8. Comments on Alternate Proposed Decision
The alternate proposed decision of Commissioner Peevey in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on December 6, 2010 by SCE, PG&E, SDG&E/SCG, DRA, TURN, and NRDC and reply comments were filed on December 13, 2010 by SCE, PG&E, SDG&E/SCG, DRA, and NRDC.
In its comments, SCE supports the approach adopted in the alternative proposed decision of Commissioner Peevey. As explained, SCE made some anticipatory changes to its parameters based on emerging information over the course of the 2006-2008 cycle. Consequently, it argues that absent certain modifications to Scenario 3 that would "back-out" changes SCE made to various parameters over the course of the 2006-2008 cycle, SCE would essentially be punished. As explained above, it was unreasonable to conclude the IOUs could have anticipated the magnitude of all the changes identified in the ex post evaluation report. Nor was it reasonable to expect them to be able to adjust their portfolios in a manner that would allow them to avoid the adverse impacts of those changes. While SCE did make some adjustments, those adjustments were insufficient to compensate for the profound changes identified in the ex post evaluation report. We agree with SCE and modify the alternate proposed decision accordingly.
PG&E comments indicate general support for the conceptual underpinnings of the alternate proposed decision of Commissioner Peevey. However, it takes issue with certain modifications to the mechanism as it applies to the 2006-2008 true-up. Specifically, PG&E argues that a 12% shared savings rate is more appropriate than the 7% rate adopted in the alternate proposed decision, alleging that under Scenario 3, if all other aspects of the mechanism were left unchanged, PG&E would be earning at the 12% shared savings rate. PG&E further argues that the 7% rate is in conflict with the purported goal of supply side comparability. In addition, PG&E contends that Scenario 3 leaves unresolved questions regarding when the IOUs will receive credit for the energy savings associated with compact fluorescent light bulbs that were purchased and rebated in the 2006-2008 period but which are not installed until later. Lastly PG&E alleges that the alternate proposed decision mischaracterizes the treatment of Codes & Standards as adopted by the Commission. Specifically, PG&E argues that the Commission had previously determined that 100% of the savings from Codes and Standards work should be included in calculating performance relative to the MPS as well as the PEB.
Much of PG&E's argument, recounted above, concerns policy matters. We find PG&E's argument that a higher shared savings rate should be adopted based on the shared savings rate that would apply under Scenario 3to be without merit. PG&E's argument ignores the substantial change that results in the risk balance caused from shifting to an ex ante approach. Specifically, under an ex ante approach, ratepayers are at greater risk of paying incentives for efficiency savings that, in retrospect, are found to have not occurred or which were less cost-effective than originally anticipated. To address this, we find that reducing the shared savings rate provides a just, reasonable and straightforward way of restoring the balance in the mechanism.
PG&E, and SCE in reply comments, also raised an issue related to the treatment of CFLs that were procured and rebated over the 2006-2008 cycle but which are not installed until after the cycle. PG&E asserts that according to the Energy Division's Upstream Lighting Report 97% of the all residential CFLs sold to customers may be installed within two years of the conclusion of the program cycle. Thus, PG&E is concerned whether and when it will receive credit for the eventual installation of the CFLs.
We understand PG&E's concern that CFLs that are procured and rebated, and which are ultimately installed, should yield some level of energy savings that are attributable to the utility programs; however, we do not have sufficient information to make a determination regarding how the savings associated with these CFLs would impact the utilities' earnings under the incentive mechanism for the 2006-2008 period. In any event, nothing in this decision precludes the utilities from seeking credit for energy savings based on the installation of CFLs that were procured and rebated over the 2006-2008 cycle but which were not installed in that period, provided an incentive mechanism is adopted on a going-forward basis. As we discuss infra, concerning SDG&E's and SCG's comments on the alternate proposed decision of Commissioner Peevey, by this decision we have determined that the ex ante approach adopted herein including the use of a 7% shared savings rate, should be applied to the 2009 period.
Lastly, PG&E alleges that the alternate proposed decision errs in stating that that savings associated with Codes & Standards are only considered for purposes of assessing performance relative to the Minimum Performance Standard. We addressed this issue in section 6.1.2 above and need not review it again here.
SDG&E/SCG generally support Commissioner Peevey's alternate proposed decision. They also assert that the methodology should be applied to the utilities 2009 energy efficiency programs. They also argue, much like NRDC, that the Commissioner Peevey's alternate proposed decision inappropriately endorses the updates to various parameters that Energy Division identified in its impact reports. We have addressed this latter allegation in the discussion, infra, regarding NRDC's comments.
SDG&E/SCG argue, applying the mechanism as modified in this decision to the 2009 energy efficiency programs would be consistent with the bridging approach the Commission took to the 2009 program year when we authorized, by D.08-10-027, the utilities to continue existing 2006-2008 programs into the 2009-2011 period pending the a final decision on the 2009-2011 portfolios. SDG&E/SCG also argue that the approach taken in the ALJ's proposed decision on the Incentive Mechanism for the 2010 to 2012 period, under which the Commission would simply skip 2009, would create an "unwarranted omission" in the treatment of the efforts the utilities undertook to promote energy efficiency in that year. We agree in principle with SDG&E's/SCG's bridging approach argument. We think this approach also ensures that the opportunity to earn incentives shall be consistently applied on a year-to-year basis. However, applying the mechanism adopted in this decision for the 2006-2008 period to 2009 is complicated by the fact that a number of changes have been made to what is included in the energy efficiency goals post 2006-2008, as well as changes to what is included among the activities that contribute toward goal achievement. These changes include, but are not necessarily limited to, the transition to goals being set on a gross basis, and the removal of the 2004-2005 cumulative savings from the goals.
Notwithstanding these complicating factors, we are persuaded that applying the mechanism adopted here for the 2006-2008 true-up to the 2009 program year is reasonable. To that end, the utilities shall file applications in which they calculate for energy efficiency incentives in 2009 pursuant to the modifications made to the incentive mechanism adopted herein. These applications shall be submitted to the Commission no later than June 30, 2011 to allow for consideration and disposition by December 31, 2011.
In developing and submitting their respective applications, the utilities shall recalculate their 2009 ex ante savings in the Evaluation Reporting Template (ERT) tool31 to reflect gross ex ante savings. The utilities may also incorporate estimated net benefits attributable to post-2006 C&S program advocacy efforts. No other modifications shall be made to the ERT tool or the ERT input sheets,32 provided, however, that SCE shall be permitted to revert some of the Gross Realization rates and NTGs back to the values used in the planning of the 2006-2008 portfolio, consistent with the changes identified in Table 5 above. In addition, the utilities shall use the risk reward spreadsheet template provided by Energy Division which recognizes the removal of 2004-2005 goals and savings, the inclusion of 2006-2008 net goals and 2009 gross goals, the inclusion of 50% decay from 2006-2008, and the inclusion of verified C&S savings using 50% for pre-2006 and 100% post-2006 as directed in other Commission decisions. The utilities shall provide the following with their applications in order to facilitate the Commission's review of their incentive claims:
1. The Microsoft Access ERT tool the utilities used to modify the 2009 ex- ante numbers to gross savings.
2. For SCE, any ERT Input Sheets that have been modified.
3. The Risk Reward Spreadsheet template used to calculate the incentive amounts.
4. A document that describes the files or tables that were changed, and what specific changes were made.
NRDC generally supports the outcome of the alternate proposed decision, though it argues for the inclusion of additional Findings of Fact to underscore the Commission's commitment to energy efficiency as the state's priority resource, the benefits of the utility energy efficiency programs as implemented thus far in reducing energy consumption, and the criticality of performance based incentives in promoting energy efficiency. We remind NRDC that we made such findings in D.07-09-043, and thus, doing so again is harmless, although redundant. This Commission has steadfastly maintained over many years that energy efficiency is the state's top resource priority resource. Further, we decline to adopt NRDC's proposed finding because we have pending before us another decision regarding reforms to the incentive mechanism going forward. The outcome of that proceeding will be a more accurate reflection of the Commission's position regarding the criticality of an incentive mechanism to achieving the state's energy efficiency goals and a finding here that an energy efficiency mechanism is an "essential policy" could be construed as prejudging the outcome of that decision.
NRDC also argues that the alternate proposed decision inappropriately concludes that the Energy Division impact reports are accurate. On this point, NRDC argues that the alternate proposed decision makes such a finding without having adequate information on the record to do so. For purposes of this decision, as already noted above, questions regarding updates to various ex ante parameters are not germane given the ex ante approach adopted herein. While we continue to believe that updates to these parameters do, at some point need to be finalized for planning purposes, there is no need to engage on this issue in this decision, and so we modify this decision accordingly to eliminate discussion related to the updates to various ex ante parameters.
In its comments, DRA argues that the alternate proposed decision violates the intent of the mechanism as adopted in D.07-09-043 that ratepayers would only pay the incentives based on energy savings that were found to have actually occurred. Reliance on ex ante assumptions, in DRA's view, contravenes this because Energy Division found, though, we note, not without substantial controversy, that many of the ex ante parameters were found to have been overly aggressive in terms of the magnitude of energy savings they would attribute to the utility programs.
We do not disagree that the modifications adopted in this decision represent a shift in the incentive framework and we also agree that relying on ex ante assumptions does increase the risk that some incentive payments will be made for savings that based on updated parameters are found to not have occurred. The flaw in DRA's argument is that it ignores both the inconsistencies in the application of the ex post adjustments in the mechanism as adopted in D.07-09-043, as well as the practical challenges that mechanism posed given the timing and availability of robust data regarding changing market dynamics. By utilizing the modifications we have hereby adopted, these issues are dismissed. However, in recognition of the changed risk profile to customers the alternate proposed decision substantially reduces the shared savings rate.
In comments TURN argues that Commissioner Peevey's alternate proposed decision is incorrect in its proposition that the incentive mechanism adopted in D.07-09-043 imposed unreasonable expectations on the IOUs. TURN argues that the history of the proceeding and energy efficiency indicate that the utilities should have modified their portfolios based on the understanding that a number of parameters used in developing the portfolios were outdated. TURN correctly argues that concerns regarding factors like the NTG were expressed for many years. However, it is our judgment that these reservations or expressions of concern did not provide a sufficient basis for the utilities to modify their portfolios in a manner that would have allowed them to substantially avoid the adverse impacts driven by the purported changes in the underlying parameters As we have observed, the updates to the parameters have been and remain highly contentious, and, to the extent more robust data indicating the sheer magnitude of these adjustments was forthcoming, it was not made available and actionable until well into the 2006-2008 program cycle.
Furthermore, as the alternate proposed decision indicated, while factors like the NTG were shown by Energy Division to have declined precipitously, indicative of substantial market transformation, the goals against which the utilities performance was being compared were never similarly adjusted. This inconsistency places the utilities in an increasingly unreasonable position. For example, if Energy Division found there was 100% market transformation for a particular customer segment or program (i.e. the NTG ratio was determined be zero), by definition, no energy savings could be attributed to that utility program because these savings would occur irrespective of this program. Yet, under this example, the utilities would still be responsible for capturing savings that are no longer available for the utilities to be credited for capturing.
In addition, TURN argues that should the Commission adopt the Peevey alternate proposed decision, the scenario-template combination selected should be modified from Scenario 3 - Template 1 to Scenario 3 - Template 6. Template 6 includes in the calculation of the PEB, the costs of the interim payments already awarded to the utilities of $143 million,thereby reducing the base against which the alternate proposed decision's 7% shared savings rate applies. This would reduce the total incentives for the 2006-2008 period by approximately $10 million. TURN argues that this modification would be "consistent with Commission policy and is necessary to reflect the cost-effectiveness of the programs." While the incentives are a true economic cost of the program, that fact does not require, as TURN argues, that we recursively include, in the calculation of the PEB, and, by extension, the calculation of any incentive rewards, the value of the incentive payments themselves. Nor are we convinced by TURN's arguments that because the interim payments are sunk economic costs that they should be included as a cost in the calculation of the PEB for purposes of the final claim.
1. In D.07-09-043, the Commission adopted the RRIM to encourage achievement of Commission-adopted energy efficiency goals, and to extend California's commitment to making energy efficiency the highest energy resource priority.
2. Pursuant to D.07-09-043 the RRIM would rely upon reports by Energy Division based on an independent evaluation of energy savings as the basis for interim and final incentive payments, as warranted.
3. The RRIM as adopted in D.07-09-043 required Energy Division to evaluate and verify the underlying parameters impacting savings resulting from and attributable to the utility programs and apply these evaluations to 2006-2008 results to ensure that ratepayers were not required to pay incentives for savings that did not materialize.
4. D.08-01-042 modified the original RRIM design to, among other things, require updating measure load impacts prior to the payout of interim claims to mitigate the risk of extremely large swings in earnings (positive or negative) at the final earnings true-up.
5. The process established for utilities to qualify for incentive earnings to meet and exceed Commission-adopted energy efficiency savings goals has proven to be quite controversial, because of disputes about methodologies used in calculating energy efficiency savings accomplishments, the sensitivity of incentive earnings to differences in the savings calculation methodologies, and more fundamental questions regarding the reasonableness of using updated ex ante assumptions and parameters to assess the utilities' energy efficiency program performance under the incentive mechanism.
6. By D.08-12-059 and D.09-12-045, the IOUs have been awarded two interim incentive payments for the 2006-2008 cycle, totaling $143.7 million.
7. Outstanding disputes as to the final true-up amount of incentive payments relate to assumptions regarding (a) the validity of both the ex ante and ex post (updated) total net cost savings subject to incentive earnings calculations, and (b) the applicable percentage share of the net savings to be assigned as incentive earnings.
8. The calculation of the 2006-2008 earnings true-up amounts vary significantly depending upon whether assumed energy savings are derived using unmodified ex ante values, versus updated ex post measures for key parameters.
9. The use of unmodified ex ante parameters drawn from the 2005 DEER for purposes of deriving savings achievements subject to the 2006-2008 incentive earnings true-up may produce results that differ from an assessment of the savings the utility portfolios provided based on updated assumptions to the extent the 2005 DEER parameters changed over the 2006-2008 period.
10. Reliance on ex ante assumptions for purposes of calculating incentive claims under the RRIM does not require the Commission to rely on these same assumptions in quantifying the ultimate impact of energy efficiency programs on energy savings and utility resource needs.
11. The incentive mechanism, as adopted in D.07-09-043, was predicated on the notion that the utilities can exert control over the magnitude of savings actually realized from their energy efficiency portfolios and can be reasonably expected to anticipate changes in the impact of various energy efficiency programs and measures in their portfolios and modify their portfolios and programs accordingly.
12. Because the incentive mechanism, as modified by D. 08-01-042, required the ex ante assumptions to be updated, the utilities assumed additional risk associated with changes in the underlying parameters and resulting impacts on measure savings and attribution over the 2006-2008 period over which they had no control.
13. Over the course of the 2006-2008 cycle, the evaluated measure of a number of key parameters changed dramatically from what had been assumed for purposes of developing and assessing the utilities 2006-2008 energy efficiency portfolios. Assessed changes to these parameters were such that the savings associated with the measures and programs in the utility portfolios were substantially reduced from what had been anticipated when the portfolios were approved.
14. The tiered shared savings rates of 9% and 12% in D.07-09-043 were adopted based on the Commission's judgment of what was reasonable given the risk to ratepayers of issuing incentives for claimed savings that may not ultimately materialize and the risk to the utilities of reduced incentives or penalties for missing or falling short of performance goals.
15. Eliminating the ex ante updating requirements for purposes of the incentive earnings true up (a) reduces the risk of lowered incentive earnings or penalties to the utilities substantially, and (b) increases the risk that ratepayers may pay incentives for supply-side savings that do not ultimately materialize.
16. The ability of the IOUs to make adjustments to their portfolios throughout the 2006-2008 cycle was constrained by the availability and timing of robust information regarding the various parameters that influence energy efficiency savings estimates and attribution.
17. Under the RRIM formula adopted by D.07-09-043, each IOU is eligible for a shared savings percentage that varies depending on the degree of success in achieving energy efficiency savings in relation to a "minimum performance standard."
18. Modification of the incentive framework that eliminates investor risk associated with independently evaluated updated ex post performance measures, but retains many aspects of the mechanism adopted in D.07-09-043, requires a corresponding reduction in each utility's applicable shared savings percentage in order to preserve the proper alignment of ratepayer and utility shareholder interests.
19. In order to rebalance the ratepayer-shareholder interests, in view of the use of unmodified ex ante assumptions, an appropriate reduction in the shared savings percentage is justified, reasonable and appropriate. Although the quantification of an appropriate reduction in the shared savings percentage is a matter of judgment, a reduction to a 7% rate for the 2006-2008 cycle provides for a reasonable realignment of investor and ratepayer interests.
20. Southern California Edison made a number of changes to the ex ante parameters concerning net-to-gross and gross realization rate numbers it assumed over the course of the 2006-2008 program cycle in an effort to be responsive to concerns regarding the accuracy of several ex ante values as reflected in Table 5 above.
21. Scenario 3, Template 1 represents the IOUs ex ante claims modified by Energy Division's installation rates.
22. Scenario 3, modified to reflect the original numbers used by Southern California Edison in its planning, provides a reasonable approximation of the savings that would be attributed to the utility programs using ex ante assumptions.
23. Based on the net benefits calculated under a modified Scenario 3, Template 1 in Energy Division's 2006-2008 Scenario Analysis Report, and applying a shared saving rate of 7% to the calculated net benefits, establishes that SCE, PG&E, SDG&E and SCG are entitled to additional awards for the 2006-2008 program cycle.
24. The additional, final incentives the utilities have earned under the modifications adopted by this decision are as follows: PG&E: $29.1 ; SCE: $24.1 million; SDG&E: $5.1 million; SCG: $9.9 million.
25. The values set forth in Appendix A constitute a reasonable approximation of energy efficiency savings derived in accordance with Commission goals and policies as set forth in this decision for use in calculating the incentive formula covering the 2006-2008 program cycle.
26. Scenario 3 includes the 2004-2005 cumulative savings in the goals against which the utilities 2006-2008 energy efficiency programs are compared. Because, under this scenario the utilities' energy efficiency programs for the 2006-2008 period yield savings that are found to exceed the MPS, excluding the 2004-2005 goals would result in the utilities being found to exceed the MPS by more.
27. To the degree that savings attributable to Codes & Standards should, based on prior Commission determinations, be included in the calculation of the performance earning basis for the 2006-2008 period, then additional incentive rewards may be appropriate.
28. 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 how savings from Codes & Standard are to be treated.
29. Nothing in this decision precludes the utilities from seeking credit for the energy savings associated with compact fluorescent lights that were sold and rebated in the 2006-2008 period but which were not or will not be installed until later, provided the savings from those lights have not already been accounted for.
30. In D.08-10-027 the Commission authorized the utilities to continue existing energy efficiency programs from the 2006-2008 period into 2009 pending Commission adoption of a final decision on the utilities EE portfolio programs for the 2009-2011 period.
31. The Order Instituting Rulemaking which established Rulemaking 09-01-019 expressly contemplated making changes to the Risk/Reward Incentive Mechanism as it applies to the 2006-2008 true-up or replacing that mechanism altogether.
1. The final true-up of incentive earnings for the 2006-2008 cycle should be evaluated based upon ex ante assumptions, adjusted for independently verified installations of savings measures as set forth in Appendix A.
2. The shared savings rate used to calculate incentives should be reduced to 7% in place of the 9% and 12% rates of the incentive mechanism adopted in D.07-09-043 because of the reduced risk to the IOUs of lowered incentive earnings or penalties under an ex ante approach to assessing program performance relative to the energy efficiency goals.
3. Based on of the IOU savings accomplishments for the 2006-2008 cycle, as set forth in Appendix A, the IOUs are eligible for additional incentive awards for the 2006-2008 pursuant to the modifications to the incentive mechanism adopted herein.
4. The calculations of the incentive awards which are based on the assumptions set forth in Appendix A, balance the goals of encouraging and rewarding the utilities' aggressive implementation of energy efficiency programs with the risk that actual savings achieved over the course of the 2006-2008 cycle may be less than what may have been anticipated, due to changes in the underlying assumptions on which the utilities' portfolios rely.
5. Final awards for the 2006-2008 program cycle in the amount of $29.1 to PG&E, $24.1 million to SCE, $5.1 million to SDG&E, and $9.9 million to SCG are just and reasonable incentive earnings under the RRIM methodology adopted by D.07-09-043, as modified.
6. The total awards granted to PG&E, SCE, SDG&E and SCG for the 2006-2008 program cycle, which include the final awards adopted by this decision, in addition to the interim awards adopted by D.08-12-059 and D.09-12-045 are just and reasonable earnings under the RRIM as modified.
7. The 2006-2008 true-up should be finalized in accordance with the Ordering Paragraphs below.
8. Since the Energy Division's finalized calculations incorporate correction of the E3 calculator used to determine natural gas energy efficiency benefits, as referenced in the SDG&E and SCG's Petition to Modify D.09-12-045 filed February 19, 2010, and because the additional amounts allegedly owed to them pursuant to Appendix A of this decision exceed the shortfall in their interim claims, that filing is hereby dismissed because it is moot.
9. The Commission should apply the modifications to the incentive mechanism adopted herein to the 2009 energy efficiency program year, recognizing the changes in the manner in which goals are stated, and what measure or activities contribute toward the achievement of those goals.
IT IS ORDERED that:
1. Decision 07-09-043 is modified as follows:
(a) Page 5, is modified to delete the second, third and fourth sentences of the first full paragraph, which provide: "As this figure shows, earnings begin to accrue at a 9% sharing rate if the utility meets 85% of the Commission's savings goals. If portfolio performance achieves 100% of the goals, the earnings rate increases from 9% to 12%. This means, for example, if the combined utilities achieve 100% of the 2006-2008 savings goals and the verified net benefits (resource savings minus total portfolio costs) at that level of performance is $2.7 billion, then $2.4 billion (88%) of those net benefits goes to ratepayers and $323 million (12%) goes to utility shareholders."
(b) Page 5, the following added in place of the sentences deleted by Ordering Paragraph Number 1(a): "The earnings begin to accrue at a 7% sharing rate if the utility meets 85% of the Commission's savings goals." Footnote 6 follows the end of the modified sentence.
(c) Figure 1 on page 8 is modified to delete the 9% and 12% of PEB figures and add 7% in the place of 9%.
(d) Table 1 on page 9 is modified so that the highlighted area that is at 100% is moved to the 85% line.
(e) Table 1 on page 9 is modified to reflect the application of a 7% shared savings rate to the Net Benefits for all calculations of Shareholder Earnings associated with Verified Savings of 85% of goals and higher.
(f) Page 10 is modified to delete the second full paragraph.
(g) Page 13: Footnote Number 9 is deleted.
(h) Page 12 is modified to delete the first sentence of the second full paragraph: "Each earnings claim will be based on the savings and net benefits verified in Energy Division's interim and final EM&V reports, and each claim will be submitted via compliance Advice Letter by the utilities," and add in its place: "Earnings claims will be based on the Commission's determination of the calculation of energy efficiency savings achievements and net benefits, including the Energy Division's interim and final EM&V reports, and each claim will be submitted via compliance Advice Letter by the utilities."
(i) Pages 12-13 are modified so that the sentence that carries over from page 12 to page 13, "Ratepayers will only be required to share net benefits with shareholders to the extent that those net benefits actually materialize, based on Energy Division's EM&V results," is deleted
(j) The following added in place of the deletion ordered by Ordering Paragraph Number 1(h): "Ratepayers will only be required to share net benefits with shareholders to the extent that those net benefits actually materialize, based on our determination in light of the record."
(k) Page s 108 -109 are modified so that the sentence that carries over from page 108 to page 109, "Recognizing that our savings goals are aggressive (yet achievable), and considering what percentage of sharing is fair to ratepayers and will reasonably balance the penalty side of the curve, we find that the tiered-rate structure described below strikes a reasonable balance," is deleted and the following is added in its place: "Recognizing that our savings goals are aggressive (yet achievable), and considering what percentage of sharing is fair to ratepayers and will reasonably balance the penalty side of the curve, we find that the shared structure described below strikes a reasonable balance."
(l) Page 109 is modified to delete the second full paragraph: "Once the utility has met the MPS, a first tier sharing rate of 9% will apply. When the utility has met 100% of the goals, a second tier sharing rate of 12% will apply, up to the earnings cap, " and the following is added in its place: "Once the utility has met the MPS, the sharing rate of 7% will apply."
(m) Page 109, the second and third sentences of the third full paragraph, "So, for example, if a utility's MW achievement is at 85% of the MW goal, but its GWh and MTherm achievements are 100% and 115% of the goals, respectively, the utility has met the MPS of 85% but not the 100% threshold for the second tier (12%) savings rate. It is still in the first tier (9%) range until it pulls up the MW level to 95%," are deleted in their entirety.
(n) Page 110, the second full paragraph: "This level of earnings potential increases to $322.6 million (for all utilities combined) at 100% achievement of the Commission's savings goals, if and only if the corresponding net benefits of $2.7 billion are actually produced by the energy efficiency portfolio ratepayers. If the utilities' performance is truly superior, whereby they exceed the goals by a significant margin, the earnings for their shareholders increase up to a maximum of $450 million, provided that the utilities produce the corresponding $3.9 billion in net benefits at that maximum level of earnings," is deleted in its entirety.
(o) Page 110, the first sentence of the third paragraph is modified to delete the word "tiered", and add the word "shared" in its place, so that the sentence now provides: "In our judgment, this shared earnings structure appropriately recognizes that, as the utilities move towards and beyond the goals to a level of superior performance, they are creating substantial ratepayer value in the form of net benefits, as well as GWh, MW and MTherm savings."
(p) Page 220, Ordering Paragraph Number 2.e is deleted and the following added in its place: "e) If a utility has met the MPS, a sharing savings rate of 7% shall apply, up to the earnings cap adopted for each utility."
2. The true-up of Risk/Reward Incentive Mechanism Savings for the 2006-2008 program cycle is hereby concluded. The total amount of incentives the utilities have earned over the 2006-2008 period is identified in Appendix A.
3. In view of the amounts the utilities have previously received in interim claims, the utilities are awarded the following amounts of true-up payments: Pacific Gas and Electric: $29.1; Southern California Edison: $24.1 million; San Diego Gas & Electric: $5.1million; Southern California Gas: $9.9 million. These constitute the final and complete resolution of all awards due Pacific Gas and Electric Company, San Diego Gas & Electric Company, Southern California Edison Company, and Southern California Gas Company for the 2006-2008 cycle.
4. No later than June 30, 2011, the utilities shall file applications in which they calculate energy efficiency incentives in 2009 pursuant to the incentive mechanism as modified herein. These applications shall be submitted to the Commission no later than June 30, 2011 to allow for consideration and disposition by December 31, 2011. In developing and submitting their respective applications, the utilities shall recalculate their 2009 ex- ante savings in the Evaluation Reporting Template (ERT) tool to reflect gross ex- ante savings. The utilities may also incorporate estimated net benefits attributable to post-2006 C&S program advocacy efforts. No other modifications can be made to the ERT tool or the ERT input sheets, except SCE is allowed to revert some of the Gross Realization rates and NTGs back to the values used in the planning of the 2006-2008 portfolio consistent with the changes identified in Table 5 above. In addition, the utilities shall use the risk reward spreadsheet template provided by Energy Division which recognizes the removal of 2004-2005 goals and savings, the inclusion of 2006-2008 net goals and 2009 gross goals, the inclusion of 50% decay from 2006-2008, and the inclusion verified C&S savings using 50% for pre-2006 and 100% post-2006 as directed in other Commission directives.herein. The utilities shall provide the following with their applications in order to facilitate the Commission's review of their incentive claims:
· The Microsoft Access ERT tool the utilities used to modify the 2009 ex- ante numbers to gross savings.
· For SCE, any ERT Input Sheets that have been modified.
· The Risk Reward Spreadsheet used to calculate the incentive amounts.
· A document that describes the files or tables that were changed, and what specific changes were made.
5. The Commission shall separately address in a subsequent proceeding in this docket whether, or subject to what conditions incentive payments and/or penalties may be due in 2010, and beyond.
6. Because of the corrections incorporated in the Energy Division Evaluation Report and the additional incentive amounts awarded herein to San Diego Gas & Electric Company and Southern California Gas Company for the final 2006-2008 true-up, the Petition to Modify D.09-12-045, filed by San Diego Gas & Electric Company and Southern California Gas Company is dismissed.
7. This proceeding shall remain open for consideration of issues relating to prospective modifications to the Risk/Reward Incentive Mechanism.
This order is effective today.
Dated December 16, 2010, at San Francisco, California.
MICHAEL R. PEEVEY
President
JOHN A. BOHN
TIMOTHY ALAN SIMON
Commissioners
I reserve the right to file a dissent.
/s/ DIAN M. GRUENEICH
CommissionerI
I reserve the right to file a dissent.
/s/ NANCY E. RYAN
Commissioner
APPENDIX A
Adopted Basis for Assessing
Risk/Reward Incentive Mechanism True-Up
The following shall apply for evaluating whether or to what extent any utility is entitled to additional earnings or to penalties pursuant to the final true-up of 2006-2008 Risk/Reward Incentive Mechanism (RRIM) results:
1. Use the calculation of the Performance Earnings Basis utilizing a modified version of Scenario 3, Template 1 from the Energy Division's 2006-2008 Scenario Analysis Report. The modifications to Scenario 3 reflect changes to a number of underlying parameters identified by SCE in Attachment B to its comments filed December 6, 2010 on the Peevey APD. These are recreated in Table 5 in section 5.4 of this decision.
2. Apply a 7% shared savings rate to the Performance Earning Basis provided the utility achieves at least 85% of the Energy Efficiency Goals.
The table on the next page demonstrates that under the approach adopted herein, all of the IOUs savings performance exceeds 85% of adopted goals.
The total calculated RRIM earnings are $211,853,077 over the 2006-2008 period based on a 7% shared savings rate applied to the modified Scenario 3, Template 1 Performance Earnings Basis. Subtracting interim amounts already received pursuant to D.08-12-059 and D.09-12-045 of $143,694,555, results in a final true-up payment of $68,158,522.
Calculation of RRIM Earnings Using Assumptions
Listed on the Preceding Page
(END OF APPENDIX A)
31 The ERT Tool can be found and downloaded from this website: http://www.edcentralserver.com/2009ERT/L.%20%202009%20ERT%20Application%20(withData).exe.
32 The ERT input sheets can be found and downloaded from this website: http://www.edcentralserver.com/2009ERT/M.%202009%20ERT%20Input%20Sheets.exe
