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COM/DGX/jt2 Date of Issuance 10/19/2007

Decision 07-10-032 October 18, 2007

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Examine the Commission's Post-2005 Energy Efficiency Policies, Programs, Evaluation, Measurement, and Verification, and Related Issues.

Rulemaking 06-04-010

(Filed April 13, 2006)

INTERIM OPINION ON ISSUES RELATING TO FUTURE SAVINGS GOALS
AND
PROGRAM PLANNING FOR 2009-2011 ENERGY EFFICIENCY AND BEYOND

TABLE OF CONTENTS

Attachment 1 - List of Acronyms

Attachment 2 - Participating Parties

INTERIM OPINION ON ISSUES RELATING TO FUTURE SAVINGS
GOALS AND PROGRAM PLANNING FOR
2009-2011 ENERGY EFFICIENCY AND BEYOND

1. Introduction and Summary

California's highest energy priority is to pursue cost-effective energy efficiency measures over both the short- and long-term. Today's decision lays the foundation for making energy efficiency an integral part of "business as usual" in California. Today we:

(1) Direct the utilities to prepare a single, comprehensive statewide long-term energy efficiency plan;

(2) Adopt three programmatic initiatives:

* All new residential construction in California will be zero net energy by 2020;

* All new commercial construction in California will be zero net energy by 2030; and

* Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped to ensure optimal equipment performance;

(3) Develop the "next generation" of California utility energy efficiency programs for 2009-2011;

(4) Commit in the near term to adopting utility energy efficiency goals through 2020 and reaffirm our previously adopted 2009-2011 goals; and

(5) Establish new, collaborative processes with key business, consumer groups, and governmental organizations in California, throughout the West, nationally and internationally.

This decision institutes a comprehensive, long-term energy efficiency strategy to achieve our ultimate goal -- making energy efficiency a way of life. This goal reflects California's Energy Action Plan II1 policy that energy efficiency is the resource of first choice to meet California's growing energy demand, and the requirement of Public Utilities Code Section 454.5(b)(9)(C) that utilities first meet their "unmet resource needs through all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible." Energy efficiency is also projected to deliver a large portion of the greenhouse gas emissions reductions necessary to achieve the goals of the California Global Warming Solutions Act of 2006.2

Our decision today implements commitments made by this Commission and sixteen other major California organizations, to aggressively pursue energy efficiency as part of the National Action Plan for Energy Efficiency.3 It upholds the pledge by the Western states and their regulatory commissions, including ourselves, to work collaboratively on energy efficiency.4

Today's decision creates a framework for sustainable energy efficiency and other demand-reducing programs and a process for accomplishing extensive energy savings through long-term strategic planning. To do this well requires an approach that transcends regulatory, programmatic and jurisdictional constraints, and emphasizes a broader view of the energy efficiency landscape. California's investor-owned utilities5 will continue to fulfill their key role as administrators of ratepayer-funded programs, and maximize the potential of those programs by engaging in collaborative efforts with the many other entities involved in planning and delivering energy efficiency savings.

In this decision we require the utilities to:

· Engage in long-term strategic planning;

· Collaborate with others who engage in planning and delivery of energy efficiency related goods and services, or who receive such services; and

· Integrate customer demand-side programs, such as energy efficiency, self-generation, advanced metering, and demand response, in a coherent and efficient manner.

This more integrative approach to program development and delivery will permit California to take advantage of ever more cost-effective ways of implementing energy efficiency programs.6 This does not mean consolidating these customer demand-side programs under one administrator, but rather to find energy efficiency opportunities in these programs and leveraging them to maximize energy savings offerings to customers.

As a key tool to implement this strategic approach, we direct the utilities to develop a single, statewide IOU strategic plan for energy efficiency through 2020 and beyond. We seek to move beyond a narrow focus on achieving short-term savings through a broader strategic focus on long-term goals. This includes our long-term goal to achieve market transformation through continual incorporation of efficiency gains into codes and standards and increasing privatization of cost-effective energy efficiency services in competitive markets activities. 7,8

Accordingly, we advance major programmatic initiatives in three substantive areas - residential new construction, commercial new construction, HVAC systems. The IOUs' strategic plan shall describe their strategies for achieving all cost-effective energy efficiency through 2020 and beyond with their comprehensive efforts to implement these programmatic initiatives.

Our emphasis on long-term, collaborative planning and implementation implies several broad themes, which we rely upon in evaluating the best ways to approach energy efficiency efforts over the next several years:

1. We will achieve maximum savings by providing integrated customer demand-side programs.

Integrating our numerous customer demand-side programs will avoid duplication of efforts, reduce transaction costs and diminish customer confusion. We must understand how the programs intersect and take advantage of the interactions.

2. We commit to strategies, programs, measures and institutional structures that provide long-term results.

We consider energy efficiency a long-term resource and utility programs and our regulatory oversight must prioritize long-term planning. Energy efficiency strategies cannot be selected solely on the basis of short-term payback periods or quick results. Accordingly, we direct the utilities to develop a single strategic plan and adopt three long-term programmatic initiatives for consumer demand-side programs in residential new construction, commercial new construction, and HVAC systems.

3. We will use all available regulatory and market based tools.

Our utility energy efficiency portfolios employ a wide range of programs, including research and development, emerging technologies, codes and standards, public education and marketing, rebates and subsidies, and market transformation. The integration of each of these necessary tools can maximize impact and should be clearly articulated.

4. We will engage a wider range of entities and institutions in developing and delivering programs.

In the past, we have emphasized utility programs, utility funding and utility customers.9 This is logical given the limits of our legal jurisdiction, but this approach has resulted in fractured energy efficiency program development and delivery. Cost-effective use of resources for maximum reductions in energy demand will require the commitment of the most influential decision-makers who can affect comprehensive change. In order to reach a goal of making energy efficiency an integral part of "business as usual," we need a pronounced commitment from business and government leaders and a more collaborative approach that involves all key stakeholders. We emphasize the need for enhanced cooperation and collaboration and commit to a leadership role in reaching out to key leaders to engage participation in this effort and direct the IOUs to do likewise.10

This decision also provides policy guidance to the IOUs on the development and composition of their 2009-2011 energy efficiency portfolios. We provide greater flexibility to our utilities and greater certainty to the energy efficiency market by providing for continuity in program planning, delivery, and funding beyond the three year program cycle. Finally, we retain the 2009-2011 energy savings goals adopted for the utilities in D.04-09-060 and commit to extending our goals through 2020 on an expedited basis.

We recognize that the Energy Commission is a critical part of any energy efficiency strategy in California. Our sister agency has a 30-year history of creating market transformation for energy efficiency measures through its Title 24 Building Codes and Title 20 Appliance Codes and has led the nation in these efforts. Cooperation and collaboration with the Energy Commission is an essential piece of a successful, long-term strategy to make energy efficiency a way of life for investor-owner utility ratepayers.

The Energy Commission also plays an extremely important role in California in the research and analysis of technological, economic and policy issues affecting energy in general, and energy efficiency in particular. The Energy Commission staff has provided a great deal of collaborative, analytical support in the development of this, and past, energy efficiency decisions. We intend to continue to collaborate with the Energy Commission on the utilities' energy efficiency programs and strategic planning efforts to the maximum extent practicable. This will include collaboration with the Energy Commission in this proceeding and the Energy Commission's integrated energy policy report (IEPR) proceeding. This includes our consideration of the information and analyses presented in each IEPR as specified in Public Resources Code sec. 25302, as we direct the resource policies and expenditures of regulated utilities.

We are extremely encouraged that the CEC's draft 2007 IEPR released on October 2, 2007 includes a recommendation that the state adopt "zero net energy" as a long-term goal for new commercial and residential buildings, to be accomplished in conjunction with the CEC's building standards.11 We appreciate the CEC's leadership role as it envisions the next generations of building and appliance standards. This is the ultimate outcome to ensure our future buildings are as smart and efficient as possible. In the important realm of air conditioning, AB 2021 directs the CEC to identify options to improve the efficiency and reduce peak electrical demand. We agree with this focus and herein designate air conditioning as a third major programmatic initiative. Toward these shared visions, the CPUC expects to shape ratepayer-funding of initiatives for emerging technology promotion, efficiency incentive programs, and codes & standards analysis and support activities. We applaud the IEPR Committee's leadership in these areas, and the CEC's willingness to work with us toward our common aims.

The California Energy Commission, in its October 2, 2007, Committee Draft of the 2007 Integrated Energy Policy Report, recommends goals to meet its obligation under AB 2021 to establish statewide energy efficiency goals. The CEC recommends statewide goals that are 100% of economic potential for energy efficiency. We commit to working with the Energy Commission on strategies to achieve all cost-effective and feasible energy efficiency. As noted above, when the utilities prepare their strategic plans, they need to describe how their programs will capture this energy efficiency potential. We recognize and emphasize that in order to meet these ambitious goals, new programs and other strategies, including those that have the potential to motivate permanent market transformation changes, will be essential. In addition, because the goals are for a ten-year period, programs that provides savings before 2016 need to be included.

1 The Energy Action Plan identifies specific goals and actions to ensure that adequate, reliable and reasonably-priced electrical power and natural gas supplies are achieved and provided through cost-effective and environmentally sound strategies. A copy of the Energy Action Plan is posted on the Commission's website at http://www.cpuc.ca.gov/static/energy/electric/energy+action+plan/index.htm. See also, Decision (D.) 05-09-043, mimeo., p. 15; Energy Efficiency Policy Manual Version 3 (Policy Rules), Rule II.2 (Attachment 3 to D.05-04-051).

2 California Health & Safety Code, §§ 38500 et seq. (AB 32); see, Climate Action Team Report to the Governor, April 2006, http://www.climatechange.ca.gov/climate_action_team/reports/2006-04-03_FINAL_CAT_REPORT.PDF.

3 On June 29, 2007, the Commission, along with sixteen other key California organizations, adopted a California Memorandum of Understanding in Support of the National Action Plan for Energy Efficiency, which we take official notice of today. The National Action Plan for Energy Efficiency and the Memorandum of Understanding are posted at www.cpuc.ca.gov/napee.

4 See, Western Regional Climate Action Imitative, February 26, 2007, signed by governors of the States of California, Arizona, Washington, Oregon, and New Mexico, and the December 1, 2006, Western Public Utility Commissions' Joint Action Framework on Climate Change, adopted by the CPUC, the Washington Utility and Transportation Commission, the Oregon Public Utility Commission and the New Mexico Regulation Commission. These documents, of which we take official notice, are posted at

http://www.cpuc.ca.gov/static/energy/electric/energy+efficiency/ee+general+info/wic+statement+of+regional+goal.pdf

http://www.cpuc.ca.gov/static/energy/electric/energy+efficiency/ee+general+info/western+regional+climate+action+initiative.pdf

5 We use the term "utilities" (investor-owned utilities or IOUs) to refer collectively to the utility respondents in this rulemaking: Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company (SDG&E), and Southern California Gas Company (SoCalGas).

6 We intend to issue a decision later this year in our low income energy efficiency (LIEE) rulemaking proceeding (Rulemaking (R.) 07-01-042) that will clarify our long-term goals for LIEE, provide guidance on development of utility LIEE program portfolios for 2009-2011, and give direction to the utilities for better integration of the LIEE with general energy efficiency programs.

7 Decision (D.) 98-04-063, Appendix A, defines "market transformation" as "[l]ong-lasting sustainable changes in the structure or functioning of a market achieved by reducing barriers to the adoption of energy efficiency measures to the point where further publicly-funded intervention is not longer appropriate in that specific market."

8 At the same time, we recognize the host of market barriers to energy efficiency and anticipate a long-term, sustained role of this Commission and the utilities in overcoming such barriers is critical, particularly in light of AB 32.

9 At the same time, we have supported the important role of third parties - e.g., by requiring at least 20% of portfolio funding be competitively bid to third parties, by directing the utilities to assist in the development of the state's energy efficiency codes and standards, by use of advisory groups, etc. (D.05-01-055). Our directives today build upon this past policy emphasis.

10 In addition to our commitments for this leadership role under the National Action Plan, and the Joint Action Framework on Climate Change, supra, our actions today provide for international collaborative efforts and exchange of information on energy efficiency, in accordance with the Agreement on Cooperation Between the California Public Utilities Commission, the California Energy Commission, and the Jiangsu Provincial Economic and Trade Commission, entered into on September 2, 2005, and the United Kingdom and California Announcement on Climate Change & Clean Energy Collaboration, dated July 31, 2006. We take official notice of these agreements; they can be found at

http://www.cpuc.ca.gov/static/energy/electric/energy+efficiency/ee+general+info/california-jiangsumou_final.pdf

http://www.cpuc.ca.gov/static/energy/electric/energy+efficiency/ee+general+info/west+coast+comm+joint+committments+on+climate+change+final.pdf.

11 2007 IEPR Report, Draft Committee Report, pg. 107 (Docket #06-IEP-1). The Energy Commission is scheduled to adopt the Draft IEPR at its November 21, 2007 business meeting. The Draft IEPR recommends: "Increase the efficiency levels of the building standards so that buildings are net zero energy users by 2010 [sic] for residences and by 2020 [sic] for commercial buildings." We understand these dates are a typographical error and the recommended dates are 2020 for residential and 2030 for commercial.

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