V. PG&E and the City of San Francisco's Pilot Program Proposal

PG&E joined with the City and County of San Francisco (San Francisco) to propose a "Demand Reduction Through Energy Efficiency Pilot Program" ("Pilot Program"). PG&E describes the pilot program as addressing San Francisco's specific program needs in response to the prospect for San Francisco to experience an electricity shortage in 2004-2005 and a concern that statewide programs do not adequately address the city's unique needs. For example, San Francisco has two "peak" periods -- a daytime summer peak, driven by air conditioning and lighting loads, and a winter evening peak, driven by electric heating and lighting loads. The state's Independent System Operator has identified San Francisco as a "critical grid reliability risk area" because of limited transmission capacity into the area combined with aging energy resources within the area. San Francisco argues it requires continued funding for the infrastructure it developed using SBx15 funding for retrofitting lighting in 4,000 local small businesses.

The Pilot Program would allocate $16,313,000 to San Francisco with a target savings of at least 16 megawatts (MW) by 2005 for each of San Francisco's two peak periods. In general, the program would step up existing aspects of PG&E's energy efficiency efforts, such as commercial building retrofits, marketing and education to customers with language barriers, analysis of fuel-switching applications, training San Francisco employees, and rebates for reducing on-peak usage.

PG&E and San Francisco propose to conduct a "needs assessment" in the initial months of the program and develop a plan for implementing specific program elements. PG&E proposes to divert funds from its 2003 program implementation plan for this effort. To affect this funding change, PG&E proposes the Commission delegate authority to its staff to modify 2003 plans as needed.

Women's Energy Matters (WEM) objects to funding this program. WEM observes that it is unable to comment on program elements because PG&E does not provide a budget. It comments that the program envisions preferential treatment for the customers of a single community and would shift funding from residential customers to commercial and industrial customers. WEM raises broader issues relating to PG&E's potential conflict of interest in managing energy efficiency programs and the need to empower the city to implement such programs independently.

Discussion: We are encouraged that PG&E and San Francisco worked together to develop a proposal that seeks to address the City's specific circumstances. We agree with San Francisco that PG&E's statewide programs may not meet the needs of specific geographic areas or consumer groups. We also concur with San Francisco that local governments may be good candidates to implement community programs because of their pre-existing relationships with community organizations and individuals.

We have numerous concerns about the proposal, however, as it has been presented in this proceeding. Most importantly, PG&E does not explain how the program will meet program goals to reduce demand by 16 MW during peak periods. Instead, it presents a list of possible program elements without a program budget or energy savings estimates. PG&E clarifies that it still needs to undertake a needs assessment and present a more specific proposal for consideration. It does not explain, however, how much of its budget will go to additional administrative tasks such as data gathering, study preparation, program development and program coordination. Given the apparent concurrence of PG&E and San Francisco regarding the value of local administration of energy efficiency programs and San Francisco's explicit wish to retain its energy efficiency organization, we also wonder whether PG&E's administration of this program could present unnecessary duplication of effort.

We also weigh the conceptual benefits of a more aggressive local effort in San Francisco against the lost opportunities presented by allocating such a large proportion of funding to a single city. To the extent the cost of the San Francisco program is higher than energy efficiency programs in other areas or statewide, if the Commission approved the Pilot Program, the result could be on a reduction in overall cost-effectiveness of energy efficiency programs. On the other hand, the value of energy savings in San Francisco may be higher than in other areas of the state because of the prospect of energy shortages and the high cost of improving system reliability with additional transmission and energy generation facilities. Unfortunately, we have little information upon which to make these judgments using the information presented by PG&E and San Francisco.

Rather than take a risk with $16 million of PG&E's funding -- which is about twice what the City of San Francisco's customers contribute to PG&E's energy efficiency programs and is about 15% of PG&E's total statewide program budget -- we will here approve $8 million for the San Francisco Pilot Program. This funding would be in addition to money spent on pre-existing programs for which San Franciscans will still qualify. These funds will be set aside immediately for program implementation. In order to justify spending these funds, PG&E must present a needs assessment and a specific program proposal as part of an advice letter filing. This assessment should include an analysis comparing the costs of proposed program elements to the costs of alternative means of improving system reliability in San Francisco, if that information is publicly available, and a more traditional cost-effectiveness analysis. PG&E should include a draft resolution proposing a program budget for San Francisco and serve a copy of this advice letter on all parties to this proceeding. We will expedite review of the advice letter.