2. Background

By statute, the utilities provide direct weatherization and energy efficiency services to qualified households under the LIEE program. Weatherization measures include attic insulation, caulking, weatherstripping, low flow showerheads, water heater blankets and door and building envelope repairs which reduce infiltration. Relamping (i.e., replacing incandescent bulbs with compact fluorescent bulbs) and replacing inefficient refrigerators with more efficient ones has also become a standard service under the program. In addition, all of the utilities provide in-home energy education as part of their LIEE programs, along with minor home repair and furnace repair and replacement. The utilities are required to provide each eligible LIEE household with every feasible measure offered under the program.

In D.01-05-033, we authorized the utilities to offer the following new measures on a pilot basis: high efficiency air conditioners, duct sealing and repair, whole house fans, high efficiency water heaters, the installation of set-back thermostats and evaporative cooler maintenance. In addition, we authorized the utilities to install LIEE equipment measures (e.g., refrigerators, air conditioners, evaporative coolers and hard-wired fixtures) in rental units, on an interim basis.⁵ We added these measures in order to accelerate peak load savings and bill savings during the energy crisis, with the expectation that a comprehensive cost-effectiveness review of all LIEE measures, including the experimental ones authorized in D.01-05-033, would further refine LIEE program offerings in the future.

Since 1999, at the recommendation of the Low Income Advisory Board (which has been superseded by the Low Income Oversight Board), we have moved towards uniform, statewide program designs and implementation of LIEE measures.⁶ As we stated in D.00-07-020, this effort ensures that all low-income customers served by the utilities under our jurisdiction are offered a consistent set of services and that contractors participating in the delivery of those services work under consistent rules and expectations.⁷ This enables us to improve the consistency and efficiency of providing LIEE services in a nondiscriminatory manner.

To this end, we initiated the LIEE Standardization Project, which is being conducted in four phases. Phase 1 and Phase 2 produced statewide weatherization installation standards and a set of common measure-specific policies and procedures, including standardized criteria for the installation of measures in a specific home. These earlier phases also produced standardized policies for customer eligibility, minor home repairs and furnace repairs/replacements, inspection procedures, insulation levels, the eligibility of master-metered units for the program, among others.⁸

In Phase 3, we addressed a number of additional policies and procedures related to LIEE program implementation, including: 1) eligibility of customers on business rates, 2) eligibility based on heating fuel, 3) limits on prior participation in the program, 4) qualification of multifamily units and mobile homes, 5) limitations on expenditures by housing type, 6) inspection frequencies, 6) ceiling insulation levels, and 7) inspector-contractor dispute resolution procedures, among others. By D.02-04-049, we adopted refrigerator grounding standards.

In today's decision, we address two major Phase 4 issues. First, we determine which LIEE measures should continue to be offered under the program, based on the results of an extensive cost-effectiveness evaluation of each measure and of the program as a whole. Second, we adopt standardized policies and procedures regarding carbon monoxide (CO) testing under the LIEE program, referred to as "Natural Gas Appliance Testing" or "NGAT." We present the background and procedural history for each of these issues below.

2.1. LIEE Cost-Effectiveness Testing

Pub. Util. Code § 2790(a) directs the Commission to consider "both the cost effectiveness of the services and the policy of reducing the hardships facing low-income households" in designing LIEE programs. We have articulated our approach to implementing this statutory requirement, as follows:⁹

· The LIEE program serves an equity objective in assisting customers who are highly unlikely or unable to participate in other residential programs and therefore the program is not subject to strict cost-effectiveness requirements. At the same time, the Commission should promote the consideration of cost-efficiency in the provision of these services.

· Accordingly, the LIEE program should be examined from two different perspectives, with some weighing and judgment applied to the results in selecting eligible measures or in evaluating overall program effectiveness.

· The first perspective is that of the low-income customer, in terms of reducing hardship. This includes bill savings, as well as non-energy benefits that the program or measure provides to the recipient.

· The second perspective is that of customers who directly subsidize the program costs through their rates, i.e., non-participating customers. We therefore need to also evaluate the LIEE program and individual measures from a cost-efficiency perspective, in terms of the resource required to provide services to low-income customers.

In D.01-12-020, we instructed the Standardization Team and the Reporting Requirements Manual (RRM) Working Group to develop joint recommendations for updating traditional cost-effectiveness tests consistent with the above. The utilities and project consultants (Regional Economic Research, Inc. and Richard Heath & Associates) comprise the Standardization Team, with coordination assistance from the Commission's Energy Division. The RRM Working Group was formed in 1986 on an ad hoc basis to assist the Commission in developing a consistent and common framework for reporting on demand-side management activities across utilities, including cost-effectiveness results. The RRM Working Group has convened periodically through the years to address reporting issues, and usually consists of Commission staff and representatives from the utilities. It is open to all interested parties.

The schedule, scope and budget for Phase 4 of the Standardization Project has been established via Assigned Commissioner rulings, per the Commission's direction.¹⁰ On March 28, 2002, the RRM Working Group and Standardization Team filed a joint report recommending a specific set of criteria to be used to assess the cost effectiveness of measures offered through the LIEE Program.¹¹ In D.02-08-034, the Commission adopted these criteria and instructed the utilities to use this methodology to augment their PY2003 LIEE program applications with an evaluation of the proposed measures to be offered in that year. The utilities filed a preliminary report on September 30, 2002.

The preliminary report¹² described the analysis of cost effectiveness and presented preliminary recommendations with respect to individual LIEE program measures to be dropped or retained for the 2004 program year. ORA and the Insulation Contractors Association (ICA) filed comments on November 14, 2002, and the Joint Utilities filed reply comments on December 4, 2002.

In D.02-12-019, issued on December 12, 2002, the Commission authorized "stay the course" annual funding levels that would continue LIEE rapid development efforts into PY2003 without interruption. Because this represented a larger budget and change in the mix of LIEE measures for some of the utilities than the preliminary report evaluated, the Commission instructed the utilities to "...evaluate the extent to which the September 30, 2002 filings need to be revised based on today's adopted budgets, and to submit any significant changes to the cost-effectiveness assessment and measure recommendations..." The Commission also instructed the utilities to submit "all data, assumptions, and methods used to calculate per home installation costs, including measure mix."¹³ The utilities filed this report on January 6, 2003.¹⁴

The Energy Division held workshops on the revised cost-effectiveness assessment on January 21, 2003 in San Francisco and January 23, 2003 in San Diego. Representatives from the utilities, Team consultants, Commission staff, ICA, Winegard Energy and Latino Issues Forum attended one or both of the workshops. Summaries of public input at the workshops, in addition to the written workshop comments submitted by ICA, are included in the final report.

On February 24, 2003, the Commission approved a revised work plan for Phase 4 of the LIEE Standardization Project. This work plan called for further analysis of LIEE measure cost-effectiveness, and provided for the submission of an updated assessment on or before April 1, 2003. On March 21, 2003, the utilities requested an extension of this deadline to June 2, 2003. An Assigned Commissioner's Ruling dated April 8, 2003 approved this extension.¹⁵

The utilities filed the final, updated LIEE cost-effectiveness assessment on June 2, 2003.¹⁶ No comments were filed in response.

2.2. Natural Gas Appliance Testing (NGAT)

During earlier phases of the Standardization Project, the Commission explored current utility practices with respect to natural gas appliance testing or "NGAT," i.e., testing for gas leaks and CO emissions from natural gas appliances.¹⁷ We also use the term "combustion appliance testing" in today's decision to refer generically to CO testing of household appliances that use combustion fuels, such as natural gas or propane.

To achieve greater consistency among utility practices, the Commission adopted minimum procedures for how the testing would be conducted, e.g., what inspectors will check for visually (flue and vent system, appliances) and CO test sampling procedures at the home. The adopted procedures, referred to as the Minimum Standard, include olfactory tests, visual examinations, ambient CO tests and smoke and tactile draft tests which are implemented whenever natural gas appliances are present in the dwelling and natural gas is served by the utility providing the LIEE program to the household. The current Minimum Standard is outlined in Attachment 3.

However, our earlier standardization efforts did not achieve consistency on when the NGAT procedures should be implemented--after the installation of measures only (post-testing), or both before and after installation (pre- and post-testing). There continued to be fundamental differences in opinion, and lack of sufficient information, regarding the extent of gas leak/CO emission risks and the proper means of mitigating them, as well as the extent to which infiltration reductions resulting from LIEE activities exacerbate existing conditions.

As a result, we allowed the utilities to continue with NGAT procedures under LIEE that were not necessarily consistent across service territories, as long as they met the Minimum Standard. We directed the Standardization Project to conduct a Phase 4 study of natural gas appliance safety conditions and alternative NGAT procedures, including the feasibility of utilizing CO alarms. The Team was instructed to obtain public input on these issues, and to file an NGAT report on April 1, 2003 with recommendations on further standardization of NGAT procedures. By Assigned Commissioner's ruling dated February 24, 2003, this deadline was extended to May 5, 2003.

The Standardization Team scheduled two public workshops on a draft of the Phase 4 report. The first workshop was held in San Francisco on April 22, 2003, and the second was held in San Diego on April 24, 2003. Representatives from ICA and Proctor Engineering Group attended the first workshop. No members of the public attended the second. Comments from ICA and Proctor Engineering Group at the first workshop, including ICA's written submission, are included in the Team's final report.

The Standardization Team's final report was filed on May 5, 2003. No comments were filed in response.¹⁸