2. Background
On April 22, 2004, we issued Order Instituting Rulemaking (R.) 04-04-025 to develop avoided costs in a consistent and coordinated manner across Commission proceedings, including but not limited to R.02-06-001 (Demand Response), R.04-03-017 (Distributed Generation), and R.01-08-028 (Energy Efficiency). The need to update avoided cost calculations and to coordinate the development of input assumptions and methodologies across Commission proceedings has been articulated in several Commission Decisions over the past few years, including Decision (D.) 04-01-050, D.03-12-062, and D.03-04-055. In D.03-04-055, issued in R.01-08-028, the Commission initiated an avoided cost updating process to "assess externalities to reflect the societal costs of energy. "5
A draft report on this issue, entitled "A Forecast of Cost Effectiveness Avoided Costs and Externality Adders,"6 was developed by Energy and Environmental Economics, Inc. (E3), under the direction of the Commission's Energy Division, in order to update the current avoided cost calculations used in evaluating energy efficiency programs to more accurately reflect current conditions. Among other things, the E3 report develops a forecast for the years 2004-2023 of avoided costs for use in quantifying the benefits of demand-reduction programs.
In this rulemaking, we directed the Energy Division to conduct a workshop on the draft E3 report to allow parties to comment on the application of the E3 methodology and resulting forecasts for use in energy efficiency as well as other resource areas. Among other things, the workshop participants were directed to address whether the Commission should adopt the E3 methodology for updating avoided costs for the purposes of evaluating the resource value of energy efficiency programs, and if not, what aspects of the E3 methodology should be refined or modified.
Energy Division staff conducted a two-day workshop on avoided cost issues on June 30 and July 1, 2004. Pre-workshop comments were filed on June 4, 2004, by PG&E, SDG&E and SoCalGas jointly, SCE, the California Cogeneration Council (CCC), the California Large Energy Consumers Association (CLECA), the California Wind Energy Association (CalWEA), the Independent Energy Producers Association (IEP), the Natural Resources Defense Council (NRDC), Calpine Corporation (Calpine), and jointly by the Cogeneration Association of California and the Energy Producers and Users Coalition (CAC/EPUC). Pre-workshop reply comments were filed on June 21, 2004, by PG&E, SDG&E, SCE, CAC/EPUC, CCC, IEP, and jointly by NRDC and the Union of Concerned Scientists (UCS).
Following the workshop, post-workshop comments were filed on August 16, 2004, by SCE and the Green Power Institute (GPI), and on August 20, 2004, by PG&E, SDG&E, IEP, CCC, CAC/EPUC, and the California Consumer Empowerment Alliance (CCEA). Replies to the post-workshop comments were filed by PG&E, SDG&E, SCE, CAC/EPUC, NRDC/USC, and CCEA on September 3, 2004. GPI and The Utility Reform Network (TURN) requested permission to late-file post-workshop reply comments and, having received permission from the Administrative Law Judge (ALJ), filed post-work reply comments on September 7, 2004. A notice of availability of the final E3 Report, dated October 25, 2004, was sent to the parties on November 2, 2004.
On November 9, 2004, a prehearing conference (PHC) was held in this proceeding at which parties discussed the scope and schedule of the avoided cost rulemaking. In preparation for the PHC, parties filed and served PHC statements with their proposed approaches and schedules for addressing the issues raised in the rulemaking. PHC statements were filed by PG&E, SDG&E/SoCalGas, SCE, CAC/EPUC, NRDC, IEP, UCS, GPI, CCC/CalWEA and the California Biomass Energy Alliance , L.L.C. (CBEA) (jointly) and the Modesto Irrigation District (MID).
During the PHC, there was general agreement among the parties that the Commission should adopt the E3 methodology on an interim basis for use in generating avoided cost energy forecasts to be used in the evaluation of energy efficiency programs for the 2006 program year. The parties agreed that, in order for 2006 energy efficiency programs to be as effective as possible, program selection, using updated avoided costs, should occur by mid-year 2005. However, the parties disagreed slightly as to whether additional comments on the E3 methodology were necessary prior to Commission consideration. Parties urged the ALJ to adopt a schedule allowing for an interim decision updating avoided costs for energy efficiency in the first quarter of 2005.
On January 4, 2005, consistent with the suggestions at the PHC, the assigned ALJ issued a ruling directing that R.04-04-025 would be separated into three phases, the first of which would address the potential adoption of the E3 methodology for use in evaluating energy efficiency proposals for program year 2006.7
5 See D.03-04-055, Section VI.D and Conclusion of Law 9.
6 Methodology and Forecast of Long-Term Avoided Cost(s) for the Evaluation of California Energy Efficiency Programs, E3 Research Report submitted to the CPUC Energy Division, October 25, 2004. ( http://www.ethree.com)
7 A February 18, 2005 ACR issued jointly in R.04-04-003 and R.04-04-025 subsequently modified the procedural schedule for Phase II of R.04-04-025, but did not alter the determination that consideration of the permanent use of the E3 methodology would be considered in Phase III of R.04-04-025.
