3. Joint Petition and Supporting Analysis
The utilities request that achievement of the MPS be established based on verification of measure installations but using ex ante planning estimates of load impacts. They argue that it would defeat the purpose of the incentive mechanism to subject them to the "all or nothing" forecasting uncertainty associated with the MPS true-up in the 3rd claim, as adopted in D.07-09-043. They recommend that the PEB (i.e., the level of net benefits that would be shared) continue to be trued up in the 3rd and final claim based on ex post results for load impacts, including free riders. However, they propose that there be no requirement to return any interim payments at the final true-up if ex post results indicate that portfolio performance is within the deadband range or higher. Further, the utilities propose that the Commission retain the 30% hold-back provisions in D.07-09-043 for each interim payout.
Under the utilities' proposal, if the final true-up of load impacts indicates that the portfolio did not meet the MPS, the utility would not automatically lose all the earnings that had been already paid to it in the two interim payouts. Instead, the utility would be eligible for earnings at a 9% sharing rate for all positive PEB net benefits that the portfolio did produce (based on full true-up at the final claim) provided that utility performance with respect to kWh, kW and therm savings was still within the deadband range. However, if portfolio performance falls below the deadband range based on the ex post results at the final true-up claim, the utility would be required to return all interim progress payments and incur the requisite penalties.
In an Attachment to the Petition, the utilities prepared tables to demonstrate that their proposal (with a 30% hold-back) would be sufficient to allow for regular earnings by the utilities while still protecting ratepayers from a significant risk of overpayment of earnings.
First, they present a table to illustrate how changes to the largest-producing elements in the utility portfolios affect the portfolio savings as a whole. For example, they calculate that if the top five elements of PG&E's portfolio (e.g., residential compact fluorescent lamps (CFLs), Commercial T8/T5 lighting, Interior High Bay Lighting, Commercial CFLs and Industrial Process)--accounting for 34% of the projected portfolio savings--would be reduced by 15% and 20%, the overall impact on portfolio savings would be 5% and 7% respectively. (See Table 1.)
Next, they present tables to assess the "probabilities of true-up," and various risk scenarios of changes to earnings for each utility. This analysis outlines several scenarios to assess and demonstrate the true-up necessary during the 3rd Claim across a range of assumptions for how the 3rd Claim cumulative PEB differs from the 2nd Claim cumulative PEB. The results of the analysis show a range of potential 3rd Claim outcomes, that is, the potential for negative or positive PEB true-up amounts that depend upon the relationship between the 3rd claim and 2nd claim PEB and various probabilities of that relationship occurring. The analysis is broken into three separate "scenarios," which reflect different assumptions regarding the 2nd Claim variables (the PEB, achievement of goals and earnings rate), as follows:
Scenario A: Cumulative savings at the 2nd Claim are estimated to achieve 100% of Commission goals and the PEB is estimated at $2,689 million for all four utilities combined. The earnings (shared-savings) rate at this level of performance is 12% under the adopted shared-savings mechanism.
Scenario B: Cumulative savings at the 2nd Claim are estimated to achieve 95% of Commission goals and the PEB is estimated at $2,443 million for all four utilities combined. The earnings (shared-savings) rate at this level of performance is 9% under the adopted shared-savings mechanism.
Scenario C. Cumulative savings at the 2nd Claim are estimated to achieve 120% of Commission goals and the PEB is estimated at $3,673 million for all four utilities combined. The earnings (shared-savings) rate at this level of performance is 12% under the adopted shared-savings mechanism.
For each of the above scenarios (A, B, C), the utilities assume that the 3rd Claim earnings rate equals 9%, i.e., that ex post load impacts are sufficiently lower than the ex ante planning estimates to move portfolio achievement below 100% of the goals--but still within (or higher than) the deadband range. They then vary the 3rd Claim PEB to calculate the resulting true-up earnings adjustment, showing the results when the 3rd Claim PEB equals 70%, 80%, 90% and 100% of 2nd Claim PEB. Finally, the utilities weight these calculations in various combinations to present a range of "expected" 3rd Claim adjustments. The results of the analysis on a statewide basis (for all four utilities combined) are presented in Tables 2A, 2B and 2C. In their Joint Petition, the utilities also present scenario A, B and C results broken down by utility.
Based on this analysis, the utilities conclude that the 30% hold-back adopted in D.07-09-043 captures all reasonably foreseeable potential adjustments, while still ensuring that the utilities have an opportunity to realize and book earnings in the interim claims.3
3 Joint Petition (amended), pp. 3-4.
