2. Background

2.1. D.04-09-060

In D.04-09-060, the Commission set annual and cumulative energy efficiency savings goals through 2013. The Energy Action Plan, adopted by this Commission, the California Energy Commission (CEC) and the California Consumer Power and Conservation Financing Authority, identified reduction of energy use per capita as one of six sets of actions that are of critical importance.³ D.04-09-060 translated this mandate into explicit, numerical goals for electricity and natural gas savings for the four largest investor-owned utilities (IOUs): Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE) and Southern California Gas Company (SCG). Electric and natural gas savings from energy efficiency programs funded by ratepayers through the public goods charge (PGC) and procurement rates contribute to these goals, including those achieved through the low-income energy efficiency (LIEE) program.

For the three electric IOUs, D.04-09-060 adopted savings goals that reflect the expectation that energy efficiency efforts in their combined service territories should be able to capture about 70% of the economic potential and 90% of the maximum achievable potential for electric energy savings over the 10-year period, based on the most up to date study of that potential. These efforts were projected to meet 55% to 59% of the IOUs' incremental electric energy needs between 2004 and 2013.

For natural gas, the adopted savings goals were designed to capture approximately 40% of the maximum achievable potential identified in the most recent studies of that potential. This level of expectation recognized that natural gas program funding levels had dropped substantially over the previous five years, and that ramping up those efforts to meet the full savings potential might take more time than on the electric side. It also recognized some uncertainty over the level of achievable savings in the non-core sector. Nonetheless, the adopted natural gas savings goals reflected an increase in savings by 244 million therms (Mth) over the 210 Mth in savings that would be achieved if then-current funding levels and program effectiveness (therms per dollar) remained constant.

The following Table from D.04-09-060 (labeled Table 1E in that decision) summarizes the adopted total savings goals for 2004 through 2013 for all IOUs:

Table 1: Electricity and Natural Gas Savings Goals

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

2.2. D.07-10-032

D.04-09-060 anticipated adopted goals would be updated every three years, in concert with a three-year program planning and funding cycle for energy efficiency. While this three-year cycle would have resulted in new adopted goals in 2007, D.07-10-032 retained the goals adopted for 2009-2011 and declined to change adopted goals for 2012-2013.⁴ Instead, our decision noted that there would be a study to guide future decisions regarding appropriate goals through 2020. This study was performed by Itron, as discussed below.

AB 2021 required the CEC to set a statewide energy efficiency target encompassing the service territories of all of CA's IOUs and Publicly Owned Utilities (POUs). The CEC adopted a target of 100% of economic potential as projected by the 2006 Itron Energy Efficiency Potential Study in the 2007 Integrated Energy Policy Report (IEPR). In D.07-10-032, the Commission supported this target, stating: "We commit to working with the Energy Commission on strategies to achieve all cost-effective and feasible energy efficiency."⁵ The Commission reinforced this commitment by also requiring IOUs to pursue a set of "Big Bold Energy Efficiency Strategies (BBEES)" and other market transformation programs, as well as to create a statewide strategic planning framework for a sustainable energy efficiency approach "that transcends regulatory, programmatic and jurisdictional constraints, and emphasizes a broader view of the energy efficiency landscape."⁶

2.3. California Air Resources Board

CARB is responsible for implementing AB 32, California's landmark climate change statute. Within Rulemaking (R.) 06-04-009, this Commission and the CEC have jointly developed an energy sector model (E3 GHG Calculator) to analyze greenhouse gas (GHG) reduction scenarios for the energy sector out to 2020. The E3 GHG Calculator serves as an analytical tool providing the quantitative basis for the Joint Commissions' recommendation on the implementation of AB 32 within the electricity and natural gas sectors. This recommendation will be provided to CARB via a final decision in R.06-04-009, expected September 2008.

E3's GHG Calculator incorporates energy efficiency savings scenarios drawn from the Itron Goals Update Report presented within this proceeding. The Commission has made a concerted effort to ensure that the planning assumptions utilized for current GHG and Energy Efficiency policymaking efforts are closely aligned.⁷

On June 26, 2008, CARB released an initial draft of its Scoping Plan for public comment, which included aggressive targets for energy efficiency. The final Plan will likely demand an aggressive level of energy efficiency improvements from all sectors within the state. The Commission expects that the goals adopted in this decision will form the basis for the IOU service territory portion of the goals articulated in the draft Scoping Plan. The Commission reaffirms its commitment to working with CARB on maximizing energy efficiency savings in order to achieve AB 32's targeted reductions in a cost-effective manner. The Commission expects to assist in achieving these goals, not only through compelling aggressive IOU program effort, but also through the statewide strategic planning process, which will help to identify new and innovative approaches to the delivery of energy efficiency in California.

2.4. Itron Goals Update Report and March 25 Ruling

The energy utilities contracted with Itron in late 2006 to produce a report (the Itron "Goals Update Report") to assist in developing energy savings goals for electricity and natural gas through 2020. As mentioned above, the currently adopted goals were developed with the policy intention of reducing per-capita electricity and natural gas consumption in California. The development of goals in this proceeding is equally policy driven.

The Itron Goals Update Report used the results of the 2008 IOU Energy Efficiency Potential Study⁸ (the "Potential Study") as its primary starting point for scenario analysis. The Potential Study was a ratepayer-funded study performed by Itron, with Energy Division input and oversight, in an effort to generate the most up-to-date estimate of end use energy efficiency savings potential in each service territory for 2007-2016 and for 2017-2026.

The Goals Update Report employs a new methodology for developing goal scenarios that departs from our current adopted structure of annual reductions in per-capita energy consumption. Our current structure only addresses savings directly generated by utility programs. The new methodology develops savings from utility and non-utility efforts. It includes two different definitions of energy efficiency goals: (1) a Total Market Gross (TMG) goal for each IOU service territory (which encompasses utility savings from programs, building codes, state and federal appliance standards, and market transformation programs such as the BBEES adopted in D.07-10-032), and (2) an updated IOU Program-Specific Goal for each IOU service territory.⁹

The Goals Update Report includes three scenarios (high-case, mid-case and low-case) which present a Total Market Gross goal developed by aggregating the achievable potential from traditional IOU program designs at varying incentive levels with different degrees of energy efficiency achievements through other delivery mechanisms. The methodology initially was demonstrated through the presentation of energy (as measured by kilowatt-hours) goal scenarios. Demand (kW) and natural gas (therms) savings goals were presented in subsequent documents. The portion of the Goals Update Report describing this scenario tool methodology was released to the public on March 21, 2008. Itron released additional portions of its report concerning demand savings goals and natural gas savings on May 28, 2008. As the Goals Update Report states: "In the context of this study is the explicit treatment of uncertainty in that many of the key variables are treated as ranges." This allowed the study team and Energy Division staff to explore different combinations of uncertainty, in particular end uses, segments and savings mechanisms."¹⁰

Assigned Commissioner Grueneich and the Administrative Law Judge issued a Ruling¹¹ on March 25, 2008 seeking comments regarding the Itron Goals Update Report and energy savings goals through 2020. The Ruling stated that new energy efficiency goals through 2020 should appropriately challenge utilities to remain on the leading edge of energy efficiency in California. The Ruling identified the following primary purposes for a decision establishing energy savings goals through 2020:

1. The goals should further enable the bold steps taken by the utilities and outlined in the draft Statewide Energy Efficiency Strategic Plan to participate in innovative and cooperative efforts.

2. The goals should set appropriate expectations for the emissions to be reduced through energy efficiency for use in the California Air Resources Board's emerging regulatory framework for AB 32, the state's global warming law. The process for setting these expectations should use the best available information but acknowledge the many uncertainties created by changes in program focus and delivery.

3. The goals should more transparently address the interaction between procurement authorizations resulting from the Commission's long-term procurement proceeding (LTPP) process and cumulative energy savings achievements.¹² The goals should be consistent with the LTPP process, so that more costly supply side generation capacity is avoided as a result of increased energy efficiency activities.

2.5. Energy Division Recommendations

In the March 25 Ruling, parties were asked to comment on Energy Division's recommendations for adopting energy savings goals through 2020. The Energy Division recommended that goals be developed for the period of 2012 -2020, to begin with the 2012-2014 energy efficiency program cycle, and to be used for interagency emissions regulation and long term procurement planning.¹³ Substantively, the Energy Division's recommendation embraced the influence energy efficiency achievements have gained beyond this proceeding in recent years and created a framework beyond simple annual and cumulative numerical targets. These recommendations prioritize the development of a goal structure in which successful achievement encourages continued evolution of all energy efficiency programs and strategies in the State, and is not limited to utility programs. The Energy Division recommendations in the March 25 Ruling were as follows:

1. The Commission should adopt, for each IOU service area, both a total market gross and utility-specific goal (i.e., a "hybrid goal"). The total market gross goal for IOU service territories will be used for procurement planning and carbon emissions regulation as well as to identify the realistic savings potential available for utility programs to access. The total market gross goal would represent the level of cumulative energy efficiency potential (a) available between 2012 and 2020 within the IOU service territory, and (b) able to be achieved through all reasonably measurable delivery channels including improvements in state and federal codes and standards, state legislative mandates, naturally occurring efficiency, and IOU voluntary programs (both resource acquisition and market transformation).

2. The Commission should adopt a utility-specific goal against which to measure the net effects of utility programs toward meeting the total market gross goal.

3. The Commission should commit staff and contractor resources to develop any proper evaluation, measurement, and verification protocols not in existence today to attribute savings for additional program impacts each IOU generates through its innovative and expanding suite of delivery mechanisms.

4. The Commission should adopt Itron's Mid-Level Case (presented in Figure 6-10 of the Itron Goals Update Report, on page 98) as the total market gross goal.

5. The Commission should adopt the "IOU Gross" targets in Itron's Mid-Level Case (presented in Figure 6-10 of the Itron Goals Update Report, on page 98) as a proxy for the "IOU Net" goal, because precise attribution of additional potential savings to IOU programs (e.g., Title 24 programs, federal Codes and Standards, Big Bold Strategies) is not possible to model at this time.

Energy Division's recommendations were made in reference to the Mid Case Scenario in the Itron Goals Update Report (see Figure 1 below) which represents gigawatt hour energy savings goals:

Figure 1: Mid Case Scenario Hybrid Goal Structure and Levels

Figure 1 presents the savings expected from 2008 through 2020 from four major sources of energy efficiency across IOU service territories.¹⁴ Savings from IOU programs are anticipated to be funded through IOU program applications, such as those for 2009-2011 filed on July 21, 2008 (including naturally-occurring energy efficiency savings). Savings from Title 24 state building codes and federal and state appliance standards are based on anticipated improvements in these standards over time. BBEES were described in D.07-10-032. The Huffman Bill (AB 1109) requires a 50% improvement in general service lighting by 2018. Beyond these known or expected savings lies potential savings from market transformation, in addition to the market transformation built in the BBEES.

Energy Division believes a hybrid goal structure (which incorporates both a total market gross goals and a utility program-specific goal) which measures all savings achievements within IOU service territories begins to solve the crucial interagency need for a metric appropriate to load forecasts, associated emission reduction baselines, and economically efficient procurement plans. Energy Division recommends use of the concept of "expansive net" to identify a utility-specific goal. As defined, expansive net represents the following:

Expansive Net = Current Net Program Savings + Utility Program Induced Market Effects

Where Utility Program Induced Market Effects =

Utility share of the savings from new Codes and Standards

+ Utility share of the savings from new Compliance Enhancement Programs

+ Utility share of the savings from Market Transformation Programs such as the Big Bold Energy Efficiency Strategies

Energy Division believes the definition of "expansive net" (provided to parties in the Staff Paper dated May 12, 2008) appropriately encourages IOUs to affect and amplify the savings within all reasonably measurable channels, and is consistent with objectives for the California Energy Efficiency Strategic Plan as per D.07-10-032. Such a definition must be accompanied by a Commission commitment to develop any significant missing evaluation, measurement & verification (EM&V) protocols for attributing savings to utility programs.

Energy Division believes a hybrid goal structure employing "expansive net" as the metric for which IOU program efficacy is measured also encourages utilities to innovate their program delivery through non-traditional channels. The EM&V profession refers to these additional EE effects variously as "participant spillover," "market effects," "naturally occurring" savings.

Energy Division's recommendations would result in total energy savings of over 4,500 megawatts from 2012 to 2020. Further, there would be expected savings of over 16,000 gigawatt-hours of electricity and 620 million therms over that period.

Energy Division's recommendations take into account savings from the entire energy efficiency sector, including state and federal codes and standards, BBEES and AB 1109. Further, in addition to continuing the upward trajectory of energy savings through 2020, Energy Division's recommendations would increase savings from longer-term measures, such as air conditioning and solar thermal hot water.

2.6. Goals for 2009 Through 2011

In D.04-09-060, the Commission set annual and cumulative¹⁵ energy efficiency savings goals through 2013. One of the issues in the proceeding was whether the savings goals should be set on a gross basis, or should be net of free riders¹⁶ (i.e., whether savings from free riders should be subtracted from the gross savings). The decision stated: "It is our understanding that the savings modeled in the potentials studies are net of free riders in the near-term, but that they become equivalent to gross savings as the net-to-gross ratio approaches 1.0 over the longer term. Hence, we clarify that the savings goals we establish today through 2008 are net of free riders. We will revisit the issue of whether the savings goals for the outer years (2009-2013) truly reflect gross savings potential when we next update our savings potential studies." (D.04-09-060, p. 33.)

In D.07-10-032, the Commission declared its intent not to change adopted energy efficiency savings goals for 2009 through 2011 in order to more immediately focus on the preparation of the comprehensive energy efficiency strategic plan and its initial implementation via the 2009-2011 program portfolios. In that decision, the Commission did not address the definition of adopted goals as net or gross for 2009-2013.

2.7. PHC and Comments

Initial comments were received on April 25, 2008, with reply comments on May 5, 2008. On May 14, 2008, a prehearing conference (PHC) and concurrent workshop was held to consider parties' comments on the March 25 Ruling, and to provide further clarification on the Itron Goals Update Report and Energy Division recommendations. Another workshop was held June 2, 2008. At the May 14, 2008 PHC, the ALJ established June 11, 2008 as the date for comments on the Itron Gas Goals Scenarios, the 2008 California IOU Energy Efficiency Potential Study and other topics discussed at the PHC.

According to the ALJ's direction at the May 14 PHC, Itron publicly released the 2008 California IOU Potential Study on May 29, 2008. ¹⁷ With this Potential Study now available, a Ruling on June 2, 2008¹⁸ sought comments from parties on the question of whether the goals for 2009 through 2011 should be gross or net of free riders.

³ A copy of the complete Energy Action Plan is available for downloading on the Commission website at www.cpuc.ca.gov.

⁴ D.07-10-032, p. 113.

⁵ D.07-10-032, p. 9.

⁶ D.07-10-032, p. 4.

⁷ In comments, SCE notes that 2020 GWh cumulative savings totals presented in the E3 calculator are lower than those presented in the proposed decision. This is a consequence of analytical adjustment made in the E3 GHG calculator and does not reflect a difference in the underlying data. The GHG Calculator cost and rate impacts are measured as the change from existing 2008 levels to 2020 levels and 2008 energy efficiency savings are assumed to be included in 2008 costs and rates. Accordingly, E3 subtracts 2008 values from its cumulative 2020 savings totals.

⁸ The 2008 IOU Potential Study was commissioned by the four largest California IOUs. The review committee included representatives of each IOU as well as the Commission's Energy Division. The Study can be found at: http://www.calmac.org/NewPubs.asp.

⁹ Ibid, p. 78.

¹⁰ Itron Goals Update Report, p. i.

¹¹ Revised Assigned Commissioner's and Administrative Law Judge's Ruling Regarding Energy Efficiency Savings Goals Through 2020. March 25, 2008: http://docs.cpuc.ca.gov/efile/RULINGS/80525.pdf.

¹² Section 3.2 of Appendix A in the originating OIR for R.08-02-007 describes the complexities associated with this issue.

¹³ While D.07-10-032 declined to change goals for 2012-2013 as well as 2009-2011, Energy Division recommended a change for 2012-2013 for reasons explained below.

¹⁴ These sources are the IOU programs savings (including naturally-occurring savings), Title 24 and Federal Building Appliance Standards, the Commission's Big, Bold Energy Efficiency Strategies (BBEES), and AB 1109 (also known as the Huffman Bill) regarding general purpose lighting standards.

¹⁵ The definition of cumulative energy savings with regard to Net Goals was clarified by D.07-10-032.

¹⁶ "Free riders" are defined as program participants who take advantage of a utility energy efficiency service or incentive, but would have implemented the program measure or practice even in the absence of the program.

¹⁷ The 2008 California IOU Potential Study is available at http://www.calmac.org/NewPubs.asp.

¹⁸ Assigned Commissioner and Administrative Law Judge's Ruling Seeking Comment on Definition of Energy Savings Goals for 2009 through 2011, June 2, 2008. http://docs.cpuc.ca.gov/efile/RULINGS/83642.pdf.