2. Background
Rulemaking (R.) 06-04-010 has been our broad inquiry into post-2005 energy efficiency policies, programs, evaluation, measurement and verification, and related issues. We have issued a number of decisions in this docket on topics ranging including from energy efficiency goals (e.g., D.08-07-047) to the risk/reward incentive mechanism (RRIM).
The RRIM was initially adopted in D.07-09-043. In that decision, we adopted an incentive mechanism designed to align shareholder and consumer interests to create a "win-win" regulatory framework for energy efficiency that provides both a meaningful level of shareholder earnings and a return on ratepayers' investment in energy efficiency as the utilities reach towards and attempt to exceed our 2006-2008 energy savings goals. One part of the adopted RRIM would provide utilities with 65% of their incentive claims on an interim basis - subject to verification of such claims by the Energy Division - with 35% held back until a later final verification of achieved energy savings. D.07-09-043 foresaw a relook at the overall RRIM in 2011.
In D.08-07-047, regarding energy efficiency goals, the Commission indicated that changes to the goals could result in a need for modifications to the RRIM. That decision called for an Energy Division study and a decision in 2009 to analyze the impact of lowering the $450 million earnings cap in the RRIM and the impact of lowering the 9% and 12% incentive earnings rate as methods for mitigating possible unfair earnings outcomes from adopting a gross goal standard in D.08-07-047. The decision also instructed Energy Division to analyze the possibility of changing the way certain energy efficiency activities should be counted toward satisfying 2009-2011 portfolio goals, if such changes are needed to mitigate any unreasonable outcomes.
In their July 2008 applications regarding the 2009-2011 portfolios, the utilities suggested a number of changes related to the RRIM. The Scoping Memo in the 2009-2011 energy efficiency portfolio proceeding deferred certain issues related to the RRIM to this rulemaking, but kept certain policy issues in the proceeding. 2
As part of the RRIM adopted in D.07-09-043 (with modifications in D.08-01-042), the Energy Division was required to produce verification reports of utility energy efficiency costs and installations and services completed. These reports would serve as the basis for interim and final incentive payments to utilities, if warranted. The first verification report, due in August 2008 regarding 2006 and 2007 activities, became controversial both because of delays and utility concerns about methodologies used by Energy Division in calculating interim incentive payments. In addition, concerns have been raised about the efficacy and fairness of the underlying incentive structure which dictates the methodologies Energy Division must follow.
In response to the controversies surrounding the first verification report, the utilities filed a Petition for Modification of D.07-09-043 and D.08-01-042 in August 2008. In December 2008, we issued D.08-12-059 which modified D.07-09-043 and D.08-01-042. D.08-12-059 noted the controversy surrounding the first Verification Report, which in draft form recommended that the utilities receive little or no interim incentive payment for 2006 and 2007 (this report has not yet been finalized). D.08-12-059 determined that timeliness and consistency considerations should allow the utilities to receive 35% of their incentive claims, with 65% held back for further review.
D.08-12-059 required a review of the Energy Division Verification Report on 2006 and 2007 energy efficiency activities through a Commission Resolution. Under D.07-09-043, utilities could claim any interim incentive payments for 2006 and 2007 based on that Report. However, the utilities have already received interim payments of 35% of their claims per D.08-12-059. Thus, we anticipate that the upcoming Commission Resolution will consider the Energy Division report moot for the purposes of 2006 and 2007 interim incentive payments, although the report may be adopted for other informational purposes concerning utility energy efficiency program performance in 2006 and 2007 as well as for upcoming planning purposes.
2 Policy issues raised by the utilities in A.08-07-021 et al. include savings credit for activities associated with the Strategic Plan (also known as ringfencing).
