10. Comments on Proposed Decision

The proposed decision of ALJ Pulsifer in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on December 5, 2011 and reply comments were filed on December 12, 2011.

We have reviewed the comments to the proposed decision (PD), and based on that review, have made additional revisions to the incentive awards in finalizing this decision. We have adjusted the 2009 incentive awards from $61,998,682 to $60,011,998. As discussed below, this downward adjustment corrects for certain errors in the calculations relied on in the PD. Except for these additional adjustments, we find no basis to adjust the incentive earnings awards in response to comments on the PD.

We find no merit to the claims that the Energy Division calculations were not vetted. Energy Division developed both the 2006-08 results and corrected previous mistakes in the application of those results. No new results or interpretation of those results were developed and used in calculating 2009 incentives. The adjustments to RRIM claims calculated by Energy Division are based upon the correction of mistakes in utilizing the 2006-2008 EM&V results for installation and storage rates for CFLs which we are now allowing credit.

SCE claims that the PD alters the ex ante market segment allocation of SCE's Residential Lighting Program from 90% residential and 10% nonresidential to a revised split of 94%/6%, respectively. PG&E makes a similar claim that the Energy Division model uses an ex post 94%/6% split for CFLs, rather than the ex ante 90%/10% ex ante split in violation of the Commission's order in D.10-12-049 that the 2009 earnings claims will be based on ex ante assumptions.

We conclude that applying a 94%/6% split is appropriate by applying the definition of ex-post installation rate to include where the bulbs are installed (i.e., whether in a residence or a commercial location), not just how many are installed. By accounting for the location of the CFL installation, the Energy Division calculation of a 94%/6% split thus makes an appropriate adjustment for this inclusive definition of the installation rate. In reviewing this issue in response to comments, Energy Division discovered that despite raising it in the PD, the quantity values Energy Division used in its calculations in support of the PD estimates actually perpetuated the IOU residential/nonresidential splits of 90%/10% for PG&E and SCE, and 100%/0% for SDG&E. The incentive values provided in this decision correct that error.

SCE utilizes a misinterpretation of the values in the Energy Division consultant memos in the Attachment A to its comments. Those memos addressed only installations of IOU 2006-2009 claimed CFLs from storage and new purchases for residential CFLs only (not non-residential CFLs). However, the total number of both residential and nonresidential bulbs was incorrectly used as an input to the models rather than reducing that value to the number of residential bulbs only. Thus, when the models produced a number for residential bulbs, the value was overestimated by the number of nonresidential bulbs. This had the effect of including the nonresidential bulb count in these residential-only results (with the effect of incorrectly double-counting non-residential bulbs). The result was to therefore inaccurately inflate the total number of CFLs claimed by the IOUs for both residential and non-residential use. The Energy Division calculations in the PD corrected for this error.

In D.10-12-049, the Commission allowed the utilities to submit their 2009 claim for earnings as well as to seek credit for the CFLs bulbs for energy savings based on the installation of CFLs that were procured and rebated over the 2006-2008 cycle but which were not installed in that period. The Commission did not specify a definitive policy in D.10-12-049, however, on how to award credit for these bulbs for 2009. Accordingly, the calculation of energy savings from CFL installations was not predetermined in D.10-12-049, but open for resolution through the application process. Energy Division identified the utilities' claims for CFL credit as a potential issue to be resolved. We thus find the Energy Division resolution reasonable and thus adopt it.

SCE claims that the methodology in the PD appears to "double-adjust" SCE's CFL installation rates. SCE's reported ex ante energy savings, net benefits, and requested earnings claim already include an installation rate to adjust for CFLs that go into storage or never get installed. However, the PD errs by applying an additional installation rate on top of the one already imbedded in SCE's claim. SCE calculates that correcting for this error would increase SCE's award by approximately $849,000.00 under the construct of the PD.

We acknowledge that Energy Division did neglect to remove the IOUs' installation rate assumption built into the IOU energy savings values for CFLs before applying their own installation rate adjustments in the PD tables. We have corrected that error as reflected in the final values for 2009 RRIM earnings adopted herein. However, in the process of making these adjustments, Energy Division discovered that SCE appears to have selectively applied CFL Interactive Effect (IE) adjustments to their claim, such that they included the benefits of positive IEs associated with the reduced heat emitted by CFLs relative to incandescent bulbs lowering the air conditioning load, but did not include the negative impacts associated with greater heating need in the winter (PG&E included both positive and negative IEs in their claim, and SDG&E included some but not all). Consequently, Energy Division revised the claim to correct the IE impacts for SCE and SDG&E.

SCE claims that the PD methodology uses an ex post effective useful life (EUL) instead of the ex ante EUL required by the Commission for use in this earnings claim. We conclude that all the adjustments ED performed for CFLs utilize benefits calculated using the EUL values as submitted by the IOUs in their ex ante claims. Energy Division made no adjustments to those EUL values in any calculations it performed.

SCE claims that the PD methodology overestimates CFLs in storage versus CFLs in use. We find no basis for this claim as the methodology utilized is the methodology adopted in D.10-12-049 to calculate the true-up payment for 2006-2008 and now adapted for use in the 2009 award. The methodology previously did not explicitly show how to calculate credit for 2006-2008 CFL installed in 2009 or provide an installation rate for 2009 CFL. Energy Division extended the previous methodology to allow it to be applied to 2009 for both new purchase installations and installation from storage. As was said in D.10-12-049, credit for CFLs installed from storage is the subject of this new RRIM Decision and not at all pre-judged or directed by D.10-12-049.

As explained in more detail below, Energy Division provided the supporting documentation to the utilities that included both the correct 2009 installation rate and a cumulative installation rate.

SCE claims that the PD methodology provides zero credit for replacing decayed CFLs, which violates existing Commission policy, established in D.09-09-047, which allows the IOUs to assume that 50% of savings persist following the expiration of a given measure life. As explained in D.09-05-037, the 50% savings are deemed to persist based on the premise that the program altered a customer's behavior and helped transform the market. PG&E likewise claims the Energy Division model fails to credit those persistent savings to the utilities.

We disagree. The Energy Division did apply the 50% decay credit, but applied it outside of the ERT process in the Risk Reward Template which the utilities used.13 Thus, the RRIM awards appropriately incorporate the 50% decay rate.

SCE claims that EM&V study relied upon in the PD was limited to the 2006-2008 program cycle and was not designed nor intended to be used to extrapolate installations in 2009. We disagree. OP 4 of D.10-12-049 requires the 2009 award to be based upon similar methods as utilized to calculate the 2006-2008 final true-up award. However, D.10-12-049 defers to a subsequent decision the question of if and how to treat CFL being installed from storage. It is thus appropriate to adopt a method to treat claims for CFLs installed from storage in this decision.

PG&E also filed comments to the PD, denying that it double-counted CFL installations, but claiming that it applied the CFL installation rates from the most recent evaluation studies-67% for residential CFLs and 73% for non-residential CFLs. PG&E claims that over the last year, Energy Division instructed PG&E to use these rates in calculating the amount of 2009 installations for purposes of this application in accordance with D.10-12-049. PG&E claims that Energy Division now recommends an installation rate of only 18% for PG&E.

We conclude that Energy Division used the correct installation rates. The 67% rate is a cumulative installation rate, whereas the 18% installation rate is the correct value for calculating 2009 incentives. Energy Division provided a memo with the CFL counts and in a separate email provided the supporting documentation behind the memo to the utilities in February 2011. That supporting documentation had both the correct 18% 2009 installation rate and the 67% cumulative installation rate. Energy Division did not specify therein which installation rate to use and did not identify different installation rates as an issue at the time, but the utilities did have the supporting documentation.

PG&E claims that the Energy Division model fails to credit the utilities for persistence of energy savings from CFLs authorized by D.09-09-047, representing an incorrect application of Commission policy, which in no way supports reduction of the 2009 CFL installation rate.

PG&E claims that the Energy Division calculations assume that most purchasers of CFLs in 2009 had leftover bulbs in storage and therefore, concludes that purchasers continued to store new CFLs they purchased in 2009 rather than install them.

We find that the Energy Division used the CFL memo assumptions that were provided to the utilities with the 2009 report. Energy Division did not change any assumptions in that methodology, but believes the method should be improved going forward. The total increase in CFL saturation within residences during 2009 is set at the rates found in the 2006-2008 EM&V results based on home surveys during 2009. Therefore, it is not appropriate for the sum of CFLs taken from storage plus those newly acquired during 2009 to be significantly different from the assumptions found in the KEMA memo. Any increase in installation for 2009 acquired CFLs would result in a decrease in CFL installed from storage. Thus the total IOU CFL installation from any source would remain constant and thus the RRIM award due to CFL installation cannot increase. For this reason, the division of total CFL installation between installs from 2006-2008 CFL from storage versus 2009 newly acquired CFL makes no substantial difference to the total award. It is a zero sum gain.

PG&E claims that the model includes incorrect assumptions which appear to be drawn from the 2006-2008 Upstream Lighting Impact Evaluation and which have not been adopted by the Commission. For example, the model applies a six year residential CFL EUL instead of the correct ex ante EUL of 9.4 years. In addition, PG&E claims the model incorrectly applies the EUL. For linear decay the EUL represents the number of years at which 50% of the bulbs installed are ineffective, not 100% as the model shows. When the EUL is corrected to 9.4 years, the correct burnout rate decreases from 1/6 to 1/18.8 bulbs per year. Using the correct EUL value, and applying it correctly, causes dramatic changes in the estimated number of CFLs installed and stored during 2009.

We find that the Energy Division used the same assumption found in the KEMA model. Energy Division acknowledges there could be improvements to the KEMA model but did not make any changes. The KEMA model cites the six year EUL as an "IOU Ex-Ante" value. The utilities did not raise this issue for the nine months when they had the full model but only raise it now. These, and all other model assumptions and parameters are the same as those used in D.10-12-049 to calculate the 2006-2008 true-up award.

PG&E argues that the CFL installation analysis model assumes 31.7 million bulbs sold in PG&E's service territory in 2009, the same value as 2008 and in sharp contrast to the rapidly increasing trend in previous years. PG&E claims the PD overestimates the CFL bulbs in storage versus bulbs in use, noting that the Energy Division model shows that bulbs stored per household increase in 2009, whereas CFLs acquired per home decline in 2009. PG&E infers that that the model may be undercounting bulbs in use and over counting bulbs in storage. In addition, bulbs in storage are likely to decline as a share of total bulbs installed, whereas the model shows a flat ratio of total bulbs in storage to bulbs in use (38%).

We find these methodology assumptions to be unchanged from the 2006-2008 results that were used for the RRIM true-up payment in D.10-12-049. Additionally, these assumptions are supported by more recent information of long term CFL sales trends. All California and national CFL sales data show a very significant spike upwards for CFL sales from late 2006 through 2007 with values being more level in 2008 and later.

PG&E also claims that Energy Division applied the proposed installation rate to the ex ante energy savings values, which have already been reduced with an in-service rate (ISR) adjustment, thus double counting the energy savings reduction resulting from the installation rate.

We have corrected this error in the final adjustment values for 2009 RRIM awards. For the final values, Energy Division removed the ISR "built-in" to the IOU energy savings values by dividing the benefits by the ISR values (.92 for non-residential and .9 for residential) before adjusting those benefits to account for the proper residential and non-residential installation rates from the 2006-2008 EM&V results.

1. In D.07-09-043, the Commission adopted the RRIM to encourage achievement of Commission-adopted energy efficiency goals, and to extend California's commitment to making energy efficiency the highest energy resource priority.

2. Nothing in D.10-12-049 precludes the utilities from seeking credit for the energy savings associated with compact fluorescent lights that were sold and rebated in the 2006-2008 period but which were not or will not be installed until later, provided the savings from those lights have not already been accounted for.

3. In D.08-10-027, the Commission authorized the utilities to continue existing energy efficiency programs from the 2006-2008 period into 2009 pending Commission adoption of a final decision on the utilities energy efficiency portfolio programs for the 2009-2011 period.

4. D.10-12-049 stated that the modifications to the incentive mechanism adopted therein for the 2006-2008 true-up should be applied to the 2009 energy efficiency program year, recognizing the changes in the manner in which goals are stated, and what measure or activities contribute toward the achievement of those goals.

5. D.10-12-049 directed that no later than June 30, 2011, the utilities were to file applications calculating energy efficiency incentives for 2009 pursuant to the RRIM mechanism as modified for the 2006-2008 true-up, to allow for consideration and disposition by December 31, 2011. 

6. In developing and submitting their respective applications, the utilities were to recalculate their 2009 ex ante savings in the ERT tool to reflect gross ex ante savings.

7. The utilities were also allowed to incorporate estimated net benefits attributable to post-2006 C&S program advocacy efforts.

8. The utilities were not allowed to make any other modifications to the ERT tool or the ERT input sheets, except SCE was allowed to revert some of the Gross Realization rates and net-to-gross ratios back to the values used in the planning of the 2006-2008 portfolio consistent with the changes identified in Table 5 of D.10-12-049.

9. The utilities were directed by D.10-12-049 to use the risk reward spreadsheet template provided by Energy Division which recognizes the removal of 2004-2005 goals and savings, the inclusion of 2006-2008 net goals and 2009 gross goals, the inclusion of 50% decay from 2006-2008, and the inclusion verified Codes and Savings Advocacy using 50% for pre-2006 and 100% post-2006.

10. The utilities were to provide with their applications the tools and documentation set forth in OP 4 of D.10-12-049, in order to facilitate the Commission's review of their incentive claims.

11. PG&E calculated that energy efficiency savings achievements for 2009 qualify it for incentive earnings of $32,446,184.

12. SCE calculated that it earned 2009 energy efficiency incentives in the amount of $27.6 million, which compared to revenues at June 2011 rates, represents an increase of approximately 0.16% for bundled customers and 0.25% for System customers.

13. SDG&E calculated that it earned 2009 energy efficiency incentives in the amount of $15.1 million.

14. SoCalGas calculated that it earned 2009 energy efficiency incentives in the amount of $2.0 million.

15. The Commission has not independently verified claimed energy efficiency savings accomplishments for program year 2009 based on an ex post analysis of actual savings achieved.

16. The 2009 incentive earnings claims were subjected to a compliance review conducted by Energy Division and the subsequent follow up review and comments on the Energy Division report.

17. The claims of incentive earnings are based upon ex ante assumptions of savings parameters based on the formulas and assumptions specified for 2009 in D.10-12-049.

18. The technical issues and apparent discrepancies identified in the Energy Division report were subsequently reconciled or explained, except for the double counting of installations from CFL bulbs identified by Energy Division staff.

19. The following adjustments in the 2009 RRIM earnings awards are necessary to avoid overstatement in claimed savings as identified by the Energy Division, namely,

a. The 2009 CFL installation rates used need to be updated to account for the installations of stored and unsold 2006-2008 program bulbs to ensure there is no double counting of CFLs installed in 2009;

b. The 2006-2008 CFL quantities used to estimate the number of bulbs installed in 2009 need to be recalculated to ensure they are consistent with the 2009 installation rates mentioned above to ensure there is no overcounting due to the combined interacting components of the CFL savings model; and

c. SCE selectively applied CFL Interactive Effect (IE) adjustments to their claim, such that they received the benefits of positive IEs associated with the reduced heat emitted by CFLs relative to incandescent bulbs lowring the air conditioning load, but did not include the negative impacts associated with greater heating need in the winter. PG&E included both positive and negative Ies in their claim, and SDG&E included some but not all. The awards granted herein correct for these inconsistencies.

20. The necessary corrections in the 2009 RRIM awards to reflect the overstatements identified in Finding of Fact 19, as set forth in the supporting calculations in Appendix 1 of this decision, result in the following adjusted 2009 RRIM awards:

a. PG&E's adjusted awarded is $26,168,746;

b. SCE's adjusted award is $18,075,141;

c. SDG&E's adjusted award is $13,730,390; and

d. SoCalGas's adjusted awarded is $2,037,721.

1. The Commission authorized the utilities to file applications for approval of energy efficiency incentive awards for program year 2009 as set forth in D.10-12-049.

2. The utilities applications were filed in conformance with the Risk Reward Incentive Mechanism formulas as prescribed in the directives in D.10-12-049 applicable to 2009 claims, except for the adjustment to correct an over counting of savings from CFL bulb installations, as calculated in Appendix 1 of this decision.

3. The utilities should be authorized to recover incentive earnings for 2009 program activity in accordance with the amounts in OP 1 below.

4. The issues raised by DRA regarding its fundamental disagreements with the design parameters underlying the calculation of incentive earnings for 2009 go beyond the limited scope of this proceeding.

5. In this decision, the Commission does not prejudge or dispose of any substantive issues regarding how an energy efficiency incentive mechanism should be designed or implemented, or how earnings claims should be developed for the 2010-2012 cycle or beyond.

O R D E R

IT IS ORDERED that:

1. The following incentive awards are hereby adopted for program year 2009:

a. Pacific Gas and Electric Company is awarded $26,168,746;

b. Southern California Edison Company is awarded $18,075,141;

c. San Diego Gas & Electric Company is awarded $13,730,390; and

d. Southern California Gas Company is awarded $2,037,721.

2. Pacific Gas and Electric Company is authorized to record its 2009 incentive award of $26,168,746 in its electric and gas Customer Energy Efficiency Adjustment Balancing Account, for inclusion in its 2010 Annual Gas and Electric True-Up advice letters for recovery in rates effective January 1, 2012.

3. Southern California Edison Company is authorized to record its 2009 incentive award of $18,075,141 in its distribution sub-account of its Base Revenue Requirement Balancing Account for inclusion of recovery through its Energy Resource Recovery Account proceeding, effective on or shortly after January 1, 2012.

4. San Diego Gas & Electric Company is authorized to record its 2009 incentive award of $13,730,390 for recovery in its applicable annual regulatory account balance update filings effective January 1, 2012.

5. Southern California Gas company is authorized to record its 2009 incentive award of $2,037,721 for recovery in its Rewards and Penalties Balancing Account to be recovered as a 12-month amortization in natural gas rates in connection with the applicable account balance update filings effective January 1, 2012.

6. Application (A.) 11-06-027, A.11-06-028, A.11-06-031, and A.11-06-032 are closed.

This order is effective today.

Dated December 15, 2011, at San Francisco, California.

I abstain.

/s/ MICHEL PETER FLORIO

Commissioner

D1112036 Appendix 1

D1112036 Appendix 2

13 Energy Division applied the 50% decay credit in the RRIM Calculator Template, "RRIM Calculator" tab, cells S24:V26.

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