6. Next Steps in Preparation for the 2006-2008 Program Implementation and Funding Cycle

By D.04-09-060, we established natural gas and electric savings goals by IOU service territory through the year 2013, subject to updates for 2009 and beyond. In that decision, we also extended the current program implementation and funding cycle ("program cycle") from two to three years, and directed that the next program cycle would cover program years (PY) 2006 through PY 2008.¹⁴³ We have been proceeding on several fronts to prepare for this next cycle, pending the outcome of today's decision. They include: (1) updating avoided costs for the evaluation of program savings; (2) developing the performance basis for energy efficiency programs that defer or avoid more costly supply-side resources, and (3) updating EM&V protocols to measure program performance.¹⁴⁴ All of these tasks need to be completed before the next program cycle begins, i.e,
by January 1, 2006. In addition, the portfolio design and program selection process described in Section 5.3 must also be completed before the end of 2005. We also intend to address the issue of risk/reward mechanisms for energy efficiency, as well as for the overall procurement framework, before the end of 2005.

The proposals and comments in this proceeding also highlight the need to update the Energy Efficiency Policy Rules adopted in D.01-11-066 so that they conform to the discussion of policy goals in this decision, the administrative structure we have adopted for energy efficiency and the current resource procurement framework in California. Consistent with the Energy Action Plan, our approach to energy efficiency will be to ensure that the optimal level of cost-effective energy efficiency is integrated into the IOUs resource procurement plans. While we will seek some balance in the portfolio of programs selected (e.g., between residential and non-residential applications, retrofit and new construction, statewide and local initiatives) our focus for spending ratepayer dollars will be to capture the most cost-effective demand-side resources as possible over both the short- and long-term. We believe that focusing our efforts in this way is the most equitable way to distribute program benefits: By keeping IOU resource procurement costs as low as possible through the deployment of cost-effective energy efficiency, all customers will share in the resource savings from energy efficiency programs.

We also believe that program efforts to meet energy efficiency savings goals must recognize the important role for program innovation and commercialization of promising new energy efficiency technologies. Otherwise, we may find ourselves lacking the technologies and program designs that will enable us to meet our aggressive longer-term energy efficiency goals. Our policy rules and EM&V practices will need to address how best to achieve balance within the program portfolio so that while we pursue the best practices and technologies available today, we also fund a reasonable level of program designs and technologies that are promising for the future.

As soon as practicable, the Assigned Commissioner and ALJ should establish a procedural schedule and process for updating our Energy Efficiency Policy Rules (Rules) that reflect today's discussion. In addition to articulating our broad policy objectives for energy efficiency, the Rules will provide policy direction on portfolio balance during each funding cycle and, where appropriate, provide guidelines on funding allocations among programs to achieve that balance. The Rules will also articulate funding-shifting and other rules for portfolio management in-between program funding cycles. We also anticipate that the Rules will articulate our expectations for future partnership programs, in terms of the respective roles of the IOUs and non-IOU partners (e.g., local governments) in program design, development and implementation. We will also update the Rules on cost-effectiveness, avoided costs and EM&V based on the results of our consideration of these issues in these (and related) proceedings.¹⁴⁵

Completing all the remaining tasks in time for the 2006 funding cycle will require an ambitious schedule during 2005. We call on all the stakeholders to put past differences aside and work collaboratively in the months ahead. Working together, all stakeholders will benefit from the result of these efforts: The full recognition of energy efficiency as a viable resource that can be relied upon to reduce the demand for energy in California.