2. Procedural History and Background¹²

This decision is the most recent in a series of Commission actions that have changed the paradigm for IOU energy efficiency programs in California. Public Utilities Code Section 454.5(6)(9)(c), the Energy Action Plan and past Commission decisions have established a policy to procure all cost-effective conservation and energy efficiency resources before adding generation resources.

In D.04-09-060, the Commission voiced clearly its goal to pursue all cost-effective energy efficiency opportunities in support of the Energy Action Plan commitment that conservation and energy efficiency are first in the "loading order" of electricity and natural gas resources. In accordance with this overarching goal, D.04-09-060 established short- and long-term numerical targets for electricity and natural gas savings. We stated that these targets must be aggressive and must stretch the capabilities and efforts of all those involved in program planning and implementation.¹³

We specified that achievement of the goals must reflect actual installations of energy efficiency measures, not simply commitments to install them. We ordered the utilities to reflect our adopted goals in their resource acquisition and procurement plans so that ratepayers do not procure redundant supply-side resources over the short- or long-term.¹⁴ To encourage longer term planning and funding, we authorized a three-year program implementation and funding cycle for electric and natural gas energy efficiency.

In D.05-01-055, we returned the utilities to the lead administrative role in energy efficiency program selection and portfolio management and restated our policy that the focus for ratepayer resource procurement dollars in the future would be meeting the energy savings goals by procuring all cost-effective energy efficiency resources over both the short- and long-term. We gave our staff the responsibility for evaluation, measurement and verification (EM&V) activities to ensure that these savings are actually delivered and for assisting us in developing policy goals and priorities for energy efficiency.

D.05-04-051 directed that utility energy efficiency performance should be evaluated based on overall portfolio achievements, rather than on the performance of each individual program, in order to "encourage innovation, and allow for some risk-taking on pilot programs and/or measures in the portfolio."¹⁵ We also updated the Energy Efficiency Policy Manual¹⁶ to reflect policy rules that articulate the Commission's objectives for energy efficiency and provide guidance to the utility program administrators, program implementers and interested parties for the development of program portfolios for 2006 and beyond.

In D.05-09-043 and D.05-11-011, we committed $2.2 billion in ratepayer funds to procure energy efficiency savings over the 2006-2008 program cycle and approved the utilities' program portfolios, including utility efforts to better integrate their programs at a strategic level. For example, we approved the development of a joint plan on statewide marketing and outreach; a sustainable communities program incorporating higher performance energy efficiency and demand reduction technologies, along with clean on-site generation, water conservation, transportation efficiencies and waste reduction strategies; and programs to assist customers in choosing and implementing a package of demand side management measures such as conservation, demand response, and self-generation.

The Commission opened this rulemaking in April 2006 to further refine the policies, programs and EM&V related to the "next generation" of energy efficiency activities in 2006 and beyond. In Phase I, we have addressed adoption of a shareholder risk/reward incentive mechanism for energy efficiency programs.¹⁷ This decision addresses Phase II issues related to future savings goals and program planning for 2009-2011 energy efficiency and beyond.

Assigned Commissioner Dian M. Grueneich and assigned Administrative Law Judge (ALJ) Kim Malcolm held a prehearing conference in this rulemaking on February 27, 2007 in San Francisco. On April 13, Commissioner Grueneich issued a Phase II scoping memo and ruling identifying the following issues to be addressed:

1. Energy Efficiency Program Goals - to determine the efficacy of continuing previously-adopted portfolio goals for 2009-2011.

· Whether energy efficiency goals should be changed for 2009-2011 and, if so, what relevant new information they should consider;

· An approach to setting long-term goals for 2012 -2020 - how they should be developed and what they should be; and

· To what extent savings from certain activity areas should or should not be counted toward satisfying 2009-2011 portfolio goals - building codes and standards, water conservation programs, timing of credit for impacts that occur in a future period, non-utility energy efficiency strategies initiated by local communities, other non-utility energy efficiency impacts (e.g., market initiatives by manufacturers, distributors, business and professional organizations), and low income energy efficiency programs.

2. Strategies and Program Emphasis For 2009-2011 Energy Efficiency Portfolios - to promote maximum energy savings through coordinated actions of utility programs, market transformation, and codes and standards, alongside strategies for the reduction of greenhouse gasses -- "Big Bold Strategies" -- as a transition toward eventually having overall state strategies that encompass all energy efficiency actions, commence incrementally by selecting three or four big bold strategies for 2009-2011, which might include:

· Lighting;

· Residential new construction and renovations;

· Commercial Buildings;

· Gas Water Heaters;

· Air conditioning retrofit/replacement; or

· Other possible program elements that offer significant potential for energy efficiency.

Strategies and issues to be addressed will include:

· Coordination across market and government participants, including local government;

· Attribution of energy savings;

· Working with other states; and

· Funding from sources other than Commission-regulated rates (Public Interest Energy Research (PIER), emerging technologies, California Energy Commission (CEC) codes and standards budget, private sector actors, etc.).

3. Advisory Framework and Administration - reviewing and updating processes for portfolio development, selection of programmatic strategies, and crafting longer term visions to take full advantage of the community of knowledge and resources via:

· Role and activities of the Peer Review Group/Program Advisory Group (PRG/PAG) - membership, responsibilities, time commitments, work products;

· Promoting work with local governments, other states, manufacturers, etc.; and

· Ensuring overall strategies and individual programs reflect best practice, innovation, and highly cost-effective implementation approaches.

4. Portfolio Composition and Development Rules - designing programs and selecting a portfolio balance in ways that promote innovation, new technologies, and effective, efficient program implementation, including:

· Statewide programs vs. localized programs;

· Role of partnerships;

· Whether and how to increase competition for cost-effective program implementation;

· Whether to modify share of portfolio implemented by third parties;

· Extent to which enabling or support features (e.g. consumer behavior change, on-bill-financing, etc.) are captured in program designs; and

· Policy rules and definitions - avoided cost data to value peak demand impacts, updating the Database for Energy Efficient Resources (DEER), lifecycle consideration of measure impacts, the Energy and Environmental Economics, Inc. (E3) calculator application.

Eleven days of workshops were held on May 3, 4, 14 and June 5, 6, 7, 8, 11, 12, 13 and 21 in San Francisco, California, facilitated by Commission staff. Representatives from dozens of organizations participated at one or more days of the workshops and many submitted written comments as well. Participating parties have included the IOUs, publicly-owned utilities (POUs), consumer representatives, environmental groups, local governments, energy efficiency contractors, consultants, and industry.¹⁸ Our staff successfully engaged a number of parties who traditionally do not participate at the Commission, including the Northwest Energy Efficiency Alliance (NEEA), and the Sacramento Municipal Utilities District (SMUD) and members of the building industry. The staff of the CEC collaborated with the Commission on issues raised in this proceeding by providing technical expertise and information on these issues and the relationship of the proposals to the CEC's own programs, rules and policies.

¹² Attachment 1 describes the abbreviations and acronyms used in this decision.

¹³ D.04-09-060, p. 22.

¹⁴ D.04-09-060, Ordering Paragraph (OP) 6.

¹⁵ D.05-04-051, p. 7.

¹⁶ See fn. 2, supra. To the extent our decision today changes the Policy Rules in the Manual, we will revise them, consistent with Policy Rule XI.4.

¹⁷ D.07-09-043.

¹⁸ Attachment 2 contains a complete list of the parties to this proceeding and their acronyms.