IV. 2004-05 Energy Efficiency Program Proposals for Funding with PGC Revenues

In response to the Commission's solicitation, utilities and other entities submitted a total of more than 400 separate proposals for more than 200 distinct programs. Most came from non-profit organizations, government agencies and businesses other than utilities. PG&E, SCE, SoCalGas, and SDG&E submitted the remainder, including 14 statewide programs, 11 local programs and 17 programs aimed at establishing partnerships with government agencies. These proposals sought PGC funding in amounts exceeding $1 billion plus an additional $245 million for procurement portfolio programs from PG&E, SCE and SDG&E.

As in previous years, each utility provided an estimate of PGC funds available for energy efficiency programs in 2004-05, that is, a forecast of future revenues plus funds left over from previous years including interest. These estimates are reflected in the table above.

A. Criteria and Process for Evaluating and Selecting Program Proposals

D.03-08-067 reviewed the criteria we use to evaluate program proposals. In that order, we adopted the following general criteria, in order of priority, for the 2004-05 programs:

1. Cost Effectiveness

2. Long-term Annual Energy Savings

3. Peak Demand Savings

4. Equity

5. Ability to Overcome Market Barriers

6. Innovation

7. Coordination with Programs Run by other Entities

8. Demonstrated Success Implementing Energy Efficiency Programs

In adopting these criteria, we commented that we would give additional weight to proposals that would reduce peak demand in geographic areas that are transmission-constrained or otherwise face reliability problems that have been identified by the California Independent System Operator (ISO). We joined with the CEC in stating a preference for programs that would address resource needs the Commission has identified, whether as part of the procurement review or other process.

We stated that we would evaluate information and statewide marketing and outreach programs using criteria most relevant to these programs and would therefore not require a specific showing of cost-effectiveness of energy savings or a demonstration that programs would reduce peak demand until the Commission could adopt appropriate measures and evaluation on the impact of marketing and outreach programs.

In addition, we have strived to create a transparent process for the evaluation of program proposals. Such transparency includes the task of providing program proposers with a clear indication of how they will be judged. To this end, we reviewed past Commission decisions and sought to maintain the level of discretion the Commission has used in the past, while at the same time, enhancing the scoring criteria so as to minimize the level of subjectivity that is necessary to create a robust and diverse statewide energy efficiency program portfolio. As stated in D.02-05-046,

"We rated each program according to the criteria described below. In summary, the best proposals/proposers: offer comprehensive service; provide a local presence; have a demonstrated history of success; are innovative; reach the hard-to-serve or niche markets not already served; reach a market that the IOUs did not propose to serve this year; serve a geographic area needing programs; advance emerging technologies; provide persistent, long-term energy savings; deliver services to small business; present the program honestly and credibly; propose reasonable budgets; leave lasting change or infrastructure at the local level; provide maximum benefits to program participants rather than being heavy on overhead; help solve transmission constraints; and work closely with or represent existing city and county governments and institutions."

Consistent with D.03-08-067, Commission staff has reviewed energy efficiency proposals and proposed a portfolio of programs. Staff scored "hardware and incentive programs" according to the criteria set forth in D.03-08-067 as follows:

· Cost-Effectiveness (40 points: 30 points program net benefits, 10 points program benefit-cost ratio);

· Long-term Annual Energy Savings (20 points);

· Peak Demand Reductions (15 points);

· Equity (10 points);

· Ability to overcome market failures (5 points);

· Innovation (5 points);

· Coordination with Other Entities (5 points);

Staff scored "Information-only and Statewide Marketing and Outreach Programs" according to the criteria set forth in D.03-08-067 as follows:

· Ability to overcome market failures (25 points);

· Equity (25 points);

· Innovation (25 points);

· Coordination with other Program Implementers (25 points); and,

Staff scored all of these programs according to "Secondary Criteria" adopted in D.03-08-067:

· Quality and viability of program design (30 points);

· Distribution and reasonableness of budget (20 points);

· Program objectives and tasks clearly identified (20 points);

· Experience with successful delivery of similar programs (20 points);

· Alleviates transmission constraints in an area identified by the California ISO (10 points).

Staff evaluated each proposal and scored them, applying the primary and secondary criteria. Staff then ranked proposals in order of their primary criteria scores. Staff developed a short list of proposals by including those that had at least 60 points. After creating the short list, staff used judgment, guided by D.03-08-067 and past Commission decisions,² to include on the short list some programs that did not receive 60 points and to remove from the short list some that did.³ We are cognizant that the Commission's goals of statewide portfolio diversity, geographic diversity, continuity and the avoidance of duplicative programs⁴ are not reflected by the scoring of a particular program in isolation. As such, we turn to D.02-05-046 to understand how the Commission has used its level of discretion in the past. Specifically, D.02-05-046 stated that,

"Parties seeking 2002 funding should both conform their proposals to the policies and rules set forth in this section (and expanded upon in the accompanying Policy Manual), and ensure that their proposals fall within the mix of desired programs set forth in Section III(C) below. Thus, for example, even if a 2002-03 program proposal for local services scores higher in points than another proposal for local services, such score does not guarantee funding for the former program. The Commission will consider point scores and the extent to which proposals help it meet its desired mix of programs for 2002-03 in selecting proposals." (Emphasis added.)⁵

Staff then re-ranked the proposals based on their combined primary and secondary criteria scores. The funding levels implied for this list at this stage exceeded the total budget for programs to be funded through the public goods charge, requiring staff to reduce some program budgets or eliminate some programs.

In order to develop a balanced portfolio, as consistent with past Commission practice, and match funding levels with expected revenues, staff considered the extent to which proposals met the portfolio criteria adopted in D.03-08-067:

Maximized energy savings

Strong cost effectiveness

Equitable geographic distribution

Diversity of target markets

Equity by rate class

Equity between gas and electric program offerings and energy savings

Diversity of program offerings

Multiple languages offered to program participants

Staff recommends the portfolio described in Attachment 1.

In general, staff rejected proposals if they:

a. Would unnecessarily duplicate more comprehensive statewide proposals in terms of program design, target market sectors, energy efficient measures offered, and/or geographic coverage;

b. Had a comparatively higher cost of administration, marketing and direct implementation to similar programs;

c. Had a comparatively high measure costs and rebate levels to similar programs;

d. Were less comprehensive than other programs proposed for similar market sectors;

e. Did not present realistic program characteristics or ways to achieve stated goals,

f. Were from implementers that demonstrated relatively less experience or success in program delivery compared to other similar proposals;

g. Were designed to serve a very small number of specific large industrial customers not considered hard-to-reach and that have relatively sophisticated resources;

h. Did not include adequate provisions for verifying measure installation if the program presents high risk for low-quality installations or fraud on the part of contractors or other program participants;

i. Were multi-utility service area programs that were accepted in other service area portfolios; and

j. Offered rebates for measures for which energy efficiency standards will be improved in 2004.

B. Programs Selected and Budgets

This decision adopts a variety of statewide and local programs on the basis of Commission staff analysis and recommendations, and consistent with our policy statements in D.03-08-067. Attachment 1 lists the utility and non-utility programs we fund in this order.

The portfolio we adopt seeks to provide both energy efficiency information and technology to all types of customers. Informational programs explain the benefits of energy efficiency to customers, and explain ways to obtain and use energy efficient techniques, products and services. Information programs selected will offer workshops, classroom visits, training classes, leaflets, websites, call centers and TV and print advertisements. We fund programs that ensure information is available to customers in many languages, including English, Spanish, and Chinese.

Hardware programs offer participants incentives that would reduce the cost of installing energy efficient measures and offer assistance in identifying energy savings opportunities through residential and non-residential facility audits. Programs may provide technical assistance to identify energy efficiency opportunities and quantify potential savings in electric and gas bills. Several programs this year offer comprehensive services to the participant from project identification through purchasing and installing equipment, processing rebates and providing quality assurance.

Generally, we adopt proposals that appear most likely to meet Commission goals and objectives at the least cost. We reject those that duplicate other programs from the standpoint of program design, target market sectors, energy efficient measures offered or geographic coverage. We favor comprehensive programs providing a broad range of services or measures to customers over those that are not as comprehensive as other programs.

Because total energy efficiency spending must not exceed expected revenues for each utility territory, we reduced the budgets of some promising programs rather than cutting out those programs altogether. In a number of instances, we reduce utility and non-utility program budgets to make them comparable to the budgets or expenditures in previous years. For the utilities' statewide programs, these reductions in PGC funding may be more than offset by additional funding for the same programs in their procurement budgets, discussed in subsequent sections of this order. We also reduce proposed budgets for some of the new program proposals and utility partnerships, in cases where we believe reducing the scope or scale of the program would not compromise their viability.

We approve funding for a number of proposals that did not receive the highest scores but were funded for 2003 and have been successful. We deny funding for certain proposals that, despite relatively high scores, have weak program design, excessive overhead budgets or would duplicate other energy efficiency efforts. Some of these programs would provide customer incentives where they are unlikely to be needed or project unsubstantiated savings objectives.

We also give preference to programs where utilities or non-utilities establish program partnerships with municipalities and local governments, consistent with D.03-08-076. On balance, when we had to choose between local government partnerships and other programs that were otherwise equal, we chose partnership programs.

We deny funding for some proposals to continue existing non-utility programs through 2005 in cases where staff identified problems with program implementation or program performance. In a few cases, we cut back proposals to offer services in more than one utility territory where the program would duplicate offerings in one or more territories.

C. Current Statewide Utility Programs

D.03-08-067 stated our stated intent "to maintain continuity and stability of currently successful programs." Accordingly, we give some preference to existing programs that have succeeded in meeting their savings targets. For the most part, we do not need to give preference to existing utility programs because they ranked high in the evaluation process.

SCE, SDG&E, SoCalGas, and PG&E utilities proposed to continue all of their current statewide programs. Almost all of these programs ranked high in meeting adopted evaluation criteria. Those that did not meet other important objectives, for example, Statewide Home Energy Efficiency Surveys, Nonresidential Energy Audit, and Education and Training Programs have been successful in providing valuable information to a broad client base. We thus fund the continuation of all existing statewide programs for which the utilities seek extended funding. We do, however, make some budget cuts from the proposed level of funding in order to assure funding for other programs in the PGC portfolio and where we believe those cuts will not compromise program delivery and viability. We reduce program budgets where the utilities propose relatively high overheads and marketing activities (such as television and radio advertising) where they duplicate marketing conducted through other programs. In some cases, we reduce proposed budgets to levels of spending reported in 2002-03. Other specific program changes are described in Attachment 4.

D. Utility and Local Government Partnerships

PG&E, SCE, SoCalGas, and SDG&E proposed a total of 17 programs in which they propose to work with local governments and schools. The proposals are summarized in Attachment 2. D.03-08-067 encouraged such partnerships and we consider our stated policy preference in evaluating them and deciding whether or not to fund them. On the basis of staff's review, we agree to fund fourteen of the seventeen proposals with total funding of $50.3 million over two years as shown in Attachment 1.

Almost all of these programs ranked high in meeting adopted evaluation criteria. Others were selected, despite lower scores, because they are a continuation of existing partnership programs that have been successful or are new programs that offer comprehensive services to retrofit building facilities of the partner agencies. These include SCE's City of Pomona Partnership, SDG&E's Partnership with San Diego City Schools and UC/CSU, and SCG's Partnership with the Energy Coalition.

We decline to fund the following three partnership programs:

PG&E's Local Government Partnership - This proposal would set aside $3 million for PG&E to solicit future partnerships with government agencies. It appears to emphasize marketing and outreach for existing PG&E energy efficiency programs, with customized incentive/direct installation components targeting hard-to-reach customers in the area. This proposal did not provide enough information to evaluate its relative merits and lacked specificity with respect to program incentive structure and local government participants. Moreover, this decision provides flexibility to utilities in administering procurement-related funding for energy efficiency programs, partly for the purpose of encouraging innovation. This type of funding flexibility is more appropriate with a new funding source until such time as the Commission develops incentive-based program goals and accountability measures for procurement-based funding.

PG&E's Third-Party Innovative Partnership - PG&E proposes to use $2 million PGC dollars to solicit "innovative proposals that deliver peak and/or long term energy savings," focusing on local governments or communities. We reject this program because it does not provide enough information to evaluate its relative merits. Again, the flexibility provided in procurement-based funding would be more appropriate for fostering innovative programs.

SDG&E's Partnership with San Diego County Office of Education - SDG&E proposed a program to coordinate with the SDCOE on curriculum development. We reject this proposal in favor of another higher ranking schools program that offers more comprehensive services in addition to curriculum development; and of a partnership program proposed by SDG&E and the San Diego City Schools, which offers retrofit opportunities to San Diego school facilities.

We do make some budget cuts from the proposed level of funding for certain partnership proposals in order to assure funding for other programs in the PGC portfolio and where we believe those cuts will not compromise program delivery and viability. Other specific program changes are described in Attachment 6.

Finally, we will require that all changes to partnership programs, whether or not they would require prior Commission approval are made with the documented consent of all program partners.

E. PG&E Overhead Costs

PG&E's proposals include excessive overhead costs, particularly for regulatory reporting labor and corporate services labor. These overhead items are typically added on as a percentage of direct program costs or direct labor costs, and uses the same methodology across all programs for each company. Because overhead costs are unlikely to be identical for all programs and we believe there are economies of scale in PG&E's operation, we question the reasonableness of these budget items. Additional evidence that PG&E's overhead costs are excessive is that they are about twice as high as those budgeted by SDG&E and SCE. We are aware that the other three utilities recover some of their costs (e.g., pensions and benefits) from sources other than PGC and have considered that when making these budget reductions.

2004 - 2005 Proposed Overhead Budget Allocation by Utility

	Total Proposed Budget	Total Proposed Overhead	Overhead as % of Total Budget
PG&E	$ 227,921,5 10	$ 31,499,452	13.82%
SCE	$ 180,626,352	$ 12,626,205	6.99%
SDG&E	$ 60,028,999	$ 3,607,205	6.01%
SoCalGas	$ 63,332,043	$ 3,350,707	5.29%

Accordingly, we reduce PG&E's overhead allocations to 7% for all of its program budgets.

F. Utility Local Programs

PG&E and SoCalGas propose to continue through 2004-05 all of the local programs that they offered in 2003. SDG&E proposes to continue into 2004-05 two of its current six PGC-funded local programs and SCE would continue three out of its six current local programs.

We authorize funding for all except one local program proposed by the utilities at a total budget of $34.6 million for 2004-2005 from PGC funds. We decline to fund SoCalGas' Diverse Market Outreach Program, which would provide information to hard-to-reach residential and commercial customers. This program would duplicate the elements of other information and partnership programs, for which this order authorizes funding.

We reduce funding for some of the utilities' local programs, considering past expenditures and performance for these programs. We reduce funding for some of the programs to the level of expenditures in 2002 and in the first half of 2003. We further reduce funding for most of PG&E's programs for excessive overhead costs as discussed previously. Other specific program changes are described in Attachment 5.

G. Non-Utility Programs

We approve funding for programs to be implemented by 38 entities that include local governments, non-profit/community based organizations, and private firms. Funding for these programs will be $108.8 million or about 19% of the PGC funding approved in this order, not including funding for partnerships between utilities and government agencies which amounts to 9%. About $65 million of this amount funds successful programs that are being extended from the 2002-03 period. Attachment 1 lists the non-utility programs funded in each utility service territory.

We adopt funding for some non-utility programs that did not rank among the highest scoring programs because they demonstrated high levels of success with funding in the previous years. Among those programs are California State University's Fresno's Agricultural Pumping Program, California Urban Water Conservation Council's Pre-Rinse Spray Head Installation, and Quantum's Wastewater Process Optimization.

This decision adopts $1.895 million in funding for the San Diego Regional Energy Partnership Cool Communities Shade Tree Program. Of the total amount $1.527 million will be funded using unspent 2002 and 2003 PGC revenues.

Overall, the non-utility programs for which we authorize funding today create a diverse portfolio of residential and nonresidential programs that complement statewide programs offered by the utilities. They focus on hard-to-reach sectors such as very small commercial customers, mobile home residents in rural communities, agricultural and industrial customers. Some offer information, education, and training programs to a variety of customer segments. Among them are a number of local programs funded in 2002-03 that have been successful and promote the diversity of the portfolio. Attachment 8 describes the non-utility programs we approve in this decision and specific program changes.

We have received allegations that some non-utility implementers have or plan to charge program participants fees. No program implementer, utility or non-utility, may charge participants fees. Program implementer revenues are strictly circumscribed by their contracts and may not be increased in any fashion except pursuant to Commission-approved contracts or by Commission orders.