11. Assignment of Proceeding
Susan P. Kennedy is the Assigned Commissioner and Meg Gottstein is the assigned ALJ in this proceeding.
1. The sensitivity analysis performed in this proceeding indicates that each of the utility's proposed portfolios will be cost-effective even if they only achieve 60% of the forecasted program savings. For PG&E and SoCalGas, the portfolios would still be cost-effective at 40% of projected savings.
2. The utilities' portfolio plans to engage market participants in all aspects of energy efficiency improvements to homes, commercial buildings, and industrial/commercial processes are projected to be highly cost effective, taking reasonable account of uncertainty with respect to key cost-effectiveness input parameters. The competitive bid results and final program selections should enhance this expected portfolio performance, both in the short- and longer-term.
3. To achieve the cost-effective savings presented in the portfolio plans, annual ratepayer investments in energy efficiency will need to approximately double on an annual basis by 2008.
4. Although the projected savings from these portfolios are substantial, the record indicates some risk that the portfolio plans may not meet the Commission-adopted Gwh and therm energy savings goals, due to uncertainties over free ridership assumptions and the estimated useful lives associated with certain lighting measures, among others.
5. As discussed in this decision, counterbalancing this risk is the contribution of savings from pre-2006 codes and standards advocacy work that led to the revised codes and standards effective in 2005 and 2006.
6. Conducting sensitivity analysis with respect to key input parameters, such as net-to-gross ratios, during the compliance phase provides a practical and effective way to assess the robustness of energy savings estimates before we authorize the final program plans.
7. Uncertainties over the specific net-to-gross ratios used for planning purposes will be further addressed through ex post true-up of these ratios in performance basis evaluation, consistent with our direction in D.05-04-051.
8. Postponing implementation of the cost-effective portfolio plans in order to first review and debate each specific ex ante input assumption, as some parties propose, places unwarranted emphasis on these issues for the purpose of evaluating the savings estimates uncertainty associated with the portfolio plans. Moreover, these efforts would be redundant to and possibly prejudge the efforts underway in the EM&V phase to develop protocols for all key parameters related to the estimation and evaluation of energy efficiency savings and net resource benefits.
9. ORA's proposal to adopt a single default net-to-gross value for essentially all energy efficiency activities may make it easier for planning and analysis, but the record indicates that this approach has the potential for increasing the risk of overstating savings forecasts within the portfolio.
10. While sensitivity analysis around estimated useful life assumptions will assist us in the program planning process, it is particularly important that the ex ante assumptions adopted for these parameters be based on the most recent evaluation studies, since they will not be further adjusted based on ex post studies when we evaluate 2006-2008 portfolio performance per D.05-04-051. This is especially important for the expected useful life assumptions for lighting measures, since they comprise a significant portion of the proposed portfolios.
11. TecMarket Works report indicates that the utilities' estimated useful life assumptions do not consistently take account of recent EM&V studies that were used to update DEER.
12. The ex ante assumptions for expected useful lives should be revised as needed to reflect the DEER August 2005 update, as directed in this decision. These updated values should be used when reporting actual installations during program implementation, and when submitting calculations of savings, portfolio cost-effectiveness and performance basis during the 2006-2008 program cycle.
13. Before we can fully assess whether the proposed portfolio plans will meet our demand reduction goals, the calculations of peak demand savings need to be based on a consistent definition of peak demand.
14. Of the various definitions presented for consideration, the "daily average peak" has the clear advantage of reflecting the procurement costs of reducing energy usage during the peak period, not just the highest value observed on the hottest day. Compared to the alternatives, it represents a reasonably conservative (and broader) estimate of demand reductions appropriate to the tasks of (1) establishing peak reduction goals for energy efficiency and (2) calculating peak demand reductions associated with energy efficiency to assess the achievement of those goals and portfolio cost-effectiveness. This definition also has the advantage of being analytically compatible with inclusion of a possible "super peak" demand period to improve the valuation of critical peak period savings, should that approach be taken when we update avoided costs per today's decision.
15. It is reasonable to adopt the "daily average" peak savings as the common definition for projecting and reporting the demand reductions associated with the utilities' portfolio plans. To be consistent with the summer peak period we adopted in D.04-09-060, the time period for calculating the daily average peak should cover the weekday hours from 12 noon to 7 pm, June through September, for a total of 560 hours per year.
16. The schedule and procedure established for the re-estimation of portfolio peak savings using the adopted common definition, and for addressing other issues related to demand reduction estimation, will ensure that development of the utilities' final program plans takes into consideration the need for additional demand savings to meet the Commission's goals. It is reasonable to establish a procedural approach for addressing these issues that is similar to the process adopted in D.05-04-051 for updating EM&V protocols and for modifying our policy rules, since their resolution is likely to result in modifications/ clarifications to our policy rules, EM&V protocols, or both.
17. The perspective of some parties that the utility portfolios must be significantly rebalanced towards critical peak load reductions appears to be based on the perspective that energy efficiency should primarily be deployed as a resource that addresses the needle peaks in demand. This perspective does not acknowledge that California has a clear need for both baseload and peak savings.
18. Energy efficiency should continue to target both baseload and peak loads, within the context of our overriding goal to pursue all cost-effective energy efficiency opportunities over both the short- and long-term. TURN's insistence that we hold up approval of the portfolio plans until funds are redirected towards residential space cooling applications ignores this context.
19. TURN's recommendations focus too narrowly on the perspective that measures with low load factors should take precedence over higher load factor measures-even if those higher load factor measures can reduce demand during critical peak hours and can do so cost-effectively.
20. The assessment provided by TURN and some of the PRGs with respect to compliance with Rule II.5 (critical peak loads) fail to recognize that:
· A very large portion of the potential savings associated with residential air conditioner use will be captured by the increased state appliance standards for 2006 and beyond,
· Each of the utilities has proposed portfolios that increase the savings from (and funding for) residential HVAC relative to prior years,
· The utilities propose substantial increases in statewide efforts to support more aggressive codes and standards in the future, and propose to implement programs that provide market support for the new 2006 standards that are the first of their kind in scope and scale.
21. The best way to ensure the optimal level of funding for various energy efficiency activities over time is to (1) clearly establish the parameters by which the utilities' portfolio performance in terms of peak load reductions will be evaluated, (2) properly value demand reductions that occur during critical peak periods for all peak reduction resource options and (3) update our peak savings goals for 2009 and beyond based on studies of peak savings potential, rather than historical program performance.
22. While the E3 methodology adopted in D.05-04-024 represents a vast improvement over the use of statewide values that do not reflect on-peak vs. off-peak reductions, or utility-specific cost differences, the Commission also recognized in D.05-04-024 that further refinements would be considered before final adoption of that methodology in Phase 3 of that proceeding.
23. The record in this proceeding indicates that the E3 calculator model presents cost-effectiveness results that are inconsistent with the California Standard Practice Manual, which is the methodology to be used by program administrators and implementers, per our adopted policy rules.
24. The record in this proceeding indicates that there are corrections and refinements needed to the E3 calculator model in order to improve the accuracy and consistency with which it calculates peak demand savings and cost-effectiveness calculations.
25. A common E3 calculator developed for use by all implementers will facilitate an apples-to-applies comparison of projected savings and cost-effectiveness calculations. It will also ensure consistency in assumptions while alleviating program implementers from the burden of carrying out data-intensive calculations involving hourly avoided costs and end-use load shapes.
26. The most cost-effective and expeditious approach to addressing the avoided cost and E3 calculator issues raised in this proceeding is to build upon the E3 work conducted in R.04-04-025 and continue with the approach we have taken there for contracting with the appropriate expertise.
27. The timing for addressing the avoided cost and E3 calculator issues raised in this proceeding, even on an expedited schedule, will not permit the incorporation of resulting refinements into the ex ante estimated of avoided costs before the compliance phase is complete. However, a final Commission decision on the issues is expected within just a couple of months following the roll-out of 2006 programs.
28. The direction in D.05-01-055 requires the utilities to establish a process that allows PRG members (including Energy Division consultant(s), if applicable) to monitor both the Stage 1 and Stage 2 selection process. Each utility should expect and facilitate the active involvement of PRG members in this monitoring process.
29. The bid solicitations differ with respect to overall scope and size, particularly between PG&E and the other utilities. As a result, the factors that PG&E will need to consider to evaluate and integrate third-party programs into the overall portfolio will be more involved than those required for the other utilities.
30. Although not identical across utilities, the evaluation criteria for each proposed solicitation have achieved overall consistency with the objectives stated in our policy rules, with the following minor modifications :
a. SCE's original Stage 2 evaluation criteria for its targeted solicitation should be adopted instead of the "SCE Revised" (or SCE PRG) proposal, because the latter proposals do not include any consideration of "lost opportunities."
b. SDG&E should evaluate "cost efficiencies" rather than "budgets" when evaluating its non-resource programs during Stage 2.
31. SCE's proposal for its Stage 1 evaluation does not respond to the PRG's recommendation that Stage 1 review criteria and associated weights or scores be specified.
32. Given the scope and size of PG&E's proposed resource solicitation, it is reasonable to defer consideration of the PRG recommendation to also include a non-resource solicitation until the resource portfolio is complete. PG&E and its PRG should continue to explore this issue as PG&E prepares for the additional solicitations it plans to conduct during the upcoming program cycle.
33. The utilities' plan to offer a statewide California Energy Star New Homes program will ensure statewide consistency and coordination in the residential new construction market.
34. Arbitrarily granting ConSol sole responsibility for residential new construction, as it proposes, is an unnecessary limitation on a successful program and would be unfair to other potential third-party implementers.
35. The interpretation of SDG&E and SoCalGas that the 20% minimum bid requirement applies to the non-EM&V portion of portfolio funding levels is consistent with the language of D.05-01-055.
36. Codes and standards advocacy work has been an essential and valuable component of the energy efficiency program portfolio in the past, and continues to be recognized as such in the energy efficiency policy rules.
37. 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.
38. As discussed in this decision, the record in this proceeding supports the reconsideration of D.05-04-051 with respect to the treatment of savings associated with pre-2006 codes and standards advocacy work.
39. In particular, the record confirms that the 2005/2006 code and standards revisions were not accounted for in the studies of economic potential that led to the establishment of our savings goals and beyond. Now that the new standards are in place, this means that those standards could actually work against the utilities with respect to their ability to tap that economic potential with other types of energy efficiency activities.
40. The record also clarifies that the adopted "actuals only" method of accounting for program accomplishments towards our goals, in combination with the method by which Joint Staff developed estimates of achievable potential, creates a short-term transitional inconsistency between the two that should be addressed.
41. Over the longer-term, this inconsistency will resolve itself because commitments made in 2006 and 2007 will become "actuals" in the program years that follow, thereby assisting in the achievements of the adopted cumulative goals for later years. Moreover, the savings goals updating process that will occur in time for the 2009-2011 program cycle will reflect the "actuals only" accounting practice adopted by the Commission.
42. Reopening the goals decision (D.04-09-060) to make an adjustment to the short-term goals is an option that has significant drawbacks, as discussed in this decision.
43. Joint Staff's recommendation provides a more reasonable alternative, namely, to allow the utilities to credit some portion of the savings attributable to pre-2006 codes and standards advocacy work towards the Commission's savings goals during this transition, i.e., for program cycle 2006-2008.
44. As discussed in this decision and Attachment 10, the issue of whether to count these pre-2006 savings towards the goals in subsequent years must be considered in the context of how we update the savings potential and associated goals for those years. Resolution of this issue will depend a great deal upon the manner in which the baseline is established for the next round of saving potential studies.
45. The record in this proceeding raises the following questions with respect to the baseline to use in future savings potential studies: Should future energy efficiency savings goals be established based on the economic potential associated with the combination of codes and standards updates and other energy efficiency programs that can defer or replace the need for supply-side resources? Or should the impact of higher codes and standards (and the associated economic potential) be removed in developing the savings goals for utility energy efficiency portfolios?
46. The HMG methodology for estimating the savings attributable to pre-2006 codes and advocacy work has a logical coherence and covers the developmental steps that most outside observers agree are important in estimating the savings impacts of codes and standards advocacy work. However, there are inherent and potentially significant uncertainties associated with the approach taken to attribute savings to this pre-2006 work. In addition, specific input assumptions used by HMG to develop the ex ante savings estimates would benefit from further evaluation and verification in order to rely on them with confidence.
47. Given the uncertainty involved in measuring the realized savings associated with this pre-2006 program, Joint Staff's recommendation provides a rationale bound for the attribution of savings to pre-2006 codes and standards advocacy work. In addition, it strikes a reasonable balance among the various concerns with respect to the motivation and perceptions of the various stakeholders surrounding the value of codes and standards advocacy work.
48. The conditions that Joint Staff places on its recommendation for counting pre-2006 codes and advocacy work towards the 2006-2008 goals, as well as the utilities' response to them, address concerns expressed by ORA and others in this proceeding.
49. As discussed in this decision, addressing the performance basis and related issues raised by ORA and NRDC does not require that we reject or completely defer consideration of Joint Staff's recommendation.
50. In general, the stream of savings attributable to each round of codes and standards work that leads to increased efficiency codes and standards should be counted in the calculation of net resource benefits performance basis. Per D.05-04-051, these calculations would then be used as the basis for the risk/reward incentive mechanism that will be developed in a subsequent phase of our energy efficiency rulemaking.
51. As discussed in this decision, applying this general approach to performance basis for pre-2006 codes and standards advocacy work creates a fundamental policy inconsistency with respect to the cessation of shareholder earnings during program years when these pre-2006 investments were made.
52. This same policy inconsistency would arise if we counted towards performance basis the actual installations for 2006 and beyond that were the result of commitments made prior to 2006. These savings are explicitly excluded from the calculation of performance basis and cost-effectiveness calculations for 2006 and beyond, per D.05-04-051.
53. In general, the savings from codes and advocacy work would be counted in the calculation of portfolio cost-effectiveness when the standards are put into effect, while the costs of this work would be counted during the program cycle in which they occur, per our adopted policy rules.
54. Cost-effectiveness calculations should be developed on a consistent basis as net resource benefits for each program cycle. It makes no sense, and would also create undue confusion, to include the savings from pre-2006 codes and advocacy work in the former calculation, but not the latter.
55. As discussed in this decision, the timing and priority for EM&V studies specifically addressing local codes and standards efforts must be considered in the context of the overall EM&V priorities and associated budgets being developed during the EM&V phase.
56. As discussed in this decision, it is reasonable to consider the GBI 20% goal for improved efficiencies in the commercial sector as a subset of the overall savings goals we have established for the utility service territories, rather than as a state code or standard used to establish project-specific baselines. In that context, projects that achieve a 20% improvement over Title 24 should not be disallowed the claimed savings on the basis of GBI free ridership.
57. Today's direction for further work to more accurately project the contribution of the utilities' program plans to our savings goals, particularly in terms of peak demand reductions, does not call into question the overall level of portfolio budgets, as WEM contends. As discussed in this decision, the utilities, with input from their advisory groups and the public, will continue to rebalance and modify the specific program plans to enhance portfolio performance throughout the three-year program cycle. If greater savings per dollar can be achieved than currently projected, the authorized funding levels should be used in the pursuit of "all cost-effective energy efficiency opportunities over both the short- and long-term," per the Commission's policy rules.
58. The utilities have allocated the costs of their energy efficiency portfolios to customer classes in a manner that appropriately assigns costs relative to the expected share of program benefits, and the resulting rate and bill impacts are reasonable.
59. The issues raised in this proceeding concerning the valuation of critical peak load reductions in cost-effectiveness calculations warrants the limited exception to our general rule of not truing up avoided costs to evaluate the performance basis of prior program years, as discussed in this decision.
60. The fund shifting rules adopted by today's decision considers each type of fund shifting flexibility and selects the option for each type that best meets the following objectives:
· Provide utility program managers with the flexibility to make decisions, without undue restrictions or delays, so they can effectively manage their portfolios to meet or exceed the Commission's savings goals cost-effectively.
· Involve advisory groups on a wide range of implementation issues, including fund shifting and program design changes, so that program administrators can benefit from the broad range of expertise provided by individual advisory group members.
· Address situations that affect the broad portfolio balance issues discussed in the Rules and in this decision, such as ensuring sufficient funding for programs geared toward longer-term savings and maintaining the minimum competitive bid requirement.
· Utilize an efficient administrative approach, so that a timely decision on the fund shifting request can be made.
61. CCSF's recommendation that local governments on PG&E's short list should give their consent in order for PG&E to proceed with its compliance filing as an advice letter is beyond the scope of this proceeding and, as discussed in this decision, lacks merit on substantive grounds.
62. At least in the short-run, code compliance support has the potential to tap energy savings opportunities that would otherwise be irretrievably lost, particularly for HVAC end-uses.
63. WEM's allegations that the utilities are "double dipping" and rewarding non-compliance by providing code compliance market support is not supported by the record.
64. As a longer term program strategy, the issue of code compliance should be further investigated, as recommended in the TecMarket Works report.
65. Continued involvement of the PRGs is essential for matters best dealt with by non-financially interested parties, such as fund shifting and ensuring non-bias in the selection and ongoing implementation of utility and non-utility implemented programs. This involvement will help to ensure that all programs are evaluated and chosen for continuation based on their ability to meet the Commission's objectives for energy efficiency.
66. The groundwork has been accomplished for full consideration of an energy efficiency risk/reward incentive mechanism.
1. The utilities' 2006-2008 portfolio plans meet the Commission's threshold requirement of prospective cost-effectiveness, per the policy rules set forth in the Energy Efficiency Policy Manual adopted by D.05-04-051 ("Rules").
2. The utilities' 2006-2008 portfolio plans are consistent with other aspects of the Commission's Rules, as discussed in this decision. Remaining uncertainties over the ability of the portfolios to meet our savings goals can and should be addressed during the compliance phase, as directed by this decision.
3. The competitive bid components proposed by the utilities in their June 1 applications and supplements thereto are reasonable and should be adopted. With the modifications discussed in this decision, the utility proposals for bid evaluation criteria and weightings presented in the Case Management Statement should be adopted.
4. Joint Staff's recommendations regarding the level of savings from pre-2006 codes and standards advocacy work that should count towards the 2006-2008 savings goals are reasonable, and should be adopted. Whether these savings should also be credited towards our savings goals for 2009 and beyond should be addressed in a later phase of R.01-08-028, or its successor proceeding, pending further consideration of the baseline and related issues described in this decision.
5. Today's determinations on how the savings from pre-2006 codes and standards work should be considered in performance basis and cost-effectiveness calculations are reasonable and should be adopted.
6. The level of program funding proposed by the utilities over the three-year program cycle, as well as their proposed cost allocation and associated ratemaking treatment, is reasonable and supported by the record.
7. As discussed in this decision, once we have approved the final compliance plans, the utilities should recover the incremental revenue/funding requirements associated with the non-EM&V portion of their proposed 2006-2008 portfolio funding levels.
8. The record in this proceeding supports further consideration of the E3 methodology with respect to critical peak values, as well as the E3 calculator model issues discussed in this decision, without delay. The ex ante avoided costs that will be used to evaluate the performance basis of 2006-2008 energy efficiency portfolios and programs should be updated, as appropriate, to reflect the Commission's final determinations on these issues.
9. The fund shifting rules approved today are consistent with the objectives for portfolio management described in this decision.
10. The EM&V budgets for the 2006-2008 program cycle and associated cost recovery should be addressed in the separate EM&V phase of this proceeding.
11. Ongoing involvement of the PRGs should continue throughout the program cycle, as discussed in this decision.
12. The next priority for energy efficiency should be the development of a risk/reward incentive mechanism, as discussed in this decision.
13. In order to proceed with the compliance phase as expeditiously as possible, this decision should be effective immediately.
IT IS ORDERED that:
1. Effective January 1, 2006, Pacific Gas & Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), collectively "the utilities", are authorized to implement their non-competitive bid programs, as identified in their 2006-2008 energy efficiency program applications and supplements filed in this proceeding.
2. This interim authorization shall be in effect until the Commission approves the final program plans, which will be submitted during the compliance phase after the competitive bid solicitation process is complete. The program accomplishments of the portfolio plans achieved during this period of interim authorization shall be counted toward 2006 savings goals.
3. Funding authorization and associated budgets for evaluation, measurement and verification (EM&V) plans for the 2006-2008 program cycle shall be addressed in the EM&V phase of this proceeding.
4. The 2006-2008 program budgets proposed by the utilities, and associated incremental electric revenue/natural gas funding requirements, shall serve to fund energy efficiency activities during the three-year program cycle, including those activities implemented under the interim authorization we grant today. The authorized program budgets are presented in Attachment 4 under the "without EM&V" columns, by utility and year. The associated incremental electric revenue and natural gas funding requirements are presented in Tables 4 through 7. Upon approval of their compliance plans, the utilities are authorized to recover the non-EM&V incremental electric revenue and natural gas funding requirements under the following ratemaking treatment:
(a) Incremental natural gas funding requirements shall be recovered through the gas public purpose program surcharge rates effective January 1 of each program year. The utilities shall continue to make requests for cost recovery through their annual gas public purpose surcharge advice letter filings.
(b) Incremental electric revenue requirements will continue to be collected in part through the electric public goods charge, and in part through procurement rates, as follows:
(i) For the fixed portion collected via the public goods charge, the utilities shall continue to file advice letters by March 31 of each year to establish and recover the authorized electric public goods charge, including the annual addition. This portion shall continue to be tracked via the one-way Energy Efficiency Program Adjustment Mechanism.
(ii) The remaining portion shall continue to be collected via the one-way Procurement Energy Efficiency Balancing Account established for this purpose in D.03-12-062. Recovery of the incremental electric revenue requirements booked to this account shall be consolidated in the annual energy Resource Recovery Account Forecast proceeding, or other proceedings authorized by the Commission for inclusion in electric distribution rate components effective January 1 of each program year, or as soon thereafter as possible.
5. For the purpose of this decision, "Joint Staff" shall refer to the Energy Division and California Energy Commission staff team that has been assigned to work on energy efficiency issues in this and related proceedings.
6. Per D.01-05-055, the utilities shall submit compliance filings consistent with today's determinations. The compliance filings shall include
(a) The results of the competitive bid solicitations and the final program plans.
(b) Calculations of portfolio cost-effectiveness based on the final program plans, including scenario analysis around key input assumptions as directed by this decision.
(c) Projections of energy savings and demand reductions that will be achieved by the final portfolio plans, including the scenario analysis directed by this decision.
(d) Additional program detail to reflect the statewide coordination plans.
(e) The assessments of the utilities' Peer Review Groups (PRGs)
7. For their competitive bid solicitations, the utilities shall use the adopted evaluation criteria presented in Attachment 6. As discussed in this decision, each of the utilities shall continue to work with and involve their PRGs in the final integration phase, as well as Stage 1 and 2 bid evaluations. Southern California Edison Company shall also work with its PRG to further develop the Stage 1 evaluation criteria during the compliance phase, using either of the approaches presented in Attachment 6 as a general model. The PRG assessments of each utility's competitive bid process shall address all stages of bid evaluation, including how the bid results are considered in the context of portfolio plan integration.
8. As defined in this decision, "daily average" peak savings shall be used to project the demand reductions associated with the utilities' portfolio plans. The utilities are required to report their forecasted and achieved demand savings using a daily average peak demand value, based on actual peak savings by measure. Using the "daily average" definition, the utilities and their PRGs shall complete the tasks described below, and the utilities shall file a report presenting the results of these efforts by November 1, 2005.
(a) The utilities shall re-estimate the peak savings from their 2006-2008 portfolio plans using the common definition within 15 days from the effective date of this decision and distribute the results to their PRGs and the service list in this proceeding. As discussed in this decision, the re-estimation of peak savings shall include a correction to the erroneous demand reduction estimate for lighting currently contained in Database for Energy Efficiency Resources (DEER) that was identified during the course of this proceeding.
(b) The utilities and PRGs shall jointly propose language that will make it clear to all program implementers that they are required to use the Commission adopted definition of peak savings when estimating program savings ex ante and when reporting program accomplishments ex post. This language may be proposed for inclusion in the policy rules or in the adopted EM&V protocols, as appropriate.
(c) The utilities and their PRGs shall jointly develop and recommend a uniform set of assumptions to translate annual energy savings resulting from installations of compact florescent lamps in residential and commercial dwellings into peak savings, using common load shapes where possible.
(d) The utilities and their PRGs shall jointly consider whether a definition of "winter peak" savings is necessary for use by programs being implemented to address winter peaking areas and, if so, to provide one.
9. The assigned Administrative Law Judge (ALJ) shall solicit written comments on the November 1 report required by Ordering Paragraph 8 above and, after consultation with the Assigned Commissioner, address the issues raised in the report by ruling. With respect to the re-estimation of peak savings, the assigned ALJ may direct that this information be submitted with the utilities' compliance filings for Commission consideration, or take other steps as needed to further inform the Commission of the results during the compliance phase. Moreover, nothing in this decision precludes the ALJ soliciting input from Joint Staff or Energy Division consultants, or taking other necessary steps in order to address these issues as expeditiously as possible.
10. As discussed in this decision, the utilities are required to use the August 2005 updates to ex ante expected useful life (EUL) assumptions posted to DEER when reporting actual installations during program implementation, and when submitting calculations of savings, portfolio cost-effectiveness and performance basis during the 2006-2008 program cycle. Joint Staff shall ensure that inputs to the E3 calculator are appropriately adjusted, so that these calculations will reflect the ex ante EUL values referenced above.
For this purpose, Joint Staff may hire a consultant and/or direct the utilities to submit updated EUL values consistent with today's direction, subject to Joint Staff review, or take other steps as necessary to ensure that these updated DEER EUL values will be used consistently in reporting portfolio performance and in calculating the performance basis for the 2006-2008 program cycle. Joint Staff shall complete this work as soon as practicable in 2006. In consultation with Joint Staff, the assigned ALJ shall establish a schedule for completion of these activities.
11. The assigned ALJ in R.01-08-028 or its successor proceeding, in consultation with the Assigned Commissioner and Joint Staff, shall establish the schedule and scope for updating the energy efficiency savings goals for 2009 and beyond. As part of the updating process, Joint Staff shall prepare a report to the ALJ with recommendations on the baseline and other issues related to the methodology for updating the savings potential studies and savings goals. As discussed in this decision, Joint Staff shall ensure that the methodology for estimating peak load savings potential is consistent with the definition of peak demand adopted in this decision, and that it is based on a careful evaluation of peak load savings potential for energy efficiency programs across all sectors. Joint Staff shall hold public workshops on these and other issues related to the updating of savings goals, prior to submitting its written recommendations. The ALJ shall issue Joint Staff's recommendations for written comment to the service list in R.01-08-028 or its successor proceeding.
12. As discussed in this decision, the savings attributed to pre-2006 codes and standards work shall be treated as follows:
(a) In addition to the sensitivity analysis on key input parameters discussed in this decision, the utilities shall assess whether the 2006-2008 portfolio compliance plans are expected to meet the savings goals using a "with and without" scenario with respect to savings from pre-2006 codes and standards. The "with" scenario shall credit 50% of the ex ante estimates presented in this proceeding towards the goals. Per Joint Staff recommendations, including the savings from pre-2006 codes and standards work in assessing 2006-2008 portfolio savings shall be conditioned as follows:
(i) The utilities shall not rely heavily on these ex ante savings estimates to meet their portfolio savings goals for 2006-2008, or dramatically reduce overall funding levels during the program cycle based on these estimates.
(ii) Rather, these savings shall be considered as "bonus" savings, e.g., a hedge against inherent risks that other programs may not meet their performance goals, during the compliance and implementation phases of this proceeding.
(iii) The utilities shall complete a market survey to estimate actual level of code compliance from an energy savings perspective for those portions of 2005 building and appliance standards that will take effect by June 1, 2006. This study shall be completed by March 1, 2007 and funded out of the utility portion of the EM&V budgets established for the 2006-2008 program cycle.
(a) In evaluating whether the 2006-2008 portfolios actually meet or exceed our adopted goals for that program cycle on an ex post basis, the utilities should credit 50% of the verified savings associated with pre-2006 codes and standards advocacy work towards the goals, subject to the conditions described above.
(b) Whether savings from pre-2006 codes and standards advocacy work should also count towards the updated goals for 2009 and beyond, shall be determined after further consideration of the baseline and related issues discussed in this decision.
(c) Whether these savings should count towards the minimum performance threshold for performance that is tied to our savings goals, per D.05-04-051, shall also be addressed at a later date, in the context of addressing the specifics of that threshold and evaluating all aspects of a risk/reward mechanism. Consideration of this issue may also depend upon the baseline issues discussed in this decision.
(d) On a forward looking basis, savings from codes and standards advocacy work undertaken in 2006 and beyond shall be counted when calculating either net resource benefits ("performance basis") or cost-effectiveness (TRC or PAC tests). The final protocols for estimating these savings and verifying them shall be established during the EM&V phase. The timing issues for calculating the performance basis discussed in Attachment 10 shall also be considered during the EM&V phase.
(e) For the reasons discussed in this decision, savings from pre-2006 codes and standards advocacy work shall not be counted when calculating net resource benefits ("performance basis") or cost-effectiveness associated with portfolio plans for 2006 and beyond, either on a prospective or ex post basis. In terms of the compliance phase filings, this means that the cost-effectiveness scenario analysis shall only include "without" scenario with respect to these savings.
13. As discussed in this decision, the Commission shall further consider the avoided cost methodology adopted in D.05-04-024 ("E3 methodology") with respect to critical peak values. In addition, the utilities shall contract with the appropriate expertise to update and refine the E3 calculator model they have developed for use in calculating cost-effectiveness based on the E3 methodology, in consultation with Energy Division staff. The costs of the contract shall be paid for out of the utilities' portion of EM&V budgets for the 2006-2008 program cycle.
The utilities shall ensure that the contractor(s) retained for this purpose develops a draft report by February 1, 2006 with specific recommendations on the refinements to be made to the avoided costs/E3 calculator. As discussed in this decision, the refinements to the E3 calculator shall focus on the following:
(a) Correcting calculation anomalies with respect to the Standard Practice Manual cost-effectiveness indicators and methodologies.
(b) Converting annual savings to peak savings for all measures with useful lives greater than five years.
(c) Displaying the underlying load shapes being used to estimate the peak savings
(d) Creating a common E3 calculator for use by all implementers
14. After public workshops on the draft report submitted pursuant to Ordering Paragraph 13, Energy Division shall develop recommendations on the avoided cost/E3 calculator refinements for Commission consideration in R.04-04-025, as described in Section 8.8 of this decision. The assigned ALJ or Assigned Commissioner to R.04-04-025 shall establish the schedule for the submission of Energy Division's recommendations and for comments on those recommendations. All reports, notices of availability, notices of workshops or other filings related to the avoided cost/E3 calculator refinements discussed in this decision shall be distributed to the service list in this proceeding, the energy efficiency rulemaking (R.01-08-028), the distributed generation rulemaking (R.04-03-017), the avoided cost rulemaking (R.04-04-025), and the demand response rulemaking (R.02-06-001). The draft decision on these matters shall be issued for comment in the avoided cost rulemaking. Interested individuals or organizations who are not currently parties to R.04-04-025 are hereby placed on notice that they should file a motion to intervene with the assigned ALJ in R.04-04-025 as soon as possible, if they wish to reserve the right to comment on the draft decision in R.04-04-025 with respect to these issues.
15. As discussed in this decision, the valuation of avoided costs for critical peak hours that is developed through the process described above shall be used to assess the performance basis of the 2006-2008 portfolio and programs.
16. The fund shifting rules adopted in this decision, and presented in Table 8, shall apply to all energy efficiency program budgets adopted for 2006 and beyond, unless otherwise modified. Table 8 shall be appended to Appendix A of the Energy Efficiency Policy Manual (version 3) adopted by D.05-04-051. Energy Division shall post the updated Appendix A to the Commission's website as soon as practicable. As provided for in the policy rules adopted by D.05-04-051, the assigned ALJ in consultation with the Assigned Commissioner may provide necessary clarifications to the fund-shifting rules adopted today, or consider modifications to those rules, as appropriate.
17. Energy Division shall include a plan and associated budget for evaluating the issue of code compliance as a longer-term program strategy, and include this information in the EM&V plans being developed during the EM&V phase of this proceeding.
18. The utilities shall work with Energy Division to develop the appropriate tracking mechanisms to determine progress towards meeting the Green Building Initiative efficiency improvement goals. This work and associated schedule, to be established by Energy Division, shall be incorporated into the EM&V roadmap that is issued and periodically updated by ALJ ruling per D.05-04-051.
19. Involvement of the PRGs in an advisory capacity to the utilities shall continue throughout the 2006-2008 program cycle, as discussed in this decision. Each utility program administrator shall meet with or confer with their PRG members to decide how frequently the PRG's should meet and for what purpose. After these meetings, the utilities shall inform the assigned ALJ of its proposed schedule for the next 12 months. Per D.05-01-055, the assigned ALJ, in consultation with the Assigned Commissioner, may provide additional clarification and direction with respect to these and other advisory group issues.
20. As soon as practicable, the Assigned Commissioner in R.01-08-028 shall establish a schedule for developing a risk/reward incentive mechanism for energy efficiency in that proceeding, or its successor proceeding. Per D.03-12-062, this effort shall be closely coordinate with other resource proceedings, in order to ensure that the development of an energy efficiency risk/reward incentive mechanism is consistent with the overall procurement incentive policies being developed in R.04-04-003.
21. For all tasks assigned to Energy Division and/or Joint Staff in this decision, Energy Division may solicit the services of a consultant (or consultants) and/or staff or services from other agencies through interagency agreements to assist in these tasks, the cost of which shall be paid for out of energy efficiency program funds.
22. All submittals by Energy Division or Joint Staff required by this decision shall be served as an attachment to an ALJ ruling.
23. The Assigned Commissioner or ALJ may, for good cause, modify the due dates established by this decision.
24. To the extent that the Assigned Commissioner or ALJ finds it necessary to instruct the utilities and PRGs to report back to them on how they have worked through or addressed specific issues related to energy efficiency program design and implementation, they may do so by ruling at any time during the program cycle.
25. Unless otherwise indicated, all reports, formal filings or other submittals required by today's decision shall be served on the service list in this proceeding pursuant to the Electronic Service Protocols attached to the Assigned ALJ's ruling dated June 8, 2005, and consistent with Rules 2.3 and 2.3.1.
26. This proceeding remains open to address ongoing issues related to the 2006-2008 portfolio plans.
This order is effective today.
Dated , at San Francisco, California.
Gottstein Notice of Availability
Gottstein Tables and Attachments
