3. Discussion

A. Introduction

The decision before us today, is whether to approve the funding requests and grant extensions for discretionary LEV programs of the utilities. The history of LEV programs for this Commission has already been detailed and will not be repeated here. The question arises though, what criteria should the Commission use to approve discretionary LEV programs for the instant proceeding? PU Code §740.3(c) states,

"The commission's policies authorizing utilities to develop equipment or infrastructure needed for electric-powered and natural gas-fueled low-emission vehicles shall ensure that the costs and expenses of those programs are not passed through to electric or gas ratepayers unless the commission finds and determines that those programs are in the ratepayers' interest. The commission's policies shall also ensure that utilities do not unfairly compete with nonutility enterprises. "

PU Code § 740.3(c) is further clarified in PU Code § 740.8, which states,

"As used in Section 740.3, "interests" of ratepayers, short-or long-term, mean direct benefits that are specific to ratepayers in the form of safer, more reliable, or less costly gas or electrical service."

There is no mistake that these two sections of the PU Code establish the criteria that must be satisfied in order for LEV programs to be approved. When read jointly in isolation, these two sections seem to purport that the sole purpose of LEV programs is to provide either safer, more reliable or less costly electric or natural gas service. (emphasis added) Indeed, LEV programs should be designed to fulfill this goal and any LEV program in deviation of these stated goals should be given limited weight if not denied in whole.

But what is missing from this analysis is what LEV programs were designed to accomplish. While it is true that LEV programs should be allowed if they result in direct ratepayer benefits, this truism must also be read with the utilities' overall obligation they have when designing programs that expend ratepayer funds. In relevant part, PU Code §451 states that,

"Every public utility shall furnish and maintain such adequate, efficient, just, and reasonable service, instrumentalities, equipment, and facilities...as are necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public."

We acknowledge that utility discretionary LEV programs should be in the ratepayers' interest as previously defined, but we also need to keep in mind the utilities' continuing obligation to provide services that promote the safety, health, comfort, and convenience of its patrons, employees and the public. This is a statutory responsibility of the utilities, but also the Commission. LEV programs should also seek this end.

It is obvious that improved air quality promotes the health and comfort of the ratepayers of the utilities, the employees of the utilities and also the general public of the state of California. The Commission supports this goal. We also appreciate the length to which the Commission's sister agencies along with environmental groups went to demonstrate that not only are the LEV programs of the utilities in the ratepayers' interest, but that they also were designed to address poor air quality conditions in California.²⁴ We stated in D.95-11-035 that "we cannot approve . . . utility programs solely because they may help improve air quality . . ."²⁵ This point is uncontested. The corollary from this is that improved air quality is but one of the deciding factors. The IOUs bear the burden of proving that their programs meet the criteria we have adopted in our LEV decisions.

B Activities Allowed

1. RD&D Projects and the INEEL Project

We find that PG&E's and SoCalGas' proposed RD&D projects along with the INEEL project are in the ratepayers' interest and thus approve the utilities' request for the funding of these projects.

RD&D programs do not have immediate ratepayer benefits in the form of safer, more reliable or less costly electric and natural gas service as dictated by PU Code § 740.8 nor do they immediately fulfill the utilities' obligations under PU Code § 451. This is yet another reason why we seek to further improve the standard under which utility LEV programs will be judged. As a matter of fact, the RD&D programs of the utilities with respect to LEVs, seek to ensure safety and understanding for utility-specific load impacts and load management implications for the future. Specifically, the RD&D programs of the utilities seek to decrease distribution system costs by collecting data for best managing upcoming loads, while at the same time, enhancing the ability of a utility to influence codes and standards.²⁶

The evidence also demonstrates that the INEEL project is consistent with the Commission's prior LEV decisions and the RD&D guidelines. PG&E states that it "did not design, develop or manufacture INEEL's liquefier, but is merely demonstrating it."²⁷ In addition, INEEL is similar to PG&E's and SoCalGas' CNG Station Technologies collaborative RD&D project which would lead to commercialization and would reduce costs and increase safety. This project was approved in D.95-011-035. The benefits to ratepayers are lower utility costs by obtaining a safe, reliable, lower-cost source of LNG to decrease PG&E's (and SoCalGas') fleet diesel fuel costs and to augment gas distribution pipeline gas supply during emergency curtailments.²⁸

2. Programs That Provide Information and Training to Customers and Enhance Safety

Many of the programs proposed by the IOUs are designed to provide potential LEV customers with general information about LEV technologies (including the costs of operating LEVs) and promoting LEVs to the public. These activities in combination should promote our goal of promoting the use of LEVs in California.

Utilities are a first point of contact for LEV customers. Customers take advantage of the IOU's knowledge of tariff schedules as well as their first-hand experience on using LEV technologies as their fleet vehicles.

In addition, consumers have learned to look to the utilities for information on how to refuel their LEVs safely. As noted by the Environmental Coalition, no other entity has the obligation to ensure that refueling is done in a safe manner. In this decision, we allow the IOUs to use funds to provide information to consumers that educates customers on how to safely fuel and charge their vehicles.

3. Programs That Enhance Reliability

The IOU funding directed at ensuring "reliable" service focuses on assessment of the load impacts of various LEV types, such as electric, natural gas, and fuel cell vehicles. These technologies rely on utility infrastructures to deliver the energy they need to provide environmentally friendly locomotion.

No other stakeholder has the resources necessary or the need to conduct load impact studies or assess the impact of LEV technologies on utility's service efficiency, reliability, and quality. LEV programs that are designed to study load impacts are important and fulfill one of the standards that must be met as set out by Pub. Util. Code § 740.8 to provide that "interests of ratepayers, short- or long-term, mean direct benefits that are specific to ratepayers in the form of safer, more reliable, or less costly gas or electrical service."

The Environmental Coalition states that, "The impact on the local distribution system is a viable concern for the utilities."²⁹ In addition, the Environmental Coalition witness discusses that the effect of adding either a single battery electric vehicle or a fuel cell electric vehicle to a local distribution network is similar to adding a new home:

"The hydrogen fuel cell home refueling stations would be exactly analogous with the battery electric vehicle home refueling recharging scenario. And I believe utilities have aptly demonstrated that such a significant load, which would be about equivalent to an adding another household to that - a doubling of the household, full household load, that that could have a significant issue in terms of upgrading of transmission distribution lines and in terms of power quality...Well, how is that different from a computer or a laptop? Well again, it's doubling the load of a house. It's not the same as adding incrementally small, new pieces of small electric equipment, which would draw very, very low current. This is a significant load."³⁰

In D.95-11-035 we also proposed a similar analogy when approving the utilities' system load impact evaluation programs when we stated, "It has become almost axiomatic to describe an electric vehicle as a house on wheels."³¹ We approved these programs in D.95-11-035 when we stated that,

"All of the system impact evaluation activities proposed by SCE and SDG&E in their settlement agreements as well as those proposed by PG&E are consistent with the guidelines and the related categories suggested by the energy Commission and should be approved."³²

We therefore allow all IOU program funding in this area to continue as we still maintain our earlier position on the importance of these programs and the proper role they play in enhancing the reliability of utility electric and gas service while enhancing air quality.

C. Summary of Allowed Funding

In summary, we allow each IOU the following discretionary LEV funding for the two-year period from the effective date of this decision.

SoCalGas
Item	Requested Funding (annual)	Allowed/ Disallowed	If Disallowed, Reason
Customer information, education and training	$1,100,000	Allowed
NGV R&D	$935,000	Allowed
Subtotal SoCalGas	Requested $2,035,000	Allowed $2,035,000	Disallowed
SDG&E
NGV customer information program	$450,000	Allowed
EV customer information program	$439,000	Allowed
Subtotal SDG&E	Requested $889,000	Allowed $889,000	Disallowed 0
Total SoCalGas/SDG&E	$2,924,000	$2,924,000

PG&E
Program Activities	Program Description	$ (Million)	Allowed/ Disallowed	If Disallowed, Reason
Customer Education
XI. LEV Vehicle Safety and Infrastructure Training	Fueling, Vehicle, and Infrastructure Safety training for PG&E employees as well as outside fleet operators and individuals	$0.496	Allowed
XII. LEV Technology and Infrastructure Introduction; Regulatory Requirements and Funding Availability Education; Emissions Benefits; and Industry Participation	Matching technology with PG&E fleet requirements; participating on LEV industry boards to ensure coordination and non-duplication of efforts; sharing "learnings" with customers	$1.799	Allowed
XIII. PG&E Tariff Availability and Eligibility; and Inter-connection Services	Answer customer inquiries regarding applicable LEV-related gas and electric tariffs, including use of off-peak electric rates to minimize peak	$0.340	Allowed
Customer Education Subtotal		Requested$2.635	Allowed $2.635	Disallowed $0
RD&D
XIV. Small Scale Natural Gas Liquefier Demonstra-tion	Demonstrate INEEL technology to test its ability to safely deliver low-cost liquefied natural gas to PG&E fleet to reduce fleet operation costs. LNG may also be provided, under an experimental rate, to other customers; also, evaluate use of LNG to help reduce gas distribution system costs	$0.624	Allowed
XV. Small Specialty EV Charging Architecture Development	Support development of common, global charging systems for on-road and off-road EVs	$0.184	Allowed
XVI. Fuel Cell Vehicle Station Demonstration	Provide support for a natural gas-to-hydrogen reformer demonstration by the CA fuel cell partnership to ensure safety and understand utility-specific system impacts and load management implications for the future	$0.540	Allowed
RD&D Subtotal		Requested$1.348	Allowed $1.348	Disallowed
Technology Application Assessment
XVII. Distribution System Load Impact Assessments	Evaluate EV and NGV load additions to minimize costs to distribution system	$0.550	Allowed
XVIII. Safety Codes and Standards Support	Minimize utility compliance costs and protect utility and customer interests as EV and NGV codes and standards are developed	$0.089	Allowed
XIX. LEV Performance Assessments	Determine actual field performance of LEV technology in PG&E fleet applications to ensure safety and to lower fleet costs; share "learnings" with customers	$0.299	Allowed
XX. Participate in Others' LEV Demonstra-tions	Gather LEV related performance knowledge through project cost-sharing, to reduce PG&E fleet	$0.105	Allowed
Technology Application Assessment Subtotal		Requested$1.043	Allowed $1.043	Disallowed $0
TOTAL		Requested$5.026	Allowed $5.026	Disallowed

SCE
Activities Related To:	Utility Role	Ratepayer Benefit	Budget	Allowed/ Disallowed	If Disallowed, Reason
Emergency response to Evs	SCE primary source of EV safety information concerning issues related to utility operations.	Safety awareness and emergency preparedness.	$27,342	Allowed
Information Network.	Source for information on utility EV programs including time-of-use rates, etc.	Customer information source for EV load manage-ment in-formation, safety hook-ups, etc.	$45,540	Allowed
EV Loan program	Collects EV use profile data and assists in designing load management.	Load manage-ment, time-of-use, etc.	$36,432	Allowed
Customer Outreach	Disseminate information to customers and public about EV fleets, rates, load management, etc.	Customer information sources for utility EV load management, safety, energy efficiency, etc.	$72,864	Allowed
TOTAL			$182,160

D. Other Issues

1. Change in Funding Source

SCGC urges us to change the funding source for natural gas LEV programs from the dedicated funds collected from ratepayers and accounted for in a one-way balancing account, to the Natural Gas Surcharge, a public goods charge embodied in Pub. Util. Code § 890. That statute, enacted in 2000, provides, in relevant part, for a ratepayer surcharge to fund "cost-effective energy efficiency and conservation activities and pubic interest research and development authorized by Section 740 not adequately provided by the competitive and regulated markets." SCGC claims that LEV programs in part fit the "public interest research and development authorized by Section 740" category.

SCGC may be correct that such programs meet the statutory standard, which provides essentially for R&D that "provides a reasonable probability of providing benefits to ratepayers" and supports objectives such as environmental improvement, public and employee safety and conservation.³³ ORA, for example, claims that IOU RD&D related to LEVs should be paid for out of existing RD&D funding derived from charges for public purpose programs. (ORA also asks us to discontinue funding for consumer information, and education and training activities related to commercially available LEV products and services.)

It is no coincidence that SCGC's members do not currently pay the § 90 Natural Gas Surcharge, and would benefit financially if we were to change the funding source for RD&D LEV funding. We do not believe the statute requires us to make this change, however, or that we are precluded from funding LEV-related RD&D from sources other than Public Purpose Program funding.

2. Utility Proposals to Incorporate LEV Programs into Other Proceedings

The IOUs generally favor abolishing separate review of LEV programs in proceedings such as this one, and support moving up-front review of funding to their respective GRCs or cost-of-service proceedings. While we have moved the mandatory aspects of their LEV programs to the GRCs, we do not believe that we should consider the discretionary LEV programs in that forum. PG&E justifies its request on the ground that its programs have developed and grown more integrally related to PG&E's traditional utility functions.³⁴

However, we never intended ratepayer-funded LEV programs to be permanent or become part of the IOUs' entrenched operations:

[O]ur intent at the time we issued the current authorization was to fund the utilities' programs for a set period of time with the expectation that at some point further subsidization of the LEV market by utility ratepayers would not be warranted. As stated in Findings of Fact No. 3 in D.93-07-054, "It is not clear how long a utility presence is needed to provide a bridge to a sustainable competitive market for LEVs."³⁵

Indeed, SoCalGas and SDG&E recognized that ratepayer funding was not a guarantee:

"We do not believe the utility's role needs to be ratepayer funded up to the full point of sustainability...."³⁶

We decline to move LEV discretionary funding into the IOUs' GRCs or cost of service proceedings.

3 Reporting Requirements

Commencing one year from the effective date of this decision, and continuing every year thereafter, the IOUs shall file and serve the IOU Low Emission Vehicle (LEV) Programs Report, attached hereto as Appendix A, covering the previous yearly period of program activity. The Annual Report requires that the IOUs identify how each program activity relates to safety, reliability or less costly gas or electric service, report on how many people were served, submit program materials, and otherwise establish that they are meeting the requirements of D.95-11-035 and this decision.

4 Future Consideration of Discretionary LEV Programs

While we are mindful of the importance of LEV programs and the utilities' involvement in them, we have previously stated that these programs will not be funded by the utilities indefinitely. At this time, it is not clear where the market for LEVs is going. Further, it is not clear if this market will ever be sustainable. The closest answer we have from this proceeding is that the market is developing. What is also clear from this proceeding is that the exact standard that must be met for approval of these programs is not as clear as it could be, but also, there potentially needs to be a far better showing on the part of the utilities that details how their programs are changing in response to the developing market. It is educational to understand their programs, but they must also show how dynamic these programs are as well. This is not to say that no one filed compelling evidence. To the contrary, some parties put a great deal of time and effort into their filings.

We would like the parties, and any other interested stakeholders, to work together to come up with specific criteria that will be used to judge whether LEV programs should receive continued funding in the future, while also addressing whether or not these programs should be included in the utility cost-of-service proceedings or whether they should be discontinued because they have been duplicated by market efforts. The forum for this shall be a workshop, hosted by the Energy Division, to be held no later than April 2004. The parties will then jointly file in this Docket any proposals resulting from this workshop (or workshops if necessary). The assigned ALJ should then establish, through ruling, a schedule for comments and reply comments and any other record development, as needed. Any criteria that is agreed upon by the parties should be in accordance with PU Code §§ 740.8 and 451, should also include requirements for the inclusion of cost data on how funding for these programs was spent, and should also adhere to the specific items raised by Commission Resolution G-3322. If this information is already covered in the reporting requirements imposed upon the utilities, reference to the specific reporting requirement should be made.

The workshops are required because there seems to be a lack of clarity on behalf of the parties with respect to what they need to prove in order to have funding extended in future applications. We anticipate responding to the workshop proposal by developing guidelines that would apply when the utilities apply for funding for the next round of discretionary LEV programs. This procedure will help facilitate the coordination envisioned in PU Code
§ 740.3. (a)³⁷

5. One-Way Balancing Accounts

In their applications, the utilities asked for a relaxation of the current one-way balancing account treatment for LEV programs. That request is denied and the utilities are directed to maintain current accounting practices for all LEV programs.