3. Purpose and Scope of the 2006 Update

As set forth in the ALJ's December 27, 2005 ruling, the purpose and scope of the 2006 Update is to:¹⁶

· Develop a common definition of peak/critical peak to use in evaluating energy efficiency across proceedings. In doing so, consider whether different definitions of peak demand reductions for EE are needed for:

o Cost-effectiveness evaluation

o Establishing peak reduction goals

o Evaluating achievement of those goals

o Critical peak pricing

o Resource adequacy counting.

· Update interim avoided costs methodology/E3 calculator to more accurately reflect impact of energy efficiency and other resources on peak/critical peak loads (according to the scope restrictions below).

· Improve consistency in underlying load shapes, including specifying the type of load shapes to be developed, sources of data and how demand will be measured ex post.

· Determine the most appropriate application (calculation) platform for program evaluations.

· Correct calculation anomalies in the E3 calculator with respect to Standard Practice Manual cost-effectiveness indicators and/or methodologies.

· Update natural gas prices in E3 calculator based on current forecasts and consider whether Commission should revise ex ante assumptions.

· Consider where further refinement of the E3 calculator is needed to create common calculator, and

· Convert annual savings to peak savings in the E3 calculator for all measures using consistent counting periods.

The December 27, 2005 ALJ ruling also clarified the distinction between the near-term (2006) updates to be considered in this phase of the proceeding, and the more comprehensive reassessment of avoided cost methodology to be addressed in Phase 3:

"...Phase 3 of this proceeding will be the forum for developing a complete record on issues related to the adoption a common methodology, consistent input assumptions and updating procedures needed to quantify all elements of long-run avoided costs across the various Commission proceedings. The Commission's decision in Phase 3 will also adopt avoided cost calculations and forecasts that conform to those determinations. This process is likely to take a great deal of time and effort as we coordinate the inputs used in multiple proceedings and address methodological issues in order to develop an avoided costs `yardstick' for valuing the resource benefits of various supply and demand-side options."¹⁷

As further discussed in that ruling, the 2006 Update is not the forum for the following:

· Considering proposals that fundamentally reject or represent a major change to E3 method.

· Modifying the Commission's established energy efficiency goals for 2006-2008 program cycle, or

· Addressing transmission and distribution valuation issues.¹⁸

In the following sections, we address the 2006 Update issues identified in the ALJ's scoping ruling.¹⁹ In doing so, we describe general areas of agreement among parties, the range of views where there is non-consensus, and present the recommendations included in the Final Report.

¹⁶ Administrative Law Judge's Ruling on Scope and Schedule for the 2006 Update to Avoided Costs and E3 Calculator Directed by Decision 05-09-043, December 27, 2005.

¹⁷ Ibid., p. 5.

¹⁸ Ibid., pp. 6-7.

¹⁹ This last issue on the list (consistent counting periods), however, has already been addressed and resolved as one of the "quick fixes" to the E3 calculator discussed in Section 2. Therefore, we do not address it further in today's.