SCE notes that the October, 2006 ACR directed the utilities not to seek credit for the pilot's embedded energy savings as part of the rewards or penalties relating to the 2006-2008 cycle. However, SCE posits that the ruling focused on rewards/penalties and not credit towards adopted goals. Like PG&E, SCE remarks that it will be directing valuable resources to pilot planning that could otherwise be working on energy efficiency programs that would count towards the goals.

SDG&E/SCG originally asked for clarification on this point, but dropped that request in its amended testimony.

In her October 6, 2006 ruling, the assigned Commissioner states that, "while it would be important to count embedded energy savings related to this effort, and to calculate any such savings related to existing programs, the utilities should not seek credit for these savings as part of any rewards or penalties related to the 2006-2008 period. The applications should include proposals for counting the savings for the purpose of understanding program benefits, rather than to affect rewards or penalties."

As TURN points out, counting embedded energy savings towards the goals could also affect rewards and penalties under the recently adopted incentive mechanism. (D.07-09-043.) The ACR was only intended to provide guidance for the utilities in preparing their applications, not to preclude the Commission from determining the appropriate treatment of savings resulting from the pilot. Thus, it is important we state here that the utilities shall not count embedded energy savings created during the pilot programs towards their goals. We will not count savings because there is no verified method for measuring them, and because we anticipate the savings resulting from the pilots to be insignificant.

We do not intend, however, to preclude the utilities from counting savings that result water distribution, treatment, waste water treatment systems improvements, funded through 2006-2008 portfolio. Finally, we take note of our recent decision (D.07-10-032), which allows for a consideration of whether to count embedded energy savings in the 2009-2011 cycle once results are available from the pilot programs we approve today.

6.8. Assessing the Proposed Programs and Studies Compared to the Applicable Criteria

The utilities submitted the pilot programs and studies together to address the assigned Commissioner's February, 2007 ruling. Here we consider the extent to which the proposed programs meet those needs.

1. Reduce energy consumption related to water use in a manner that should prove to be cost-effective for all of the customers of the sponsoring energy utilities

Relying on the Energy Division's embedded energy and water calculator, only one program has a preliminary Total Resource Cost of 1 or above (the standard minimum threshold for finding that a proposed energy efficiency measure is cost beneficial). This is the SoCalGas portion of the Lake Arrowhead/SCE water conservation partnership. The SCE-funded electric aspect of this program has a cost-effectiveness value of 0.19, and it is unclear whether the apparent benefits of the SoCalGas gas portion are actually a byproduct of SCE's participation. In other words, it is unclear whether SoCalGas is taking credit for savings that come as a result of SCE's contribution to the program.

All other programs have cost-effectiveness values of less than one, and all utility pilot portfolios have Total Resource Costs below 0.40. These calculations are only estimates, and pilot programs often lack the efficiencies inherent in larger programs. Relying solely on potential cost-effectiveness, there can be an argument for adopting a measure with a preliminary value of less than 1.0 if it appeared to be close to cost-effective. However, because of the low preliminary values in this case, it is less likely that the proposed programs would be cost-effective in terms of local energy utility savings. SCE's pilot portfolio Total Resource Cost is 0.10, indicating that either costs would have to decrease ten fold or benefits would have to increase by the same amount. As this is unlikely to occur, it is reasonable to conclude that SCE's pilot portfolio and those of the other utilities would not produce cost-effective savings.

2. Create a methodology for calculating cost-effectiveness and evaluating water-derived energy efficiency programs

The Energy Division developed an embedded energy in water calculator that created a methodology for calculating savings.

3. Determine if, in fact, it is cost-effective to save energy through programs that focus on cold water

In order to meet this criterion, it is not necessary to rely solely on the pilot programs. Undertaking concurrent studies may be a way to answer this question. But, as we will discuss below, the studies proposed by the utilities alone are not likely to get us all the way there. We will describe a more comprehensive study approach in a section that follows.

4. Better understand how energy is used in the California water system;

We address this goal more fully below, when we describe the studies that we approve today. The CEC has begun to look at the issue of energy usage for water treatment and delivery on a broad, general level. In order to pursue long-term programs, we need much greater specificity. Some of the proposed studies would address this in part. The Load Profile study may provide useful information on the energy use of water agencies, but the proposal does not give enough detail about what would be performed. The Lake Arrowhead Partnership could show the effect a number of water conservation measures could have together in an isolated water system with high embedded energy (because the need to pump water to serve customers at higher elevations), but would not be representative of energy intensity elsewhere. It could, however, provide information on extremes and could illustrate one part of California's water system. The proposed update to the embedded energy calculator seeks to do secondary research to quantify benefits associated with perspectives not included in the calculator. These would include statewide economic and societal perspectives. As part of the statewide and societal perspectives, some idea of how water is used in the California system may be examined, but as submitted, the study proposal does not provide any detail on what this might be.

Although several studies may address this objective in part, taken together the proposals do not provide a clear plan for understanding how energy is used in the California water system.

5. Test a diverse set of water energy programs and measures, with particular emphasis on new technologies and low-income customers

In their initial applications, the utilities proposed a pilot consisting mainly of toilet installations that the utilities would provide to homes in low-income communities. Since that time, the number of toilets proposed by the utilities has dropped dramatically, yet funding for toilets still makes up 21% of the proposed statewide program budget excluding the EM&V set aside of 20%.

The proposed new technologies are for the most part existing technologies used in new ways. PG&E's Emerging Technologies program focuses on using existing SCADA technology to detect water losses and improve water system efficiency. Likewise, the industrial technical audit programs proposed by SCE and PG&E would provide systems efficiency recommendations for a variety of niche customers such as wineries and food sector, metal plating and electronics.

One more unusual measure proposed is PG&E's Ozone Laundry Treatment program that would encourage customers in the hospitality sector to replace traditional laundry equipment with less water intensive ozone technology. Also of interest is SCE's Express Efficiency component that would provide rebates for pH controllers and irrigation controllers for large commercial and irrigation customers.

Although the proposed measures are more diverse in the latest July 11, 2007 filing than they were in the initial January 15, 2007 applications, it remains unclear how representative these are of all possible measures. The utilities have presented little information on how they selected the measures, or the nature of measures which were considered and not included.

6. Better understand what programs and measures are likely to save water and energy

The relative lack of diversity in the proposed programs, both in terms of measures offered and customer classes to be served, reduces the likelihood that the utilities will emerge from the pilots with a comprehensive understanding of which strategies will work. For this reason, in discussion below, we set forth a broader approach for the pilot programs and studies.

7. Provide the basis for meaningful ex-post project assessment

One of the desired outcomes of this pilot is better information about the water energy nexus in California. This information would help decision makers determine whether or not cost-effective energy savings could result from water conservation measures. As proposed, the pilots would not provide the certainty needed to determine this. One of the main reasons is that the programs, in and of themselves, do not provide the necessary information about the relationship between conserving water and saving energy. As such, a study or other evaluation is needed to determine this. Unfortunately the proposed program evaluations would almost all involve statistical bill analyses at the customer level. Particularly in the case of the toilets, the effect of a low-flow toilet could arguably be smaller than the effect of extraneous background activity in a statistical analysis. This would not provide a meaningful basis for decision making.

The only other proposal that would address the embedded energy in water directly would be the Load Profile Study. This study, if designed correctly, could yield meaningful information, but instead it proposes to develop water and energy load shapes by feeding the in-line metering results of the California End-Use Study for a small number of agencies into the embedded energy in water calculator to. This is problematic because the California End-Use Study has not yet started and will run for longer than one year making it impossible for this pilot to use the results of the study in the current timeframe. Additionally, water and energy use is completely agency-specific, so the results of this study would not be applicable statewide. Since we do not yet have typologies for water agency energy use in relation to water demand, this study would need to analyze specific water agency energy and water delivery load shapes before generalizations could be made.

8. Stimulate new partnerships

This process has provided the basis for water and energy utilities to work together and recognize ways in which partnerships could benefit the customers of both agencies. In this regard, we applaud the work of both the energy utilities and numerous water agencies. The concerted effort to cultivate new and expanded working relationships has been evident through the various workshops, in comments of the parties, and in the energy utilities' program proposals. In approving the pilot programs and related studies, we seek to honor these efforts and stimulate more progress going forward.

9. Better understand the potential benefits of pursuing each of the strategies identified in the October 16, 2006 ruling

a) Conserving water

The energy utility pilot proposals seek to utilize water conservation to save energy, but it is unclear whether the full range of water conservation measures (and therefore potential) was considered.

b) Switching to less energy-intensive water sources

The SDG&E Recycled Water Retrofit program is the only proposal that includes less energy intensive water. This program would provide funding for customers with completed retrofit plans, and would seek to encourage participation in an existing program.

c) Increasing the energy efficiency of current water delivery

This has only been addressed through the SoCalGas Pump Engine Testing evaluation partnership with Crestline Lake Arrowhead Water Agency and the Eastern Municipal Water District. Although this study is an important and unique one, the utility did not provide enough information in the program description (and no EM&V study was proposed) to enable us to know if this would produce widely applicable results.

Suitability of the Proposed Studies

The utilities have proposed a number of studies to provide information that could not be found in their proposed programs alone. These include a toilet flapper cost-effectiveness study to determine if it could be cost-effective to retrofit existing toilets by replacing the flapper rather than the entire toilet, and a study for Lost Opportunities in Water and Wastewater facilities. These studies, however, would be literature reviews and would not result in new research. In the case of the toilet flapper replacement study, the utility proposal indicated that a literature review would be prepared first, and only if that were found to be inadequate, would contractors already replacing existing toilets gather leak rates on the toilets they remove. This second option has considerable potential to produce new and useful data so it is disappointing that a literature review would be the preferred approach. Similarly, in the lost opportunities study in water and wastewater facilities, information about best practices would be gathered and suggestions would be made. However, these suggestions would be made to the water and waste water facilities after the program and so the results of these programs can be neither included in savings nor measured in the pilot. It is disappointing that energy embedded in wastewater has not been a major part of the discussion in this pilot. However commendable this wastewater embedded energy study is, it is not and should not be viewed as a substitute for this commission's goals of pursuing and quantifying embedded energy in wastewater.

In laying out these objectives, the assigned Commissioner hoped that the utilities would propose programs that would provide the information to the specific nine areas mentioned above. We endorse the objectives. Since the proposals fail to meet some of these objectives, we must insist on some modification prior to approving the pilot proposals.

6.9. Discussion of the Utility Proposed Programs and Studies

In this decision, we approve pilot water-energy activities that involve the following water and energy end use sectors:

· Residential

· Residential Low-Income - single family and multifamily

· Public Buildings

· Commercial

· Industrial

· Water Supply

We intend for these activities to address a wide range of measures including:

· Indoor water use - plumbing fixtures, appliances and leakage

· Outdoor water use - landscaping and agricultural irrigation and leakage

· Industrial water use

· Special high energy situations with integral high water use, distribution or treatment

· New water conserving technologies

We also intend to ensure that these activities are tested through a range of implementation strategies and implementers including:

· Programs that the energy utilities would manage and deliver through upstream, midstream and downstream segments utilizing both direct installation and rebate strategies

· Partnerships between water agency programs and energy utilities

We expect these activities to focus on:

· Measurement, via direct (in-line metering at the point of consumption of energy or water) monitoring of the annual/daily use amount and use profiles for both water and energy

· Measurement, via direct (customer self-reported information e.g., surveys) or indirect (secondary research like analysis of sales data) means, of program participation potential including market size, saturation and likely free rider estimates

· Cataloging of measure parameters including costs, median lifetimes, remaining life of existing equipment

We authorize several programs that we acknowledge are problematic from a cost effective perspective (such as low-income high efficiency toilets). Our logic is that the pilot is intended not only to determine which types of programs are likely to be cost effective, but also which programs are not likely to be cost effective. We want the utilities and Energy Division to develop data to demonstrate accurately the benefits and problems with these programs and measures. If we do not broadly study proposed measures now, we will have to address them at a later date when they re-appear in later applications or programs. We would prefer to address proposed measures under this pilot, and find out now whether or not it makes sense to consider deploying them in the future on a larger scale.

6.9.1. Proposed Programs

The following Table 3 provides a summary of the utility proposals and their proposed funding levels.



6.9.1.1. SCE Programs

Low-Income High Efficiency Toilets Direct Installations - SCE has proposed working with MWD to install high efficiency toilets in single and multifamily low-income homes. This program is the major program for SCE, composing 45% of total program budget. However, it is not highly likely to be cost effective based upon the information filed in this proceeding, and we are reluctant to spend such a large amount of money on it. Additionally, PG&E is proposing a similar direct installation program for more efficient toilets in its area.

However, it appears useful to pursue a modified version of this program. We want to know whether it makes sense to use standard water savings assumptions for high efficiency toilets in the low-income sector, as some low-income families may be larger and have fewer toilets available to the family than higher income families might. If true, both of these factors might result in greater water savings from a more water efficient toilet. Another reason to approve a toilet program is that there is not much performance data currently available related to high efficiency toilets.

Accordingly, we are reducing the size of SCE's toilet program, from $728,700 to $200,000 dollars (which allows for approximately 550 direct toilet installs), and limiting it to multifamily low-income installations to compliment changes we are making in the PG&E toilet program (limiting PG&E to single family installations). We are also changing the EM&V study associated with this program to more accurately develop the data we need in order to determine if such a program is likely to be cost effective.

Green/Schools/Green Campus - SCE proposes to work with MWD to deliver water conservation education for K-12 and college students and also install high efficiency toilets in schools located in mutual SCE and MWD service territories. Schools are part of the public sector, which is a sector slow to embrace energy efficiency. This is not a pilot program to test the effectiveness of educational programs. Since there is likely to be a lag between the educational effort and a consumer response, it is not likely to produce meaningful results within the timeframe of a pilot program and we, therefore, do not approve it.

Industrial Water Efficiency - SCE proposes working with MWD of Orange County to deliver industrial audits and recommended savings actions. While this is a laudable goal, the program is duplicative of a program offered by SDG&E. For this reason, we do not approve SCE's proposal.

Express Water Efficiency - SCE proposes to collaborate with MWD to deliver advanced pH controllers to commercial customers with cooling towers to reduce blowdown requirements, and also to provide weather-based irrigation controllers to commercial customers. While the weather-based irrigation controls are duplicative of the SDG&E managed landscape program, there is considerable logic behind the efficiency of offering both of these to the customer simultaneously. For this reason, we approve the program.

Lake Arrowhead Water Conservation - SCE proposes working with Lake Arrowhead to deliver indoor water-conserving devices to year-round residents and outdoor retrofits to the largest residential water consumers. SCE considers Lake Arrowhead to be one of the highest water embedded energy districts in its service area, so this program has the highest likelihood of being cost-effective. This program has the added advantage of having the utility collaborate directly with a retail water provider in a physically constrained area. We approve this program along with a rigorous impact analysis of its effects.

6.9.1.2. PG&E Programs

Custom Food Processing - PG&E proposes to work with EBMUD and Sonoma to deliver surveys/audits and recommendations for water saving process and/or technology changes that save water in the food processing industry.

Laundry Ozone Treatment - PG&E would work with Sonoma to encourage replacement of traditional laundry treatment with ozone technology in large hotels and/or commercial laundries.

Custom Winery Measures - PG&E and Sonoma would undertake process surveys/audits and make recommendations for water saving process and/or technology changes that save water in wineries.

These three programs all address segments of the commercial sector. Although we approve PG&E's proposal to offer these measures, we direct the utility to shift the funding of these programs to a more general large commercial customer program which would allow PG&E to focus on combined commercial and water audits and retrofits. PG&E can pursue the specifically-proposed measures in the context of that broader commercial sector effort.

Low-Income Single Family High Efficiency Toilet Replacement - PG&E proposes to collaborate with water agencies and install high efficiency toilets in the homes of low-income customers. The cost effectiveness of this program is questionable but there is the potential to gather some valuable information on market penetration of these toilets in the low-income sector and low-income use of toilets (as discussed earlier in relationship to SCE's program). Therefore, we reduce the funding of this program commensurate with the multi-family high efficiency toilet program of SCE and limit it to single family installations. Granting funding for these programs to the two utilities should allow us to compare these two approaches (single family and multifamily) for water and energy savings.

Emerging Technologies in Water Utility Efficiency - PG&E proposes to work with the water agencies to investigate and demonstrate new technologies for saving water. We approve this program, but direct PG&E to include pump efficiency improvements and water and wastewater treatment options in the evaluation of emerging technologies.

6.9.1.3. SDG&E Programs

Managed Landscape - This pilot project would focus on efficient use of outdoor water - potable water used for aesthetic landscapes. This program addresses the landscape sector, which is an extremely important sector for water use, and we approve it.

Large Industrial Customer Audits - SDG&E and San Diego County would provide both energy and water audits to large industrial customers. This program addresses the industrial water users - another sector that it is important to address, and approve it.

Recycled Water - This program would emphasize recycled water retrofits by converting users from a potable water source to a lower energy source using recycled water. This program looks at one option for switching to less energy intensive water, and we approve it.

General Marketing - SDG&E and San Diego County would jointly develop marketing materials and communicate water and energy opportunities through the existing SDG&E account executives for commercial/industrial customers. They would also conduct training sessions and develop additional materials. As discussed below, SoCalGas would participate, as well. TURN and DRA oppose the approval of this program, as unlikely to produce measurable results within the limited timeframe of a pilot program. SDG&E and SoCalGas argue that turning down this program would negate months of cooperative effort between SDG&E and San Diego County. Although we applaud the partnership, it would not be prudent to approve a marketing-only program as part of a short-term pilot program. While marketing is an important part of any program, it is doubtful that this action would lead to energy savings in the time frame of the pilot. Should the Commission later conclude that the utilities make undertake water conservation programs as part of the energy efficiency portfolio, we will reconsider these types of joint training sessions and materials.

While we will not authorize a separate marketing program, we understand that marketing is an important part of any successful program. Therefore, we assume that the energy utilities will spend a modest amount from the individual program budgets on appropriate marketing.

6.9.1.4. SoCalGas Programs

Lake Arrowhead/SCE/SoCal Gas Water Conservation - SoCalGas proposes an Indoor/Outdoor Retrofit Program for residential homes in Lake Arrowhead, California with SCE and Lake Arrowhead. In the proposed decision, the assigned ALJ found that SoCalGas' involvement in this program would be duplicative of SCE `s Lake Arrowhead water conservation program, and that it would be unlikely to provide us with further useful information. On this basis, he recommended not approving it. In comments on the proposed decision, SoCalGas, SCE, DRA, and TURN strongly disagreed, arguing that SoCalGas' involvement is consistent with SCE's and certainly complementary, but that it is in no way duplicative. Since the approved evaluation process will include measurement of gas savings resulting from this program, we can see merit to allowing the gas utility to participate. Thus, we approve this portion of SoCalGas' proposed program.

MWD/SoCalGas Joint Marketing &Outreach - SoCal Gas proposes a joint marketing effort with MWD. We reject this proposal for the same reasons we rejected SDG&E's request for involvement in the same activity.

Crestline Lake Arrowhead/Eastern MWD Gas Pump Testing - SoCalGas proposes a program with Crestline Lake Arrowhead Water Agency and Eastern MWD to test the efficiency of their natural gas pumps/engines. The electric utilities in the state currently provide a very valuable electric pump testing program. There is no comparable testing program for natural gas-driven pumps. This is a very useful program in a neglected sector of the water community - natural gas pump/engine efficiency. We approve this program, as it is likely to show us how efficient existing pumps are, how much it would cost to improve their efficiency, and how much energy would be saved from such a program.

6.9.2. Discussion of Proposed Evaluations and Studies

In determining what a cost-effectiveness evaluation proposal would look like, we take into account three goals included in the February, 2007 ACR. One was to better understand how energy is used in the California water system. A second was to provide the basis for a meaningful ex-post assessment. A third was to better understand the benefits of pursuing the strategies identified in the October 16, 2006 ruling: conserving water, switching to less energy intensive water sources, and increasing the energy efficiency of the current water delivery system.

With this is mind we apply the following specific criteria to determine whether the utilities' proposed EM&V activities should be approved:

1. Does the proposed study further our understanding of how energy is used in the California water system?

2. Does the proposed study enhance the cost effectiveness methodology for evaluated water derived energy savings?

3. Does the proposed study provide meaningful ex-post project assessment?

6.9.2.1. Evaluations

Commercial and Industrial Pilot Program

PG&E - This study would develop data by metering commercial and industrial processes and measuring their water consumption before and after the conservation intervention. Metering would include water and might include wastewater flow. We approve this study but remind PG&E that the focus of the pilot study has shifted from the specific programs (food processing, laundries, and wineries) to a more general category of commercial customers and that the in-line metering and analysis should be done for any customer that participates in this program.

SCE - Industrial Audits/Express Efficiency (pH controllers and ET) - This study would look at the variability of water savings derived from the water audits and the Express Water Efficiency (pH Controllers and ET Controllers) program. Since we have not approved the underlying program, we will not approve this study. The Express Water Efficiency program will have its own evaluation study.

SDG&E - Industrial Water Audits - This study would develop data by metering industrial processes and measuring their water consumption before and after the conservation intervention. Metering would include water and might include wastewater flow. We approve this study.

PG&E and SCE - High Efficiency Toilet Replacement Programs (Single and multifamily) - The utilities propose using a billing analysis to determine the impact of High Efficiency installations on water savings. We agree that this program should be evaluated, but remain unconvinced that billing analysis and weather data would provide meaningful results. Accordingly, we approve this evaluation study, but modify the budget and emphasis. Our primary concern is the need to determine if toilet replacements in low-income homes are used more frequently and save more water (and thus more energy) than toilets in the average residential home. The study in this area needs to determine: (1) the vintage (efficiency) of toilets in low-income (single and multifamily) as compared with average income families in California, (2) the number of toilets in low-income houses in contrast with the number in average California residence, (3) number of occupants in low-income homes as compared to average income homes, and (4) the frequency of use of low-income toilets as compared with average residential installations.

We have augmented the proposed budget to allow for one-half of the installed toilets to be evaluated based upon the utility proposed billing analysis. The other half of the toilets in each service will be evaluated through the use of in-line metering so that we can also have a direct comparison of the comparability and consistency of these two evaluation techniques.

Weather-Based Irrigation Controller Programs (SDG&E/SCE) - The utilities propose using a billing analysis to determine the impact of landscaping management improvements and ET controllers as part of SCE's Express Efficiency pilot program. For accounting clarity, we have reduced the budget and limited this program to the SDG&E landscaping pilot (the SCE Express Efficiency pilot would have a separate study and budget). We remain skeptical that billing analysis and weather data will provide meaningful results and would prefer one test case in which landscaping water use is directly measured in an area without the landscape efficiency program, and another with the landscape efficiency program to allow for a comparison of the water savings. On this basis, we approve the proposal.

Emerging Technologies (PG&E) - In conjunction with its partner water agencies, PG&E proposes to investigate emerging technologies in water system operating efficiency (specifically in monitoring and telecommunications) as a means to improve water efficiency and reduce water use. We approve this program, but direct that pump efficiency improvements and water and wastewater treatment options be included in the evaluation of the emerging technologies program.

Residential Indoor/Outdoor for Lake Arrowhead (SCE) - This evaluation study would use billing data to determine if the residential retrofits in this area do result in water savings. For reasons stated earlier, we approve this study.

Water Leak Detection - The utilities propose a study and literature review on water leakage and water leakage detection in their EM&V budget. The proposed study is expected to assemble the best estimates of water lost in all parts of the water distribution system (pre- and post-use treatment, and end-use stages). The finding and fixing of leaks has the potential to improve the efficiency of the water delivery system. Accordingly, we direct SCE to expand this proposal from a paper EM&V study to include a pilot program in its service area, and have increased the proposed budget by 50% (to $300,000) to fund these added activities. In addition to the paper study, the Commission expects that the program portion will include real applications of leak detection such as detecting and fixing leaks within a water system where costs and water and energy savings are quantified.

Process Studies (PG&E, SDG&E, SoCal Gas, and SCE) - These "studies" are utility evaluations of the manner in which the pilot programs are implemented, specifically through interviews with participants and unspecified evaluation of the materials developed for the pilot studies. Since it is the utility's responsibility to conduct program process evaluations of the programs they oversee, the commission will neither approve nor disapprove the methods of these evaluations. The proposed decision would permit the energy utilities to spend up to 2% of the program budget (excluding the impact evaluation funds) on these activities consistent with the August, 2006 ACR. All applicant utilities responded by objecting to this spending limit, proposing, instead, that they be allowed to increase overall spending by 2% to pay for these evaluations. This would both increase the funds available for this purpose (because the budget would be based on 2% of the cost for both programs and all studies, not just the cost for the programs) and would ensure that the full budget for each program could be spent on the program itself. DRA objects to this proposal, suggesting, instead, that the utilities be allowed to increase expenditures on individual process studies where doing so proves necessary and reasonable. However, because the funding available for process studies under the approach included in the proposed decision would be so small, we think it is more reasonable to adopt the utilities' proposed approach, and will do so.²⁴ In addition, we grant the utilities the requested authorization to allocate the process evaluation funds among the programs, as they find appropriate.

6.9.2.2. Studies

Load Profile (PG&E, SDG&E, SoCal Gas, and SCE) - The utilities propose a large portion of the budget to review other ongoing studies and measure data from in-line metering done for this pilot. The purpose of the metering would be to translate a measure installation into a change in the water demand profile that can then be compared with the water demand profile at the water agency to derive the effect a measure would have on the agency's energy load.

We approve this study as a means to provide all participants with end-user water use profiles. This study is to conduct in-line metering on selected customer samples and determine the water use shapes for these uses:

· Residential

o bathing and showers

o toilets

o clothes washing

o dishwasher

o landscaping

o other outdoor (pools/spas, etc.)

· Residential Low-Income - single family

o bathing and showers

o toilets

o clothes washing

o dishwasher

o landscaping

o other outdoor (pools/spas, etc.)

· Residential Low-Income - multifamily

o bathing and showers

o toilets

o clothes washing

o dishwasher

o landscaping

o other outdoor (pools/spas, etc.)

· Public Buildings

o hot water

o bathroom uses

o process uses

o cooling and heating uses

o Landscaping (outdoor use)

· Small Commercial

o hot water

o bathroom uses

o process uses

o cooling and heating uses

· Commercial

o hot water

o bathroom uses

o process uses

o cooling and heating uses

· Industrial

o hot water

o bathroom uses

o process uses

o cooling and heating uses

· Agriculture

o crop irrigation

o process uses

Lost Opportunities/Direct Energy Efficiency Potential (PG&E, SDG&E, SoCalGas, and SCE) - Through this $200,000 study, the utilities propose to identify opportunities for direct water energy efficiency savings and best practice standards in the water distribution, treatment and waste treatment facilities (both retrofit and new construction scenarios). It is not self-evident that the water industry lacks adequate best management practices. For this reason, we do not approve the study.

Toilet Flapper (PG&E, SDG&E, SoCal Gas, and SCE) - This study addresses whether toilet flapper replacement could be a cost-effective substitute for whole toilet replacement. Since there is not much research on the subject and few water utilities are offering such a program, this study would determine whether there is a large potential for cost-effective flapper replacement. We approve this study since it will help determine which programs could be cost-effective to implement.

Leak Detection (SCE) - As discussed earlier, the Commission supports a leak detection study that is combined with actual implementation of leak detection measures and corrections. We approve $50,000 to fund an assessment of the leak detection program (SCE) study to evaluate leak detection corrections for their cost and amount of water saved.

Low-Income Alternatives (PG&E, SDG&E, SoCal Gas, and SCE) - This $50,000 study would investigate water/energy saving alternatives (toilets vs. other water uses) for low-income customers. It is unclear why water/energy savings alternatives for low-income customers would be any different from any other water/energy customer. Since this information will be determined through other studies it would be duplicative to fund this one as well. Therefore, we do not approve this study.

Embedded Energy Calculator (PG&E, SDG&E, SoCal Gas, and SCE) - This study would develop a next generation embedded energy calculator. The utilities request an expansion of the embedded energy calculator for the purpose of determining cost-effectiveness (and benefits) from the multiple perspectives of a customer, a single energy utility, multiple energy utilities, multiple water and energy utilities, statewide economic potential, and overall society. The utilities' expanded calculator would also summarize other embedded energy in water calculators and evaluate their ability to produce the information needed to meet the nine criteria laid in the Feb 2007 ACR and repeated above.

Since the existing calculator can be modified to create multiple cost-effectiveness values, the commission sees no reason why an additional study is needed. The Commission believes in the importance of knowing the statewide benefits and costs of embedded energy in water programs, and will explore adding these calculations to the current calculator as soon as practicable. Additionally, while other embedded energy in water calculators would provide an interesting comparison to the calculator developed by Energy Division, the current calculator is modeled on the energy efficiency E3 calculator and was designed to produce results to meet the nine criteria laid out in the February ACR. The Commission finds it highly unlikely that a calculator developed for a different purpose by another organization would better suit its needs. We believe in the importance of knowing the statewide benefits and costs of embedded energy in water programs, and Energy Division shall further develop its calculator to include this perspective. Since including the societal and multiple energy and water utility perspectives will require significant future time and budget, the Commission will consider these additions at a later date. Toward that end, the Water Division shall explore the feasibility of calculating water agency and water agency ratepayer benefits and avoided costs.

The Commission, therefore, declines to fund this study.

6.10. Additional Adopted Evaluations and Studies

The tables below show the changes and additions adopted by the Commission in this section.

Table 4

Table 5

6.10.1. Additional Evaluation

Recycled Water (SDG&E) - SDG&E has proposed to convert users from a potable water source to a lower energy source using recycled water but has not proposed an evaluation program. We will approve a modest ($50,000) study of the recycled water pilot program with the intent on finding out (1) how successful the program was in convincing customers to shift water supplies, (2) how much water was shifted from fresh to recycled water, and (3) how much energy was saved by shifting from fresh to recycled water.

6.10.2. Expanded and Additional Studies

There is considerable question about whether investments in water savings are cost effective solely from an energy perspective. The current available information concerning embedded energy in water is intriguing, but is inadequate to develop mature energy efficiency programs. The Energy Commission's broad estimate of imbedded energy savings in northern and southern California serves an important purpose by prompting a closer look, but we cannot rely on these generalized numbers, alone, to conclude that water conservation efforts in specific locations serve the interest of energy ratepayers.

Because this is a new area of investigation, we do not have the benefit of an established body of knowledge on the issue of energy embedded in water to use as a foundation. Through the questions they pose for consideration during the pilot process, the utilities reflect the need to significantly improve the information base. DRA and TURN spoke eloquently about this challenge in their protests, and encouraged the utilities to spend additional funds on studies needed to answer these questions. TURN for instance, asks whether most of the energy needed to deliver water to southern California may be provided by entities other than the regulated energy utilities.

Many of the EM&V studies proposed by the utilities have, as their goal, filling in some of the missing pieces. However, in order to speed the day when the utilities can implement longer-term water conservation programs, we need to ensure that the pilot studies are comprehensive. Accordingly, we are approving two embedded energy foundational studies to address the added information required to perform the cost-effectiveness calculations:

1. A Statewide/Regional Water-Energy Relationship Study designed to establish the relationship between annual climate and hydrology variation, regional and statewide water demand variations and statewide energy use by the water system; and

2. A Water Agency/Function Component Study which includes a redefined Load Profile Study designed to establish detailed annual and daily profiles for energy use as a function of water delivery requirements for a full range of local, regional, state and federal water agencies within the California water system.

We intend these studies to provide the information basis for a meaningful ex-post assessment following the completing on the pilots to inform the Commission in determining whether future embedded energy in water programs should be added to the energy efficiency portfolio. Since they are part of the overall evaluation work and will provide a significant fraction of the basis for energy savings estimates, the Energy Division will manage these studies.

The utilities and the Commission can use such a foundation to determine cost-effective measures for inclusion in future utility energy efficiency programs as well as provide the ex ante values that everyone can use to count the energy savings for such measures towards the utility energy efficiency goals as well as the energy efficiency risk/reward mechanism.

The two studies will:

1. Undertake research to quantify the relationship between water use in the state, and the energy used to supply that water.

2. Use the results of this research to develop a model to predict energy use, at the state level, given a specific water delivery amount and distribution across the state.

3. Undertake research to quantify the energy used by the range of Federal, State and Local water agencies within California. Use the results of this research to:

a. Develop a representative range of water energy intensities (embedded energy) for various types of water agencies, and for the functional components of each of those water systems; and

b. Develop water energy load profiles for various types of water agencies and for the functional components of each of those water systems.

The results of this study should enable people to predict energy use for specific water agencies with varying amounts of water delivered by those agencies.

The information developed in these studies should provide a much needed understanding of how energy is used in the California water industry. These studies should provide the missing link between water use changes and energy use changes that is required to evaluate utility water savings proposals. Combining the results of these studies with the information on measure water use reductions will allow the Commission to use the results of the water-energy pilot activity to redirect future water-energy energy efficiency portfolio additions towards water agencies or components of the water system that are likely to have the largest energy savings, and measures that provide cost effective energy savings. The two study areas are described in Appendix B.

The table below, which also appears as Table 1 in the Summary above, provides a summary of the programs, evaluations and studies adopted in this decision:

Table 6

¹³ We note, with some disappointment, that none of the energy utilities proposed programs involving the third strategic category: improving the efficiency of water delivery and treatment systems. While activities in this category do not rely on an embedded energy rationale, they are an important factor in determining the amount of energy related to water use. We expect the utilities to design programs to address this issue as part of their planning for 2009-1011.

¹⁴ PG&E's July 11, 2007 Additional Supplemental Testimony, p. 4.

¹⁵ SCE's July 11^, 2007 Additional Supplemental Testimony, Attachment E.

¹⁶ SDG&E's July 11, 2007 Additional Supplemental Testimony, p. 3.

¹⁷ SoCalGas' July 11, 2007 Additional Supplemental Testimony, p. 3.

¹⁸ SCE January 16, 2007 Testimony, p. 16.

¹⁹ Proposition 50 refers to the Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002, passed by California voters in November 2002.

²⁰ "SCADA is an acronym for Supervisory Control and Data Acquisition. SCADA systems are used to monitor and control a plant or equipment in industries such as telecommunications, water and waste control, energy, oil and gas refining and transportation. These systems encompass the transfer of data between a SCADA central host computer and a number of Remote Terminal Units (RTUs) and/or Programmable Logic Controllers (PLCs), and the central host and the operator terminals. A SCADA system gathers information (such as where a leak on a pipeline has occurred), transfers the information back to a central site, then alerts the home station that a leak has occurred, carrying out necessary analysis and control, such as determining if the leak is critical, and displaying the information in a logical and organized fashion. These systems can be relatively simple, such as one that monitors environmental conditions of a small office building, or very complex, such as a system that monitors all the activity in a nuclear power plant or the activity of a municipal water system." (National Communications System Technical Information Bulletin 04-1, p. 4.)

²¹ Secondary research involves a summary or aggregation of existing data. By contrast, primary research involves collecting new data directly from respondents or research subjects for the purpose of performing additional analysis.

²² D.04-09-060, mimeo., p. 8.

²³ D.04-09-060, mimeo., p. 32. See also Finding of Fact 9.

²⁴ We emphasize, however, that we use the entire budget as a basis for setting the amount for process studies only because it appropriately increases the pool of funds available for this purpose. We do not expect the utilities to undertake process evaluations of the other studies included in the approved budget.