Scope of the Proceeding

These applications are consolidated for further proceedings. This proceeding will evaluate the utilities' claims for performance awards for attaining the prescribed milestones under the earnings mechanism adopted for PY 1999 EEP, for achieving prescribed shared savings under the earnings mechanism adopted for the PY 1998 and PY 1999 LIEE Programs, and for achieving the prescribed shared savings under the earnings mechanism adopted for pre-1998 DSM programs. Claims for pre-1998 DSM programs and the 1998 and 1999 LIEE programs are subject to the Commission's Protocols and Procedures for the Verification of Costs, Benefits, and Shareholder Earnings from Demand-Side Management Programs. The specific claims to be verified and evaluated are as follows:

This proceeding will also consider modifications to the measurement and evaluation protocols proposed by the California DSM Measurement Advisory Committee (CALMAC).

At the PHC, ORA, NRDC, and RESCUE/SESCO, Inc. stated the intent to review and comment on the pre-1998 DSM program earnings claims and the 1998 and 1999 LIEE earnings claims. ORA consultants have begun working on the review.

The claims procedure for the LIEE earnings claims is new. The utilities filed the LIEE claims in accordance with an agreement they reached with ORA and REECH in the 1998 AEAP, which reduces the collection period for LIEE claims from 10 years to 2 years, with two annual installments of 50% each. The parties' agreement for revising the earnings mechanism was recently adopted by the Commission in D.00-09-038 filed on September 7, 2000.

At the PHC, ORA, TURN, the CEC, NRDC, REECH, and RESCUE/SESCO, Inc. stated the intent to review and comment on the 1999 EEP milestones and incentives. ORA raises issues with respect to: 1) the utilities' practice of counting commitments as accomplishments; and 2) the cost-effectiveness of the programs as determined on an ex post basis. Both issues were raised in the 1999 AEAP proceeding (A.99-05-002 et al.). With respect to cost-effectiveness, ORA contends that the programs, as a threshold matter, need to comply with the policy rules adopted in Resolution E-3592. Conceding that the policy rules only require the utility's program portfolio to be cost-effective, ORA posits that if it shows that certain programs were not cost-effective, the incentives for all programs should be rejected. The utilities contend that the policy rules require only that the program portfolio be cost-effective on an ex ante or going-forward basis, and not on an ex post basis. The utilities also contend that this issue was ruled out of scope in the 1998 AEAP. (A.99-05-002.)

TURN proposes to look at whether the type of information provided is adequate to assess completion of the milestones and whether the milestones were completed. The CEC joins TURN in seeking to explore whether meeting the milestones reflects superior performance as measured by the performance indicators and whether future milestones and/or future earnings levels should be changed. At the PHC TURN clarified that it did not seek to retroactively change the milestones but, if the milestones do not really reflect achievement of the goals, as set forth in the performance indicators, it wants to use the information to design better milestones in the future.

The utilities expressed the view that the superior performance and future milestone design issues raised by the CEC and TURN are not within the scope of this proceeding. They contend that issues regarding the design of better future milestones and the use of this data in future cost effectiveness calculations is appropriately addressed in the PY 2001 planning process currently underway. The utilities also opine that it would be unfair to allow parties to retroactively challenge the adopted milestones now that the program year has been completed and that the inquiry should be limited to whether they have met those adopted milestones.

The Commission has now ruled on some of these issues in D.00-09-038. We make the following findings:

LIEE: The Commission has now approved the utilities' proposed method for recovery of incentive claims for PY 1998 and PY 1999 as set forth in their applications (D.00-09-038, mimeo. at p. 31), so the intervening parties should respond to the applications as filed.2

1999 EEP: In D.00-09-038, the Commission held that incentives should be paid on both recorded and committed activities, subject to true-up if the commitments do not materialize. (Id. at p. 21.) Accordingly, ORA's issue has been decided and is excluded from the scope of these proceedings. With respect to cost-effectiveness, we note that adopted Policy Rule IV-1 requires a "prospective showing of cost-effectiveness for the entire portfolio of PGC-funded activities and programs . . . [as] a threshold condition for eligibility for PGC funds." Policy Rule IV-3 further provides that an "[o]n going demonstration of continued expectations for cost effectiveness of the portfolio using the public purpose test (on at least an annual basis) is a condition for continued receipt of PGC funds." The Policy Rules do not require a showing of cost-effectiveness of either individual programs or the program portfolio on an ex post basis. The utilities' incentives were developed under these policy rules and it would be manifestly unfair to hold them to a new standard during the verification proceeding. Further, the Commission has also now held that ex post review of the PY 1998 energy efficiency programs is not necessary. (Id., Conclusion of Law 3 at p. 40.) Thus, as in the 1999 AEAP, ORA's proposed cost-effectiveness issue is outside the scope of these proceedings.

This proceeding relates to the utilities' activities in 1999. We emphasize that these 1999 activities were based upon the policy rules previously established to govern energy efficiency programs and, thus, so is this ruling. We recognize that an ex post cost-effectiveness review may provide valuable information for program evaluation and planning. We suggest that this issue be revisited in future rulemaking proceedings governing post-2001 energy efficiency programs.

Nevertheless, there may be legitimate issues regarding the utilities' attainment of milestones which are in a gray area. First, since many of the utilities' milestones are specifically based on delivered energy savings, the utilities will have to demonstrate those energy savings. In addition, as TURN and ORA noted at the PHC, there may be issues related to the non-installation of equipment or nonfunctioning of installed equipment which would appropriately be raised. We do not, however, make any predictions here of the success of those arguments; we only rule that they may be raised.

We agree that the purpose of these proceedings is to assess and verify the milestones which were previously approved in Resolution 3592 - we will not go back and retroactively challenge the appropriateness of those milestones, even though we have serious misgivings about those milestones. However, to the extent that the milestones are ambiguous or vague, or otherwise not clearly defined, we believe that it is appropriate for the parties to explore the proper application of the milestone and to the means by which the utility claims to have fulfilled the milestone. In this case, it may be appropriate to look to the performance indicators since those indicators were adopted to measure accomplishment of the program's goals.

We do not believe that it is either appropriate or possible to work on the design of milestones on a going-forward basis in these proceedings. A decision in this proceeding will be too late to impact PY 2001 milestones since the PY 2001 EEP planning process most likely will be completed before a decision is issued. However, we encourage the parties to use the information gathered in this proceeding, through the discovery process, as well as their evaluation of the

propriety of these milestones, informally, to influence milestone design for PY 2001. Based upon our evaluation of the milestones in this proceeding, if appropriate, we may direct that certain types of milestones be used or not used prospectively, in post PY-2001 proceedings. However, we will not permit these proceedings to be expanded for this purpose.

Proceeding Schedule and Need for Hearings

Several Protestants and Intervenors recommend that hearings be held. Conceding that they cannot definitely determine until discovery is completed whether hearings are required, they point out that there are potential disputed facts. The utilities hope that the factual issues will be worked out during the case management process but, for the most part, agree that if the case management process does not produce an agreement, hearings will be necessary. The verification, evaluation, and assessment of earnings claims is inherently factual in nature; thus, at this stage of the proceeding, we agree that hearings are necessary and adopt the preliminary determination. However, we urge the parties to use the case management process diligently to forge agreement on as many items as possible to avoid hearings, or at a minimum, limit the issues upon which a hearing is necessary.

At the PHC, the parties indicated that they preferred to return to the prehearing structure used in AEAPs prior to PY 1999. (See, e.g., D.98-03-063, Table 2.) The parties anticipate that many of the outstanding issues may be resolved through this procedure. The structure provides for testimony by the utilities, testimony by ORA, the intervenors, and CADMAC, utilities' reply testimony, an independent reviewer's report, response to the report, and a case management statement setting forth the agreements reached and issues remaining for decision.

We agree that this structure is useful, are hopeful that it will produce many agreements, and adopt it for these proceedings. Two issues upon which there is disagreement, however, must be discussed. The ALJ, in a supplemental prehearing ruling, raised two issues: 1) the use and funding of an Energy Division-employed independent consultant; and 2) the timing of these proceedings.

Energy Division Independent Consultant

The utilities and ORA take the position that an independent consultant may be used to review and comment on the parties' data and positions on the pre-1998 DSM programs, but that an independent consultant is not necessary for the post-1998 EEP and LIEE programs. This position is in accord with the position they maintained in prior rulemaking proceedings and in the "Joint Recommendation" they entered into in the 1999 AEAP (A.99-05-002). We recognize that the Commission, in its decision on the first phase of the 1999 AEAP, approved this "Joint Recommendation" in concept. (D.00-05-019.) The Joint Recommendation establishes a new advisory body, the CALMAC, provides for MA&E activities, and provides that, in their requests for authorization for funding the MA&E activities, the utilities will not ask for "'set-asides' or mechanisms for funding ORA staff or consultants to assist ORA in the verification of post-97 EEPPP or LIEE programs" or "for funding ED staff or consultants to assist the ED in the review or assessment of MA&E activities for EEP or LIEE programs beyond those established by the 1999-2000 California Budget Act." (Id., Appendix A., No. 6(e) and (f).)

We do not believe that the Commission's conclusion that the "Joint Recommendation is a reasonable concept to address MA&E issues" (Id., Finding of Fact 6, mimeo. at p. 26) changes the clear direction set forth in D.99-03-056. As the ALJ advised the parties in the prehearing ruling, in D. 99-03-056, the Commission stated its intention to use the AEAP to consider the earnings claims associated both with pre-1998 program years and those resulting from performance award mechanisms adopted for PY 1998-2001 programs and to use Energy Division-selected independent reviewers to provide the Commission with an independent technical review on measurement and verification issues. (Id., at p. 25, fn. 4.) In that decision, the Commission specifically reaffirmed its commitment to a verification process including an independent review by the technical consultants procured by the Energy Division, rejecting ORA's argument that consultants are no longer necessary. (Id., at p. 28.) If the Commission had intended to change this clear direction, it would have addressed it directly and not with an oblique "approval" of the Joint Recommendation "in concept." In this regard, we note that the Joint Recommendation also set specific MA&E budgets and provides that the utilities will not seek authorization to shift funds into MA&E from other categories (D.00-05-019, Appendix A, No. 3, 6(b)) but that, in D.00-07-017, the Commission directed the utilities to conduct additional MA&E studies in PY 2000 and to fund those additional MA&E studies as necessary. (See, e.g., D.00-07-017, mimeo., pp. 165-167; 201; Ordering Paragraph 78.) Thus, we find that the Commission intends that we continue using the same verification process for earnings for both pre-1998 and post-1998 programs, including independent review, and we will set a schedule that accommodates review by an independent reviewer retained by the Energy Division. The independent consultant retained by the ED will be paid for by the utilities, and will review the parties' filings for both pre-1998 DSM programs and for the PY 1998 and PY 1999 LIEE programs and the PY 1999 EEP.3 This procedure will govern both this year's proceeding and the 2001 AEAP.

Timing of Proceedings

In the prehearing ruling, the ALJ also noted that, given the fact that an independent consultant has not yet been retained, it was highly unlikely that these proceedings could proceed quickly and asked the parties to consider various approaches to completing these proceedings, including the possibility of consolidating the instant proceedings with the applications that will be filed in May of 2001 and defer all proceedings to 2001.

The parties almost unanimously objected to a schedule that would defer these proceedings and combine them with the PY 2001 AEAP. We agree with the parties that deferring these proceedings may be problematic given the work that must be done with respect to post-PY 2001 program planning. Thus, we adopt a schedule that will allow the ED to retain the services of an independent consultant but will also allow us to complete these proceedings by early in 2001.

Finally, we agree with several parties' request that we establish procedural schedules for this proceeding and for the 2001 AEAP and do so.

Schedule

The following schedule will govern these proceedings:

September 15, 2000 Utilities' updates if necessary

October 13, 2000 ORA testimony

October 20, 2000 Intervenors' testimony

December 15, 2000 Independent reviewer's report

December 22, 2000 Utilities' Rebuttal Testimony

January 8, 2001 Case Management Statement

January 12, 2001 2nd PHC (if necessary)

January 16-19, 2001 Evidentiary Hearing (if necessary)

February 12, 2001 Opening Briefs

February 26, 2000 Closing Briefs

The evidentiary hearing will take place in the Commission courtroom, State Office Building, 505 Van Ness Avenue, San Francisco, on January 16, 2000, commencing at 10:00 a.m. and continuing to 4:00 p.m. with appropriate breaks. On subsequent days the evidentiary hearing will take place from 9:00 a.m. to 3:30 p.m. with appropriate breaks, unless the ALJ changes the times during the course of the hearing. The parties should be prepared to make short opening remarks prior to the opening of the evidentiary hearing. Statements should be no longer than five minutes and should focus on the important facts to be elicited from the upcoming testimony. The parties will have the opportunity to address legal and policy issues in oral argument and briefs.

We anticipate that a decision will be placed on the Commission's agenda by the end of May, 2001. In no event will resolution of this case exceed 18 months from the date the applications were filed.

The schedule for the PY 2001 AEAP is set forth on Appendix C.

Case Management Statement

The case management statement will be coordinated by PG&E. This document shall outline the issues that are still in dispute and summarize the positions of the parties on the disputed issues. For each contested issue, the Case Management Statement shall indicate if the issue requires an evidentiary hearing and if so, the specific factual issues that are in dispute. If parties intend to argue the issues only in briefs, then the Case Management Statement shall so indicate. The Case Management Statement shall also indicate if issues previously in dispute have been resolved since the filing of testimony and summarize how they have been resolved. Summary "E" tables should be attached to the Case Management Statement. In addition, PG&E should coordinate the development of (1) a summary table presenting estimated lifecycle net benefits, earnings and revenue authorizations tables and (2) tables summarizing (by utility) the proposed earnings claim and nonconsensus positions, similar to the tables that preceded the E-tables in D.98-03-063.

PHC

A second PHC, if necessary, will take place in San Francisco on January 12, 2001 at 10:00 a.m. At that time, we will review the case management statement and the joint statement, discuss the proposed schedule, and attempt to resolve any preliminary or procedural issues that may impact the evidentiary hearing.

2 PG&E's pre-1998 DSM second claim will be treated the same way. 3 ORA has retained a consultant for review of the pre-1998 DSM programs, with utility funding, but has declined to use a consultant to review the post-1997 programs. If ORA decides to use a consultant to review the post-1997 programs, under this ruling, the consultant also would be paid for by the utilities.

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