15. Pay-For-Measured Savings

Contractors' Coalition proposes that a portion of each LIEE program be implemented on the basis of pay-for-measured savings. Instead of basing the price upon measures installed, under this approach contractors would be paid based on measured energy savings achieved in the home. More specifically, the utility would pre-specify the expected bill savings per home, and contractors would agree to achieve those savings at a fixed price per unit of savings, based on measured performance. (Exh. 14, pp. 75-78; RT at 1149-1157.) Utilities and other parties oppose this proposal, arguing that it would unduly emphasize cost considerations over performance quality. In particular, LIAB expresses concerns that pay-for-measured savings mechanisms could result in less-profitable measures not being installed and less homes weatherized overall for the same program dollars.

In Res. E-3586, we deferred consideration of this issue, along with the issue of competitive bidding for SoCal, due to uncertainties over the future of administration for the low-income energy efficiency program. (Res. E-3586, pp. 30-31.) Those uncertainties have been eliminated with the passage of AB 1393, which directs that utilities continue to administer these programs. It is therefore appropriate and timely to consider Contractors' Coalition's proposal in this proceeding.

We find considerable appeal in the concept of paying contractors based on bill savings, rather than solely on the number and type of measures installed in each home. As discussed above, focusing on measure installations as verified by inspections is really a proxy for a major goal of the Commission and the Legislature for this program: meaningful bill savings for the low-income customer. It is reasonable to initiate a pilot to implement and test an approach that directly measures the achievement of this goal. Moreover, in our Annual Earnings Assessment Proceeding we have established protocols for measuring energy efficiency savings that may be utilized for this purpose.

Recognizing that some measurement and evaluation protocols can be complex and time-consuming, and therefore expensive to implement on a pilot basis, we direct the utilities to work with stakeholders, particularly CBOs, in the development of this aspect of the pilot design. The goal should be to enhance our ability to directly demonstrate bill savings for low-income customers through energy usage reductions. As discussed in Section 8 above, this goal is consistent with one of the major objectives articulated by the Legislature and by this Commission.

In addition, the utilities in construction of their pilots should be mindful of the possibility that extended withholding of payment for installed measures may affect the financial viability of participating contractors, if measurement and evaluation protocols require such payment schedules. Consultation between utilities and stakeholders, especially CBOs, in the design of the pilot should address this issue specifically.

We believe that LIAB's concerns over potential reductions in homes served by the program can be addressed in the pilot program design. With regard to the issue of less-profitable measures not being installed, we are not convinced that this is a problem per se, if the pilot requires certain measures to be installed (e.g., the measures listed under Pub. Util. Code § 2790 (b)(1)) and/or additional measures are installed that produce measurable bill savings. This issue should be further discussed and considered in the development of the pilot design.

In their comments on the proposed decision, several parties argue against implementing a pilot program due to concerns over pilot design or recommend

that the Commission address specific program design issues prior to pilot implementation. Further delay in testing the concept of basing payments to LIEE installation contractors based on actual measured savings is unwarranted. We believe that the concerns raised by parties in their testimony and comments on the proposed decision can and should be addressed through the pilot design process discussed below. We expect parties to work together productively to develop meaningful pilots that enable us to evaluate the potential of incorporating measured savings into the payment structure for contractors working on LIEE programs, irrespective of whether they were selected via competitive bidding or other outsourcing means.

Accordingly, we direct the utilities to implement and evaluate a pay-for-measured savings pilot for their PY2002 LIEE programs. The pilot size should be meaningful, covering a specific geographic region in each utility's service territory, but we will limit it to no more than 10% of the utility's program in terms of the number of units treated. The pilot may be conducted in conjunction with a competitive bid or may be proposed in conjunction with a different outsourcing approach. Under one approach, we envision that the utility would estimate the savings per home it expects to achieve under the program, and allow contractors the opportunity to bid (or negotiate) a price for which they would get paid on the basis of savings achieved.

The utility and contractor should agree on measurement protocols that are consistent with those we have already adopted in the Annual Earnings Assessment Proceeding (AEAP), or with modifications thereto that we approve for the purpose of this pilot. In order to ensure the necessary public debate, we will require that proposals to modify the AEAP measurement protocols for this pilot be discussed in the public workshops described below prior to submission to the Commission. Proposed modifications that have been discussed in the public workshops may be presented in the utility pilot program applications and parties' responses to those applications. We expect all interested parties to actively participate in those workshops.

In order to have sufficient time to evaluate the pilot proposals in time for implementation in the PY2002 program cycle, the utilities should file applications describing their proposed pay-for-measured savings pilots no later than February 1, 2001. Between now and then, we expect the utilities to jointly hold public workshops to discuss pilot design. In particular, the utilities should obtain input from those contractors and utilities in other states that have implemented a pay-for-measured savings approach. The utility proposals should include a schedule for pilot program evaluation, and the evaluation criteria to be used. The proposals should include the estimated cost of the pilot, including measurement and evaluation necessary to pay contractors. We expect the utilities to coordinate closely with each other and staff from the Energy Division, in developing the pilots, so that the pilot designs and evaluation approaches are standardized. At their option, the utilities may file a joint application rather than separate applications in submitting their proposals.