PG&E Portfolio Overview

PG&E's New Portfolio Model called "Market Integrated Demand Side Management (MI DSM)" structures their programs around market segments. Programs are tailored to specific markets rather than technology groupings. The goal of this integrated approach is higher penetration resulting from being able to better serve the needs of their customers, vendors and industry experts. Our team would like to commend PG&E on moving to this market-based approach for providing energy efficiency services. It is our contention that this concept has the potential to substantially reduce lost opportunities and provide resources more cost-effectively.

The following market segments are in the PG&E program portfolio and have reported energy and demand savings. The percent of program budget has been included in Table 11 for each program. The total funding for PG&E's programs is $ 276,352,984 for 2006, and $975,118,270 for the portfolio period 2006-2008.

· Mass Market includes residential, multi-family residential and small commercial. These customers have similar purchasing patterns and strategies, use the same vendors, and have similar approaches to energy efficiency. A common approach to these customers, historically viewed as separate segments, could provide greater penetration into the small commercial market while eliminating the artificial boundary between them and providing for program delivery economies;

· Agricultural and Food Processing includes food processors, wineries, dairies, greenhouses, and refrigerated warehouses;

· Schools, Colleges, and Universities includes K-12 schools, community colleges, universities, and campus housing;

· Retail includes general retail, big box retail, supermarkets, restaurants and food services;

· Industrial includes fabrication industries, process industries (including waste water and water treatment), and heavy industrial manufacturing;

· Medical includes hospitals, assisted living facilities, skilled nursing facilities, and medical specialty facilities;

· Commercial includes office buildings, governmental facilities, and large institutional facilities;

· Hospitality Facilities include lodging, resort, and hotel facilities; and

· High Technology includes laboratories, clean-rooms, and data centers;

· Residential New Construction targets market actors involved in residential construction.

Programs classified as Information-Only include:

· Education and Training 4

· Codes and Standards

· Emerging Technologies

· Statewide Marketing and Information Program

The following table provides a presentation of PG&E's portfolio and the budgets allocated to each program. While included in the overall annual portfolio budget, PG&E did not include EM&V costs at the program level. In Table 11, 8 percent has been added to each of the program budgets to reflect the allocation of EM&V costs.

Goal Attainment - PG&E

PG&E's portfolio of utility programs for the period 2006-2008 are estimated to save 3,021 GWhs and 51,756 Mtherms. Demand savings are estimated to be 563 MW in 2008. This will be funded with a budget of $975 million. This effort is forecast to be cost-effective: a TRC of 1.61 and a PAC of 2.24.

PG&E's budget for 2005 was approximately $131 million. The increases in the portfolio years are substantial. PG&E plans to significantly ramp up its budget in the next few years: going from $276 million in 2006 (111% increase from 2005) to $304 million in 2007 (a 10% percent increase) and $373 million in 2008 (a 35 percent increase compared to 2006, and almost three times the 2005 budget).

Comparison with CPUC Goals

According to the information available to the TecMarket Works Team during the review period, PG&E projects that their portfolio will surpass the energy goals provided by the CPUC in each of the program years 2006, 2007 and 2008. They project that PG&E's programs will achieve 106 percent of the CPUC's first year GWh goals, and 120 percent of the first year natural gas goals. PG&E forecasts that by the end of 2008 they will have achieved 109 percent of the GWh goals, and 113 percent of their natural gas savings goals. While demand savings do not appear to meet the CPUC's goals, it is likely that this is due to the way measure life is being accounted for with many of the measures. Demand savings are estimated to be seven to ten percent below the CPUC goals for each of the portfolio periods.

Table 12 presents PG&E's projections of their portfolio's ability to reach CPUC energy and demand savings goals. The MW achievements presented in this table are the average mega-watts projected to be captured and are not the critical summer peak MW.

The TecMarket Team's opinion of PG&E's goal projections is that the goals are reasonable given the portfolio being developed and programs being offered. The demand goals appear not to be meeting the CPUC goals due to measure life accounting described in the issues section below.

The main concern with the program budget relates to the difficulties inherent in ramping project spending up by over 100% in 2006. The team also has some concerns about the partnership programs being able to cost-effectively support PG&E's energy goals. There is limited information on how the goals will be supported by the third-party providers. A question arose during our review as to whether the portfolio of programs detailed in this filing by PG&E will remain constant - no matter who delivers the services (i.e. third-party). PG&E was asked to clarify this issue. PG&E responded that they do not know what the mix of programs and services would be, however they felt that any changes would be "improvements over current filings".

Comparison with Potential

In order to conduct the comparison of PG&E's portfolio goals with the CPUC energy potentials, we used KEMA's "100% achievable potentials" (potential amount of energy savings that could be achieved if the program funding was increased by 100 percent). This allowed for a comparison of an expanded program portfolio that more closely matched the spending levels of the current portfolio. However, the current portfolio budget may be greater than the 100 percent increase reported in KEMA's potential reports for residential and non-residential programs. At this time, there is no published report for industrial potentials, however, there is an industrial potentials study currently being finalized by KEMA. For the PG&E industrials potential, we used preliminary estimates from the yet to be published 2005 industrial potentials study being completed by KEMA. The industrial potentials should be considered proxy estimates that will need to be adjusted once the KEMA study is released in 2005.

KEMA's published potential reports provide 10-year estimates of program potential, or the amount of energy impacts that can be achieved over a 10-year period. In order to adjust the KEMA potentials to the 3-year program cycle, we multiplied the KEMA potentials by 0.3. We use 3-year potentials in this assessment because the current program planning cycle is three years in length.

We were unable to segregate the programs into residential, non-residential and industrial sectors using the portfolio data, as several programs cut across sector lines. As a result, we summed the potential estimates for the 100 percent increase in funding levels across the residential, non-residential and industrial sectors (note: the non-residential sector does not include industrial potentials) and compared these potential estimates with PG&E's portfolio estimates. Table 13 provides the results of this comparison.

Table 13 indicates that if PG&E is successful in meeting its three-year goals for energy and gas savings, then it will easily meet the 100 percent Achievable Potential estimates.

Budgets and Service Offerings Balance

PG&E's portfolio is distributed among several sectors in terms of funding and expected energy savings (Table 14). Sixty percent of the funding, and almost ¾ of the savings (73 percent) are being obtained in non-residential sectors. The "Other" sector appears to be composed of information-only programs that are not included in the energy savings goals. One area of possible concern is the residential new construction sector, which has a 4 to 1 ratio of spending to energy savings.

Energy Savings Issues

To assess if the portfolio energy savings are reasonable for the measures used, we conducted a review of the measures included in the PG&E portfolio. First we sorted out all the measures that used DEER values to predict energy savings. We then examined all measures that did not use DEER for estimating impacts. Note in Table 15 the majority of PG&E's energy savings are not related to the DEER database.

DEER Measures Estimates

The majority of measures included in PG&E's programs are not using DEER estimates of energy savings. Estimated energy savings that are not based on DEER represent 57 percent of kWh, 88 percent of therms, and 65 percent of the kW savings in PG&E's portfolio.

All of the measures that were estimated using DEER were reviewed for accuracy and consistency with the DEER 2005 Database. The DEER data was downloaded from http://www.rtf.nwppc.org/deer2005/# on May 13, 2005.

In the "measure list" tables of the utility workbooks, the "Measure ID" was typically a match with the "RUNID" field in the DEER data. In some cases averages across the DEER "Measure ID" were used instead of the more specific "RUN ID". Comparisons of the utility estimate and DEER estimate were made based on the information available in the filed workbooks. For example, if the utility noted that they used an average for all DEER refrigerators, the evaluation team attempted to replicate their calculations for a valid comparison.

Note in Table 16 the majority of the kWh savings using a DEER estimate matched nicely with the DEER measure estimates. Where estimates were not the same, PG&E had a larger proportion of savings that were overestimated compared to DEER than were underestimated. Most of those overestimates were very close to the DEER estimate.

For a very small group of savings, it appears that the units used by the utility may have been off. These were both for insulation measures, so it is likely that PG&E and DEER used different assumptions for the size of the home.

Overall, PG&E offered a more conservative estimate of kWh energy savings than we think might have been generated by DEER.

For PG&E's therm savings, a very small portion of the total portfolio savings was accounted for using DEER therm saving estimates. Even for those measures that were compared with DEER, the relationship between the utility's estimate and DEER was not clear. Even though it may appear that PG&E's estimate was considerably more conservative than DEER, accurate review is not possible until the actual relationship is clarified (See Table 17).

Most of the demand savings that were included in the workbook filing that claimed to be based on DEER did not match with the DEER database. The relationship between the per unit demand savings and DEER was unclear (See Table 18).

Non-DEER Measures Estimates

Among the energy savings estimates that were not developed using DEER, it was difficult to discern how the energy savings estimates were developed. Note in Table 19, that after reviewing the documentation for non-DEER measures about 39 percent of the kWh savings and 79 percent of the total therm savings could not be clearly defined by the TecMarket Team, which presented concerns. While the utilities generally have a solid basis in our opinion for the estimates we can understand, it would be a leap of faith to say that we are comfortable with so much being unclear.

Cost-Effectiveness - PG&E

TRC and PAC Issues

With the exception of the Residential New Construction, PG&E's programs are all estimated to be cost-effective. Our review did not find any variation in the relative differences between TRC and PAC numbers: the TRC was always less than the PAC, which is what one would expect if one assumes that the only variation between the two indices is cost (the TRC includes ALL costs).

PG&E's Residential New Construction program is the only program not forecasted to be cost-effective (TRC<1). In 2006, this program has an estimated TRC of .57. The other nine programs - with cost-effectiveness tests - have estimates ranging from a low TRC of 1.06 for the Schools and Colleges program to a high TRC of 3.34 for the Schools and Colleges program. The average TRC across all ten programs was 1.74 for 2006 and a slightly lower TRC of 1.61 across the three-year portfolio. Table 20 shows the TRC estimates for 2006 for each of PG&E's programs with forecasted energy savings.

Issues Addressed - PG&E

Administrative Costs

In our review, the team noticed that PG&E's budget for administration for the 2006 portfolio year is very low (7.6 percent) compared to the other California IOUs and also to other utilities across the country. Administrative costs, as a percent of portfolio budget, range from around 5.3 percent for Emerging Technologies to 18.5% percent for Schools, Colleges, and Universities. Furthermore, administrative costs in 2007 and 2008 drop substantially to 4.5% in 2007 and 4.3% in 2008. These reductions in 2007 and 2008 result in an overall portfolio administrative percentage of only 5.3 for the 2006-2008 period. Estimates for the three years are shown in Table 21.

Net to Gross

As mentioned in the overall assessment of the utility portfolios, the spreadsheets for each utility have net to gross (NTG) numbers for each measure. However, the NTG numbers were generally the same across all the measures within a program. As instructed, the utilities used default NTG numbers based on the CPUC Policy Manual. However, using these numbers increases the risk of the portfolio not producing the savings indicated by the program and may be inconsistent with some evaluation findings that report different NTG values. While these standard NTG levels make it easier for planning and analysis, they increase the risk of overstating savings goals from the portfolio.

Workpapers

In their filing of June 1, 2005, PG&E states that the required technical documentation is supplied in the workpapers. The June filing and the supporting CD labeled "Workpapers" only contained the E3 calculator spreadsheets. On June 19th and approximately June 26th, additional documentation, including some workpapers, were provided. Due to the lateness of submittal, many of these documents have not been fully reviewed by the TecMarket team.

Demand Savings

The PG&E calculator projects kW impacts for measures installed in 2006 for a snapshot at the 3rd quarter of 2011. If a measure is installed in 2006, and has a life of less than five years, it is likely not counted in this impact projection. Therefore, for demand savings to be counted the life of the measure must be at least five years. Consequently, in terms of accuracy in the filing for kW saved in 2006, PG&E will be the least accurate for reporting short term savings. However, if the goal is to report longer-term savings, the PG&E calculator will be the most accurate as it counts "only" those measures that have a five year or longer life. In years 2007 and 2008, the snapshot shifts out one year, so it becomes a rolling snapshot across all IOUs.

Consequently, due to the different ways that kW impacts are being accounted for in the future, the demand savings are not comparable across the IOUs.

Flagship Programs versus Other Programs

While overall, the TecMarket team feels that PG&E's new market-based approach to serving their customers is very promising, we also feel that the market approach to serving all areas may, at times, be too encompassing. Specifically, the team has concerns about the mix of new non-residential construction activities being spread across several markets. Looking at the activities in this important sector across programs may not be the most efficient way to look at non-residential new construction. We also have some concerns that PG&E may not be using many of the relationships, experience and program foundations that they have built up over the past ten years.

Energy Accounting Issues

While we feel that this portfolio will provide PG&E customers enhanced delivery of program services, our review team had a great deal of trouble trying to identify measures by program and general accounting issues related to these measures. Our team contacted PG&E about this concern and was told that a tracking number for each measure would allow the tracking of each measure, and also ensure that double counting of savings did not occur. While this may be the case, from a reviewer's standpoint, it is not very transparent. In light of this issue, we remain somewhat uncertain as to the energy and demand saving estimates at the program level.

CPUC Oversight Responsibility

In Chapter 4, Volume 1 of their portfolio filing, PG&E has asked for 100% flexibility in shifting their funds between and among program categories. Citing D.03-12-060 at p22, PG&E indicates the Commission's intention to allow this flexibility, PG&E feels that this fund shifting will optimize program operations and enhance abilities to meet the Commission's energy and demand savings goals.

One of the issues discussed within each of the PRGs is the issue of program and portfolio oversight and if it is a good public policy decision to allow a wide range of IOU flexibility in making changes to the portfolios.  All PRGs are concerned with this issue, and all IOUs have considered the PRG comments in their June 1, 2005 filing.
 
While it is true that the IOUs are responsible for implementing their portfolios in a way that reaches the energy saving goals, the CPUC is the single organization with the ultimate authority and responsibility regarding the implementation of these efforts.  In the end, the citizens of California must hold the CPUC responsible for the wise implementation of the ratepayer-funded energy efficiency programs. As a result of the PRG comments and IOU interactions, the IOUs have placed recommended oversight activities in their portfolios. These are discussed in each of the IOU chapters in this report.  However, we do not think it should be the responsibility of the IOUs to define the state's oversight responsibilities.  Rather, the level and degree of CPUC oversight should be set at the policy level within the CPUC.  The CPUC should then advise the IOUs of the policy decision and the details of how that policy decision will work.  While the CPUC should obtain IOU recommendations for the oversight of their portfolios, the adopted level of oversight and the conditions on which it shall operate should be set by the CPUC and be identical across all IOU portfolios.

Risk Issues

While PG&E's new Market Integrated approach to delivering programs and services has the potential to be very successful, there will be an increased risk in undertaking a change of this magnitude. It will require significant management and utility supervision to oversee this change, and to successfully implement these larger comprehensive programs.

We also want to point out other categories of risk associated with PG&E's programs:

Significant Size Increase

The overall increase of 111% in PG&E's annual budget in year 2006 is quite an undertaking and invites the question of whether this ramp up can actually be accomplished.

The Mass Market program has an inherent risk associated with the fact that 48% of PG&E's budget and 2/3 of savings are concentrated in this one program.

Delivery Risk

As mentioned previously, the channeling of customers from other programs into the mass market has risks associated with the tracking of customers and measures and the possibility of savings being double counted.

New Implementers

PG&E will be relying on new organizations to implement some of their programs, and it is unclear how reliable and effective they will be, compared to past implementers.

Energy Efficiency Collaborations (Partnerships) cannot be assessed at this time, since they will be designed after the third-party competitive bid programs are implemented. Similarly, the Third-Party Programs also cannot be assessed until the bids are in and accepted.

Comprehensiveness and Lost Opportunities - PG&E

The overall program descriptions provide very knowledgeable and comprehensive market analyses of the programs within PG&E's portfolio. However, a few issues and possible lost opportunities were uncovered during the TecMarket Team's review.

Gas Measures

One area of concern relates to the lack of any gas savings in the majority of PG&E's programs. While we understand that the measures are going to be promoted mainly in the Mass Market and Industrial sectors, programs such as Schools & Colleges and Medical also have gas savings opportunities. We are unsure if these opportunities are going to be addressed in the portfolio.

Program Measure Possible Lost Opportunities

In our review of PG&E's program plans, we have found some of the potential lost opportunities. Some examples of possible lost opportunities are included in Table 22.

Bidding and Third-Party Issues - PG&E

As instructed by the Commission, a minimum of 20 percent of the portfolio is to be bid to third parties (generally referred to as Third-Party Programs). Given that this information is not yet due, the team did not review these concepts.

Partnership Program - PG&E

Additional information is needed to assess these programs, however the assumption of partnership programs having neutral impact with a TRC of 1.0 is not realistic. This will act to drive the portfolio's overall TRC down.

Evaluation Issues - PG&E

Based on our review of PG&E's portfolio, the TecMarket team feels that both process and impact evaluations will be extremely important over the three-year portfolio due to the fact that:

· Program expenditures are increasing at a tremendous rate.

· PG&E's MI DSM approach, while laudable, is novel and will require comprehensive, state-of-the-art evaluation activities to ensure that the programs are operating and providing savings as designed.

· Natural gas savings have not received as much attention from the evaluation community as electricity savings.

· The documentation for many measures was not available, making the evaluation effort even more important.

· Many of the assumptions used in the calculation of energy savings are based on old data (10-15 years old): e.g., NTG ratio, hours of occupancy, and pre-codes and standards requirements.

As part of the evaluation effort, we also recommend the following:

1. Periodic updating of the potential studies in all sectors (residential, commercial, industrial, and agricultural).

2. Development of a data dictionary that all users can access for information on definitions of measures, baselines, energy savings, costs, and references.

3. Market-based evaluations to see how specific markets are changing, some of which may be due to the IOU programs.

Evaluation Policy Issues - New Construction Programs

Non-Residential Construction

Although the market-based concept pursued by PG&E is conceptually attractive, it is possible that the market segments may not be optimal as proposed. In fact, neglecting the specialized needs of new non-residential construction, which can get lost across the various market segments proposed, may be a big risk for future construction practices. Just as with the new home construction program, there are compelling arguments for maintaining a discrete market segment for Non-Residential New Construction. The target market actors are different from commercial retrofit, the timing of intervention is much more important, and the utility has extensive experience with an identifiable program - Savings by Design - and specialized relationships built up.

A natural grouping of programs exists within this market segment that target the same actors and allies with the same goals in mind would be Savings by Design, Emerging Technologies, Education and Training, and Codes and Standards. As with the residential new construction program, there is a need for a "carrier" program to bring innovation into the market, so that it can be shown to be cost-effective and become improved code. Because all of these programs address the same market actors and are targeted to the same goal of improved building energy efficiency, they should be designed, implemented, evaluated, and rewarded as a unified program. With all due deference to the segmentation planning by PG&E, the alternative to keep a unified non-residential new construction market as a target may be an overlooked opportunity

Residential New Construction

Given the concerns about cost-effectiveness of residential new construction programs and the need to focus on cost-effective programs, the TecMarket Team suggests that this program be evaluated with attention paid to how well these types of programs help develop a growing market for energy efficient homes.

The Public Advisory Group (PAG) express a strong interest in having Residential New Construction programs at the utilities. Combining residential new construction programs with related programs that are designed to attack the same market, such as the Emerging Technologies or Codes and Standards programs could provide a strategic initiative that is specifically designed to provide cost-effective long-term savings through adding innovations to a large dissemination program, and eventually to code changes. In that way, the efforts are strategically designed and would meet the criteria of actually being run to produce long-term cost-effective savings.

Conclusion

We offer the following conclusions from our review of PG&E's portfolio:

· PG&E's portfolio appears to be able to meet the energy goals set out by the CPUC. Demand goals are harder to estimate due to the way that measure life is accounted for by PG&E.

· Additional information on the program measures and saving estimates (workpapers) would be extremely useful for enhanced portfolio evaluation.

· The risk in not meeting the portfolio is likely not related to the cost-effectiveness of program offerings (in general the TRC estimates for the programs are very high), but rather in how well PG&E can incorporate the overall new market integrated program delivery strategy.

· The substantial increase in budgets, partnerships, and the use of third parties will present a major challenge that will require comprehensive program evaluation efforts.

· Administrative costs still appear to be quite low and the consistency of the administrative costs between the IOUs is an issue that should be addressed.

Program-Level Assessment - PG&E

This section of the report presents the program-specific assessment information and issue discussions that were identified during the portfolio review effort. The issues reviewed are presented in the left-most column of Table 23 and each subsequent column represents a specific program, allowing the reader to see if the review team determined there to be an issue associated with a specific program, and to understand the review team's perspectives associated with each issue.

4 PG&E is investigating the possibility of energy savings for this program.

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