INTERIM ORDER
IT IS ORDERED that:
1. The Petition for Modification of Decision (D.) 07-09-043 filed jointly by Pacific Gas and Electric Company, San Diego Gas & Electric Company, Southern California Edison Company and Southern California Gas Company on October 31, 2007, and amended on November 7, 2007, is approved as modified herein.
2. D.07-09-043 is modified as follows:
a. On page 12, the second sentence of the paragraph beginning "By today's decision, we also establish the earnings claim and recovery process..." is modified to read:
"We hold back 35% of the expected earnings in each interim claim to provide a reasonable margin of error in expected earnings and to protect ratepayers from the risk of overpaying earnings before the final ex post true-up of load impacts."
b. The following text beginning on page 12 and continuing on page 13 is stricken:
"We do not restrict the final true-up process, as some parties propose. Ratepayers will only be required to share net benefits with shareholders to the extent that those net benefits actually materialize, based on Energy Division's EM&V results."
The following text is inserted in its place:
"We do not restrict the final true-up process, except under the following set of circumstances:
"(a) The interim earnings claims, based on verified measure installations and costs and ex ante energy savings and demand reduction calculations, result in a utility meeting the 85% minimum performance standard for earnings (80% for SoCalGas), and
"(b) The final true-up calculation, based upon ex post energy savings and demand reductions, results in that utility meeting less than 80% for any individual savings metric or less than 85% for the average savings threshold but greater than 65% of the Commission's goals for each individual metric.
"Under these circumstances, the utility will continue to achieve earnings at the 9% shared-savings rate, applied to the ex post PEB. In addition, as long as a utility continues to exceed the 65% of savings goals threshold for each individual metric on an ex post basis, it will not be required to pay back any interim incentives payments earned. However, if ex post results indicate a utility has dropped below 65% of savings goals for each individual metric, the utility must pay back any interim payments earned, and penalties will be assessed.
"In this way, the interim claims become a reward or penalty for the success or failure in implementing the energy efficiency programs and the final claim a reward or penalty for the measured load impacts resulting from the programs. We believe that this is approach is consistent with our overall goals for effective incentive design. It will mitigate the largest earnings transition in the adopted earnings mechanism at 85% of the Commission's goals, which could cause a large change in earnings for a very slight change in energy savings. At the same time, it ensures that the utilities and investment community can actually recognize or "book" the interim earnings that we may authorize."
b. On Page 124, the paragraph beginning with "For the reasons stated above, we do not restrict the true-up adjustment in the final claim" is deleted and replaced in its entirety with the following:
"We do not restrict the true-up adjustment in the final claim, except insofar as a utility meets the MPS for the interim claim based on verified measure installations and costs, and ex ante savings assumptions, but falls within the 65 to 85% of energy saving goals as a result of the final ex post true-up of load impacts. In that circumstance, the utility will continue to earn at the 9% shared-saving rate, applied to the ex post PEB. In addition, as long as a utility continues to exceed the 65% of savings goals threshold for each individual metric on an ex post basis, it will not be required to pay back any interim incentives payments earned. However, if ex post results indicate a utility has dropped below 65% of savings goals for any individual metric, the utility must pay back any interim payments earned, and penalties will be assessed.
"In this way, the interim claims become a reward or penalty for the success or failure in implementing the energy efficiency programs and the final claim a reward or penalty for the measured load impacts resulting from the programs. We believe that this is approach is consistent with our overall goals for effective incentive design. It will mitigate the largest earnings transition in the adopted earnings mechanism at 85% of the Commission's goals, which could cause a large change in earnings for a very slight change in energy savings. At the same time, it ensures that the utilities and investment community can actually recognize or "book" the interim earnings that we may authorize."
"We recognize that the possibility of refunding earnings already claimed if the utility falls into the penalty range on an ex post basis presents certain problems for the utilities with respect to their financial reporting. However, these problems can be addressed by limiting payout of interim claim(s) as NRDC and others have suggested and by deducting any interim payments that have already been made under these circumstances (and associated penalties) from future earnings claims, as recommended by PG&E. Accordingly, we incorporate both of these design features into today's adopted earnings recovery schedule, as discussed further below."
c. On Page 126, the Paragraph beginning with "With respect to the percentage of payout" is modified to read as follows:
"With respect to the percentage of payout, we agree with NRDC and others that some percentage of the interim payments should be "held back" until the final claim. In the context of the overall incentive design and true-up mechanism we adopt today, a 35% hold-back is a reasonable way to mitigate the risk to ratepayers of overpaying during the interim claims, prior to the ex post true-up of load impacts. Accordingly, we will hold back 35% of any authorized earnings in each of the interim claims. For example, if the MPS is met in the 1st claim, and the shared-savings earnings associated with the cumulative- to-date PEB estimated at that claim is $50 million (based on verified costs and installations), the payout in that claim would be $32.5 million (0.65 x $50 million). Assuming that the MPS is still met at the 2nd claim, and the shared savings associated with the cumulative-to-date PEB estimated at that claim has increased to $75 million, the 2nd claim payout would be $16.25 million (0.65 x $75 minus the 1st claim payout of $32.5 million)."
d. In Finding of Fact 110 is modified to read as follows:
"The possibility of refunding earnings already claimed if the may present certain problems for the utilities with respect to financial reporting. However, these problems are effectively addressed in today's decision by 1) limiting payout of initial claims(s); 2) allowing utilities to continue to earn at the 9% shared-savings rate, applied to the ex post performance earnings basis, if interim ex ante load impact results with verified installations and costs are above the 85% minimum performance threshold (80% for SoCalGas) and ex post results remain above the 65% penalty threshold for each individual metric; 3) eliminating the possibility of refunding earnings adopted in the interim claims, as long as a utility continues to exceed the 65% of savings goals threshold for each individual metric on an ex post basis, and 4) deducting from future earnings claims any over-collections and associated penalties if the utilities fall into the penalty range on an ex post basis."
e. In Finding of Fact 111 is modified to read as follows:
"A true-up process provides the proper incentive for utility managers and staff to support the most accurate estimates of energy savings as possible and serves to ensure that ratepayers share the net benefits from their investment with shareholders at precisely the adopted shared-savings rates-no more, no less. It is consistent with our overall goals for effective incentive design to adopt a true-up approach whereby the interim claims become a reward or penalty for the success or failure in implementing the energy efficiency programs and the final claim becomes a reward or penalty for the measured load impacts resulting from the programs. This approach will also mitigate the largest earnings transition in the adopted earnings mechanism at 85% of the Commission's goals, which could cause a large change in earnings for a very slight change in energy savings. At the same time, it ensures that the utilities and investment community can actually recognize or "book" any interim earnings that we may authorize."
f. In Finding of Fact 112 is modified to read as follows:
"To reduce the effect of load-forecasting errors on the final true-up claim and minimize the risk to ratepayers of overpayments of earnings under today's adopted true-up provisions, it is reasonable to hold back 35% of the earnings progress payments calculated in each interim claim."
h. The first sentence of Ordering Paragraph 2.a) is modified to read as follows:
"To be eligible for earnings, SDG&E, PG&E and SCE shall meet the following minimum performance standard (MPS) for the energy efficiency portfolio as a whole, on an ex ante basis for load impacts, with verified installations and costs:"
i. In Ordering Paragraph 2.b) is modified to read as follows:
"SoCalGas shall meet the MPS and be eligible for earnings if it achieves a minimum of 80% of the MTherm savings goal on an ex ante basis for load impacts, with verified installations and costs."
j. In Subsection (2) is added to Ordering Paragraph 2.e) as follows:
"If the MPS is met utilizing ex ante assumptions for load impacts, with verified installations and costs, but the ex post EM&V results take an individual metric below the 80% threshold or take the overall portfolio results to between 65% and 85% of the Commission-adopted savings goals, the utility shall continue to earn at the first tier sharing rate of 9%, applied to the ex post PEB, and shall not return any interim claims payments. If, however, ex post results take a utility below 65% of Commission goals for any individual metric, the utility shall pay back any interim payments, in addition to any applicable penalty."
h. In Ordering Paragraph 4(c) is modified to as follows:
"Thirty-five (35) percent of the earnings calculated for each interim claim shall be held back until the final true-up claim, in order to minimize the risk of overpaying earnings before the ex post true-up of load impacts in the final claim."
3. For the 2006-2008 program cycle, the following ex ante assumptions of energy savings and demand reductions shall be used in conjunction with verified installations and verified costs to calculate the 1st and 2nd Claims:
(a) Except as otherwise provided for below, the ex ante measure savings parameters that are contained in the utilities' E3 calculators, as of the 4th quarter 2007 report for the 1st Claim and as of the 4th quarter 2008 report for the 2nd Claim.
(b) For measures contained in the Database for Energy Efficient Resources (DEER), the 2008 and 2009 DEER updates of ex ante measure savings parameters, including net-to-gross ratios and expected useful lives. The 2008 DEER update shall apply to the 1st Claim and the 2009 DEER update shall apply to the 2nd Claim.
(c) For customized measures or customized projects that represent aggregated measures in the E3 calculator, Energy Division shall identify the appropriate installed measure(s) based on its measure verification results and develop the associated ex ante load impact values. For this purpose, Energy Division may use the utilities' tracking system information, engineering workpapers, DEER values and methods, or other current measurement and verification results that are available.
4. Direction on the ex ante assumptions used to calculate interim claims during the 2009-2011 program cycle shall be provided in the decision authorizing the 2009-2011 program plans.
This order is effective today.
Dated January 31, 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
CE Council |
Community Environmental Council |
CFLs |
Compact fluorescent lamps |
CMS |
Case Management Statement |
D. |
Decision |
DEER |
Database for Energy Efficient Resources |
DRA |
Division of Ratepayer Advocates |
kW |
Kilowatt |
kWh |
Kilowatt-hour |
MPS |
Minimum Performance Standard |
NRDC |
Natural Resources Defense Council |
PEB |
Performance earnings basis |
PG&E |
Pacific Gas and Electric Company |
SCE |
Southern California Edison Company |
SDG&E |
San Diego Gas & Electric Company |
SoCalGas |
Southern California Gas Company |
TURN |
The Utility Reform Network |
(END OF ATTACHMENT 1)
