IV. Phase 3 Standardization Issues

As described above, Phase 3 of the Standardization Project is designed to address a number of unresolved policies and procedures regarding the implementation of LIEE programs. The utilities' July 2, 2001 filing includes a statewide policy and procedures manual (P&P Manual), reflecting their proposed resolution of the outstanding issues. A discussion of these issues, including the pros and cons of options discussed during workshops, is included in the Phase 3 Report. In addition, the Phase 3 Report presents the utilities' proposed language changes for incorporating the Phase 2 determinations (D.01-03-028) into the P&P Manual. As part of this filing, the utilities also submitted several additional sections and appendices for the Weatherization Installation Standards (WIS) Manual, which details the installation procedures and standards for LIEE measures. The need for this material was identified during earlier standardization phases. In the following sections, we address the issues raised by the Phase 3 filings and by comments on those filings.

A. Eligibility of Customers on Business Rates

During Phase 2, the utilities recommended that customers on business rates be categorically excluded from eligibility for LIEE measures and services. Several parties took issue with this policy, arguing that there could be circumstances in which low-income residences are served under such a rate. In D.01-03-028, we directed the utilities to consider this issue further during Phase 3.

The utilities now propose to allow eligibility for group homes on non-residential rates, as long as (1) they are currently eligible for CARE under current CARE guidelines applicable to group living facilities and (2) the structure in question is a single family, multifamily or mobile home suitable for weatherization under LIEE standards. CARE-eligible facilities include: migrant farm worker housing centers and group living facilities, such as drug rehabilitation houses, hospices, nursing homes, children's and seniors' homes, homeless shelters and women's shelters.

While SESCO supports the utilities' recommendation to follow the eligibility criteria of the CARE program in this instance, it expresses concern about a footnote in the P&P Manual which states that CARE requires that 100% of the facility's residents meet the 175% guideline. SESCO opposes the application of this requirement to group homes for the LIEE program, arguing that it would make it much more difficult to qualify and treat a drug rehabilitation center, battered women's shelter, or migrant farm worker facility than to treat an entire apartment complex, where only 80% is required. In addition, SESCO argues that it is even more difficult to have 100% of the tenants complete the income verification forms, particularly considering the nature of the facilities. SESCO recommends that income qualification be considered satisfied upon completion of an affidavit by the facility owners or operators.

In their reply comments, the utilities support SESCO's recommendation concerning the affidavit approach to income verification, noting that CARE also uses self-certification by the owner-operator of the facility.

We believe that SESCO's recommendations have merit, and will adopt them. Attempting to verify individual income eligibility of each resident of a group home serving destitute, transient and/or homeless persons would present serious and unnecessary obstacles to serving this kind of customer. Moreover, we believe that an 80% requirement for group living facilities of this type is a reasonable standard and, as SESCO points out, is consistent with the one we have adopted for multi-family units under the LIEE program. We direct the utilities to modify the language of Section 2.5 (Housing on Non-Residential Rates) of the P&P Manual accordingly.

B. Eligibility Based on Heating Fuel

Currently, there are fuel-related restrictions under the LIEE program with respect to the eligibility of dwelling units for certain measures. For example, if a low-income customer does not take service from the IOU for its space heating needs, the unit will generally not qualify for LIEE weatherization services (e.g., insulation, weather-stripping, caulking), even if that customer uses the IOU's electric service for air-conditioning.¹⁸ However, that unit is still eligible for other measures under the LIEE program if it takes service from the IOU for other end uses (water heating, lighting and /or refrigeration).

During Phase 2, SESCO and the Commission's Consumer Services Division raised objections to these fuel-related restrictions. In D.01-03-028, the

Commission directed the utilities to consider this eligibility issue, after obtaining public input, and to submit recommendations in the Phase 3 report.

In their July 2 filing, the utilities recommended that current practices be retained. They argue that a change in policy is undesirable because it would provide free weatherization services to customers who heat with fuels on which the public goods charge (PGC) is not collected. In addition, they argue that a policy of providing weatherization services to customers that use non-IOU heating fuels but who have air conditioning would be problematic because of the established minimum standards for natural gas appliance testing.

In order to make current practices more responsive to customers that have heating fuel provided by another supplier, the utilities proposed in their July 2 filing to: 1) establish formal referral procedures with the Department of Community Services Development (DCSD) low-income programs, 2) coordinate the provision of feasible program measures and gas appliance testing between gas and electric IOUs, and 3) offer common energy education and accept customer income qualification documentation in overlap IOU service areas.

In their comments, SESCO and ICA object to the utilities' proposals on both legal and policy grounds, and recommend that the utility install all measures required under LIEE services to any low-income customer in its service area, regardless of the fuels used. If the Commission does not require utilities to provide weatherization services to customers who do not use that utility's fuel for heating, SESCO recommends that the utility be required to provide weatherization services to all such customers that use that utility's services for air-conditioning.

In response to these comments, the utilities revised their July 2 proposal so that, in addition to the referral and coordination steps discussed above, they would also offer heating, ventilation and air-conditioning (HVAC) and certain water heating measures to homes heated with a non-IOU fuel, as long as SBX1 5 funds are available for this purpose. The HVAC measures would include ceiling insulation, high-efficiency replacement air conditioners, evaporative coolers, evaporative cooler repairs, and whole house fans. The water heating measures would include faucet aerators, pipe wrap, low-flow showerheads and water heater blankets. However, the utilities would not provide infiltration-reduction measures (e.g., caulking or weather-stripping), offer furnace repairs/replacement or replace water heaters operating with non-IOU fuels. The utilities would continue to offer all other feasible LIEE electric measures to homes with non-IOU space heating and/or water heating fuels, such as high efficiency refrigerators and compact fluorescent lamps. They would also perform non-infiltration related minor home repairs associated with LIEE measures for which homes without IOU space heating are eligible.

In considering whether the utilities' modified proposal is reasonable, we first consider the legal arguments raised in SESCO's and ICA's comments. These parties claim that the law clearly requires the utilities to provide their low-income customers with weatherization services, without any limitation in terms of their heating fuels. However, SESCO and ICA do not present or discuss the specific legal requirements in their comments. Because SESCO refers in passing to Assembly Bill (AB 1393) and "each of its predecessors," we surmise that Pub. Util. Code § 2790 is the basis for their argument.¹⁹ That section states the following:

"(a) The commission shall require an electrical or gas corporation to perform home weatherization services for low-income customers, as

determined by the commission under Section 739, if the commission determines that a significant need for those services exists in the corporation's service territory, taking into consideration both the cost effectiveness of the services and the policy of reducing the hardships facing low-income households.

"(b)(1) For purposes of this section, "weatherization" may include, where feasible, any of the following measures for any dwelling unit:

(A) Attic insulation

(B) Caulking

(C) Weather-stripping

(D) Low flow showerhead

(E) Water heater blanket

(F) Door and building envelope repairs that reduce air infiltration

"(2) The commission shall direct any electrical or gas corporation to provide as many of these measures as are feasible for each eligible low-income dwelling unit.

"(c) "Weatherization" may also include other building conservation measures, energy-efficient appliances, and energy education programs determined by the commission to be feasible, taking into consideration for all measures both the cost-effectiveness of the measures as a whole and the policy of reducing energy-related hardships facing low-income households."

SESCO and ICA interpret this language to mean that the IOUs are required to provide LIEE weatherization measures that reduce heating or air conditioning bills even if that customer does not take service for either of these end-uses from an IOU. However, the plain language of the statute does not specify that requirement. In effect, SESCO and ICA's interpretation of the statute presumes that the term "eligible" in Section (b)(2) is defined a priori to include these low-income dwelling units. Moreover, to accept this interpretation, one would have to conclude that the Legislature intended that IOU ratepayers (including low-income customers) pay for free weatherization services to customers who heat or air-condition with fuels on which the public goods charge (PGC) is not collected. Nothing in the statute language itself or in the Legislative history of AB 1393 supports this conclusion.

Nor is this conclusion supported by the language of Senate Bill X1 5, which in Section 5(a) provides supplemental funding for the LIEE program and other initiatives to "meet the urgent needs of low-income households." Section 5(a) specifically states that such funding should be allocated by this Commission to the customers of electric and gas corporations subject to our jurisdiction. Under Section 5(b), the statute authorizes funding for these same ("analogous") programs for customers served by municipal utilities. Hence, the Legislature has specifically recognized that customers of municipal utilities should be served via low-income assistance programs that are funded separately from those serving IOU customers.

In fact, the language of §2790 only very broadly describes the mission of the LIEE program and leaves key implementation terms, such as "feasible" and "eligible" undefined in the statute. Throughout the many years of providing weatherization services to low-income customers, the Commission has developed numerous policies and procedures to define the eligibility of low-income units (including income requirements and types of units that are eligible), to establish criteria for what measures are feasible and to develop other aspects of program implementation. SESCO and ICA attempt to read into the language of § 2790 an interpretation of eligibility that simply is not articulated in the plain language of the statute and, by its omission, is properly considered by the Commission in implementing the program.

We agree with the utilities that our definition of "eligible" low-income dwelling units, in determining which weatherization measures are feasible, should consider the issue of heating fuel. As discussed above, the statute does not preclude our consideration of this issue or direct a specific determination. From a policy perspective, we are persuaded by the utilities' arguments concerning customers that do not take service from an IOU for either their heating or air-conditioning usage. In our opinion, the current policy should continue-those customers should not be eligible for weatherization services (e.g., insulation, weather-stripping, caulking) under the LIEE program. However, we will adopt the utilities' proposal to establish a formal referral procedure with DCSD and its local contractor agency network so that customers who do not utilize IOU services for space heating or air conditioning can receive these measures through the federal and state-funded DCSD programs.

With regard to customers who take service from the IOU for air conditioning, but not for space heating, the arguments in favor of providing these customers with infiltration-reduction measures have considerable appeal. Such customers contribute to program funding through their payment of the PGC on electricity use and, in many climate zones, may spend more on cooling than on heating their homes. If infiltration-reduction measures can provide low-income customers with significant savings on their cooling requirements and utility air conditioning bills, it seems reasonable to support a policy of providing these services through the LIEE program. However, providing such services raises cross-subsidy and appliance safety testing issues that persuade us to reject this policy at this time.

SCE describes the cross-subsidization ramifications as follows:

"As an example, the City of Long Beach has a municipal natural gas utility and does not fall within an IOU's service territory. All SCE customers in Long Beach with natural gas heating `take their service for space heating from a non-IOU' given that the entire Long Beach area is covered by a non-IOU. Thus, under the Draft Opinion's proposed rules, SCE would be responsible for providing weatherization services to all such customers that have air conditioning. This will require that SCE ratepayers fund the entire cost of weatherizing a home in this area, even though because of its cool coastal climate, air conditioning does not typically amount to a large amount of energy usage. Thus, the infiltration-reduction measure savings would most likely have the greatest benefit towards the customer's natural gas heating bill, even though the entire funding for the weatherization would be funded by SCE electric customers."²⁰

A policy of requiring the utilities to provide infiltration-reduction measures to homes that are not heated with IOU fuels (even if they take service from the IOU for air conditioning) also raises the following appliance safety testing issues:

1. What appliance testing procedures should be used to ensure that the infiltration-reduction measures will not pose health hazards when installed in homes with non-IOU fuels (e.g., wood stoves and propane systems)? In particular, should the utility pre-test the home for CO and other combustion-related hazards in the homes of LIEE weatherization recipients? Or should the utility wait and perform a post-test to detect any safety problems, once the infiltration-reduction measures are installed?

2. If safety problems are detected during testing, what immediate actions should be taken in response (e.g., shut off appliances, notify local authorities, implement repairs)?

3. Should the utilities be responsible for repairing the non-IOU fueled heating appliances? If not, who should be? If so, what standards should be adopted for making such repairs and how are they to be funded?

These issues have been debated in this proceeding (and its predecessor) with respect to natural gas appliance safety testing. Issue 1 is the focus of our

Phase 4 Standardization Project, which is just underway.²¹ However, expanding infiltration-reduction services to non-IOU heated homes requires an examination of space heating appliances and equipment that do not use natural gas, and implementing the safety procedures appropriate to them, which is not a focus of Phase 4. As ORA and others point out, the IOUs do not currently have the expertise to evaluate combustion-related hazards for other types of heating fuels, or repair the heating equipment if problems are found to exist. Nor do they have the authority to require other entities (either the homeowner or non-regulated service provider, such as a municipal utility or propane company) to step in and fix faulty equipment or equipment connections. Until we complete Phase 4, we will not have a comprehensive record with which to examine existing appliance testing procedures for natural gas appliances, let alone those that utilize other fuels. Moreover, the funding issues associated with these expanded testing and repair activities would also need to be addressed.

In sum, providing infiltration-reduction measures to homes that take air conditioning services, but not space heating from the IOU would require the IOUs to assume responsibility for implementing safety testing and repairs on a broad range of heating equipment that is not within their expertise, for which standards have not been established under the LIEE program, and for which funding has not been authorized in rates. We therefore find it unreasonable to adopt such a policy. We may revisit this issue after we complete Phase 4 of the Standardization Project. Today, we adopt the utilities' proposal to offer HVAC measures (including ceiling insulation, high-efficiency replacement air conditioners, evaporative coolers, evaporative cooler repairs and whole house fans) to these homes, in addition to the referral and coordination steps submitted with their July 2 filing. SBX1 5 funds may be used at this time to fund these measures, but we do not make this policy contingent upon their continued availability. The provision of these measures should continue as part of LIEE program plans and budget proposals, even when SBX1 5 funds are depleted.²²

The utilities state that they will establish formal referral procedures with the DCSD low-income programs and local network of LIHEAP contractors, who currently provide safety testing for non-IOU fuels, repair malfunctioning equipment and provide weatherization services to homes that are not served by the IOUs. This should be completed without delay. Based on the record in this proceeding, we believe that building on the success of the utilities' leveraging efforts with LIHEAP agencies is the most appropriate and cost-effective mechanism for weatherizing non-IOU heated homes.

In considering the utilities' modified proposal, we note that no rationale is given for the utilities' decision to provide water-heating measures (e.g., faucet aerators, pipe wrap, low-flow shower heads and water heater blankets) to homes that do not heat water with IOU-fuels. Unlike infiltration-reducing measures where air conditioning is used, these measures do not reduce the use of an IOU fuel or reduce the corresponding utility bill. Nor do these customers contribute to the PGC through this end-use, as they do in the case of air conditioning. In effect, this policy would provide free weatherization services to customers who heat water with fuels on which the PGC is not collected. This is the same rationale given by the utilities (and with which we agree) for not providing infiltration-reducing services to customers who heat their homes with non-IOU fuel and do not use air-conditioning. When this rationale is consistently applied, we conclude that LIEE funding should not be used for this purpose, on either an interim or ongoing basis. We direct the utilities to modify Section 2.3.1 of the P&P Manual accordingly.

C. Limitations on Expenditures by Housing Type

In D.01-03-028, we established that master-metered units should be eligible in all utility service territories for LIEE program measures and services. In the past, these units were not eligible under PG&E and SDG&E's programs. We established the same eligibility standards for these units as those for multi-family tenants in individually metered dwellings. However, we deferred consideration of standardizing policies for limiting expenditures by housing type, including master-metered units, until Phase 3.²³

The utilities propose establishing caps on the treatment of master-metered units (as a percentage of total treated units) that generally reflect the predominance of master-metered dwellings in the service territory, up to a maximum limit of 15%. They present the following figures on the percentage of low-income multifamily dwellings, by utility: PG&E 18%, SDG&E 30%, SCE 8% and SoCal 16%. Accordingly, the utilities recommend a cap of 15% for PG&E, SoCal and SDG&E, and 8% for SCE. In order to avoid contractor concentration on these units, ICA supports the proposed percentage limitation on them at this time.²⁴ SESCO argues that these caps are not adequately explained, and recommends that they be set at a higher level, based strictly on the percentages of low-income homes with master-metered service.

The utilities recommended caps on master-metered units represent a reasonable balancing of the issues we discussed in D.01-03-028:

"Establishing a cap on the treatment of master-metered units is a reasonable way to find a balance in the treatment of low-income customers with different types of metering arrangements. As described above, there are disadvantages associated with treating master-metered customers. Most importantly, it is unclear that master-metered tenants will receive benefits from the program to the same degree as individually metered tenants. While the disadvantages should not disqualify master-metered tenants from participating in the program, we believe that imposing a maximum on such participation is necessary to obtain a reasonable level of overall participant benefits from program budgets." (D.01-03-028, mimeo. p. 39.)

Given that not all of the benefits of treatment will necessarily be enjoyed by occupants, we find the utilities' proposal for a maximum 15% limit to be reasonable at this time. The lower limit for SCE is appropriate because SCE has fewer master-metered customers as a percentage of low-income dwellings. We may revisit the level of these caps in future program-planning proceedings if the statewide needs assessment study indicates a need to serve proportionately more of these units.

SESCO requests that the utilities clarify how these limits will be applied. Specifically, SESCO recommends that, rather than applying the limit uniformly to each contractor, the limit should vary by county or geographic areas assigned to a particular contractor to reflect the penetration of master metered units in those areas. In response to the ALJ's November 9, 2001 ruling, the utilities clarified that they do intend to tailor specific contractual limits to the treatment of master-metered units to the geographic areas covered by the contracts in question. They also explain that the percentages should be perceived as long-run targets, rather than strict annual limits. We agree with this approach. Utilities that have not previously treated master-metered units should have the flexibility to exceed these percentage limits temporarily in order to serve the previously unmet need.

Finally, ICA, SESCO and QCS/Winegard recommend that the utilities begin treating master-metered apartments, as part of the rapid deployment effort, rather than wait until PY2002. We agree. The timing of our formal PY2002 program planning process has been deferred in order to implement the rapid deployment plans necessitated by the energy crisis. However, there is no reason to delay treating master-metered units in the meantime. Accordingly, the utilities should include master-meter units in their rapid deployment plans, consistent with the policies adopted today, without delay. The utilities should include a description of their plans and accomplishments in this area in the rapid deployment status reports ordered by D.01-05-033.²⁵

To address the overall mix of housing types served under the program, the utilities propose long-term targets for multifamily units, set equal to the proportions of these dwellings in the overall low-income housing stock of each utility's service area. The targets (% units treated) are as follows: PG&E-23.1%, SCE-51.3%, SoCal-32.8% and SDG&E-47.5%. The utilities state that they intend to "promote or limit the treatment of multifamily units in individual program years as long as these actions are consistent with the achievement of these long-term goals."²⁶ The utilities argue that, in the absence of such caps, there could be a tendency for contractors to target multifamily dwellings at the expense of single-family dwellings and mobile homes.

SESCO argues that the motivation is exactly the opposite of what the utilities contend. In SESCO's view, the single-family unit provides much greater revenue and profit than is typical for an apartment. Nonetheless, SESCO supports the concept of setting long-term targets for housing types as an alternative to setting specific percentage maximums or minimums for contractors or for counties. To partially offset the tendency of contractors to seek out single-family units, SESCO and QCS/Winegard argue that the utilities should provide for dollar or budget caps

We find the utilities' arguments on this issue persuasive. In spite of SESCO's contentions to the contrary, there appear to be real incentives for contractors to treat a disproportionately large percentage of multifamily dwellings. As the utilities point out, travel and logistics costs are very low for these units because of the high concentration of dwelling units in multifamily complexes. Because these units typically require fewer measures, a contractor may be able to focus on them to achieve its unit goal at a lower cost.

Caps based on dwelling units are more appropriate than caps based on expenditures for other reasons. Due to accounting delays, the utilities may not know how much has been spent on different housing types until after the end of the contract period, and delays in financial reporting would make dollar-based caps difficult to track and enforce. Caps based on expenditures could also provide contractors an incentive to provide only the most profitable measures, unless they are carefully integrated into a program design that encourages comprehensiveness. This would be counter to the responsibility to provide all measures that are feasible.

However, we believe that the utilities should specify a timeframe for meeting their multifamily unit targets and describe how they intend to track their progress towards them. In doing so, the utilities should discuss reporting options and formats with Energy Division. The utilities should include a breakdown of multifamily and single-family units treated in their rapid deployment status reports and present information on the number of units treated under the program relative to each utility's long-term targets.

D. Limits on Prior Participation in LIEE Program

In D.01-03-028, the Commission determined that low-income families that were denied infiltration measures because they had failed PG&E's pre-testing for natural gas appliance safety should be considered eligible for the measures they did not receive if the test is subsequently passed during a 10-year window.²⁷ In its comments, SESCO argues that the utilities' proposed policies to comply with this directive meet the strict interpretation of D.01-03-028, but fail in the intent due to two factors.

First, SESCO contends that the proposed language does not provide for instances when the natural gas appliance test could not be administered. This can happen if the inspection team and the customer cannot find a mutually acceptable time to conduct the test or because of "no shows" by one or the other. Second, SESCO objects to requiring the customer to have received other non-infiltration measures, in order to be able to be reconsidered for the infiltration measures. SESCO argues that, in many cases, prior to 1999 the only measures that would have been installed were infiltration measures.

In their reply, the utilities agree with SESCO's first point, but are silent on the second. We believe that they both have merit and should be addressed in order to fully reflect the intent of the Commission's directives in D.01-03-028. The language of Section 2.8 should be modified accordingly.

E. Fractional Qualification in Multifamily/Mobile Homes

As discussed in D.01-03-028, the purpose of adopting a fractional qualification requirement approach to multifamily units and mobile home parks is to provide treatment for all units when it becomes obvious that the building caters overwhelmingly to low-income families. In that decision, we adopted an 80% fractional qualification requirement applied to all the units in the complex, and not just those untreated.²⁸ SESCO and QCS/Winegard contend that the utilities did not comply with this direction. We disagree. While the clear intent of D.01-03-028 was to count units that were qualified and treated under the LIEE program in prior years towards the qualification requirement, the decision is silent as to how many "prior years" to consider for automatic income qualification.

SESCO and QCS/Winegard propose that any dwelling unit that was previously treated during the ten years prior be counted as being occupied by an income-qualified household. Although the rationale for this timeframe is not discussed in their comments, presumably it was chosen because homes that have been treated under the LIEE program within the past 10 years are generally not eligible for participation in the current program. In their reply comments, the utilities request that we establish a policy that only those units treated within the past two years be assumed to be income-qualified.

The 10-year window is not appropriate in this instance. We adopted this timeframe for the purpose of determining whether or not an income-eligible home that requests program participation can receive LIEE services and measures if the home had been previously treated. We determined that a 10-year timeframe for this purpose was reasonable because it coincides on average with the mix of measures and measure lives installed through the program.²⁹ However, that customer must still meet the income documentation requirements of the program. In contrast, under the SESCO and QCS/Winegard proposal, any unit treated during the prior ten years would be automatically considered income eligible in the context of the fractional qualification of multifamily complexes and mobile home parks.

We are persuaded by the utilities that this 10-year window is simply too long a period to make this assumption of income qualification. As they point out, apartment buildings in many downtown areas can become "gentrified" during this timeframe and thus occupied by progressively higher income levels. Major changes in occupancy could occur over a ten-year period.

At the same time, we find the utilities' proposed two-year rule to be too short a timeframe for this purpose. We doubt that the overall income level of mobile home parks or multifamily complexes change significantly over this time frame. In our judgment, a five-year window represents an appropriate balancing of concerns. It is long enough to facilitate the qualification of these units without undue paperwork and delays, and short enough to address concerns raised by the utilities.

F. Limits on Minor Home Repairs and Furnace Repairs/Replacements

In D.01-03-028, the Commission determined that the 20% overall expenditure limit on minor home repairs/furnace replacement and repairs adopted by Resolution E-3586 would apply to all utilities. In its comments, SESCO proposes to redefine the 20% cap on minor home repairs in terms of weatherization expenditures.

We concur with the utilities that redefining the percentage limitation in terms of weatherization expenditures could unduly restrict minor home repairs, particularly since the rapid deployment measures may necessitate additional repairs of this nature. Moreover, as the utilities point out, the increase in overall program funding due to the passage of SBX1 5 is a one-time phenomenon and utility PY2001-PY2002 participation goals have temporarily increased under the adopted rapid deployment policy. No further changes to this policy are necessary.

We also reject SESCO's position that any repairs or actions taken in response to carbon monoxide problems should not be charged to the LIEE budget. Under current program policies and procedures, all minor home repairs, whether related to carbon monoxide testing or not, are charged to the LIEE program because, without such repairs, certain infiltration-reducing measures would not be considered feasible. As we consider Phase 4 issues regarding the standardization and timing of natural gas appliance testing procedures, we may revisit this funding issue.³⁰ However, at this time we authorize the utilities to continue their current practice of funding all minor home repairs provided under the program out of the LIEE budgets. Nonetheless, as discussed further below, we reaffirm our policy that natural gas appliance testing should not be billed to the LIEE program or any other public purpose funds.³¹

SESCO also criticizes the proposed P&P Manual because it does not specify which actions could be taken by weatherization contractors to respond to carbon monoxide problems. This issue should be researched and addressed under Phase 4. We expect the final report in Phase 4 to include such specifics for our consideration.

G. Frequency of Inspections

In D.01-03-028, we adopted the utilities' proposal to establish minimum sample sizes for post-installation inspections of all jobs not involving ceiling insulation.³² We rejected SESCO's proposal that the utilities establish upper limits to the inspections of these jobs. However, we directed the utilities to "describe the circumstances that may warrant larger sample sizes than the minimums presented." We also directed the utilities to keep records of actual inspection frequencies, by contractor, as well as the number of minor corrections.³³

The proposed P&P Manual contains the following language to address this Commission direction:

"Circumstances that may justify larger sample sizes include, but are not limited to, the following:

1. If the utility's program is small enough that 100% post inspections can be conducted without substantially increasing overall program expenditures.

2. If a particular contractor exhibits a pattern of inspection failures that justifies inspection of a higher percentage of jobs.

3. If a contractor is on a quality improvement plan which requires them to improve their inspection rates.

4. If contractor crews are newly trained or new to the program, and require closer field supervision and on the job training.

5. If a contractor's installation crews are not sure of the program inspection standards, as exhibited in failed inspection results.

6. If a contractor's allocation of homes covers multiple counties.

7. If post-inspections are done in conjunction with post-installation natural gas appliance tests.

8. If sample inspection results are also used to estimate measure pass rates for the population of homes treated by a contractor.

Utilities will keep records of actual inspection frequencies by contractor."

SESCO objects to most of this language, arguing that it will allow the utility to "make up whatever reasons it cares to do in order to arbitrarily increase the inspections", thereby taking needed funds away from installations.³⁴ In particular, SESCO proposes that the list represent the only circumstances under which sample sizes can be increased, and that items 6-8 above be removed. In addition, SESCO recommends that the utilities be required to report records of actual inspection frequencies by contractor.

The utilities have the ultimate responsibility to ensure quality control of the LIEE program. In order to discharge this responsibility, we believe that the utilities need to be able to use their judgment in determining whether or not the minimum sample sizes should be exceeded. The utilities are not restricted in their inspections of jobs conducted under other energy efficiency programs, and we agree that they should not be unduly constrained under the LIEE program. In D.01-03-028 we made this policy clear with our rejection of SESCO's proposal to adopt a maximum limit on inspections. Our request for further information in D.01-03-028 was not intended to limit the right to inspect contractors' work. The language presented above complies with the Commission's directives and will be adopted, subject to the clarifications discussed below.

With regard to SESCO's recommendations to eliminate item 6 above, we agree with the utilities that larger sample sizes may be warranted in these instances. Contractors working in multiple counties typically have multiple work crews, and a larger sample size may be needed to estimate the failure rates for individual crews with reasonable precision. The utilities proposal to clarify the language of item 8 should address SESCO's concerns over that language, and we adopt those modifications.

With regard to item 7, we share SESCO's concern about potential cross-subsidization if sample sizes are increased when post-inspections are done in conjunction with post-installation carbon monoxide appliance testing. The utilities argue that there are economies associated with conducting the two inspections at the same time. However, as SESCO points out with numerical examples, if the post-inspection is not justified by other causes to ascertain quality, it represents a cross-subsidy to carbon monoxide testing.³⁵

We reiterate our policy that inspections for carbon monoxide problems should not be funded with LIEE monies.³⁶ We encourage the utilities to take advantage of the economies it discusses in its filings by conducting these two procedures together, whenever practicable. However, as SESCO suggests, the amount charged to the LIEE budget for the post-installation inspection should be the net cost of the visit after the full cost of the stand-alone natural gas appliance test is subtracted. This will remove the potential for cross-subsidization from a decision to increase the inspection sample size.

H. Eligibility of Renters For LIEE Equipment

During our consideration of Phase 2 issues, we directed the project team to fully address the issue of providing renters with evaporative coolers in Phase 3, including the issue of customer co-payments on evaporative coolers.³⁷ As part of the rapid deployment strategy adopted in D.01-05-033, we established an interim policy that rental units should be eligible for evaporative cooler units and hard-wired fixtures, without charge (no co-payments) to either the tenant or the landlord. We directed that refrigerators and air conditioner replacements also be made at no charge, except where the landlord owns the refrigerator or air-conditioning unit and also pays the utility bill. In these instances, partial incentives like those offered in the utilities' rebate measures (rather than free measures) would be offered.

We also established a policy that rental units should not be eligible for furnace replacements or major furnace repairs, because landlords have a legal responsibility to maintain heating systems in rental units. However, we indicated that we might revisit this policy as we considered the recommendations in Phase 3.³⁸

In the Phase 3 report, the utilities recommend that our interim policies on furnace replacements or major furnace repairs continue beyond PY2001. However, they propose that they be permitted to make minor repairs and adjustments to furnaces if these actions would improve the performance of the system at a minimal cost. We find this minor modification to be reasonable, and will adopt it.

The utilities also recommend that the program continue to provide rental units with evaporative coolers and hard-wired fixtures at no charge to either the tenant or the landlord. In their experience, landlords do not believe that they will receive any direct significant benefits from these measures, and are unlikely to be willing to contribute to their costs, thereby denying low-income tenants access to these measures. We find this argument persuasive, and will continue the interim policy established in D.01-03-055 beyond the rapid deployment period.

With regard to refrigerator replacements, the utilities propose the following language:³⁹

"Refrigerator replacements should also be provided at no charge if the units belong to the tenants. However, if the refrigerator is owned by the landlord, the utilities may make payments to installation contractors that cover only part of the cost of replacement."⁴⁰

Under this proposal, renters who pay the utility bills, but do not own the refrigerator, would not receive the benefits of refrigerator replacement unless the landlord is willing to contribute to the cost of a new, high efficiency refrigerator. The utilities argue that this approach is reasonable because "landlords are generally willing to contribute a portion of the cost of refrigerators what will become their property, because of the benefits they receive."⁴¹ We do not find this argument persuasive in situations where the tenant, rather than the landlord, pays the utility bill. Reducing utility bills is the largest benefit of a high efficiency refrigerator. Moreover, there is no evidence to suggest that the rental value of the low-income housing unit will increase just because the refrigerator or air conditioner is replaced with a newer model. We believe the approach we adopted for rapid deployment more effectively balances the interest of those tenants that pay their utility bills, with concerns over subsidizing landlords. As we stated in D.01-05-033:

"This approach permits low-income tenants who pay their own electric bills, but may not own their air-conditioning or refrigerator equipment, the ability to benefit from the energy efficiency improvement that will help reduce their usage. At the same time, it provides for the rapid deployment of these peak load reducing appliances in low-income rental housing, while mitigating concerns over subsidizing landlords with low-income program funds."⁴²

We will retain the approach adopted in D.01-05-033 for refrigerator and air conditioner replacements in rental units after the rapid deployment period. The utilities are directed to modify the language of Section 2.7.2 of the P&P Manual, accordingly.

I. Natural Gas Appliance Testing

During Phase 2, we adopted a minimum standard for natural gas appliance testing. This standard entails a mix of tests, including visual examinations, combustion air evaluation, ambient carbon monoxide tests, and draft tests. In response to comments, we directed the project team to provide more detailed specifications for these standards, including threshold carbon monoxide (CO) levels.⁴³

The Phase 3 report contains such specifications. In particular, it includes the designation of a threshold CO value for investigation and corrective action. The project team recommends that this threshold be set at a CO exposure level of 10 parts per million (ppm). The facts described below were taken into consideration by the project team in making this recommendation.

The CO action level utilized by DCSD and most local jurisdictions for indoor air is 10 ppm, which means that the maximum allowable level is 9 ppm. For outdoor air, the Environmental Protection Agency's standard for exposure to CO is 35 ppm during just one hour. Most CO limits were developed for workplace applications and are based on an average 8-hour exposure followed by 16 hours away from the workplace. In contrast, in a residential setting, occupants are usually present for periods longer than 8 hours. Infants, young children, pregnant women and the elderly are believed to be more susceptible to CO poisoning, and they are often in the home for long periods of time.

Based on the record in this proceeding we believe that a 10 ppm action level for CO exposure is reasonable. With the exception of this modification to the utilities' proposal, we adopt the specifications provided for gas appliance testing in Table 10-1 of the P&P Manual.

J. Ceiling Insulation Levels

In D.01-03-028, we adopted an interim approach for establishing ceiling insulation levels, pending our final determination of the overall LIEE cost-effectiveness methodology. We directed the utilities to update the designation of ceiling insulation levels during Phase 3.⁴⁴ They did so in their July 2 filing, based on the LIPPT methodology presented by the Working Group and updated avoided costs. (See Section 6 below.)

PG&E, SPC, ICA, SESCO and CEC objected to the ceiling insulation levels presented in the July 2 submittal, arguing that those levels were inappropriately lower than current LIEE program standards and inconsistent with current California Code of Regulations, title 24, Building standards (Title 24). In response to these comments, the utilities revised their proposal as follows:

Table 3: Utilities' Proposed Ceiling Insulation Levels (Revised 8/17/01)

Climate Zone	Existing Insulation Level	Action
All CEC Climate Zones with less than 5,000 heating degree days	R-11 or less	Raise R-Value to R-30
	More than R-11	Do not install additional insulation
All CEC Climate Zones with 5,000 or more heating degree days	R-19 or less	Raise R-Value to R-38
	More than R-19	Do not install additional insulation

ICA recommends that this issue be deferred until Phase 4. In ICA's view, the new recommendations are unclear, subject to numerous interpretations and fail to reasonably follow the CEC recommendations. SESCO contends that the Title 24 standards do not permit the application of the 5000 heating degree day test to an entire CEC climate zone. SESCO also argues that the use of CEC climate zones results in no meaningful differentiation throughout the state. SESCO recommends against deferring this issue. Instead, SESCO proposes that the LIEE program utilize the more disaggregated DCSD procedures for determining when to install ceiling insulation, at least on a temporary basis.

We conclude that the revised ceiling insulation levels are reasonable and should be adopted. We find that the revised recommendations are now consistent with the relevant language in Title 24:

"Attics. If insulation is installed in the existing attic of a low-rise residential building, the R-value of the total amount of insulation (after addition of insulation to the amount, if any, already in the attic) shall be at least R-30, if the building is located in an area that has less than 5,000 heating degree days, or R-38 if the building is located in an area that has 5,000 heating degree days or more. (Emphasis added.)⁴⁵

Defining "areas" in terms of the sixteen CEC climate zones is reasonable in terms of the CEC's insulation-related policies since new construction insulation standards are applied at that level. Using the CEC climate zone definition of area is preferable to using a more disaggregated approach providing a list of locations (typically a city or a town) with heating-degree-days because degree-day estimates are not available for many locations in the state.⁴⁶ This approach should not seriously discriminate against households in other climate zones with extreme weather. According to the CEC's listings, there are 36 locations (cities or towns) with heating degree days greater than 5,000. All but three of these locations are in the CEC's Climate Zones 1 and 16 (the zones that would be designated for R-38 under the recommended approach). The three that are not included appear to be weather stations, rather than cities or towns, and do not represent significant populations.⁴⁷

As we noted in D.01-03-028, some degree of reduced accuracy is inevitable when aggregation or generic assumptions are utilized to simplify procedures for determining appropriate ceiling insulation levels. Based on public input at workshops, we agreed with the utilities then-and continue to agree-"that it is reasonable to attempt to simplify the process as much as possible so that field crews can work with these new requirements effectively. In this respect, we may diverge from the specific procedures currently in effect under the DCSD's weatherization program."⁴⁸ The DCSD procedures for establishing ceiling insulation levels are undergoing departmental review at this time. These procedures would need to be carefully reviewed before considering their adoption for the LIEE program.⁴⁹

SESCO argues that the minimum thresholds to be used for insulation should at least vary with respect to the heating degree days in each climate zone.⁵⁰ The conceptual basis for SESCO's position has some merit (i.e, the cost-effectiveness of the added increment of insulation is affected by the location's heating degree days). However, we are persuaded to adopt the utilities' approach to establishing threshold ceiling insulation levels at this time for the following reasons:

"First, [the] revised recommendation accords symmetric treatment to threshold and completed levels of insulation. Title 24 specifies two alternative completed levels of insulation because the economics of insulation differ appreciably between areas with above and below 5,000 heating degree-days. Similar reasoning would suggest this level of heating degree-days is a reasonable dividing line for threshold values. Second, Table 3 recognizes the realities of the market. In the event that some insulation is in place, but that the level falls short of satisfying the new Title 24 requirements for retrofits, it is likely to be either R-11 or R-19. Third, Table 3 aligns reasonably well with the economic analysis of ceiling insulation. It is generally cost-effective to install ceiling insulation when the

existing R-value is at or below R-11, so there is little value in using values less than R-11 as thresholds. Moreover, making a special trip to install insulation over R-19 rarely would make economic sense, so it is probably not wise to use thresholds above R-19, even in the most extreme climates. While it would be possible to fine-tune the threshold values between R-11 and R-19, this would add little to the effectiveness of the Program in serving low-income customers. Fourth, developing an expanded set of specific threshold values for a large set of narrowly defined climate conditions is inherently a complex quantitative analytical process."⁵¹

Based on the above, we adopt the utilities' revised recommendations for ceiling insulation levels. The P&P Manual should be amended to include those revisions. The documents should also provide a list of locations that fall into each of the sixteen CEC climate zone, indicating which zones have heating degree-days that exceed 5,000. We clarify that the actions listed in the third column of the table above refer to the final level of insulation, including any pre-existing values as well as insulation added under the program. We adopt these levels on a forward-looking basis, with the understanding that homes previously receiving lower levels of ceiling insulation under the LIEE program will not be revisited to bring insulation up to the new higher level. We agree with the utilities that, because these homes already have at least R-19, the additional benefits of adding insulation would be far smaller than the associated costs.

With these clarifications, we are persuaded that the utilities' proposal both meets the requirements of Title 24 and balances the objective of developing procedures to incorporate climate variations into workable, standardized ceiling insulation procedures, with the goal of providing a reasonable level of weatherization services to program participants at reasonable costs to non-participating ratepayers.

K. Inspector-Contractor Dispute Resolution

In D.01-03-028, we directed the utilities to develop standardized inspector-contractor dispute resolution procedures during Phase 3, stating:

"We believe that this is an important issue to address and direct the utilities to make this a high priority for Phase 3. We share SESCO's concerns that current dispute resolution methods may not provide sufficient impartiality on the part of the arbitrator if that person is also a utility employee. Alternatives should be carefully considered."⁵²

The proposed P&P Manual simply states under this topic that "dispute resolution procedures differ across utilities because of differences in outsourcing practices."⁵³ The utilities argue that these differences are reasonable because: 1) the utility has no reason to act unfairly in resolving such disputes, 2) the neutrality of third party arbitrators could still be challenged, and 3) adding an additional entity to visit homes in order to resolve disputes could violate customers' privacy and erode customer satisfaction.⁵⁴ SESCO objects to the practices of those utilities that continue to use utility personnel to resolve disputes between LIEE service providers and utility inspectors.

As SESCO points out, if the utility outsources the inspection function, then it is not a party to disputes between inspectors and installation contractors. Therefore, the utility should be allowed to select in-house personnel to arbitrate disputes under these circumstances. We note that SoCal has this type of dispute resolution practice, and SCE recently adopted a similar model using a third party mediator. PG&E and SDG&E, on the other hand, retain their inspection functions in-house and select in-house utility personnel to arbitrate unresolved disputes between their inspectors and contractors.

We agree with SESCO that this practice should not continue. Contrary to the utilities' assertions, we do not believe that such disputes can be arbitrated in a neutral fashion if utility personnel are evaluating the judgment or actions of their colleagues. Moreover, it is common practice to have a procedure whereby a neutral third party arbitrates disputes-and not just with respect to inspectors and installation contractors. There are numerous professional arbitration and mediation services, even some specializing in contractor issues. Binding arbitration provisions in contracts can address the utilities' concerns about challenges to the determinations reached by a third party arbitrator. With regard to any imposition on customers of three different entities (the contractor, the inspector and a dispute arbitrator) visiting a home to resolve a dispute, we observe that this would be unavoidable regardless of which entity is charged with each function. Nonetheless, we see no problem with utility personnel attempting to mediate or facilitate resolution of issues between inspectors and contractors, as long as a third party arbitrator is available for unresolved disputes when utility personnel perform the inspections.

We find appeal in SESCO's suggestion that the cost of the service be born by the "losing" party. We will also adopt language, as SESCO suggests, to ensure that the selection of an arbitrator is done in a neutral fashion.

L. Lead-Safe Practices

The project team included an appendix on lead-safe weatherization practices in its July 2 filing. SPC, SESCO and ICA object to the inclusion of this material, arguing that it was not requested by the Commission or discussed during workshops. In their view, this appendix goes far beyond that which the law requires or normally accepted industry practices.

The utilities explain that the subject came up in previous public workshops on standardization project issues, and was intended to assist LIEE program contractors with implementing lead-safe practices required by federal and state regulations. The utilities agree to remove this appendix from the WIS Manual.

We will remove this material from the WIS Manual. Nonetheless, contractors must agree to comply with all state, federal and local laws and regulations when they join the LIEE programs.

M. Measure Pre-Approval

During Phase 2, SESCO objected to the process by which PG&E pre-approved measures to be installed in the home, and raised the issue of how inspectors should evaluate contractors' work with respect to pre-approvals in determining a "pass" or "fail" situation. As we discussed in D.01-03-028, the Phase 2 report did not provide sufficient information with which to evaluate the pre-approval process that PG&E employs, or to compare that process with the pre-installation inspection procedures of the other utilities. We directed the utilities to examine this issue further during Phase 3.

In their July 2, 2001 filings, the utilities present comparison information on their pre-installation inspection procedures and recommend that they each be permitted to continue the use of these procedures, rather than adopting PG&E's pre-approval process on a standardized basis.⁵⁵ SESCO objects to this recommendation, and also argues that PG&E's extensive pre-approval process is disruptive to the delivery system, is not cost-justified, and inappropriately subsidizes the cost of PG&E's unique gas appliance testing procedures. The utilities respond in their reply comments that differences in natural gas appliance testing procedures warrant differences in pre-approval practices across utilities pending the further consideration of these testing policies under Phase 4.

We will defer a detailed examination of this issue until Phase 4, when we can consider pre-inspection procedures in the context of standardized gas appliance testing. In the meantime, we will permit the utilities to continue with their current pre-inspection approaches. We note that PG&E has clarified that any measures on the pre-approval list that are overlooked by the contractor, if corrected within 10 days, will not result in a post-inspection "fail."

As SESCO points out, any subsidization of natural gas appliance testing with LIEE funds is contrary to established Commission policy. Accordingly, if pre-approval inspections are conducted in combination with natural gas appliance testing, the amount charged to the LIEE budget should be the net cost of the visit after the full cost of a stand-alone natural gas appliance pre-test is subtracted. This will prevent the LIEE pre-approval inspection from being used to subsidize a testing program that is to be funded outside of the LIEE budgets.

N. WIS Manual Copyright

The consultant's (RHA) contract provides that PG&E, SDG&E, SCE, and SoCal will jointly own all copyrights and other intellectual rights in all analyses, data, databases, documentation, reports, inventions, processes, software and other works of authorship produced by consultants, with one exception. The consultant will retain ownership of the graphic art in the WIS Manual(s), and the utilities will have unrestricted licenses to use this graphic art in the statewide programs, with each party having the right to the reasonable use and reproduction of the material.

SESCO and QCS/Winegard argue that public purpose program contracts should not permit contractors to retain ownership of the graphics. As a general rule, we agree that consultants should not own intellectual property developed during the implementation of contracts paid for through public purpose programs. Virtually all Commission contracts include a provision stating that any data or other intellectual property developed pursuant to the contract belongs to the State and cannot be used without the Commission's permission.

Here, however, it is reasonable to approve a different approach. As the utilities discuss in their reply comments, RHA had written versions of weatherization manuals and had invested a considerable amount in the development of graphs and pictures for them before entering into the contract at issue. These pre-existing graphs and pictures were subject to RHA copyrights, and were one of the assets that RHA brought to the bargaining table. The negotiated contract budget assumed that RHA would retain ownership of these graphics, and the outright purchase of these graphics would have substantially increased the contract price.

While some of RHA's pre-existing graphics may be modified, and some new graphics developed during the term of the contract, it would in many cases be difficult to determine precisely where the pre-existing graphics ended, and the modifications began. Even if RHA did use some of this material elsewhere, it would be awkward, at best, to develop an agreement that would provide the utilities with substantial benefits from licensing RHA to use this limited subset of graphics elsewhere. In any event, since the negotiated budget assumed that RHA would own the graphic art in the WIS manual, regardless of whether it was previously copyrighted by RHA, the contract price already implicitly captures the benefits of giving RHA the right to reasonable use and reproduction of the material.

O. Other Issues

On pages 25 and 26 of SESCO's comments, SESCO raises several issues relating to Chapter 7 of the P&P Manual. In their August 17, 2001 reply comments, the utilities responded to each issue, as presented in Attachment 3. We have reviewed these responses and find them to be reasonable. Accordingly, the project team should revise Sections 7.3.17 and 7.3.19 of Chapter 7, as described in Attachment 3. However, with regard to the provisions on refrigerator sizes, we clarify that the utilities are permitted to exhaust their current inventories of refrigerators before the requirements take effect. We agree with the project team that further modifications or clarifications to the language in Chapter 7, as suggested by SESCO, are not warranted.

ICA and SESCO recommend that Phase 3 be kept open for further corrections and review. Similarly, in Section 6 of the Phase 3 Report, the utilities propose a process for considering changes to the manuals or measure mix for PY2003. We see no reason to keep this particular phase of the standardization project open or to adopt specific procedures for modifying the P&P Manual and WIS manuals at this time. Nothing prohibits the Commission from revisiting program implementation issues in the future, should circumstances warrant. However, today's determinations, and those made during earlier phases of the standardization process, will govern program implementation in PY2002 and beyond until further notice.

ICA and SESCO's comments contain a discussion of natural gas appliance safety testing issues.⁵⁶ Natural gas appliance testing involves testing for gas leaks and other carbon monoxide emissions from natural gas appliances. These issues are to be addressed during Phase 4, per D. 01-03-028 and Assigned Commissioner rulings. We do not address them here.

The utilities recommend that Phase 4 be expanded to include the development of installation standards for refrigerator outlet grounding. The utilities have received complaints from LIEE eligible customers who cannot obtain replacement refrigerators because the wall outlets in their homes are not properly grounded per current building codes. We agree with the need to address this issue so that it is feasible to install replacement refrigerators in low-income homes as expeditiously as possible. Recently, DCSD has authorized its service providers to ground kitchen outlets used for refrigerators as part of its weatherization program.

The utilities should work closely with DCSD to coordinate and effectively leverage program resources in addressing this issue. We authorize the Project Team to develop installation standards for refrigerator outlet grounding as part of its Phase 4 efforts; however, this aspect of Phase 4 should be filed with the Commission's Docket Office and served on all parties in this proceeding as soon as it is completed. The filing should include a description of how refrigerator outlet grounding efforts under LIEE will be coordinated with those initiated under DCSD, and how limited program funds will be leveraged by the joint effort. Comments will be due 15 days from the date of filing, and replies are due 10 days thereafter.

P. Implementation of Adopted Changes

Per D.01-03-028, the policies and procedures adopted during Phase 2 and 3 of the standardization project will apply to LIEE programs implemented in PY2002. Rapid deployment does not change this timeframe.⁵⁷ Accordingly, the P&P Manual and WIS appendices presented by the utilities in their July 2, 2001 filing, as modified herein, shall become effective on January 1, 2002, or 30 days from the effective date of this decision, whichever comes later.

⁴⁶ Appendix C of the CEC's Title 24 Residential Manual lists 617 locations and provides heating degree-days for only 297 of these locations. In contrast, Appendix C does list a CEC climate zone for all 617 locations, so it would accommodate the specification of insulation requirements by climate zone. See October 3, 2001 Reply Comments, pp. 5-6.