6. Comments on Proposed Decision

The proposed decision of the ALJ 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. Comments were filed on May 11, 2009, and reply comments were filed on
May 18, 2009 by the Utilities (filing jointly), DRA, TURN, CCSF, and NRDC. In response to comments, we have made the following revisions:

In addition, we have clarified the discussion of certain issues, Findings of Fact, Conclusions of Law and Ordering Paragraphs without modifying the substance of the outcomes.

Findings of Fact

1. The IOUs have not provided evidence on the individual and cumulative impacts of their proposed changes on energy savings, cost-effectiveness and strategic goals, other than SDG&E and SoCalGas representing that they would have to spend approximately an additional $200 million each to fashion
cost-effective portfolios if their recommended policy changes are not adopted.

2. There are new issues in this proceeding regarding the interaction between cumulative savings, the 2009-2011 portfolios, the incentive mechanism and our new energy efficiency savings goals which were not present when cumulative goals were last considered in D.07-10-032.

3. Our focus on long-term savings, as supported by our Strategic Plan, continues to require the reporting of cumulative savings.

4. The 2004 and 2005 data are not fully appropriate for inclusion in cumulative savings goals, because the evaluation data for those years was not consistently reported or governed by the California Evaluator's Protocols, and 2004-2005 data is not directly reconcilable with 2006-2008 data.

5. There is no compelling reason to eliminate 2006 and 2007 data for the purposes of cumulative savings.

6. There are many reasons to believe that savings will persist beyond the expected useful life of a given measure. In the case of CFLs, high levels of naturally occurring adoption of CFLs greatly moderates the possibility of decayed savings. In addition, the implementation of the Huffman Bill will, to a large degree, eliminate the possibility of reversion to inefficient technologies at the end of most lighting measures useful lives. In light of these factors, our expectation is that decay will be significantly below 100%.

7. The Commission's adopted energy savings goals in 2004 did not incorporate the interactive effects between electric and gas savings.

8. The 2008 DEER is used to measure Utility performance against Commission-established energy savings goals. The 2008 DEER incorporates interactive effects between electric and gas savings.

9. The Utility-supplied McNulty Study is not sufficiently robust to disprove the existence of the interactive effects reflected in the 2008 DEER.

10. It is reasonable to reconsider and adjust therm goals for dual-fueled utilities on the basis of recent information in the Energy Division Verification Report for 2006 and 2007. This Report shows negative interactive effects decrease gas savings for PG&E and SDG&E, by 26% and 22%, respectively.

11. The Commission's policy is that Utility programs - funded by ratepayer dollars - should be aimed at creating measurable energy savings, and Utilities should receive credit toward their energy efficiency savings goals and in the incentive mechanism for energy savings associated with these programs.

12. D.08-07-047 established 2009-2011 adopted goals which encompass gross savings, not net of free riders. Therefore, attribution of savings for a given measure does not impact the Utilities' ability to build a portfolio which meets gross savings goals.

13. The Energy Efficiency Policy Manual addresses savings created apart from direct Utility programs by considering certain customer actions as free riders.

14. Current Commission policy disadvantages businesses and residents of the communities with "reach codes," since these businesses and residents would be ineligible for ratepayer funded incentives for energy efficiency measures that would be available to the businesses and residents of less forward thinking communities. This acts as a strong disincentive for local governments considering implementation of "reach codes" and standards since the effect is to deny their constituents funds that they would be eligible for absent a local reach requirement.

15. It is desirable to provide credit for the Utilities with energy efficiency measures that will provide long-term savings consistent with the effective useful life of those savings.

16. Adopting a new 30-year maximum EUL would be a complex process, including substantial changes to cost-effectiveness tools and avoided cost calculations, and necessitating 10 years of additional data on cost and performance.

17. There is limited record information as to the number or type of measures that would qualify to be assigned an EUL value of over 20 years. There is no record estimate of the savings those measures would contribute to Utility portfolios.

18. The impact of the Utility-requested change to EUL on portfolio cost-effectiveness would likely be less than 1%.

19. There is no disagreement among parties that Strategic Plan-related activities should continue to be included in the calculation of cost-effectiveness.

20. Issues related to ring-fencing of Strategic Plan-related activities in the incentive mechanism are not within the scope of this proceeding. However, the question of ring-fencing Strategic Plan-related activities does have an impact on the portfolios for 2009-2011, because if the IOUs are allowed to ring-fence certain programs for incentive purposes, it may be possible to incorporate more of these programs into the upcoming portfolio.

21. The calculation of net present value for energy efficiency resources and supply-side resources should be comparable in terms of treatment of taxes.

22. Section IV, Rule 2 of the Energy Efficiency Policy Manual, version 4, requires the calculation of net present value for energy efficiency resources to incorporate the utility's weighted average cost of capital. The utility's weighted average cost of capital includes a component for taxes.

23. Removing taxes from the net present value calculation for energy efficiency resources would alter the choice between energy efficiency and supply-side resources.

24. Per Section IV, Rule 12 of the Energy Efficiency Policy Manual, version 4, mid-cycle funding augmentations currently are counted in the calculation of portfolio cost-effectiveness, and are counted in the PEB for Utility incentive awards. The savings from mid-cycle programs currently do not count toward achievement of energy savings goals for the purpose of assessing whether performance has reached the MPS under the risk/reward incentive mechanism.

25. We recognize that the market for energy efficiency services changes rapidly and Utilities may develop valuable programs mid-cycle that reflect that changing market.

26. Uncertainty over the ultimate fate of the incentive mechanism suggests that the Utilities may need more flexibility to adjust their portfolios midstream, subject to the requirement of overall portfolio cost-effectiveness.

27. In D.08-07-047, we determined that the calculation of goals in the MPS for the 2009-2011 portfolios would be done on a gross basis, without netting out
free-riders, but the PEB would remain calculated using net benefits.

Conclusions of Law

1. The 2004 and 2005 data should not be used for cumulative savings purposes for this program cycle.

2. Cumulative savings should be counted for the years 2006-2011 for this program cycle. This definition of cumulative savings is reasonable because, on the one hand, it excludes the imperfect data of 2004-2005, while on the other hand, it is still consistent with our direction in D.07-10-032 to maintain cumulative goals.

3. Gross therm goals for 2009-2011 should be adjusted downward by 22% for SDG&E and 26% for PG&E to take into account updated information on interactive effects.

4. The current methodology in the Energy Efficiency Policy Manual regarding free-ridership and partial free-ridership is still appropriate for considering attribution of energy savings from customers who are motivated to save energy based on receiving messages and programs from entities other than the Utility.

5. No changes should be adopted at this time to current attribution rules regarding savings credit for actions taken by customers supported by IOU programs, but who may also be motivated by external factors.

6. Incentives and savings in communities with "reach" requirements should be no different from those in other communities, and not be treated as free riders.

7. The Utility proposal to allow the maximum effective useful lives of measures to increase to 30 years should not be adopted for 2009-2011.

8. Consistent with current Commission policy, Strategic Plan-related energy efficiency activities should be included in the calculation of cost-effectiveness.

9. R.09-01-019 is the appropriate proceeding to consider how or if Strategic Plan-related energy efficiency activities should be included in the incentive mechanism.

10. For energy efficiency resources, the utilities should continue to use the full weighted cost of capital as spelled out Section IV, Rule 2 of the Energy Efficiency Policy Manual, version 4, in order to provide a fair comparison between energy efficiency resources and supply-side resources.

11. As long as the total portfolio remains cost-effective, energy efficiency savings from IOU mid-cycle funding proposals should be allowed to count towards both MPS and PEB. Section IV, Rule 12 of the Energy Efficiency Policy Manual, version 4, should be amended to reflect this change.

12. R.09-01-019 is the appropriate proceeding to determine if net or gross savings should be included in the PEB.

INTERIM ORDER

IT IS ORDERED that:

1. The proposal of Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company to count cumulative savings solely for the years 2009-2011 program cycle is denied. Cumulative savings shall be counted for the years 2006-2011 for this program cycle, as will be detailed in the Ruling referenced in Ordering Paragraph 9.

2. Energy Division shall study specific assumptions around decay in advance of the 2012-2015 energy efficiency portfolio applications, with opportunities for interested parties and persons to provide input on and comment on the Energy Division recommendations.

3. The proposal of Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company to eliminate interactive effects in the Database for Energy Efficient Resources for dual-fuel Utilities is denied. Gross therm goals for
2009-2011 adopted in Decision 08-07-047 shall be adjusted downward by 22% for San Diego Gas & Electric Company and 26% for Pacific Gas and Electric Company.

4. The proposal of Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company to change attribution rules regarding savings credit for actions taken by customers supported by Utility programs, but who may also be motivated by external factors, is denied. However, incentives and savings in communities with "reach" building codes or similar efficiency requirements shall be no different from those in other communities, and shall not be treated as free riders.

5. The proposal of Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company to allow the maximum effective useful lives of measures to increase to 30 years is denied for 2009-2011. Energy Division shall conduct a study on the issue of increasing the maximum effective useful lives of measures and report back to the assigned Administrative Law Judge and Commissioner in the relevant docket no later than December 1, 2010. Energy Division shall solicit input from stakeholders, its evaluation, measurement and verification contractors and other experts in developing its report.

6. The proposal of Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company to allow Strategic Plan-related costs to be excluded from the risk/reward incentive mechanism is denied without prejudice.
Rulemaking 09-01-019 is the appropriate proceeding to consider how or if Strategic Plan-related energy efficiency activities should be included in the incentive mechanism.

7. The proposal of Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company to use the individual utility weighted cost of capital, after removing the effect of taxes, for calculating the net present value of the 2009-2011 energy efficiency portfolios is denied.

8. The Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company request to revise Section IV, Rule 12 of the Energy Efficiency Policy Manual, version 4, to allow mid-cycle funding augmentation to count towards the minimum performance standard is approved. Energy Division shall make adjustments to Section IV, Rule 12 consistent with this Decision as soon as practicable so as to allow its usage in the final decision in this proceeding.

9. The Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company request to use gross saving in the performance earnings basis is denied without prejudice. Rulemaking 09-01-019 is the appropriate proceeding to determine if net or gross savings should be should be included in the performance earnings basis.

10. Pacific Gas and Electric Company, Southern California Edison Company, Southern California Gas Company, and San Diego Gas & Electric Company shall file a supplement to their March 2, 2009 amended testimony incorporating the outcomes of today's Decision. The assigned Administrative Law Judge and/or assigned Commissioner shall issue a Ruling spelling out the timing and requirements for this filing.

11. Applications (A.) 08-07-021, A.08-07-022, A.08-07-023, and A.08-07-031 remain open.

This order is effective today.

Dated May 21, 2009, at San Francisco, California.

I reserve the right to file a concurrence.

/s/ TIMOTHY ALAN SIMON

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