8. Assignment of Proceeding

Susan P. Kennedy is the Assigned Commissioner and Meg Gottstein is the assigned ALJ in this phase of the proceeding.

Findings of Fact

1. Numerical targets for electricity and natural gas savings should be established in the context of California's overriding goal to pursue all cost-effective energy efficiency opportunities.

2. The annual and cumulative numerical goals for energy savings must be aggressive and stretch the capabilities and efforts of all those involved in program planning and implementation. At the same time, these stretch goals need to reflect a pace for increasing program efforts that is achievable.

3. Today's adopted electricity and natural gas goals reflect the need to substantially increase efforts to procure energy efficiency over both the short- and long-term, based on recent assessments of its economic potential.

4. Today's adopted goals take into consideration the practical limits to effectively increasing program funding and ramping up programs to capture the full economic potential of energy efficiency in the near-term.

5. Joint Staff's recommended savings goals for electric and natural gas savings do not reflect the Commission-adopted savings goals for PY2004 and PY2005. It is reasonable to adjust Joint Staff's recommendations to be consistent with the Commission adopted goals for those program years.

6. It is also reasonable to adjust Joint Staff's recommendations for electric savings goals to reflect the available disaggregated Secret Energy Surplus Study analysis, rather than utilize the top-down allocation method that Joint Staff presented in its March 26 2004 report.

7. As described in this decision, the disaggregated study presents a relatively low baseline of savings for SDG&E in the early years of the planning period. Therefore, using the cumulative totals produced by the study as an upper bound for cumulative savings produces anomalous results for SDG&E. Today's adopted trajectory of savings goals for SDG&E makes reasonable adjustments to the Joint Staff recommendations in light of these problems with the study baseline.

8. As discussed in this decision, removing electricity sales to resale cities from the CEC demand and population forecasts does not affect the estimates of technical potential presented in the Xenergy study or Joint Staff's recommendations for numerical savings goals. Similarly, removing natural gas sales to resale cities, cogeneration customers and thermally enhanced oil recovery sales has no impact on the recommended trajectory of incremental natural gas savings from the program.

9. Savings achieved by customers not included in the calculation of savings potential should be removed from the calculation of savings accomplishments, in order to ensure consistency when evaluating whether the goals are met.

10. A 20% conversion factor is consistent with the relationship between GWh and MW savings for the 2004 and 2005 program years. When applied to the GWh savings adopted in this decision, a 20% conversion factor results in peak MW savings that do not exceed the disaggregated Secret Energy Surplus study projections of maximum achievable potential for the three electric IOUs combined. In contrast, using Joint Staff's conversion factor of 26% yields cumulative MW savings that exceed that potential.

11. As we look to develop energy efficiency programs for 2006 and beyond that more aggressively reduce peak loads, we may need to adjust the conversion ratio assumption adopted in today's decision upwards.

12. As discussed in this decision, PG&E's concerns over how private supply will be measured is moot, since Joint Staff has modified its forecasts from an earlier approach to exclude private supply numbers.

13. For the reasons discussed in this decision, savings achieved from energy efficiency measures installed under the IOUs LIEE program should be counted toward today's adopted savings goals. Reported savings from those programs should utilize ex ante assumptions (e.g., measure lives) that are consistent with the ex ante assumptions we may utilize to assess performance and report savings for energy efficiency measures offered under the non-low income energy efficiency programs. The measures installed under the LIEE program that count towards our adopted savings goals should also be subject to the same EM&V protocols adopted for the non-low income side.

14. Only actual installations should be counted towards the savings goals.

15. The savings goals adopted today through 2008 are net of free riders. Whether the savings goals in the outer years (2009-2013) represent gross savings (e.g., the net-to-gross ratio approaches 1.0), as assumed in the potentials studies, should be revisited during the next update of those studies.

16. Although the IOUs no longer procure energy on their behalf, direct access and non-core customers continue to pay the PGC and ratepayer-funded programs continue to be designed and implemented to capture savings in these markets.

17. Joint Staff's approach to bounding natural gas savings goals by performing sensitivity analysis on what percentage of the non-core market potential is achievable is more reasonable than either (1) eliminating non-core usage from savings goal calculations altogether, or (2) assuming that all of the economic potential can be effectively captured via ratepayer-funded programs.

18. Joint Staff's recommendations should be adjusted so that the savings trajectories for electricity and natural gas savings cover the same 2004 to 2013 -time period.

19. The proportion of cumulative natural gas savings allocated to SoCalGas under Joint Staff's recommendations should be adjusted slightly downwards to better reflect SoCalGas' relative share of statewide natural gas sales.

20. The natural gas goals adopted today take into account a wide range of concerns about the ability of program administrator(s) to reach the non-core industrial market with energy efficiency programs, as discussed in this decision. In particular, the natural savings goals reflect less than half of the total maximum achievable potential projected by Xenergy for the non-core and core markets combined. Moreover, Joint Staff's sensitivity analysis indicates that program administrator(s) should be able to meet today's adopted goals even if they reach only 10% to 25% of the maximum achievable potential in the non-core industrial natural gas market.

21. As discussed in this decision, key assumptions underlying the development of both economic and maximum achievable potential, such as the role of emerging technologies and assumptions concerning savings yield ratios, will need to be revisited during the next update of potential studies.

22. Joint Staff's preliminary analysis clearly indicates that the energy savings realized over the life of the energy efficiency measures will exceed the accumulated program costs associated with the energy savings goals, thereby resulting in "negative" net rate impacts to IOU customers.

23. Establishing per capita usage reduction goals using future forecasts of per capita usage is problematic, since the calculation of energy savings based on such goals is particularly vulnerable to forecasting errors. To the extent that GWh, MW or Mth savings goals need to be expressed in terms of per capita usage reductions, they should be described relative to a single base year of usage, as Joint Staff proposes.

24. As discussed in this decision, estimates of the net rate impacts and bill impacts associated with the proposed portfolio of programs designed to meet the Commission-adopted goals should be filed with energy efficiency program plan applications during each program cycle.

25. Recalibrating our adopted energy savings goals in order to address potential procurement redundancies, as PG&E and other IOUs propose, implies that the reasonableness of those goals must be considered in the context of the IOUs' plans to dispatch existing or procure additional supply-side resources. As discussed in this decision, the policies articulated in the Energy Action Plan and by this Commission dictate just the opposite; namely, that energy efficiency is evaluated for cost-effectiveness and procured before supply-side resources are to be factored into the procurement plan.

26. Some differences between the near-term numerical goals and the savings levels associated with the program portfolios developed for the PY2006-2008 program may be appropriate. Nonetheless, the program administrator(s) should be able to demonstrate how the longer-term numerical goals will be achieved as program efforts ramp and as they offer innovative program designs to address major barriers to energy efficiency deployment.

27. In order to meet today's adopted goals, program administrator(s) should aggressively pursue programs that support new building and appliance standards and submit for our consideration an analysis of a wide range of promising options to accelerate energy efficiency deployment, including on-bill financing options.

28. A three-year period provides a reasonable timeframe for updating energy savings potential studies and goals, and for preparing and planning for each subsequent energy efficiency funding cycle.

29. Joint Staff has taken reasonable steps to account for uncertainties in avoided cost and energy price forecasts, and to evaluate factors that could bias the analysis of statewide economic savings potential in either direction.

30. Joint Staff utilizes a reasonable combination of cost-effectiveness metrics in screening energy efficiency measures to include in its calculations of statewide economic savings potential.

Conclusions of Law

1. The annual and cumulative savings goals presented in Tables 1A-1E are reasonable and should be adopted, subject to the updating process described in this decision.

2. The adopted savings goals will be used primarily on a prospective basis for resource procurement and program planning purposes, as described in this decision. In addition, Joint Staff and the parties should explore using the adopted goals as a threshold for performance, subject to a reasonable uncertainty band, as we consider risk/reward mechanisms in a later phase of this proceeding.

3. As discussed in this decision, the energy efficiency savings goals adopted in this proceeding should be fully reflected in the IOUs resource acquisition and procurement plans, so that ratepayers do not procure redundant supply-side resources over the short- or long-term.

4. Today's decision does not adopt Joint Staff's screening methodology for the purpose of evaluating the cost-effectiveness of individual programs or measures, or prejudge our consideration of cost-effectiveness policy rules for future funding cycles.

5. In order to proceed expeditiously with energy efficiency program planning and supply-side procurement in the context of our adopted savings goals, this decision should be effective today.

6. Since Indicated Producers and CSBE/SBN have demonstrated an interest in the issues addressed in this decision, their Petitions to Intervene should be granted.

INTERIM ORDER

IT IS ORDERED that:

1. The next program implementation and funding cycle for electric and natural gas energy efficiency ("program cycle") shall cover program years (PY) 2006 through PY 2008. Each subsequent program cycle shall cover a three-year period until further order of the Commission.

2. The annual and cumulative energy efficiency savings goals presented in Tables 1A through 1E and Attachment 9 for the service territories of Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE) and Southern California Gas Company (SoCalGas) are adopted for 2004-2013, subject to the updating process described in Ordering Paragraph 3.

3. Today's adopted savings goals will apply to the PY2006-PY2008 program cycle without further updates. These goals shall be updated every three years for use in subsequent program cycles. In preparation for the PY2009-PY2011 program cycle, Energy Division and California Energy Commission staff ("Joint Staff") shall jointly prepare recommendations for adjustments to today's adopted savings goals as appropriate, based on updated savings potential studies, accomplishment data, changes to mandatory efficiency standards and other evaluation studies and factors that staff deems appropriate. These studies shall continue to be funded out of public goods charge collections. The administration of savings potential and other evaluation studies, i.e., who contracts for and manages them, shall be addressed in a separate decision on energy efficiency administrative structure in this proceeding.

4. In submitting proposed energy efficiency program plans and funding levels to meet the savings goals adopted by the Commission, the program administrator(s) shall:

a. Demonstrate that their proposed level of electric and natural gas energy efficiency program activities and funding is consistent with the Commission's -adopted electric and natural gas savings goals.,

b. If there are differences between the near-term numerical goals and the savings levels associated with the program portfolios proposed for PY2006-PY2008, specifically describe how the numerical goals in later years will still be met by ramping up program efforts over time, by initiating innovative programs to improve program-effectiveness ratios, or by other means.

c. Submit an analysis of a wide range of promising options to remove barriers to the rapid deployment of energy efficiency with the PY2006-PY2008 program plans, including on-bill financing of energy efficiency measures. In doing so, program administrator(s) should look to the practices used in other states to resolve the ratemaking, cost allocation and consumer protection issues raised by the parties in this proceeding regarding on-bill financing.

d. Present specific proposals for programs that support new building and appliance standards.

e. Present estimates of the net rate impacts and bill impacts associated with the proposed portfolio of programs designed to meet the Commission-adopted energy savings goals. The program administrator(s) shall work with Joint Staff to develop a consistent format for presenting these estimates in their filings.

5. Further direction on the scope, scheduling and other procedural issues related to the PY2006-PY2008 program cycle shall be provided by the Assigned Commissioner or Administrative Law Judge in this proceeding.

6. The energy savings goals adopted in this proceeding shall be reflected in the IOUs' resource acquisition and procurement plans so that ratepayers do not procure redundant supply-side resources over the short- or long-term. To this end, our upcoming decisions in R. 04-04-003 concerning the long-term procurement plans and 2005/2006 ongoing procurement authorizations of PG&E, SCE and SDG&E shall be made in full recognition of the aggressive energy savings goals we adopt today. For the procurement plans that will be filed in 2006 and during subsequent procurement plan cycles, or for any updating to the long-term procurement plans required by the Commission before then, PG&E, SDG&E and SCE shall incorporate the most recently-adopted energy savings goals into those filings.

7. In any application or other filing in which PG&E, SCE, SDG&E or SoCalGas present projections of supply-side resource needs, pipeline or transmission needs, propose new facilities or otherwise utilize projections of energy demand, they shall demonstrate that such filings are fully consistent with and reflect today's adopted energy savings goals, or updates to these goals as adopted by the Commission.

8. PG&E, SDG&E and SoCalGas shall reflect the natural gas energy savings goals adopted in today's decision, or as updated from time to time by the Commission, in their BCAP filings and other proceedings where natural gas demand projections are submitted for Commission consideration.

9. As discussed in this decision, the linkage between today's adopted savings goals with the performance of a risk/reward mechanism shall be addressed in a subsequent phase of this proceeding.

10. The Assigned Commissioner or Administrative Law Judge may, for good cause, modify the due dates established by this decision.

11. The August 23, 2004 Petition to Intervene of the Indicated Producers is granted.

12. This decision shall be served on all appearances and the state service list in this proceeding and in Rulemaking (R.) 04-04-003, and in R.04-01-025.

13. The September 1, 2004 Petition to Intervene of the Center for Small Business and the Environment and the Small Business Network is granted.

This order is effective today.

Dated September 23, 2004, at San Francisco, California.

MICHAEL R. PEEVEY

President

CARL W. WOOD

LORETTA M. LYNCH

GEOFFREY F. BROWN

SUSAN P. KENNEDY

Commissioners

I reserve the right to file a concurrence.

/s/ CARL W. WOOD

Commissioner

I reserve the right to file a concurrence.

/s/ LORETTA M. LYNCH

Commissioner

I will file a concurrence.

/s/ SUSAN P. KENNEDY

Commissioner

TABLE 1A
PG&E Total Electricity and Natural Gas Program Savings Goals
	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
Total Annual Electricity Savings (GWh/yr) (1)	744	744	829	944	1,053	1,067	1,015	1,086	1,173	1,277
Total Cumulative Savings (GWh/yr)	744	1,487	2,317	3,260	4,313	5,381	6,396	7,483	8,656	9,933
Total Peak Savings (MW) (2)	161	323	503	708	936	1168	1388	1624	1878	2156
Total Annual Natural Gas Savings (MMTh/yr)	9.8	9.8	12.6	14.9	17.4	20.3	21.1	22.0	23.0	25.1
Total Cumulative Natural Gas Savings (MMTh/yr)	9.8	19.6	32.1	47.0	64.4	84.8	105.9	127.8	150.9	176.0

Notes:
(1) Total annual energy savings = all savings from energy efficiency programs funded by public goods charge and Procurement funding. This total includes savings from baseline Energy efficiency program funding of $100 MM/yr accounted for in the CEC sales forecast.
For incremental program savings above the levels included in the CEC forecast see Attachment 9. (2) GWh Savings converted to MW by multiplying by .217, which is ratio of GWh to peak savings for 2004/5 applications This is an estimate of average peak savings not coincident peak = GWh savings in peak period/ 560 of hours in period

TABLE 1B

SCE Total Electricity Program Savings Goals
			2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
Total Annual Electricity Savings GWh/yr			826	826	922	1,046	1,167	1,189	1,176	1,164	1,151	1,139
Total Cumulative Savings GWh/yr			826	1,653	2,575	3,621	4,788	5,977	7,153	8,317	9,468	10,608
Total Peak Savings (MW)			167	334	541	760	1,006	1,255	1,502	1,747	1,988	2,228
Notes: (1) Total savings = all savings from energy efficiency programs funded by public goods charge and procurement funding. This total includes savings from Energy efficiency programs already in the CEC forecast. For incremental savings above the levels included in the CEC forecast, see Attachment 9. (2) GWh Savings converted to MW by multiplying by .21, average of utility GWh to peak savings for 2004/5 applications. This is an estimate of average peak savings not coincident peak = GWh savings in peak period/ 560 hours in period.

TABLE 1C

			SDG&E Total Electricity and Natural Gas Program Savings Goals
			2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
Total Annual Electricity Savings GWh/yr			268.4	268.4	280.5	285.1	284.4	282.3	273.6	262.5	221.7	214.9
Total Cumulative Savings GWh/yr			268.0	536.8	817.3	1,102.4	1,386.8	1,669.1	1,942.7	2,205.2	2,426.9	2,641.8
Total Peak Savings (MW)			50.4	100.7	155.3	209.5	263.5	317.1	369.1	419.0	461.1	501.9
Total Annual Natural Gas Savings (MMTh/yr)			1.8	1.8	2.7	3.1	3.7	4.1	4.5	4.9	5.3	5.7
Total Cumulative Natural Gas Savings (MMTh/yr)			1.8	3.6	6.3	9.5	13.1	17.3	21.8	26.7	32.0	37.6
Notes: (1) Total savings = all savings from energy efficiency programs funded by public goods charge and procurement funding. This total includes savings from Energy efficiency programs already in the CEC forecast. For incremental savings above the levels included in the CEC forecast, see Attachment 9.  (2) MW savings derived by multiplying GWh Savings by .19, average value SDG&E GWH to peak savings for 2004/5 applications. This is an estimate of average peak savings during all the peak hours; = GWh savings in peak period/560 hours in period.

TABLE 1D

SoCalGas Natural Gas Program Savings Goals
MM Therms/Year
			2004	2005	2006	2007	2008	2009	2010	2011	2012			2013
Total Annual Natural Gas Savings (MMTh/yr)			9.6	9.6	14.7	19.3	23.3	27.2	28.3	29.9	32.3			35.8
Total Cumulative Natural Gas Savings (MMTh/yr)			9.6	19.3	34.0	53.3	76.5	103.7	132.0	161.9	194.2			230.1
Notes:
Total savings = all savings from energy efficiency programs funded by public goods charge and procurement funding.
This total includes natural gas savings from energy efficiency programs already included in the CEC forecast.

TABLE 1E

Total Electricity and Natural Gas Program Savings Goals (all IOUs)
	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
Total Annual Electricity Savings (GWh/yr) (1)	1,838	1,838	2,032	2,275	2,505	2,538	2,465	2,513	2,547	2,631
Total Cumulative Savings(GWh/yr)	1,838	3,677	5,709	7,984	10,489	13,027	15,492	18,005	20,552	23,183
Total Peak Savings (MW) (2)	379	757	1,199	1,677	2,205	2,740	3,259	3,789	4,328	4,885
Total Annual Natural Gas Savings (MMTh/yr)	21	21	30	37	44	52	54	57	61	67
Total Cumulative Natural Gas Savings (MMTh/yr)	21	42	72	110	154	206	260	316	377	444

Notes:

(1) Total annual energy savings = all savings from energy efficiency programs funded by public goods charge and Procurement funding.

This total includes savings from baseline Energy efficiency program funding of $100 MM/yr accounted for in the CEC sales forecast.

For incremental program savings above the levels included in the CEC forecast, see Attachment 9.

(2) Average peak MW estimated by multiplying GWh from utility by the ratio they used in 2004/5 filings ranges from .19 to .21.

This is an estimate of average peak savings not coincident peak = GWh savings in peak period/ 560 hours in period.

Table 2: Joint Staff Electricity Savings Goals Recommendations

(March 26 2004 Report)¹

	2004		2005		2006		2007		2008		2009		2010		2011		2012		2013
	Annual Savings (GWH/ year)
PG&E	572		639		735		862		1,016		1,062		1,070		1,214		1,318		1,434
SCE	726		811		933		1,094		1,290		1,348		1,358		1,541		1,672		1,820
SDG&E	230		257		296		347		409		428		431		489		531		578
Total	1,528		1,707		1,963		2,304		2,715		2,837		2,858		3,243		3,521		3,831
	Cumulative Savings over the Decade (GWH)
PG&E	572		1,211		1,946		2,808		3,824		4,886		5,956		7,170		8,488		9,922
SCE	726		1,537		2,470		3,564		4,854		6,202		7,560		9,101		10,773		12,593
SDG&E	230		487		783		1,130		1,539		1,967		2,398		2,887		3,418		3,996
Total	1,528		3,236		5,199		7,503		10,218		13,055		15,913		19,156		22,677		26,508
	2004		2005		2006		2007		2008		2009		2010		2011		2012		2013
Cumulative Peak Savings (MW/ year)
PG&E	149		335		506		730		994		1270		1548		1864		2207		2579
SCE	189		400		642		927		1262		1612		1965		2366		2801		3274
SDG&E	60		127		204		294		401		512		624		751		889		10393
Total	397		862		1352		1950		2657		3394		4137		4981		5896		6892
______________________________ 1See "California Electricity Energy Savings Goals Report," submitted March 26, 2004 in this proceeding by Joint Staff. The method for converting GWh to peak savings (using a conversion factor of .259) is discussed in Appendix A of that report.

Table 3: Joint Staff Initial Recommendations

For Natural Gas Savings Goals (March 26, 2004)¹

Note: These figures are a combination of natural gas savings projected from current funding levels plus the expected savings from an increase in program funding. The cumulative annual savings estimates in the last column are the result average funding increases of 15% in 2006 and then 10% per year from 2007 - 2014. These results in an annual funding level in 2014 that is roughly 3 times or 147% increase relative to 2002 expenditures.

___________________

¹See "California Natural Gas Energy Savings Goals Report," March 26, 2004 submitted by Joint Staff in this proceeding. Joint Staff's revised natural gas goals are presented in Attachment 5.

Table 4: Fraction of Incremental Electricity Needs Met by
Energy Efficiency Programs (%)

Utility Energy Efficiency Programs	Total Program Savings Share of Incremental Electricity Needs - 2004-2013	Incremental Program Savings Share of Incremental Electricity Needs - 2004-2013
PG&E	58.7%	44.9%
SCE	57.2%	40.6%
SDG&E	54.6%	35.8%

Definitions:

1. Incremental program savings = those savings not in the CEC baseline electricity forecast. CEC forecast includes the projected savings impacts from ten years of constant program funding at the minimum level required of $233 million per year statewide.

2. Total program savings = baseline program savings + incremental program savings over ten years

3. Fraction of need met by total program savings estimate is derived by dividing total program savings in year 2013 by the adjusted increment of need for the same period

4. Adjusted need increment = change in electricity forecast from 2004 to 2013 + the expected cumulative electricity savings from ten years of programs

5. Fraction of need met by incremental program savings is simply cumulative savings goal divided by the GWH change in forecast of need from 2004 to 2013.

Table 5: Joint Staff Evaluation of Natural Gas Therm Savings Potential
(by 2014) Under Various Program Funding Levels¹

Utility	Level 4	Level 3	Level 2	Level 1	Naturally Occurring
PG&E	378 Mth	99 Mth	68 Mth	41 Mth	57Mth
SCG	635 Mth	143 Mth	97 Mth	57 Mth	63 Mth
SDG&E	44 Mth	13 Mth	8 Mth	5 Mth	13 Mth
Totals	1,057 Mth	255 Mth	174 Mth	104 Mth	133 Mth

Where:

Level 1= Current spending of $45 million per year

Level 2= 50% more than current spending

Level 3=100% more or doubling the current spending trend, and

Level 4= spending for the maximum feasible potential

____________________ ¹"California Natural Gas Energy Savings Goals Report," March 26, 2004, submitted in this proceeding by Joint Staff. See pp. 18-21.