7. Comments on Proposed Decision
The proposed decision of ALJ Gottstein 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. DRA and EP Incorporated (EPI)39 filed comments on the proposed decision. DRA supports the proposed decision and recommends its adoption by the Commission. EPI recommends certain language modifications to Findings of Fact #1 and #5 that would qualify the language contained in those findings with respect to transfer payments and negative participant costs. We have carefully reviewed EPI's comments and conclude that no changes to the proposed decision are warranted. Although we have made a few minor clerical corrections to the proposed decision, we make no substantive changes in response to comments.
1. All versions of the SPM dating back to the 1980s have been clear on what incentive costs (the INC term) are to be treated as "transfers" in the TRC test of cost-effectiveness. Specifically, the INC term is limited to dollar rebates or bill credits paid to the participating customer.
2. Only this narrow definition of the INC term, as presented in the SPM, preserves the fundamental intent of the TRC test, namely, to capture the total costs of the program, including the participant and the utility costs.
3. If the TRC formulation included the participant cost (PC) term and all utility program costs without excluding the incentives contained in the INC term, then those dollar rebates or cash credits would be double-counted on the cost side of the equation. They would be included both in the PC term (because of the way that term is defined to represent the actual measure installation costs to the participant before any such dollar incentives) as well as in the program administrator cost (PRC) term. To avoid this double counting, the SPM treats the INC payment as a "transfer" by excluding the dollar rebates or bill credits from the PRC term. In this way, the utility's costs and all the participants' costs (together comprising the total costs of the program) are reflected in the calculation without double counting
4. If the INC term were broadened to include dollar payments to upstream/midstream market actors (e.g., manufacturers or wholesalers) or to utility contractors for direct-install programs, as the utilities propose, real utility program costs would be ignored in the calculation of TRC cost-effectiveness. As a result, these programs would appear more cost-effective from a TRC perspective than they really are because total costs are understated.
5. The TRC will fully capture any cost-effectiveness advantages of upstream/midstream programs under the current formulation of that test: If the costs to administer midstream and upstream incentive programs are less than the administrative costs associated with programs that provide rebates directly to the participant, then these cost savings will be fully reflected in the PRC term. If market acceptance of energy efficiency measures is higher under midstream/upstream program strategies than under rebate programs, then the savings associated with this higher level of participation will also be fully reflected in the TRC equation-on the benefits side. And if the midstream and upstream incentives are successful in reducing the retail price of energy efficiency measures to end-users, then this benefit will also be reflected in the PC term.
6. Similarly, to the extent that direct-install programs increase cost-efficiencies and program participation, then such benefits and efficiencies will be reflected in the TRC test using the current definitions of TRC cost components. The benefits of increased participation will be reflected in the benefits side of the equation, while the cost efficiencies will be reflected in lower total utility and participant costs.
7. Treating midstream and upstream incentives as transfers (as the utilities prefer) implicitly assumes that there is a dollar reduction in the shelf price for every dollar of cash incentive provided to upstream/midstream market actors. It is unreasonable to define the TRC in this manner without any scrutiny of shelf prices that can be readily observed in the market.
8. Contrary to the utilities' assertions, there is no "double counting" created when all direct-install program costs are included in the TRC equation. It is not necessary to redefine the PC term to recognize that participant costs under a direct install program may be significantly lower than under traditional rebate programs.
9. Defining the PC term as having a "zero" value for all direct-install strategies, as the utilities suggest in their Joint Petition, fails to recognize that the level of the PC term may not always be zero-it will depend upon whether co-payments are required by the participating customer and the level of those co-payments and other costs.
10. Numerical examples with and without free riders clearly demonstrate that restricting the definition of transfer payments to dollar rebates (or bill credits) to the participating customer does not skew the TRC results in favor of rebate programs relative to direct install programs, contrary to the utilities' assertions.
11. The only exception to this result is when dollar rebates or bill credits actually exceed the installed cost of the measure, which as discussed in D.06-06-063 is an unusual and extreme circumstance of excessive incentives to the participating customer. Moreover, we apply the "dual cost" test of cost-effectiveness in evaluating energy efficiency activities to ensure that utilities design rebates that are not excessive and use program funds cost-efficiently. In particular, we require that the Program Administrator Cost (PAC) test is used in conjunction with the TRC test in evaluating program design options and that the portfolio as a whole must pass both tests to be eligible for funding.
12. In D.07-09-043, the Commission rejected the alternative recommendation presented in the Joint Petition (i.e., to adjust all direct-install costs and upstream/midstream incentives by the NTG ratio) because it would remove real program costs (revenue requirements) from consideration and overstate TRC net benefits.
13. This Commission's efforts to ensure that all utility costs and participant costs are properly accounted for in calculating the TRC test is fully consistent with the "other interpretations" the utilities refer to in the Joint Petition, i.e., the OEB Guide and 1994 ACEEE paper. It is also consistent with the interpretation of the NWPPC in its application of the TRC test for utilities that receive power from federal suppliers in the Pacific Northwest.
14. D.06-06-063, the Compliance Ruling and D.07-09-043, in conjunction with the SPM, provide clear direction on how to apply the TRC test to energy efficiency program activities.
15. Over the longer term, all stakeholders would benefit from the development of a fully consolidated, explanatory version of the TRC test in an updated SPM document.
16. Defining participant costs as the "customer's contribution" to the measure installation costs, i.e., "net" of the INC term (and also of free riders) and fully reflecting the INC term dollar incentives in the PRC term could facilitate a more consistent treatment of free rider adjustments in the SPM formulas without any double counting or omission of TRC costs.
1. The Commission's directions in D.06-06-063, the Compliance Ruling and D.07-09-043 ensure that the most cost effective and efficient energy efficiency delivery approaches are pursued by accounting for all of the costs to participants and the utility in the TRC test without any double-counting.
2. The proposed modifications to D.06-06-063 contained in the Joint Petition would allow real resource costs to go unaccounted for by either (1) inappropriately classifying program costs as transfer payments or by (2) ignoring the utility costs of providing program incentives (transfer or non-transfer) to free riders. This would overstate the net benefits achieved by the programs.
3. The Joint Petition should be denied.
4. The utilities should proceed without delay to hold joint workshops to educate all program implementers on the proper classification and reporting of program costs consistent with the Commission's determinations.
5. In consultation with Energy Division, the assigned Commissioner or ALJ should establish a schedule for updating the 2001 SPM so that this document fully integrates the direction provided in D.06-06-063, the Compliance Ruling, D.07-09-043 and today's decision with numerical examples of how the TRC test is applied to various program delivery strategies.
6. R.04-04-025 should remain open to address pending applications for rehearing in this proceeding.
IT IS ORDERED that:
1. The May 31, 2007 Petition for Modification of Decision (D.) 06-06-063 is denied.
2. As soon as practicable, Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company and Southern California Gas Company ("the utilities"), in coordination with the Commission's Energy Division and the utilities' E3 calculator consultants, shall jointly sponsor workshops to educate all program implementers on the proper classification and reporting of program costs consistent with the Commission's determinations. Once scheduled, the utilities shall notify the service list in Rulemaking (R.) 06-04-010 and the utilities' energy efficiency peer review groups of the workshop dates and locations.
3. As discussed in this decision, Energy Division shall update the Standard Practice Manual (SPM) so that this document reflects the direction provided in D.06-06-063, the December 21, 2006 Administrative Law Judge's Compliance Ruling, D.07-09-043 and today's decision, with numerical examples for various program delivery strategies. For this purpose, Energy Division may utilize its 2006-2008 EM&V authorized funding to contract with technical expertise in the development of the Standard Practice Manual update.
4. Prior to posting the final SPM revisions to the Commission website, Energy Division shall solicit written comments from parties to our energy efficiency rulemaking (R.06-04-010, or its successor proceeding) on its draft revisions, and may also hold workshops on those revisions as it deems necessary. Parties' comments shall be filed at the Commission's Docket Office and served on the service list to R.06-04-010 or its successor proceeding.
5. The assigned Commissioner or assigned Administrative Law Judge in R.06-04-010 shall establish a schedule for the Standard Practice Manual update by subsequent ruling, after further consultation with Energy Division.
6. All rulings, notices, comments or other documents required to implement today's decision shall be served electronically, pursuant to Rules 1.9 and 1.10 of the Commission's Rules of Practice and Procedure.
7. This decision is effective today and shall be served on the service lists in this proceeding and in R.06-04-010.
This order is effective today.
Dated January 10, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
ATTACHMENT 1
LIST OF ACRONYMS AND ABBREVIATIONS
ACEEE |
American Council for an Energy-Efficient Economy |
ALJ |
Administrative Law Judge |
CDM |
conservation and demand management |
CFL |
compact fluorescent lamp |
Compliance Ruling |
Ruling addressing the utilities' compliance submittals |
D. |
Decision |
DRA |
Division of Ratepayer Advocates |
"E3" |
Energy and Environmental Economics |
EM&V |
evaluation, measurement and verification |
INC Term |
incentive term |
Joint Petition |
The utilities' jointly filed Petition for Modification of D.06-06-063 |
Joint Reply |
The utilities' jointly filed reply on July 12, 2007 |
LDCs |
local distribution companies |
NRDC |
Natural Resources Defense Council |
NTG |
net-to-gross |
NWPPC |
Northwest Power Planning Council |
OEB |
Ontario Energy Board |
OEB Guide |
Total Resource Cost Guide adopted by Ontario Energy Board |
PAC |
Program Administrator Cost |
PC |
Participant Costs |
PG&E |
Pacific Gas and Electric Company |
PRC |
Program Administrator Costs |
R. |
Rulemaking |
SCE |
Southern California Edison Company |
SDG&E |
San Diego Gas & Electric Company |
SoCalGas |
Southern California Gas Company |
SPM |
Standard Practice Manual |
"the utilities" |
Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, and Southern California Gas Company, collectively |
TRC |
Total Resource Cost |
TURN |
The Utility Reform Network |
(END OF ATTACHMENT 1)
39 EPI is the manufacturer of air conditioning equipment and is working with other industry groups to propose a direct installation program for the 2009-2011 program cycle.
