8. Ex Parte Communications

This proceeding is subject to Article 8 of the Commission's Rules, which specifies standards for engaging in ex parte communications and the reporting of such communications. These requirements become effective upon the issuance of this OIR, based on the preliminary determination of category discussed above. Following the assigned Commissioner's appealable determination of category, the applicable ex parte communication and reporting requirements shall depend on such determination unless and until the Commission modifies the determinations pursuant to Rule 7.5 or 7.6.

Therefore, IT IS ORDERED that:

1. A rulemaking is instituted on the Commission's own motion under the authority of Rule 6.1 to examine the existing energy efficiency risk/reward incentive mechanism (RRIM) and to consider alternatives to this mechanism.

2. Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, and the Southern California Gas Company are Respondents to this proceeding.

3. The interim review of 2008 energy efficiency activities set in a January 20, 2009 Ruling in Rulemaking (R.) 06-04-010, is suspended, except for the February 28, 2009 utility measure and cost report.

4. The requirement in Decision 08-12-059 that the Energy Division Verification Report be issued via resolution as a basis for earnings claims for 2006 and 2007 activities is suspended pending resolution of those issues in this rulemaking, though the Verification Report may be issued for other informational or planning purposes.

5. The Executive Director shall cause this Order Instituting Rulemaking (OIR) to be served on Respondents, the California Energy Commission, and the service lists in R.06-04-010 and Applications (A.) 08-07-021 et al. Those organizations and individuals listed under the state service list and information-only categories will be served electronically only.

6. The service lists in R.06-04-010 and A.08-07-021 et al. shall serve as the temporary service list in this proceeding. A permanent service list shall be established at the first prehearing conference (PHC). Persons who wish to become a "party" to this proceeding should appear at the first PHC and fill out the "Notice of Party/Non-Party Status" form (appearance form) at that time.

7. The category for this rulemaking, as defined herein, is preliminarily determined to be "ratesetting" as that term is defined in Rule 1.3(e) of the Commission's Rules of Practice and Procedure.

8. Any person who objects to the preliminary categorization of this rulemaking shall raise such objection no later than 10 calendar days after the Commission issues this OIR.

9. For issues related to RRIMs, R.06-04-010 is superseded by this rulemaking.

10. All comments and other filings in this rulemaking shall be served pursuant to the Electronic Service Protocols consistent with Rules 3.2 and 3.2.1.

11. As soon as practicable, the assigned Commissioner or Administrative Law Judge shall schedule a PHC in this rulemaking.

This order is effective today.

Dated January 29, 2009, at San Francisco, California.

I reserve the right to file a concurrence.

/s/ DIAN M. GRUENEICH

I reserve the right to file a concurrence.

/s/ TIMOTHY ALAN SIMON

Concurrence of Commissioner Dian M. Grueneich

Today we vote to open a new Order Instituting Rulemaking (OIR) on our risk-reward incentive mechanism (RRIM) for investor-owned utility (IOU) energy efficiency programs. I vote in favor of opening this new docket.

Based on our recent experience, it is clear that performance evaluation under the current incentive mechanism is a complex and controversial undertaking. To the extent that this rulemaking brings about a streamlining of the savings verification process for purposes of a shareholder incentive mechanism so that the results are available in a more timely fashion, overall costs of verification are lowered, and garners more confidence in the results, we will be better served in the future than we have been in the past.

As we open this new OIR, there are two items of particular concern.

The first area concerns the provision of the OIR that suspends the issuance of the Energy Division verification report, detailing our staff's best estimates of utility energy efficiency savings for 2006-2007. The OIR makes this determination with no notice or opportunity for public input. I dissented from the majority decision in December, D.08-12-059, because it delinked payment of shareholder incentives from the pillar of independent verification. The December decision awarded utility shareholders $80 million in incentives based on utility self-reported earnings. We had before us a draft staff report that concluded, based on the third party evaluation results, that the utilities' performance in 2006-2007 justified no earnings, or perhaps a penalty.

In directing in this OIR that the final staff report, which was scheduled to be released in mid-January but by direction of this Commission has been delayed until Friday February 6, will not be used to determine incentives, we have confirmed that December's $80 million payment - which is not subject to reconsideration or refund - is based solely on utility self-reported savings, which were and remain a matter of vigorous dispute. We need to have public confidence in the integrity of our decision making process with regard to the energy efficiency incentive mechanism and this sort of activity does not foster such confidence.

Second, I urge caution in our attempts to root out the "controversy" we have encountered with the mechanism thus far. In adopting the principle that we rely upon independent, non-utility performance assessment for determining energy efficiency savings, we rely on facts offered by non-biased evaluators. Nevertheless the facts, when they exhibit findings which run contrary to conventional wisdom or results preferred by parties, are and will be controversial. This is inherent.

So far in the workings of this mechanism, there has been a natural tendency to avert controversy by way of compromise. In the case of energy efficiency, where we rely on accurate savings assumptions to guide expectations in procurement practices and greenhouse gas strategies, this is a disservice with real consequences.

Above all, we must maintain the integrity of this agency and its oversight responsibilities. In the context of energy efficiency, this means maintaining an independent Evaluation, Measurement, and Verification (EM&V) process, an incentive mechanism that is transparent and based on verified facts, and exhibiting a willingness to act on the information our EM&V process provides, even when the facts are inconvenient.

I ask each of my fellow Commissioners to keep this in mind as we move forward with this rulemaking.

Dated January 29, 2009, at San Francisco, California.

Concurrence of Commissioner Timothy A. Simon to Item No. 56 [8243]

January 29, 2009 Commission Meeting

I wish to express my concurrence for this Rulemaking (R.09-01-019),3 which seeks to examine the Commission's Risk/Reward Incentive Mechanism (RRIM), as set forth in D.07-09-043.4 As currently conceived, the Commission's process for reconciling the shareholder incentive claims of our Investor Owned Utilities (IOU) has been subject to controversy and delay, and will likely continue to be problematic for the foreseeable future. While concurring with the need for a revised verification process, I must express my disappointment with the participants whom in my view failed to meet the level of cooperation required for timely and accurate delivery of the essential data needed to render a competent decision.

In D.07-09-043, this Commission departed from a cost-of-service regulatory framework for energy efficiency savings in favor of the RRIM. This transition was meant to introduce the efficiencies of an incentive framework with penalties and rewards as a win-win proposition for both ratepayers and shareholders.5 Regardless of whether a new or revised risk/reward mechanism is developed and adopted in this proceeding, it will be incumbent on the Commission and parties to work collaboratively and proactively to resolve any differences that arise over the course of evaluating shareholder incentives.

As noted in R.01-09-019, our most recent experience with the Commission's issuance of timely verification reports finalizing IOU incentive claims clearly proved contentious in large part due to the lack of agreement among parties and Energy Division about modeling inputs, assumptions, and results.6

If we are to preserve California's status as a worldwide leader in energy efficiency, then we must provide the proper incentives to our IOUs in a timely manner. We made a pledge to equalize demand-side programs with "steel-in-the-ground" supply-side investments by incorporating energy efficiency as a core part of utility operations.7 This means that the evaluation, measurement, and verification of energy savings must be performed in accordance with a unified and reliable set of standards.

Thus, in order to successfully bridge this impasse, this rulemaking must result in a constructive verification process that is governed by the principles of accuracy, timeliness, transparency, and efficiency. Unless alterations to the existing methodology are made in this proceeding that facilitate these principles, we will continue to run the risk of failing to deliver timely, accurate incentive payments to our IOUs. We should take great care in setting our incentive mechanism on the right path in order to avoid undermining the progress that California has made in this essential area of energy procurement.

Dated January 29, 2009, at San Francisco, California.

3 Order Instituting Rulemaking to Examine the Commission's Energy Efficiency Risk/Reward Incentive Mechanism (R.09-01-019), January 29, 2009

4 Interim Opinion on Phase I Issues: Risk/Reward Incentive Mechanism for Energy Efficiency Programs (D.07-09-043), September 20, 2007.

5 Id. at 4.

6 See R.09-01-019.

7 D.07-09-043 at 4.

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