6. San Diego Gas & Electric and Southern California
Gas Company Petition for Modification
On February 19, 2010 San Diego Gas & Electric and Southern California Gas Company (Joint Petitioners) filed a Petition to Modify D.09-12-045 to address a number of calculation errors the Joint Petitioners alleged resulted in an unjustifiable reduction of the energy savings attributed to their energy efficiency programs. As result of this alleged calculation error, the incentive earnings approved by the Commission in D.09-12-045 were less than what the Joint Petitioners argue they would have been entitled to had this calculation error not occurred. Specifically, Joint Petitioners argue that the energy savings attributed to their respective energy efficiency programs in the Second Interim 2006-2008 Verification Report reflected results that were miscalculated owing to an error in the E3 calculator. According to the Joint Petitioners' allegation, the E3 calculator incorrectly truncated estimated savings from certain gas measures installed under the Joint Petitioners' energy efficiency programs so that only savings through the year 2024 were included in the savings results, although, as Joint Petitions argue, these measures may continue to provide benefits beyond 2024. Joint Petitioners presented evidence that they assert indicates E3's acknowledgement of this error. The Joint Petitioners also provided an estimate of the additional incentives they assert they should have received had this error not occurred. DRA filed a response to the Joint Petition on March 22, 2010. DRA did not take a specific position on the Joint Petition itself, but did indicate that it was unable to confirm either the calculation error or its alleged magnitude. DRA asked that before granting the requested relief, we direct Energy Division to verify the alleged error and its impact.
Under the approach and mechanism adopted herein, we find that the Petition for Modification is rendered moot. First, we note that the error observed by Joint Petitioners was corrected in the calculation of the results provided in the Energy Division's 2006-2008 Scenario Analysis Report. In addition, under Scenario 3, which serves as the basis for the calculation of incentives awarded herein, the total amount the Joint Petitioners should be awarded in incentives over the full 2006-2008 cycle exceeds the amounts they have already received in interim payments. Because this decision concerns the entire three year cycle, this final true-up takes into account both interim periods, and, thus, the awards previously made for the first and second interim periods. Pursuant to Scenario 3, modified to apply a 7% shared savings rate to the PEB,, SDG&E and SoCal Gas are entitled to awards totaling $16.2 million and $17.2 million, respectively, for their programs' achievements over the 2006-2008 period. Pursuant to D.08-12-059 and D.09-12-045, they have each received interim awards for the first and second periods totaling $11.1 million and $7.3 million, respectively. Therefore, by this decision, SDGE is entitled to an additional $5.1 award, and SoCalGas is entitled to an additional award of $9.9 million. Accordingly, to the extent the prior claims may have understated the amounts the Joint Petitioners allege they should have received, because the additional amounts to be awarded in the final true-up for the entire 2006-2008 cycle exceed the additional amounts Joint Petitioners allege they should have previously been awarded, any alleged underpayment from the interim period would be fully reflected in a commensurately higher final true-up payment. The additional amounts the Joint Petitioners claim they should have received in D.09-12-045 are $426,142 for SDG&E and $1,324,612 for SoCalGas. These amounts are less than the additional awards we find the Joint Petitioners are entitled to for the 2006-2008 cycle. Therefore, the Joint Petition should be dismissed.
6.1. Energy Efficiency Parameter Updates
Because we shall conduct the true-up of the 2006-2008 RRIM proceeding on the basis ex ante assumptions, as discussed above, we do not need to resolve all of the concerns raised over the course of this proceeding, in R.06-04-010 and R.09-01-019, regarding the accuracy of Energy Division's updates to various key parameters, including NTG ratios, EUL estimates, upstream CFL in-service rates, and GHG compliance costs. In our view, whether the updates to key parameters are reasonable in light of more current information is a separate question from the use of those updates for purposes of determining incentive amounts under the RRIM. In addition to concerns regarding the accuracy/reasonableness of the updates to various measure parameters that are currently recognized in the incentive mechanism, questions were also raised regarding whether and how certain other factors should be included in the calculation of the energy efficiency goals and savings. In particular questions were raised regarding the following factors: (1) inclusion of 2004-2005 cumulative goals in assessing the utilities' program achievements relative to the MPS, (2) inclusion of Codes and Standards, and (3) adjustments to account for interactive effects. We address each of these below.
The Energy Division Scenario Analysis Report calculated incentive earnings based on cumulative goals starting from 2004, compared with alternative impacts from excluding cumulative 2004-2005 goals. The direction provided in D.07-09-043, Ordering Paragraph No. 4(b) called for interim incentive claims to be evaluated on a "cumulative-to-date" basis. As further explained in D.07-10-032:
For any given year, cumulative savings represents the savings in that year from all previous measure installations (and reflecting any persistence decay that has occurred since the measures were installed) plus the first-year savings of the measures installed in that program year. (D.07-10-032 at p. 79.)
Our rules on cumulative savings goals were first developed in D.04-09-060 to ensure the IOUs focus on long-term savings, as opposed to those with short-term payback and short expected useful lives. We elaborated on this principle in D.07-10-032, which provides at page 80:
Under the risk/reward mechanism's MPS, the utilities are further motivated to avoid excessive reliance on short-lived measures. Therefore, it does not work to the utilities' advantage to focus exclusively on measures with short lives (or low persistence of savings over time) because doing so creates the savings shortfall illustrated above, making it harder to meet the MPS. For example, if an energy efficient light with an expected life of five years was installed in 2004, it will remain in service producing savings throughout 2006-2008, after which it will reach the end of its life and need to be replaced with like-savings in 2009.
The IOUs, however, take issue with the inclusion of 2004-2005 data in measuring cumulative goals in deriving incentive earnings for the 2006-2008 cycle. In D.09-05-037, the Commission found that 2004-2005 data is not directly reconcilable with 2006-2008 evaluation results. Consequently, cumulative savings for purposes of the prospective program cycle were defined to exclude the 2004-2005 data. (D.09-05-037 at p. 57 Conclusion of Law No. 1.)
In addition, the Commission concluded in D.09-12-045 that "[f]or the purposes of measuring interim incentive earnings for the 2006-2008 cycle, we agree that it is appropriate to exclude the effects of cumulative goals starting from 2004, as reflected in the Verification Report." (D.09-12-045 at p. 66.) The IOUs argue that the same principle of excluding the cumulative effects of the 2004-2005 program cycle should apply for determining incentive earnings in the final 2006-2008 true-up.
As explained in D.09-05-037, although we excluded 2004-2005 data in the calculation of cumulative savings for the 2010-2012 cycle, we did not reverse our policy of comparing results against cumulative goals. As stated in D.09-05-037, cumulative savings are a critical element of our overall strategy to create long-term, lasting savings through ratepayer investments. Without the cumulative savings goals, we cannot ensure that energy efficiency programs will produce benefits comparable to investments in power plants.
Although we excluded 2004-2005 data in measuring cumulative goals for the 2010-2012 cycle, we did not decide how 2004-2005 data should be treated in defining the cumulative savings for the final 2006-2008 true-up. The treatment of 2004-2005 data for the 2006-2008 true-up likewise does not set any precedent as to the treatment of cumulative goals on a prospective basis as previously addressed in D.09-05-037.
Under the ex ante approach adopted herein to evaluate the IOUs' performance over the 2006-2008 period and the associated incentive earnings, we note that all the IOUs met and exceeded the minimum performance standard required to begin earning incentives. Scenario 3, Template 1, as modified, on which the incentive awards adopted by this decision are based, includes the 2004-2005 cumulative goal data. Excluding these cumulative goals would have no impact on the awards and it would only further reduce the MPS hurdle that, under the approach adopted herein, the IOUs already exceeded. Furthermore, because we are adopting a 7% shared savings rate for savings over 85%, in place of the tiered 9% and 12% shared savings rates, excluding the 2004-2005 cumulative goals would have no impact on the level of incentive earnings. Therefore, for purposes of this decision we find resolution of the question of excluding the 2004-2005 cumulative savings goals is unnecessary and not relevant for purposes of the 2006-2008 true-up.
6.1.2. Savings from Codes and Standards (C&S)
Advocacy Programs
The IOUs argue that pursuant to the Commission's policy rules for energy efficiency, 100% of verified savings from pre-2006 C&S Advocacy Programs shall count towards the energy savings goals, minimum performance standards and performance earnings basis for the 2006-2008 and 2009-2011 program cycles.
The ERT assumptions utilized by the Energy Division, however, did not reflect any net benefits associated with any C&S activity initiated within the 2006-2008 program cycle.
In D.09-12-045, the Commission accepted the non-inclusion of such C&S benefits for interim claims because information was not yet available for incorporation into the savings calculations. The Commission concluded that "since the requisite data will be incorporated for purposes of the 2010 true-up, the utilities will be made whole for the effects of any updated data that may change the incentive earnings amount." (D.09-12-045 at pp. 64-65.)
The IOUs contend that omission of this information in the Energy Division's calculations systematically undercounts the benefits associated with the utilities' 2006-2008 programs. In accordance with the Commission's directive, the IOUs argue that the savings used to compute RRIM awards should include 100% of the efficiency savings and net benefits from the aforementioned C&S.
In D.10-04-029, the Commission determined that it is appropriate to count 100% of these savings toward achievement of the 2010-2012 cumulative goals. This determination was based on the finding that: "...better technical data about savings is now available as compared to when the original 50% determination was made in D.05-09-043, including Evaluation Protocols and elimination of concerns about double-counting and base case forecasts." (D.10-04-029 at p. 46.)
Under the ex ante approach adopted herein, the utilities exceed the MPS when including only attributing 50% of the C&S savings to their programs. It follows that increasing the amount of C&S savings the utilities may count toward the MPS would result in the utilities exceeding the MPS by more. In comments, PG&E argued that the alternate decision of Commissioner Peevey erred in stating that that savings associated with Codes & Standards are only considered for purposes of assessing performance relative to the MPS but are not included in the calculation of the PEB. Our intent in this decision is not to adopt modifications to prior decisions regarding the inclusion of savings and costs from Codes and Standards advocacy for purposes of determining utilities' progress against the energy efficiency goals or how those savings and costs are incorporated into the calculation of earnings under the incentive mechanism. Rather, in this decision we simply reaffirm the Commission's prior determinations on how Codes & Standards advocacy would contribute toward goals and incentive earnings. Our reasoning regarding the MPS as it relates to the inclusion of 50% or 100% of the savings attributable to Codes & Standards advocacy still holds; however, to the degree that savings due to Codes & Standards should, based on prior Commission determinations, be included in the calculation of the PEB for the 2006-2008 period, then additional incentive rewards may be appropriate. No studies have been submitted into the record in this proceeding that address the magnitude of any such savings, so we have no basis to include additional rewards in this decision, provided prior Commission determinations allow for the inclusion of savings from C&S activities in the calculation of the PEB for this period. Of course, nothing in this decision precludes the utilities from seeking credit for the Codes & Standards advocacy work in the future, provided such a request is consistent with prior Commission determinations on this issue.
Historically, the energy savings profile of a given efficiency measure has been considered in isolation. The impact of installing a single CFL, for instance, is estimated as the difference in its own energy consumption and that of the incandescent bulb it is assumed to replace. However, in some cases, measures have systems impacts, or "interactive effects," which are not captured by baseline comparisons along a single parameter. Some energy efficiency measures, for example, produce less heat than the measure they replace. Depending on factors, including where they are installed, certain energy efficiency measures may increase the need for heating or decrease the need for air conditioning.
The Energy Division reviewed available studies and produced scenario calculations to incorporate interactive effects for both residential and commercial measures for a number of lighting and appliance measures, resulting in negative therm impacts and positive kWh demand impacts for select measures. The data underlying the Commission's currently adopted goals, however, do not reflect these assumptions regarding interactive effects. For comparison, the Scenario Analysis Report also showed the savings impacts, assuming exclusion of all interactive effects.
In D.09-05-037, we affirmed that interactive effects affect net energy savings and are, thus, appropriate for incorporation into the DEER update, stating that:
It is of paramount importance to maintain the analytical rigor of our methodologies to count savings. Compromising the technical integrity of our counting methodologies is tantamount to compromising the reliability of energy efficiency as a resource. Given the priority energy efficiency holds in our loading order, we are duly committed to reflecting our best knowledge regarding savings in DEER. (D.09-05-037 at p. 21.)
We also recognized, however, how interactive effects can have a significant effect on assumed savings achievement, particularly for the dual-fuel utilities, PG&E and SDG&E. In D.09-05-037, we determined the adjustment that was appropriate to reduce 2009-2011 therm goals to recognize the applicable interactive effects, but we did not separately address, in that proceeding how the utilities' therm goals for the 2006-2008 cycle should be adjusted for interactive effects. Because interactive effects, particularly those experienced by dual-fuel gas and electric utilities, had not been considered in previously adopted energy efficiency goals, we found it reasonable, in D.09-05-037, to make adjustments to SDG&E and PG&E's goals for therm savings for purposes of their 2009-2011 gross savings goals. Drawing from the Energy Division Verification Report's analysis of 2006-2007 data, we thereby reduced the adopted 2009-2011 therm savings goals for PG&E by 26% and for SDG&E by 22%.
We concluded in D.09-12-045 that the issue of whether to apply the full 26% reduction to PG&E's 2006-2008 therm goals for purposes of computing 2006-2008 RRIM earnings would be addressed in this true-up
Under the ex ante approach adopted herein, however, we have relied on Scenario 3, Template 1, which does not make any adjustments to the energy savings results to address interactive effects. As we have previously discussed, however, the utilities, under Scenario 3, Template 1 already exceed the MPS, therefore, reducing the goals to account for interactive effects would have no bearing on the outcome. A reduction in the goals would only serve to increase the degree to which the IOUs are found to exceed the MPS, but would not impact the calculation of the PEB, nor the shared savings rate we have adopted herein. Therefore, because of the modification adopted by this decision, this issue is no longer in need of resolution, and is not relevant for purposes of the 2006-2008 period.
