Positions of Parties on Remaining Issues

ORA

ORA argues that it is imperative to have some level of verification of utility programs in order to insure that the expenditures lead to cost-effective conservation investments and support programs that will improve the state's overall energy efficiency. ORA notes that the verification procedures for pre-1998 programs do not totally apply to PY 1998 and no agreement on procedures or protocols for verification for PY 1998 energy efficiency programs were developed. Thus, ORA contends that its ability to verify PY 1998 results has been seriously impeded, and the Commission does not have an adequate record on which to judge the PY 1998 programs.

ORA believes that the self-verification proposed by the utilities based on utility developed milestones are inadequate as demonstrated during the hearings when ORA questioned the utilities on several of the milestones, and got incomplete and inadequate responses. ORA recommends that the Commission defer much of the utilities' PY 1998 earnings claims until adequate verification can be accomplished. Otherwise the incentives may simply become a means of enhancing utility earnings.

ORA notes that in previous AEAPs, and in the component of this AEAP that addressed recorded costs, recorded benefits, and earnings claims for pre-1998 programs, the verification process relied on three regulatory documents:

- Policy Rules

- Reporting Requirements Manual

- Verification Procedures and Protocols.

However, ORA states that in this earnings claims for PY 1998 energy efficiency, only the first two regulatory documents were available, and the Reporting Requirements Manual was developed late, with no verification procedures or protocols developed. Thus, ORA maintains that its ability to verify PY 1998 results was impeded and the Commission is left with an incomplete record. However, ORA did accomplish a degree of review and verification, as evidenced by Exhibit 57, in which ORA recommends that the majority of the requested earnings claims be deferred, and smaller portions rejected.

ORA maintains that the Policy Rules adopted by the Commission in D.97-12-103 were recommended by the California Board for Energy Efficiency (CBEE), and they directed CBEE to propose a schedule and verification process for PY 1998 results. ORA states that this clearly designated CBEE as responsible for verification, which CBEE failed to perform. Thus the Commission does not have the information it needs to properly perform its AEAP responsibilities, in ORA's view. The Commission had intended to create the Independent Program Administrator, as discussed in D.97-02-014, D.97-04-044, and D.97-12-103. However, since that didn't occur for various reasons, the utilities continued to operate the programs. The result was that neither CBEE nor ORA performed a meaningful verification of the programs for PY 1998.

ORA notes that Policy Rule III.C states:

"for purposes of reporting post-implementation program impacts, including satisfying performance requirements established for new or modified administrator performance mechanisms, the performance award may be affected by the reported net benefits. The interim administrator must report committed and actual costs and benefits determined per Interim Rules II, D, E, and F."

ORA states that Policy Rule II is the most important overall performance award policy rule. ORA contends that the Commission must have full verification of PY 1998 programs both for this proceeding and to provide guidance for future AEAP proceedings.

PG&E

PG&E states that the only issue remaining in dispute is the amount and timing of the PY 1998 energy efficiency shareholder incentive.

PG&E states that the dispute regarding the PY 1998 shareholder incentive is between PG&E and ORA, but that TURN and REECH may also dispute some or all of PG&E's claims. PG&E contends that ORA's dispute has to do with shift in emphasis from cost-effective energy efficiency activities to market transformation. Under the concept of market transformation, there would be no long-term measurement studies linked to the shareholder incentive, and shareholder incentive payment would be made in the year following verification of the program by CBEE.⁶

PG&E notes that CBEE was not doing any work on verification of the 1998 energy efficiency programs, stating that it understood that ORA would review and verify utilities' earnings claims for PY 1998 and PY 1999. In PG&E's view, ORA chose to attack the incentive mechanism, instead of performing the verification.

PG&E argues that it is improper for ORA to, in effect, suggest returning to the previous methodology where incentives are allowed only when energy savings are proven through traditional protocol measurement and evaluation studies. PG&E believes that ORA should have raised its concerns about market transformation incentives in the development of the PY 1998 incentive mechanism adopted in D.97-12-103, rather than in these proceedings.

SDG&E

In SDG&E's opinion, the only remaining issue in dispute concerns the PY 1998 energy efficiency shareholder incentives. SDG&E refutes ORA's position that all performance incentives must be based on a showing of resource savings measured on an ex post, after the fact, basis.

SDG&E notes that D.97-12-103 approved a PY 1998 performance incentive mechanism and a performance incentive cap of $3.199 million for the first nine months of 1998. Subsequently in Resolution E-3555, the Commission extended SDG&E's role as interim administrator through the end of 1998 and increased the performance incentive cap to $3.790 million.

SDG&E believes its shareholders are clearly entitled to incentives in the amount of the performance cap, and that ORA's position that these incentives must be deferred or rejected pending ex post facto verification of the program results is flawed and contrary to recent Commission decisions.

SDG&E itemizes the performance incentives for the 1998 programs that qualify for incentives, which total more than $6.233 million, far more than the performance incentive cap that they are limited to. SDG&E argues that performance incentives may be based on committed projects, but regardless, its performance incentives for projects actually completed in 1998 far exceed its performance cap of $3.790 million.

Edison

Edison states that all shareholder incentives for the program years that are subject of this proceeding have been settled between Edison and ORA, except for the PY 1998 energy efficiency claims.

Edison argues that it should be granted the shareholder incentives it requests for the PY 1998 programs, Edison developed and implemented those programs consistent with all applicable Commission rulings. The PY 1998 mechanism is geared toward market transformation and is a departure from previous years' programs. Edison believes that the PY 1998 mechanism rewards a utility for its role as administrator of the program, with the incentives based on commitments made by customers to Electric Service Companies (ESCO). In this role as facilitator, it is not necessary to oversee the ESCO through the project. Edison argues that the incentive is based on both actual and committed dollars.

Although the Commission de-emphasized resource savings for PY 1998, and only a portion of the shareholder incentive mechanism is tied to verified energy savings, Edison states that it performed the same comprehensive, independent verification of its program results, using independent consultants. Edison contends that the materials submitted in this AEAP were substantially similar to those submitted in prior AEAPs and should have been sufficient for ORA's further verification. However, unlike in prior AEAPs, ORA did not perform a full verification.

Edison also argues that the recovery period for the new shareholder performance mechanism should be one year. D.97-12-103 does not specify the period, but does indicate that the collection period should be reduced from 10 years. Edison maintains that the only prior testimony in this matter was for a one-year collection period.

SoCal

SoCal also argues that ORA's dispute regarding the PY 1998 energy efficiency programs is unreasonable, and that SoCal and the other utilities performed properly under the Commission's directives in D.97-12-103 and Resolution E-3555. SoCal fully expected their incentive claims for PY 1998 performance would be verified and approved for rates in 2000. In SoCal's view, ORA introduced an unreasonable and unsupported position that the utilities' earnings for these programs performed in PY 1998 should be deferred until they can be verified in the future. SoCal also believes that it is unreasonable for ORA to recommend rejection of claims for efforts in upstream market transformation on the basis that those benefits are difficult to verify.

SoCal notes that D.97-12-103 adopted CBEE's Final Recommendations, including CBEE's Interim Policy Rules. Policy Rule II provides that cost-effectiveness is on an ex ante, before the program, basis. Policy Rules II.B. and C. state that cost-effectiveness tests include both actual projects completed in 1998 and projects committed to in 1998. SoCal, thus, designed its PY 1998 program with ex ante cost-effectiveness in mind, using established cost-effectiveness data from prior studies.

In SoCal's view, ORA is attempting to retroactively re-design the PY 1998 incentive mechanism in proposing that the utilities wait to receive their PY 1998 incentives. SoCal maintains that ORA's sole basis for this proposal is Policy Rule III. C. which states in part, "...the performance award may be affected by the reported benefits." (D.97-12-103, Attachment 2, p. 1.) SoCal argues that ORA has taken this statement out of context and that this approach is contrary to the Interim Policy Rules which have many references to both actual and committed costs. Since SoCal's PY 1998 claim is based entirely on actual costs, it should have been verified in this proceeding, not deferred to the 2000 AEAP for capture in later rates.

SoCal further notes that Interim Policy Rule II. D. states in part, "The need for additional measurement and evaluation (M&E) studies to measure load impacts from Retrofit Energy Efficiency Programs (REEI) and New Construction programs offered by the Interim Administrator should be minimal. These programs should use the measured verified load impacts and measure costs (costs of the investment in energy efficiency materials or equipment) estimates from PY 1995-1996." (Id. att. 2, pp. 2-3.)

TURN

TURN focuses its comments only on the claims for shareholder incentives from PY 1998 energy efficiency programs, which total approximately $24 million for the four utilities. The total cost of these programs including shareholder incentives is approximately $210 million. TURN explains that the claim for PY 1998 shareholder incentives is different than for prior year claims, which were based on either a fixed 5% performance adder or as a direct percentage of energy savings, verified by ex post verification studies. In D.97-12-103 the Commission adopted a new shareholder incentive mechanism which in some cases is not related to energy savings.

TURN points out the following deficiencies in the milestone verification process:

- Lack of a link between the activity and market transformation or energy savings.

- Vague and general milestones that allow a high degree of discretion to the utility.

- Milestones related to workshops have no requirement for attendance, usefulness or outcomes.

- Market studies may be duplicative of other evaluation efforts, and utilities are not required to implement the recommendations of the studies.

- Programs that provide general research or collaborative efforts may not qualify as cost effective for Public Goods Charge (PGC) funding.

- The verification process is not clearly defined.

TURN acknowledges that some of the deficiencies it notes are due to the newness of milestone verification methodology and the lack of established protocols, and that the Commission has initiated the public participation process through CBEE. However, TURN believes that the process is deficient because not all parties can devote the resources necessary for effective participation.

TURN urges the Commission to coordinate this proceeding with the PY 2000 and 2001 compliance proceedings (Application (A.) 99-09-049 et al.) so that the results of this proceeding can be used to assess the effectiveness of milestone plans proposed for PY 2000 and 2001. TURN also urges the Commission to develop an appropriate verification process to measure milestone accomplishment. The proposal in Phase 1 of this proceeding for a new advisory body, California Measurement Advisory Council (CALMAC), to establish metrics and protocols is a necessary part of a future verification process, in TURN's view.

TURN agrees with ORA that earnings claims for committed funds should be deferred until verification that the funds were actually expended.

TURN's focuses particularly on PG&E and argues that the Commission should disallow $73,000 of PG&E's requested shareholder incentive to reflect the fact that it did not fulfill the requirements for verification for at least three milestones. The proposed disallowance consists of $33,000 for Milestone 18-MS2, the Energy Star Label program, $33,000 for Milestone 26-MS2, the lighting controls program, and $7,000 for Milestone 35, the Regional and National Alliance program.

TURN argues that for Milestone 18-MS2, PG&E was required to demonstrate through a survey that 10% of customers in the market for appliances became aware of the Energy Star label, and that PG&E has not so demonstrated.

TURN also states that Milestone 26-MS2 of the Lighting Controls program requires a demonstration by survey that the program increased awareness of the new tools and data base of the program for at least 30% of the system manufacturers and professional organizations targeted. However, PG&E's documentation to support the milestone contains no survey or any quantitative indication of such increased awareness. Rather, it contains summary minutes of a roundtable discussion. PG&E argues that the roundtable discussion represented survey results, but the minutes mention no survey results. Thus, while TURN does not contend that the activity conducted was worthless, PG&E has presented no information that the program satisfied the milestone requirements and therefore the $33,000 shareholder incentive should be denied.

Milestone 35 relates to the Regional and National Alliance program and requires that PG&E participate in regional and national collaborative efforts aimed toward developing new program opportunities or improving existing programs. TURN states that the required verification is a report detailing participation in collaborative efforts. Since no report was offered in the documentation submitted in support of this milestone, TURN argues that the requested $7,000 shareholder incentive should be denied.

TURN notes that its request that the incentives be reduced by $73,000 for non-completion of required milestones is tiny compared to PG&E's total request for $10.5 million in shareholder incentives, but believes it is significant in pointing out deficiencies in the milestone verification process.

TURN disagrees with the utilities' contention that D.97-12-103 allows a one year earnings claim recovery schedule, noting language in attachments to the decision which refer to ex post inspections. Absent inspection or verification, TURN is concerned that ratepayers may be paying incentives for projects that are never started.

REECH

REECH addresses only the PY 1998 residential energy efficiency programs. REECH believes that there are problems in verification of some of the programs, including those verified internally by the utility, and not subject to third-party verification. REECH has particular concerns regarding PG&E. REECH notes that under Policy Rule III.G, CBEE was to perform the program verification. When CBEE did not assume that responsibility, REECH contends that ORA was assigned the verification function, but ORA's audit was deficient in some areas.

For this reason, REECH recommends that the Commission defer action to future AEAP proceedings on claims for projects in the committed status. In addition, REECH recommends reductions or disallowances for specific programs of PG&E and Edison, the details of which are considered below.

REECH also recommends that additional effort be expended in auditing the programs by independent entities, or by a neutral paper audit, and that information gleaned from the programs needs to be widely disseminated so that other providers and marketers can benefit.