2. Procedural Background

The Utilities initially filed their proposed 2009-2011 energy efficiency portfolios on July 21, 2008 and filed amended applications on March 2, 2009. In both sets of applications, the IOUs jointly requested changes to certain issues that affect Evaluation Measurement & Verification (EM&V) rules on how savings are counted and cost-effectiveness determined.1 An Assigned Commissioner/Administrative Law Judge (ALJ) Ruling dated February 25, 2009 specified that we would consider the following requests prior to our decision on the Utilities' 2009-2011 portfolios, in order to provide guidance to the Utilities and parties in developing and reviewing the 2009-2011 portfolios:

1. Redefine Cumulative Savings to mean the sum of the annual savings goals in the three-year portfolio cycle, instead of "the savings in that year from all previous measure installations (and reflecting any persistence decay that has occurred since the measures were installed) plus the first-year savings of the measures installed in that program year."2

2. Give the IOUs credit for energy savings actions taken by customers with non-utility motivations (e.g., state laws/mandates, local ordinances and green messaging).

3. Use the post-tax discount rate to calculate performance earnings basis energy savings.

4. Eliminate the mid-cycle funding augmentation rule adopted in D.07-10-032.

5. Use gross savings metrics for calculation of performance under the risk/reward incentive mechanism (RRIM) adopted in
D.07-09-043.

6. Remove certain costs related to implementation of Strategic Plan activities from the calculation of the RRIM (also known as
"ring-fencing").

The IOUs proposed these changes (as well as several others which were ruled outside of the scope of this proceeding by the February 25, 2009 Ruling3) in their July 2008 portfolio filings and parties filed comments on the suggested changes on August 28, 2008.4 The IOUs proposed two additional changes in their amended portfolio applications on March 2, 2009:

Pursuant to a March 17, 2009 ALJ Ruling, parties filed comments on the two new issues on April 3, 2009. Reply comments were filed on April 10, 2009.

In their Applications, the Utilities state that Commission consideration of their requested changes is necessary to achieve energy efficiency portfolios which are consistent with our efficiency goals. Parties' comments are discussed below in each issue section. The Utility Reform Network and the Division of Ratepayer Advocates (TURN/DRA), filing jointly,5 generally opposes the IOU proposed changes to our rules, contending that the changes could reduce the realized energy savings from Utility programs while increasing shareholder earnings. The NRDC supports much of what the Utilities propose, with some exceptions. Other parties address specific issues as indicated herein.

We take seriously the question of whether changes to rules and policies are necessary to better align our rules with our goals, adjust to ever-changing circumstances, and incorporate lessons learned. We recognize that in 2004 and 2005, we created a framework for Utility-administered energy efficiency programs in Decision (D.) 04-09-060, D.05-01-055 and D.05-04-051 that may not have been easy to carry out. Those decisions made significant changes to the then-existing programs, including:

1. Adoption of aggressive annual and ten-year cumulative goals for measured and verified electricity and natural gas savings by megawatt hour, megawatt, and therm;

2. Allowing the IOUs to develop their own programs and portfolios. Commission oversight of portfolio design was limited generally to determining whether each portfolio as a whole was cost-effective according to the Total Resource Cost and Program Administrator tests and achieved the IOUs' numerical savings goals; and

3. Requiring the Commission's Energy Division to develop, launch and implement an extensive EM&V program to ensure that the IOU programs actually produced electricity and natural gas savings that could be relied on to offset the IOU's electricity and natural gas purchases. The EM&V program is unprecedented both in the scope and scale of the undertaking and in the nature of the responsibilities placed on this Commission's regulatory staff.

The Commission and the IOUs have gained experience through the implementation of the 2006-2008 energy efficiency portfolios. Certain changes were implemented by this Commission through D.07-10-032. For example, that decision requires a significant shift in the IOUs' program mix toward approaches to market intervention which stimulate durable long-term savings and moderate a bias towards short-term measures under current rules. D.07-10-032 established parameters for the development of the next generation of energy efficiency programs for the 2009-2011 energy efficiency portfolios. In that decision, we also mandated the development of a long-term energy efficiency strategic plan (Strategic Plan) for the state, subsequently adopted in D.08-09-040. Of specific relevance to today's decision, D.07-10-032 considered several issues regarding our cost-effectiveness and savings calculations.

However, as we consider adjustments to various elements of our program, we must move forward in a manner that is consistent with the overall purpose of our energy efficiency programs. Although the IOUs have described their requested changes as "policy determinations," most of the IOU-requested changes involve complex technical details on how savings from certain consumer actions are attributed to, or not attributed to, IOU programs and the inputs to the cost-effectiveness tests for the IOU portfolios. For simplicity, we will refer here to the requested changes as "policy issues."

A technically sound EM&V process is the cornerstone of this Commission's compliance with Public Utilities Code Section 454.5(b)(9)(C)`s mandate that we ensure that the IOUs first procure all cost-effective energy efficiency resources and with the Assembly Bill (AB) 32 mandate that greenhouse gas (GHG) reductions be real, verifiable, and additional. It is of paramount importance to maintain the analytical rigor of our methodologies to count savings and financial benefits accruing from energy efficiency efforts. If these programs do not produce verified cost effective savings, we may no longer be able to justify spending ratepayer funds on energy efficiency or ensure that rates are just and reasonable.

This distinction is critical. The foundational premise of our current energy efficiency programs is that efficiency savings are an energy resource and are the top priority in meeting the IOUs' resource needs. We adopted this policy in the 2003 Energy Action Plan and implemented the policy in D.04-09-060 by requiring the IOUs to purchase with procurement funds all cost-effective energy efficiency resources, in excess of the public goods charge-funded efficiency programs.

We recognized that the only way to justify this expenditure of procurement dollars and to confidently require the IOUs to purchase less electricity and build fewer power plants was to ensure that the savings from the energy efficiency programs are real and verifiable. We therefore removed EM&V responsibility from the IOUs and directed our staff to develop an EM&V program that used expert analysis and sound technical methodologies to count energy savings from ratepayer funded energy efficiency programs.6 Our goal was to establish an independent system that was free of the inherent conflict of interest presented in IOU EM&V and from external pressures that would compromise the integrity of the EM&V results.

We note that we are not addressing the Utilities' request that we no longer use ex post measurement in our EM&V studies with regard to 2009-2011 program implementation, as this issue is outside of the scope of the proceeding. However, we do recognize that there are specific cases of incongruity between our adopted goals and the DEER which may require reconciliation. In this decision below, we address issues of cumulative savings and interactive effects which impact goals. There may also be a need in this proceeding to further consider changes to our existing goals to better match the most recent savings parameters of the DEER.

1 See, e.g., SCE Testimony Chapter II.

2 D.07-10-032, p. 79.

3 The issues ruled out of scope in this proceeding were: (a) Updates to the Database for Energy Efficient Resources for the purpose of calculating incentives; (b) Ex-Ante
True-Up for the purpose of calculating incentives; and (c) Exemption of Codes and Standards Costs from the Performance Earnings Basis.

4 Comments were filed by The Natural Resources Defense Council (NRDC), County of San Francisco (CCSF), Women's Energy Matters (WEM), Schweitzer & Associates (Schweitzer), Local Government Sustainable Energy Coalition (LGSEC), Small Business California, National Association of Energy Services Companies (NAESCO), California Building Performance Contractors Association (CBPCA) and Clean Energy Solutions, Inc. (CESI). The Utility Reform Network and the Commission's Division of Ratepayer Advocates (TURN/DRA) jointly filed a protest on August 28, 2008. Reply Comments were filed by SDG&E and Southern California Gas Company (SoCalGas) (jointly), SCE and PG&E on September 8, 2008. On September 12, 2008, the Peer Review Group (PRG) filed its Report on the Utilities' applications. Some parties also commented on other issues which are not the subject of this interim decision, but which may be addressed in a final decision in this docket.

5 TURN and DRA filed their April 3, 2009 and April 10, 2009 comments separately.

6 D.05-01-055 gives Energy Division the lead role in development of EM&V protocols and procedures.

Previous PageTop Of PageNext PageGo To First Page