Scoping and Scheduling Issues

Establishing the scope and schedule for the 2003 AEAP is complicated by the fact that all of earnings claims are contingent upon the Commission's determinations in the Consolidated AEAP, as well as the completion of other activities related to the review of the utilities' earnings claims and program expenditures and accomplishments.

In particular, at the direction of the Commission in D.03-04-055, Energy Division has contracted with consultants via two separate Requests For Proposals (RFPs) to: 1) conduct a review of retention and persistence studies, program milestones and program accomplishments for program years 1998-2002 and 2) conduct a financial and management audit of utility energy efficiency programs from 1998 through 2002. I refer to the first RFP/contract as the "Measurement Audit," and the second as the "Management and Financial Audit" in today's ruling.¹¹

Under the Measurement Audit, the consultants will conduct an independent review of retention and persistence studies that the utilities use in support of their earnings claims for pre-1998 energy efficiency programs in the AEAP. The review will also involve the verification of utility milestone achievements for the program years 1999-2000, and energy savings and other program target achievements for the 2001-2002 program years. The purpose of the Management and Financial Audit is to evaluate utility financial administration and management practices associated with implementation of energy efficiency programs from 1998-2002. Among other things, the utilities will verify expenditures on energy efficiency-related programs and services during 1998-2002, including administrative expenditures, and assess the effectiveness of utility oversight, accounting and financial funds management. Energy Division's best estimate at this time for completion of the work products under these contracts is early next year.

Therefore, for the reasons discussed below, I cannot at this time establish the schedule for most of the issues raised in the utilities applications and ORA's protests. However, I describe the scope of the issues below, discuss the steps that must be taken before scheduling is practicable, and discuss how the resolution of these issues will need to be coordinated with the Consolidated AEAP, the Energy Efficiency rulemaking (R.01-08-028), and the Energy Division audits.

LIEE Earnings Claims

As the utilities acknowledged in their applications and at the PHC, the second-year claim for 2001 LIEE program activities is contingent upon the Commission's verification of program expenditures and installations in the 2002 AEAP. The Commission is currently considering this issue in the Consolidated AEAP, and a draft decision has been issued for comment.

The Commission will also make determinations in the Consolidated AEAP regarding the type of verification required for 2001 LIEE expenditures and installations (e.g., via an independent verification effort by Energy Division, as proposed in the draft decision). This will affect the scope and scheduling for the 2002 LIEE first-year claims in this proceeding. At the PHC, ORA reiterated its position that it does not have sufficient resources to verify or audit LIEE expenditures, given other staffing priorities.¹² Therefore, I will need to await the Commission's final decision in the Consolidated AEAP to determine whether the record is adequate to address the first-year LIEE claims in this proceeding without Energy Division involvement. If Energy Division verification is required, I will then need to establish a schedule based on staffing availability.

Earnings Claims Associated with
Pre-1998 Energy Efficiency

In the Consolidated AEAP, the Commission is considering whether to reopen Rulemaking 91-08-003/Investigation 91-08-002 to modify the pre-1998 shared-savings mechanism for energy efficiency programs. This threshold issue needs to be addressed before the utilities' pre-1998 shared-savings earnings claims can be considered. I expect that the item will not appear on the agenda until September or October.¹³ Moreover, if it is determined that the proceeding should not be reopened, the Commission's consideration of pre-1998 shared-savings earnings claims will need to await the results of the Measurement Audit.

PG&E has also submitted a third-year claim associated with its 1994 Nonresidential New Construction Program, which is subject to a pre-1998 performance adder incentive mechanism. As discussed at the PHC, resolution of PG&E's pre-1998 performance adder earnings claim may also need to await the results of the Measurement Audit, since this program is subject to ex post measurement protocols. In response to ALJ Gottstein's inquiries concerning the measurement verification requirements associated with this program, PG&E submitted a supplemental statement on August 1, 2003. This statement is appended to this ruling as Attachment 3. Interested parties should comment on this statement within 10 days from the effective date of this ruling, and reply comments are due five days thereafter.

In particular, the comments should provide clarification as to what further ex post verification of this program is required by the measurement and evaluation protocols established for the program. For example, if the Commission authorizes the third claim in this proceeding, is the fourth claim subject to verification based on an additional retention or persistence study? At that point in time, would the Commission then adjust lifecycle earnings based on all the measurement studies required by the protocols, and make any appropriate adjustments to the fourth earnings claim? In their Joint Comments in A.00-05-002 et al. dated January 18, 2002, SDG&E and SoCal presented a very clear illustration of how a study can modify an initial claim and how the earnings are then adjusted.¹⁴ Per D.93-05-063, I would expect that there should be a similar type of payment adjustment for PG&E's Nonresidential New Construction Program based on ex post measurement, even though the incentive level is based on a treatment that differs from the shared-savings mechanism adopted in D.94-10-059.

However, in its statement, PG&E concludes that the payout of the third claim has already be authorized by the Commission in the 1999 AEAP and should be approved in this AEAP cycle without further consideration. PG&E seems to imply that Commission approval of the fourth earnings claim in a future AEAP would similarly be a "ministerial" task. I am not persuaded that this was the intent of the Commission in its 1999 AEAP decision (D.00-09-038), and solicit comment from interested parties on this issue. I particularly want to hear from ORA, since ORA participated in the Case Management Statement that is referred to in the decision.

For the reasons discussed above, it is therefore premature to schedule further discovery or hearings on the earnings claims associated with pre-1998 energy efficiency activities at this time.

Finally, it is my understanding that ORA's consultants have prepared review memos regarding the retention studies submitted in April 2003, including the studies that SDG&E refers to in its application. Energy Division has requested that the utilities provide to the Measurement Audit consultants all of the retention and persistence studies related to pre-1998 programs and post them on the CALMAC website. ORA's review memos and evaluation reports on these studies should similarly be posted on the California Measurement Advisory Council (CALMAC) website and made available to the Measurement Audit consultants. Therefore, the utilities, ORA and CALMAC should work together to ensure that the website posting of measurement studies and ORA review memos or reports are complete without delay.

Administrative Costs Associated
with the Interruptible Load Program

The draft decision in the Consolidated AEAP directs Energy Division to audit the 2001 Interruptible Load Program Memorandum Account balances submitted in that proceeding because there has been no review of the costs booked to this account by ORA or any other interested party. The same circumstances apply with respect to 2002 costs booked to the account, that is, the record is void of any verification that the amounts booked to these accounts represent dollars each utility has "spent or received above funds authorized in current rates," as required by the Commission. Unless ORA or another party can obtain the resources to review these costs for reasonableness in the near future, I anticipate that recovery of 2001 and 2002 balances will need to await the completion of an independent Energy Division audit.

Post-1997 Energy Efficiency Earnings Claims,
Program Accomplishments and Related Issues

As noted above, the utilities' earnings claims for 1998-2001 energy efficiency program activities have been submitted in the Consolidated AEAP. There are no "milestone"-related claims in this proceeding.

However, ORA has raised several issues related to the Commission's policy rules and the utilities' implementation of post-1997 energy efficiency programs, particularly the SPC program, that I believe should be considered by the Commission. The approach proposed by Judge Gottstein for coordinating consideration of these issues with the efforts of the Energy Division audits represents an effective and efficient way to develop a complete record on these matters for this and related proceedings. Below, I summarize Judge Gottstein's direction at the PHC and, where appropriate, clarify the procedural approach for addressing these issues.

First, it is clear from the discussion at the PHC that parties may not agree on what policy rules apply to specific post-1997 program years, and how to interpret them. ORA and the utilities have agreed to jointly compile an initial electronic version of the policy rules that apply to energy efficiency programs over the 1998-2002 period, and provide them to Energy Division staff and their consultants no later than August 8, 2003.¹⁵ I refer to this compilation as an "initial" one because there may be additions or modifications that arise as ORA and utilities and other interested parties have an opportunity to consider them further over the next few weeks.

By September 15, 2003, ORA and the utilities (and other interested parties who wish to participate) will jointly file a report that contains a final compilation of the post-1997 policy rules and addresses the areas of agreement and disagreement concerning their applicability to specific program years, or how to interpret them ("Policy Report").¹⁶ For example, PG&E argues that the cost-effectiveness policy rules and guidelines for post-1997 programs apply only to prospective cost-effectiveness, based on estimates prepared during program planning and approval. In PG&E's view, an after-the-fact evaluation of cost-effectiveness would not be irrelevant to the issue of earnings claims.¹⁷ In addition, PG&E contends that the Commission deferred until a future AEAP whether or not earnings claims would be affected if a commitment did not materialize.¹⁸ There may also be some debate over what program years these true-up the requirements apply, beyond 1998. ¹⁹ There may also be debate over whether the 25% market share rule applies to the universe of SPC contracts, or the subset awarded to ESCOs.²⁰ Clearly, the Commission will need to resolve this and other areas of dispute concerning the policy rules applicable to post-1997 energy efficiency programs, before it can fully consider the results from the Energy Division audits and other submittals related to program accomplishments and earnings claims.

Irrespective of the final resolution on these policy issues, information on SPC commitments versus actual installations and expenditures will enable the Commission to forecast program achievements better in the future as well as consider overall program performance in designing future programs. I also note that this information is not contingent upon the completion of any work by Energy Division's consultants. Accordingly, as discussed at the PHC, the Policy Report will include a table with information on SPC commitment true-ups for PY1998. In particular, the table should provide a side-by-side comparison between what materialized for the 1998 SPC program compared to what was reported as commitments in the utilities' AEAP report.

This table should also include an explanation of how the utilities used 1998 program funds associated with commitments that did not materialize. The utilities should indicate when they will present commitment true-up information for subsequent program years, taking the commitment periods associated with those years into consideration. Per PG&E's suggestion, the policy rules submitted to Energy Division staff and their consultants, as well as the Policy Report, should also include the specific milestones to which the commitment true-up issue may be applicable.²¹

The Policy Report should be filed at the Commission's Docket Office in this 2003 AEAP proceeding, the Consolidated AEAP and the Energy Efficiency Rulemaking (R.01-08-028). In terms of service, a notice of availability should be served electronically to the appearances and state service list in these three proceedings. The notice should indicate where an interested party can obtain a hard copy of the report and include a website address where the Policy Report is posted electronically. Consistent with the service rules in the AEAP, service of the notice by U.S mail is optional, except that both an electronic copy and one hard copy of the report should be sent to Judge Gottstein and Judge Malcolm.²² In addition, electronic copies of the report should be sent to Energy Division staff and the consultants listed in Attachment 2.

My thoughts at this time is to have a draft decision on this matter prepared in the Energy Efficiency Rulemaking, in close coordination with the AEAP proceedings, since the rulemaking is the generic forum for the rules and policies related to post-1997 energy efficiency programs. However, I will reserve final judgment on which proceeding should serve as the lead forum on resolving disputes concerning the application and interpretation of the Commission's policy rules until the Policy Report is submitted.

As discussed at the PHC, ORA has conducted verification activities with respect to post-1997 energy efficiency programs that should be made available to Energy Division's consultants and the Commission. Specifically, ORA has conducted on-site visits to selected SPC projects to assess whether everything claimed in the program documentation was actually installed and has been working the way the customer expected. ORA should submit a report on the visits conducted to date. My understanding is that ORA staff (or consultants) have completed site visits for a sample of SCE's and PG&E's PY2002 SPC projects and SCE's PY2001 SPC projects, and possibly others. ORA's report should include a description of how the sites visited were selected, and the results of those visits.

ORA's on-site visit report is due by September 15, 2003. Comments on the report are due by September 30, 2003 and replies are due 10 days thereafter. ORA's report should be filed in this 2003 AEAP proceeding and the Consolidated AEAP proceeding.²³ Based on the current scope of work for the Management and Financial Audit and Measurement Audit, I believe that ORA's report (and parties' comments) could be relevant to both efforts, and direct ORA to serve this report on Energy Division's consultants for both audits. Further directions regarding service are given below.

Per the PHC discussion, ORA will submit to the Management and Financial Audit consultants its verification work to date on customer affidavits and market share for the SPC program by September 15, 2003. It is my understanding that ORA has compiled a summary spreadsheet listing what information was and was not completed on customer affidavits, based on a sample of affidavits reviewed. In addition, ORA will make available the market share data in the 2002 Market Trends report to the consultants, including underlying spreadsheets and workpapers. As discussed at the PHC and in previous discussions between Energy Division and Judge Gottstein, these SPC-related issues are within the scope of work that Energy Division has defined for the Management and Financial Audit consultants.²⁴ Providing ORA's work products to the consultants at this time, so that they may consider them to the extent that they are appropriate and useful to their assessment of these issues, is a reasonable approach to take to avoid duplication of effort. I note that ORA concurs with this approach.²⁵ As discussed at the PHC, ORA will have an opportunity along with the utilities and other parties to comment on the results of both the Management and Financial Audit and the Measurement Audit on these and other issues, when they are completed.

There was considerable discussion at the PHC concerning the appropriate timing, forum and criteria for evaluating the utilities' PY2002 program accomplishments and for addressing the 15% hold-back/refunds issue, as well as the retention of final quarterly payments for information and training programs.²⁶ With regard to timing, I believe that it is premature to address these issues for the reasons discussed at the PHC. First, the utilities will not have completed their own final measurement and verification studies to support PY2002 program achievements until March, 2004.²⁷ Nor will Energy Division have completed its Measurement Audit of PY2002 program accomplishments until after it has considered these studies and conducted its own independent audit.

Moreover, it is not clear that the AEAP in general is the appropriate forum for considering 2002 (and 2003) energy efficiency program accomplishments, and for addressing the related holdback/refunds issues. There are several reasons why the Energy Efficiency Rulemaking might be a more appropriate choice. First, the Energy Efficiency Rulemaking is currently the proceeding where all PY2002 (and PY2003) program implementation plans, providers' quarterly reports, as well as the utilities' evaluation measurement and verification studies to support program achievements are submitted. Second, the Commission's "acceptance" of final quarterly reports, which is required before providers of information and training programs are entitled to retain their final quarterly payments, is delegated to the assigned Commissioner or ALJ in that proceeding per D.02-03-056 and D.03-04-055.²⁸ In addition, as indicated by the PHC discussion, there is likely to be considerable debate over how the holdback (or payment retention) provisions should actually be applied once program accomplishments have been documented. It may be more appropriate to address that debate in the generic energy efficiency rulemaking that established those provisions.

However, I will reserve final judgment on whether the Energy Efficiency Rulemaking, or an AEAP proceeding (pending or subsequent) should serve as the procedural forum on addressing PY2002 program accomplishments and related issues until the utilities March 2004 studies are completed. In any event, these issues cannot be scheduled at this time.

Ratemaking Issues

In her June 25 2003 ruling and at the PHC, ALJe Gottstein requested further clarification on the utilities' proposals for the ratemaking treatment associated with LIEE and energy efficiency earnings claims. Based on the PHC discussion, I summary my understanding of the utilities' proposals below.

On the gas side, all earnings claims associated with all program year activities have been and continue to be recovered through changes in natural gas rates. Accordingly, the utilities propose this same treatment for all of the natural gas-related earnings claims (for all program years) in this proceeding and in the Consolidated AEAP.

On the electric side, the Commission modified this ratemaking treatment to reflect the electric rate freeze and other considerations, at least for certain program years. At this juncture, looking forward to the recovery of costs associated with the Consolidated AEAP and this 2003 AEAP, the utilities are proposing the following in their applications:

· All claims associated with post-1997 electric energy efficiency programs would be recovered from public goods charge program budgets.

· All claims associated with pre-1998 electric energy efficiency programs would be recovered through changes in electric (distribution) rates.

To confuse the issue further, PG&E argues that prior Commission decisions would dictate that, for electric LIEE programs implemented in 1998, all claims should be recovered via distribution rates, whereas SDG&E indicates it is proposing to recover electric LIEE claims for that year (and subsequent years) from LIEE program budgets.

I concur with Judge Gottstein that this apparent inconsistent ratemaking treatment between the gas and electric side of energy efficiency, between pre-1998 and post-1997 electric energy efficiency and apparently also between energy efficiency and LIEE should be addressed by the Commission on a "forward looking" basis. Moreover, I believe that the Commission should consider placing PG&E's earnings claims (gas and electric) into a memorandum account pending the outcome of settlement negotiations on its bankruptcy, as opposed to considering rate increases at this time. The utilities and interested parties should file comments on these ratemaking issues no later than October 1, 2003. Reply comments are due 15 days thereafter. These comments should be filed and served in this proceeding and the Consolidated AEAP. I encourage the utilities, ORA and other interested parties to coordinate their comments so that if consensus on a forward-looking ratemaking treatment can be reached, it can be reflected in the October 1 submittals.

¹¹ The RFPs issued on May 2, 2003 can be accessed from the Commission's website at www.cpuc.ca.gov;static/industry/electric/energy+efficiency/rulemaking.htm

¹² RT at 9-11, 88-83.

¹³ The assigned ALJ expects to submit her recommendations on the threshold issue to the Assigned Commissioner in the Consolidated AEAP during the first week in August.

¹⁴ See pp. 12-14.

¹⁵ I am using the term "policy rules" to include the collective set of policy rules and program design implementation requirements set forth in Commission decisions or resolutions. In some cases, these policy rules were appended to decisions in the form of a "manual" (e.g., D.01-11-066), but in other cases they may have appeared in decision text, conclusions of law or ordering paragraphs. If in doubt, ORA and the utilities should interpret the term "policy rules" broadly in deciding what to include in their compilation.

¹⁶ SDG&E and SoCal have volunteered to take the lead in organizing this effort. As discussed at the PHC, SDG&E and SoCal should send a notice to determine if others would be interested in participating in this joint report and also issue a draft of the report for comment and address those comments before finalizing the report for submittal to the Commission. The notice should be served to the Energy Efficiency Rulemaking, the Consolidated AEAP and this 2003 AEAP proceeding.

¹⁷ RT at 42-43.

¹⁸ RT at 69-71.

¹⁹ Id.

²⁰ RT at 61.

²¹ RT at 66-67, 71-73.

²² Judge Malcolm is assigned to the Energy Efficiency Rulemaking.

²³ This instruction differs from the ALJ's ruling at the PHC, p. 64, but upon further reflection, we believe that the report should be physically filed in both dockets.

²⁴ RT at 50-51.

²⁵ See RT at 55-56.

²⁶ See RT at 21-33.

²⁷ These utility reports are due March, 1994. See RT at 21-22. As discussed at the PHC, these reports will not be available until that time because billing data for many months after the program year is needed to evaluate energy savings and also the contractors to conduct the studies were not approved until January 2003. RT at 34.

²⁸ See D.02-03-056, Ordering Paragraph 18, and D.03-04-055, Ordering Paragraph 7.