3. A Comprehensive Strategic Plan for Consumer Demand-Side Options
We direct the utilities to prepare a single strategic plan for energy efficiency through 2020 and beyond.19 Below we explain why we require strategic planning, how the plan will be developed, and what will be included in the plan.
3.1. The Need for Strategic Planning
Parties' Positions:20 The parties filed comments on the feasibility and usefulness of a strategic planning effort. The parties strongly support comprehensive strategic planning21 and generally concur that planning should transcend the strict confines of the utilities' jurisdictional boundaries and more explicitly incorporate the ideas and resources of other market and governmental actors, such as local governments, manufacturers, and businesses.
SCE voices its support for a strategic planning process:
[The] IOUs' work should be congruent with California's policy agenda regarding energy, energy efficiency, and climate change mitigation. Accordingly, market transformational actions should complement long-term resource acquisition; similarly utility initiatives should work toward institutionalizing energy efficiency by contributing to codes and standards and to industry and government standard practices. We also strongly support consistency with state energy policy (Energy Action Plan II) that calls for IOUs to `capture all cost-effective achievable energy savings potential' even though it may lead to lower average cost effectiveness as California utilities move on from picking the `low-hanging' fruit to the `medium-` and `high-hanging' fruits as well.22
A number of parties, including the Division of Ratepayer Advocates (DRA) and The Utility Reform Network (TURN) point out that a statewide IOU strategic plan could achieve economies of scope and scale and improve consistency in the design and delivery of utility programs. The Natural Resources Defense Council (NRDC), DRA, and SDG&E/SoCalGas believe a collaborative forum could enhance coordination and thereby promote compliance with the state's mandated building codes and appliance and equipment standards. The NEEA states collaboration across the western states is essential and may promote energy savings that individual states could not independently achieve.
Several parties commented that maximizing energy savings opportunities requires the active engagement of market players and local governments in planning and portfolio development. For example, DRA, SDG&E/SoCalGas and NRDC argue that such coordination with local governments is necessary in order to improve much-needed compliance with building codes and pursue more stringent building standards than those required by the state. NEEA proposes working with major manufacturers and retailers whose markets go beyond the traditional boundaries of utility service territories. SMUD notes that broad collaboration across utilities, local governments, and market players brings additional benefits of increased customer participation, reduced costs, co-marketing opportunities, and a more seamless package of integrated services for the customer.
SCE states that among the benefits of a long-term plan for energy efficiency is that energy efficiency programs can be better integrated with long-term overall resource planning and acquisition. TURN makes a similar point, explaining that a strategic plan will facilitate identifying ways to use energy efficiency programs to better match differing load profiles and will promote the delivery of longer term energy efficiency measures and activities that in particular reduce on-peak demand.
TURN is concerned that the 2006-2008 portfolios rely far too heavily on lighting, which is relatively inexpensive and easy to implement. TURN argues that an overly exclusive focus on lighting can result in extensive lost opportunities and lack of persistent savings.23 TURN further notes that certain low-cost lighting measures, such as compact fluorescent light bulbs (CFLs), have a low expected useful life (EUL), i.e., the number of years that a measure or program will continue to produce savings before it must be replaced.
DRA recommends that a strategic planning effort not only focus on longer-term goals and strategies but define and quantify when market transformation has occurred so that it is obvious when ratepayer energy efficiency funding has succeeded and particular technologies or programs no longer need ratepayer subsidies.24 DRA argues a focus on market transformation will enable dynamic energy efficiency programs where technologies or programs that no longer need subsidies are "sun-setted" and are replaced by new technologies and programs that have been encouraged by efforts in research and development, emerging technologies, and bringing new technologies to market.
Discussion. We agree with the parties that Californians will be better served by a more comprehensive approach to program planning, design and delivery for energy efficiency. Our overriding goal in energy efficiency is to "pursue all cost-effective energy efficiency opportunities over both the short- and long-term."25 A number of parties believe we and the utilities have focused on the former, to the detriment of the latter. At a minimum, all parties agree that California (and likely other regions as well) will achieve far greater savings if the IOUs and the Commission actively engage in coordinated, long-term planning.
Currently, the utilities are assigned responsibility for developing a portfolio of energy efficiency programs to achieve our adopted targets for energy savings in a cost-effective manner. This model can be effective in accomplishing certain short-term savings goals but without more strategic and longer-term planning, is limited in achieving savings over the longer term and perhaps even over the three-year portfolio cycle.
We agree with parties that a directed, statewide strategic planning effort will deliver more savings from existing measures, create new savings opportunities for the future, and afford efficiencies in the development and delivery of programs. We further agree with those who urge development of a written strategic plan to achieve the long-term (as well as short-term) goals we have adopted. Without a long-term, written strategic plan, we cannot determine if the utilities are pursuing the appropriate mix of programs to meet our goals. Our current approach is too narrow to recognize adequately the complexities and evolving nature of the marketplace for energy efficiency products, services, and investments.
We hereby direct the utilities to submit a single joint, statewide IOU strategic plan (Strategic Plan or Plan) in addition to their individual applications for the 2009-2011 energy efficiency program portfolios. The Plan must be specific enough to serve as a roadmap to meaningful action in the near term, while providing direction for future program design and development through 2020 and beyond. Each utility's 2009-2011 proposed program portfolio should reflect the Plan, as well as circumstances unique to the utility, its customer base, service territory, and other factors.
Assuring a more comprehensive, integrated model for energy efficiency will require a significant shift in the utilities' approach to program design, development and implementation. Although we have consistently encouraged the utilities to think and act strategically in designing and delivering energy efficiency programs, the utilities and indeed other leaders in business and government must adopt a conceptual framework that is more comprehensive and forward-looking.
We also agree with SCE, DRA and TURN that we must reiterate the goal of using ratepayer-funded energy efficiency programs to transform the market and incorporate efficiency gains into codes and standards (C&S).26 TURN correctly notes that an emphasis on measures with savings that decay quickly creates a "treading water effect" whereby the measures are replaced in the next portfolio cycle with little development towards sustainable programs that do not require continual reinvestments of ratepayer funds.
In D.98-04-063, we defined "market transformation" as:
Long-lasting sustainable changes in the structure or functioning of a market achieved by reducing barriers to the adoption of energy efficiency measures to the point where further publicly-funded intervention is no longer appropriate in that specific market.27
By re-emphasizing our market transformation goal in this decision, we do not discount the benefits of shorter-term measures for energy savings. The portfolios must contain an appropriate mix of short and longer term energy savings. However, short-term programs such as the replacement of incandescent light bulbs with compact fluorescent light bulbs must be accompanied by programs to encourage new technologies in lighting, consumer education on the benefits of energy efficient lighting and conservation, and advocacy for higher codes and standards for lighting.
3.2. The Process for Development of the Strategic Plan
Parties' Positions. The parties presented a variety of ideas on the structure for a strategic planning process. DRA states the Commission's leadership in this proceeding has been important and believes the Commission should continue to lead and coordinate strategic thinking, especially considering the need to engage so many constituencies in business and government. The City and County of San Francisco (CCSF) likewise proposes that the Commission oversee and enforce a long-term strategic plan. SMUD recommends that the Commission and the CEC convene collaborative forums that engage a broad array of government agencies, community-based organizations, businesses and consumer groups to participate in program development.
NEEA and TURN emphasize the need to transcend jurisdictional boundaries and conduct planning at local, regional and national levels. Based on its experience, NEEA believes an effective, comprehensive strategic plan requires a forum that sustains working partnerships between various constituencies, rather than traditional advisory groups, which have limited participation. It stresses that planning for product delivery requires the participation of individuals and groups that are involved in business planning, market research, and marketing for specified products and services. Representatives of local governments emphasize their prospective contributions to energy efficiency planning, especially in efforts that target new home and commercial construction.
Several parties, including SDG&E/SoCalGas, NRDC and DRA, recommend continued collaboration with the existing PAG structure. CCSF would strengthen the role of the PAGs in a strategic planning forum and increase its influence by formalizing its role. DRA proposes modifying the existing PAG structure to create a forum for strategic planning and would reconstitute the individual utility PAGs into a single statewide PAG that would focus on integrated and consistent energy efficiency strategies across jurisdictions and utility programs.
Discussion. We agree with DRA and CCSF that a utility-led strategic planning process, by itself, will not be sufficient to convene the many entities that must be involved in this process. Likewise, we believe reliance on PAGs, even in an enhanced role, will not result in the collaborative process necessary for comprehensive strategic planning.28 As PG&E stated:
...broader, more collaborative, market-transforming activities contemplated for energy efficiency in 2009-2011 and beyond dictates the need for a broader, more collaborative forum that will invite regional and national participation by all interested stakeholders.29
We conclude that the Commission must initially lead the effort to engage non-utility parties in a coordinated strategic planning effort with the IOUs. Although the utilities will play a critical role and will be responsible for the creation of the Strategic Plan, the Commission will lead the process in order to ensure that non-utility parties participate, the process is collaborative, and the Commission's policy objectives are met. The effort leading to the IOUs submission of the statewide Strategic Plan will be conducted under the direction of the assigned Commissioner according to the following guidance. The assigned Commissioner may engage the assistance of Commission staff and consultants as necessary and we anticipate that initial meetings will be led by Commission staff. While the joint Strategic Plan will emphasize statewide strategies, the 2009-2011 portfolio filings that draw upon the plan should reflect regional and local variations.
The process for developing the Strategic Plan should be inclusive and promote a broad exchange of ideas and analysis. We are particularly interested in the participation of POUs and local governments across California, and also regional energy efficiency entities such as NEEA. We direct staff to ensure a broad set of stakeholders is invited to participate in this process, stretching beyond those organizations typically seen in CPUC proceedings. This is critical to consensus on a single statewide plan. We especially invite the continued collaboration with CEC staff. The forums should be scheduled at times and in places that encourage participation by informed and knowledgeable stakeholders able to identify issues, needs, optional strategies, roles and associated action steps for the Strategic Plan.
The Commission herein schedules the initial planning meeting. This meeting should refine the scope, schedule, and tasks required to prepare the Strategic Plan, including the roles and responsibilities of participants and additional planning meetings. In addition, the Assigned Commissioner or Commission staff shall, prior to this meeting, issue direction addressing the scope, principles and methods to be employed to ensure transparency, accountability and responsiveness throughout the strategic planning process.
All meetings shall be publicly noticed in the Commission's Daily Calendar and to the service list for this proceeding. As recommended by DRA, efforts shall be made to include experts representing each market sector who could advise on long-term strategic planning. All reasonable efforts should be made to notify other important participants, such as state agencies, local governments, POUs, energy efficiency trade and professional associations, research entities, and regional planning organizations.
Although the Commission will convene and guide these planning forums and the development of the Strategic Plan will be a collaborative effort, the creation of the Plan will be the responsibility of the utilities. While it may be unrealistic to expect consensus among the many parties we hope to engage, we direct the utilities to take advantage of the knowledge, skills and ideas of those who participate in the planning forums, and to respond directly to stakeholder input Finally, the Plan must be consistent with the guidance we provide in this decision and our Energy Efficiency Policy Manual (Policy Rules).
The Commission encourages the utilities to hold, prior to the release of the draft plan, a working session enabling active stakeholder participants in the planning process to preview and comment on the proposed draft plan contents. Based on this or a similar process, the Commission expects the utilities to incorporate useful suggestions for the modification or improvement of the plan prior to its general public release and filing with Commission staff. Procedures such as these will ensure that active stakeholders are effectively engaged to shape the draft document distributed for public comment.
The IOUs shall serve a draft of the Strategic Plan on the Commission staff and all parties to this docket (or any successor docket) no later than February 1, 2008. Commission staff shall provide notice of the draft Plan on the Commission's website and make it available to the general public. The utilities shall subsequently solicit written comments on the plan and conduct publicly noticed meetings in San Francisco, San Diego and Los Angeles to hear from interested parties on the Plan's content. The Commission staff may also provide guidance to the utilities regarding the content and format of the Plan.
In addition, the IOUs are hereby directed to establish a joint California Energy Efficiency Strategic Planning web portal. The utilities shall post on this web portal all Strategic Planning working meeting agendas, key reference documents and work products, draft plan (once prepared) and all written stakeholder comments received on the plan.
The utilities shall file their final joint Strategic Plan as part of their energy efficiency portfolio applications for their 2009-2011 programs, which will be due no later than May 15 2008. The utilities shall include in this final joint Strategic Plan a list of all major stakeholder comments received on the draft, and a utility response as to the disposition of each.
In addition to the initial strategic planning effort we describe here, we intend to conduct annual strategic planning sessions in the future. These sessions will provide opportunities to discuss progress toward objectives and implementation milestones, findings from market assessments or program evaluations, changes in the marketplace, and possible improvements to the strategic plan. These sessions will be in addition to the Commission's formal review of utilities' overall progress on meeting adopted energy savings goals and portfolio management. We will also expand the Commission's website, as discussed below, to enhance both the initial and continuing strategic planning process.
We recognize the limitations time will impose on this initial planning effort and the strains it may impose on the utilities and other parties, especially as they work on developing the 2009-2011 energy efficiency program portfolio applications. Nevertheless, within that constraint, we expect an earnest effort and a high quality product. We also expect the utilities to take the opportunity to join us in demonstrating leadership in this effort.30
3.3. Content of the Strategic Plan
Parties' Positions. The parties offered a variety of proposals for the structure of the Strategic Plan. Several parties addressed the degree of specificity or flexibility that may be needed to describe actions in a long-term plan. DRA, NRDC, and TURN recognize that the strategic plans will necessarily reveal more detail for the near term and less for the work to be accomplished in later years. CCSF recommends the use of specified short and mid-term milestones, with flexibility to adapt and adjust strategies as circumstances change and information becomes available. CCSF also argues that local governments should play a large role in the energy efficiency programs through their planning processes, development and enforcement of C&S, and delivery of energy efficiency in conjunction with local government programs, and assistance in accessing hard to reach populations.31 In particular, CCSF notes that cities can and do have C&S that are more stringent than state standards and can act as a pilot program for testing newly developed C&S.
Some parties, including DRA and SMUD, recommend that the Strategic Plan incorporate a systems approach to energy efficiency program design and delivery, which would consider hardware, controls, software, user operation and behavior, rather than the existing emphasis on a single technology or hardware. Similarly, NEEA and SMUD propose that strategic planning identify and integrate activities at each stage of a product's life cycle, including research and development (R&D), early commercialization, full-scale utility programs, and codes and standards. Several parties emphasize the need for the Strategic Plan to better integrate energy efficiency strategies with other energy resource applications, such as conservation, self-generation, advanced meters, and demand response.
Discussion. We acknowledge that the Strategic Planning effort is a new approach that will require flexibility and responsiveness on the part of this Commission. Therefore, the assigned Commissioner, in consultation with the assigned ALJ and Commission staff, may provide additional clarification and direction with respect to the content and development of the Strategic Plan through rulings. Based on the comments received, we envision the Plan will include, at a minimum, the following major items:
o Long Term Guidance Through 2020;
o Integration Strategy;
o Market Transformation;
o Programmatic Initiatives/Big, Bold Energy Efficiency Strategies (BBEES)
o Best Practices, Portfolio Diversity, and Innovation;
o Local Government; and
o Low Income Energy Efficiency
We provide below further direction on each of these areas except the BBEES which are discussed in Section 4 below.32
The Plan should reflect a balance between long-range strategies to achieve all cost-effective energy efficiency, and specific actions to achieve near-term savings goals. The Plan should identify, at least generally, the program areas and associated strategic implementation activities needed through 2020 to achieve our goal of implementing all cost-effective energy efficiency. The Plan should also identify specific activities and implementation milestones to carry out in the 2009-2011 program cycle, both by utilities and by other players participating in the Strategic Plan's preparation.
Integration of measures, programs, and actors at all levels is necessary to avoid lost opportunities and achieve market transformation. The Plan should present a strategy to integrate measures, programs, policies and actors at all key levels of energy efficiency program design and delivery. To do this, this portion of the Plan should: (1) address the full range of comprehensive consumer demand- side options,33 such as demand response, advanced meters, conservation and self-generation; (2) present a systems approach that encompasses all types of measures, programs and activities, including research and development, codes and standards, design, hardware, controls, installation, maintenance, and user behavior; and (3) include a process to engage collaboratively the expertise of market sector professionals and the leadership of key stakeholders. The intent is not to consolidate these programs under one administrator, but rather to find energy efficiency opportunities in these programs and, to the extent that energy savings can be directly attributable to the utilities' energy efficiency efforts, count those savings towards achievement of the energy efficiency goals. The utilities already have some programs in their current portfolios that use an integrated approach to demand side management. In D.05-09-043, we approved the utility proposals to "include strategies to integrate energy efficiency offerings with [demand response (DR)] and [distributed generation (DG)] solutions" in order to "determine the best combination of resources to meet the particular customer's needs" and to prepare a joint strategy to integrate consumer side programs in a manner that is cost-effective and avoids confusion to customers.34 For example, PG&E's Market Integrated Demand Side Management (MIDSM) program sought third-party proposals to assist customers in choosing and implementing a package of demand side management (DSM) measures such as conservation, DR, and self-generation. SCE, SoCalGas, and SDG&E have sustainable communities programs which offer higher tier incentives for sustainable building projects that significantly exceed Title 24 standards and incorporate high performance energy efficiency and demand response, clean distributed generation, water conservation, transportation efficiency and waste reduction strategies.
We direct the utilities to review the lessons learned from these programs as part of the strategic planning process and to maximize use of such approaches in the Strategic Plan. The Strategic Plan should also set out a process to move ideas/programs/products through R&D/emerging technologies/utility programs/codes & standards and/or market transformation. Finally, we expect the utilities to explain strategies to engage the full range of players, even those who may not currently be integrated, in delivering energy efficiency savings.35 Many strategies likely will lend themselves to statewide implementation approaches and program delivery, including collaboration with POUs and market stakeholders. Where possible, we encourage even wider regional implementation programs with other western states or even national joint sponsors.
While deepening integration of delivery of DSM programs and customer offerings may entail some upfront incremental costs to the utilities for planning and program integration, it is our expectation that more cohesive program offerings across multiple programs targeting the same market or audience will result in lower downstream costs in administration and marketing of individual programs. Commission developed guidelines for portfolio filings shall address this issue.
A key element of the long-term nature of the Strategic Plan is that it articulates how energy efficiency programs are or will be designed with the goal of transitioning to either the marketplace without ratepayer subsidies, or codes and standards. To do so, the Plan must identify the targeted timeframe for such market transition and the process for tracking progress so that it is clear at what point a program has made a successful transition or conversely, is having problems.
The Strategic Plan shall incorporate the market transformation goal described above and develop milestones to measure progress towards that goal. For example, the NEEA sets market transformation goals for its programs, and then measures progress towards the goals by determining the extent to which various barriers have been overcome in a given market. Such barrier criteria include: consumer awareness, product/service availability, pricing, purchasing behavior, customer satisfaction, and future customer actions.36 Measures and programs that have achieved their goals are phased out of the utility energy efficiency portfolios to make room for new measures.
The Plan shall contain the framework and utility role for implementing the three programmatic initiatives we adopt in this decision. We provide guidance on this portion of the Strategic Plan in Section 4 below.
The Plan shall explain the processes used to encourage and implement best practices, portfolio diversity, and innovative ideas. We provide additional direction in our discussion below of these items with regard to the 2009-2011 portfolio plans.
Our prior decisions have emphasized that local government partnerships can play a key role in energy efficiency programs.37 While we decline to adopt CCSF's recommendation to require the utilities to include a local government component in each program, we direct the utilities to include a section in the Strategic Plan identifying an overall strategy to leverage the role of local governments in their energy efficiency programs. We are especially intrigued by CCSF's recommendation that local governments work with utilities to "stage" the implementation of more stringent codes and standards with incentives, for example, by providing support for code development, and incentives for more efficiency technologies in early stages. These incentives would be phased out as codes are implemented and market transformation is sufficiently underway. We also are intrigued with the possible use of energy efficiency programs to incent local governments to adopt land use plans and permitting processes that promote reduced energy use.
The Strategic Plan shall address the use of LIEE programs, both as stand-alone programs and in conjunction with general energy efficiency and customer-side programs. The Commission will provide guidance on development of LIEE program portfolios for 2009-2011 and the integration of LIEE in the Strategic Plan in a decision later this year in R.07-01-042.
19 Our adopted goals only extend to 2013. As discussed below in Section 7.2, we direct staff to work with utilities and other parties in identifying "temporary" goals through at least 2020 that can inform the Strategic Plan. We intend to adopt formal goals through 2020 in 2008.
20 We received several rounds of comments from numerous parties on this and other issues in this phase of the proceeding. These comments greatly increased our understanding of the issues and provided valuable insight. However, as usual in these types of proceedings, the record is voluminous. We thus highlight common themes and issues presented by the parties, rather than summarizing every nuance in individual positions.
21 The parties used various phrases to describe a strategic planning process, including "collaborative planning," "coordinated long-term planning," and "shared problem-solving."
22 July 10, 2007, SCE Comments, p. 3.
23 July 23, 2007, TURN Post-Workshop Comments, p. 10. Our Energy Efficiency Policy Manual, Rule II.4, defines "lost opportunities" as "those energy efficiency options which offer long-lived, cost-effective savings and which, if not exploited promptly or simultaneously with other low cost energy efficiency measures or in tandem with other load-reduction technologies or distributed generation technologies being installed at the site (e.g., solar heating or photovoltaics), are lost irretrievably or rendered much more costly to achieve."
24 July 10, 2007, DRA Comments, p. 6.
25 D.05-09-043, p. 51; Policy Rule II.1.
26 As we stated in our 2006-2008 portfolio decision, using ratepayer dollars to work towards adoption of higher appliance and building standards may be one of the most cost-effective ways to tap the savings potential for energy efficiency and procure least-cost energy resources on behalf of all ratepayers. D.05-09-043, p. 121.
27 D.98-04-063, Appendix A.
28 We address the role of the PAGs below in Section 6.8.
29 July 23, 2007, PG&E Comments, p. 2.
30 Intervenor compensation for work on strategic planning may be awarded to participants in conformance with existing law, which requires that intervenors demonstrate substantive contributions to a Commission order or decision.
31 July 23, 2007, CCSF Comments, p. 11.
32 We also note two examples of energy efficiency strategic planning. The first is the UK Energy Efficiency Action Plan 2007, fn. 43. The second is Volume 3, Appendix D, "Conservation Acquisition Strategies" in the most recent plan of the Northwest Power and Conservation Council found at www.nwcouncil.org.
33 Many consumer demand-side options are offered by non-utility providers. For example, demand response aggregators enroll customers in utility programs and their own demand response programs. In the future demand response aggregators and individual customers may offer demand response directly into the CAISO's energy and ancillary services market. Another example is the Self Generation Incentive Program currently administered by CCSE. The Plan should recognize the existence of non-utility providers.
34 D.05-09-043, pp. 28, 71. The process we set forth in this decision will ensure expanded use of such integrated programs and tracking of the program implementation.
35 As an example, the utilities should investigate partnerships with financial institutions to develop or offer loans or other funding mechanisms for implementation of energy efficiency strategies, as well as make better use of state bond funds available for energy efficiency activities.
36 July 18, 2007, NEEA Comments, pp. 7, 11-13.
37 See, e.g., D.05-01-055, p. 93 and D.03-08-067.
