III. LIEE Standardization Project-Phase 2

The Phase 2 LIEE Standardization Project Report submitted on September 15, 2000 presents recommendations for standardizing customer eligibility criteria, including income documentation, limits on prior program participation, minimum necessary weatherization and other criteria. It also makes recommendations designed to make policies and procedures more consistent across utilities for inspections, minor home repairs and furnace repairs and replacements. The follow-up Phase 2 report proposes a set of recommendations for ceiling insulation levels, the eligibility of master-metered units for the program, and a minimum statewide level of gas appliance testing. Per D.00-09-036, the Phase 2 project team also produced and circulated the final weatherization installation standards manuals based on the Phase 1 recommendations adopted in that decision. We commend the project team for producing a well-written summary of current practices and Phase 2 recommendations under a very ambitious schedule.

A summary of the Phase 2 recommendations is presented in Attachment 4. We address the specific issues raised in comments in the following sections. In some instances, we refer issues back to the project team for consideration during the next phase of the standardization project.

A. Customer Eligibility Based on Heating Fuel or Rate Schedule

CSD and SESCO take issue with the limit on LIEE program participation to low-income customers who purchase their heating fuel from that utility. They also object to any blanket exclusion of customers served under business rate schedules.

SESCO and CSD argue that limiting participation in LIEE programs based on the customer's heating fuel source is inconsistent with program goals:

"For example, a customer living in PG&E's service territory who does not have access to natural gas service, who is an electric customer of PG&E, but who does not choose to heat with an expensive commodity like electricity is denied low-income weatherization services despite the fact that those weatherization services could increase the comfort level of the household, reduce energy related hardships and be cost effective for the customer." (CSD October 19, 2000 Comments, p. 3.)

"For example, SCE provides weatherization only to electric heat customers, even for those whose electric bills due to heavy air conditioning use often exceed their (non-electric) heating bills." (SESCO October 23, 2000 Comments, p. 2.)

In addition, SESCO and CSD contend that nothing in the Public Utilities Code or enabling legislation indicates that the end-uses of the utility fuels should influence the LIEE services provided to low income customers.

With regard to the exclusion of any customer being served under a business rate, CSD and SESCO argue that there may be many circumstances in which low income residences are served under such a rate. Examples include: customers residing in nonprofit group living facilities, migrant farmworker housing centers, certain employee housing and housing for agricultural employees. As specified in Pub. Util. Code § 739.1(b) and 739.2, these types of facilities may be eligible for CARE rate discounts, provided that the occupants "substantially meet the Commission's low-income eligibility requirements." CSD argues that disqualifying customers because of the rate schedule they are served under is incompatible with Pub. Util. Code § 2790, which specifically states that customers identified in Pub. Util. Code § 739 should be eligible for low-income weatherization services.

In their reply comments, the utilities state that the recommendations relating to non-residential rates that cover low-income dwelling units "may be valid, and deserves further consideration," although it "goes beyond the current focus of the standardization effort." The utilities further comment that offering weatherization to customers regardless of their fuel source "has serious funding implications, and goes beyond the process of standardization."⁶ They recommend that these issues be deferred until later in Phase 3 or to the PY 2002 planning process.

We believe that these issues are well within the scope of the standardization project directed by the Commission. The issue of eligibility based on heating fuel source was raised by the Contractors' Coalition in Application (A). 99-07-002 et al. and referred to the standardization project by the Commission, along with other standardization issues raised in that proceeding. The fact that the utilities do not currently define eligibility in the manner proposed by CSD and SESCO, should not preclude consideration of alternate definitions that will further the goal of offering all low-income customers "a consistent set of services across the state."⁷ With regard to the utilities' concerns about funding implications, we recognize that some of the changes in policies or procedures adopted for the LIEE program during Phases 2 and 3 may affect the scope of services and associated costs to implement the PY 2002 program. The utilities should clearly indicate these effects as they prepare and present PY 2002 budget recommendations.

The project team should consider these eligibility issues with input from interested parties in a workshop setting as soon as possible, and submit its recommendations no later than the due date for the full Phase 3 report, April 15, 2001. We encourage the project team to bifurcate Phase 3 and address the carryover issues from this decision in an interim Phase 3 report, so that the Commission can address any non-consensus issues as quickly as possible before the start of the PY 2002 planning process.

Consistent with the Assigned Commissioner's direction, the project team's report should include background information on this issue relating to current practices (including those of the Department of Community Services and Development) and alternative options for future treatments, and discuss the pros and cons of each option.⁸ We encourage SESCO and CSD to actively participate in the workshops so that their views can be explored during public discussion and incorporated into the project team's report.

With regard to the issue of eligibility based on heating fuel, the project team should discuss whether (and under what circumstances) providing weatherization services to customer that do not use the utility's services for heating will actually result in utility bill reductions under the ratepayer-funded LIEE program. In addition, the project team should describe how (if the restriction continues to apply) customers who do not use utility heating fuels can be effectively referred to State programs that provide weatherization services via other funding sources.

B. Income Verification

As explained in the Phase 2 report, practices with respect to the requirement for income documentation currently differ across utilities.⁹ With few exceptions, all of the utilities currently require the customer to produce some form of documentation of income eligibility for the LIEE program, but the form and extent of documentation varies among them. Some of the utilities require that service providers collect the income documentation, whereas others only require that documentation be reviewed and recorded.

In the Phase 2 report, the utilities recommend that procedures be standardized to require that all income documentation be reviewed, recorded and copied by service providers for all prospective participants. Qualification for other programs will no longer be taken (as it has been in the past under SoCal's program) as adequate evidence of qualification for the LIEE program. The one exception to this requirement is if the customer has been verified by the utility as eligible for the CARE program over the last year. The utility will periodically audit the documentation maintained by the contractor. In the event that documentation is not available for a participant, payment to the contractor for the weatherization of that unit will be disallowed.

SESCO recommends self-certification for the LIEE program. In SESCO's view, it is counterproductive to require detailed income verification for the LIEE program because several different families may enjoy the savings benefits from the program measures, which are expected to last 10 to 15 years. Moreover, SESCO argues that the extensive experience of PG&E and SDG&E does not indicate any significant level of fraudulent practices that would justify new procedures.

Even if documentation is required, SESCO argues that service providers should not be required to collect, copy and store income documentation. SESCO contends that low income families often have, at most, one copy of their documentation. Since many of the visits occur in residential areas, in the evenings or on weekends, SESCO argues that the added step of arranging for copying the documents would be difficult and time-consuming. Moreover, SESCO argues that the penalty of non-payment to the contractor for a unit with inadequate information collected is "a draconian overkill for a minor infraction, absent any indication of deliberate fraud or gross negligence."¹⁰

The utilities urge the Commission to reject SESCO's proposal to allow self-certification for the LIEE program. They argue that income documentation needs to be reviewed in order to ensure eligibility. The utilities also argue that the collection, copying and storing of income documentation is reasonable because LIEE services, unlike CARE services, can not be removed once installed.

Obviously, we intend that only income-eligible customers participate in the LIEE program. Being too lax on income verification procedures may result in the participation of customers that can well afford to pay some or all of the cost of installed weatherization measures. This results in higher costs to nonparticipating ratepayers than would otherwise be the case, and decreases the amount of authorized funding available to truly low-income residents. On the other hand, documentation requirements and verification procedures that are overly intrusive and burdensome may deter eligible low-income customers from participating in the program, and would certainly increase the administrative costs of the program that are born by nonparticipating ratepayers.

Our task, then, is to weigh the potential costs of the recommended verification procedures and policies presented by the utilities against the potential benefits. We note that the utilities' Phase 2 proposal imposes the most stringent requirements that have ever applied to the LIEE (or CARE) programs to date. The utilities did not, however, present any persuasive information that their proposed verification requirements would substantially reduce participation of non-eligible customers in the program, relative to other approaches. Nor did they present information on the administrative costs associated with the proposed requirements.

In the CARE program, we allow customers to "self-certify" their eligibility by having them complete forms with all the requisite income information. Participating customers must provide a signed statement indicating that (1) the utility may verify the customer's eligibility to participate in the program and (2) if the verification establishes that the customer is ineligible, the customer will be removed from the program and may be billed for discounts which the customer should not have received.¹¹

The monthly CARE discount can be discontinued relatively easily through billing adjustments if abuses are detected in the self-certification procedures that apply to that program. In contrast, the sizeable up-front ratepayer investment in LIEE weatherization measures, home repairs and furnace repairs/replacements (and associated bill savings to the customer) cannot be "discontinued" unless the measures are physically removed. Removal of these measures is costly and in many instances physically impossible. Therefore, we believe it is reasonable to augment the CARE requirements for the purpose of establishing eligibility by requiring LIEE service providers to review and record income verification documents before authorizing program participation.

We note that verification of information regarding income qualification on the part of the outreach worker has been the general practice for LIEE programs, rather than self-certification. We are not persuaded that utilities should abandon their efforts to document income eligibility before measure installation, as SESCO proposes, just because that residence may later be occupied by a different family. Nor do we find it unreasonable for the utility to audit the income information recorded by the contractor periodically and, if that information is not recorded for a customer, to deny payment for the measures installed.

However, service providers should not also be required to collect, copy and store income documentation as a general practice.¹² As in the CARE program, the utility should perform periodic audits to verify the income qualification of LIEE program participants. LIEE customers should similarly provide a signed statement indicating that if the utility verification establishes that the customer is ineligible, the customer may be billed for the weatherization measures which the customer should not have received. If the utility discovers a geographic pattern of non-eligible households participating in the program, it may then require the contractor(s) serving that area to collect, copy and store income documentation or take other steps, as appropriate, to address the problem.

C. Limits on Prior Participation in the LIEE Program

All programs currently have some policy with respect to dwelling units that have been weatherized previously by publicly-funded plans. SoCal's is the most stringent, prohibiting without exception the installation of any measures if the unit has been weatherized under any LIEE program. SDG&E and SCE take a similar approach, but allow some exceptions on a case-by-case basis and allow the installation of measures not offered when a home was previously weatherized. PG&E prohibits the installation of any measures in dwelling units that have been weatherized under the LIEE program in the past five years.

As described in Attachment 4, homes that have been treated under the LIEE program within the past 10 years would generally not be eligible for participation in the current program under the utilities' proposal. However, a home that has been treated during that period would be considered eligible for participation if the home needs ceiling insulation, and if ceiling insulation was previously deemed non-feasible as a result of a structural inadequacy (e.g., knob and tube wiring) that has been resolved. Other exceptions may be granted with the written approval of the utility administrator's program manager. In any event, occupants would still be referred to group energy education if it is offered.

SESCO objects to the 10-year timeframe, arguing that there are many reasons why a low-income customer may not be receiving the full benefits of the LIEE program that treated the residence sometime during the past ten years. We believe that some means of considering past participation in the program is important for the preservation of equity among potential participants. While arguments can be made with respect to the specific time window used to define previous participation, we believe that the utilities' proposal is reasonable, given the mix of measures and measure lives installed through the program. The proposal also recognizes the need to allow for some exceptions based on circumstances, and provides for them. We would add, however, that any unit that previously failed a combustion appliance safety pre-test, and therefore did not receive infiltration-related measures (but received other measures), would be considered eligible for the measures it did not receive if the test is subsequently passed during the 10-year window.¹³

D. Fractional Qualification in Multifamily Complexes and Mobile Homes

The utilities currently use different approaches to qualify households in multifamily complexes and mobile home parks.¹⁴ SDG&E qualifies the entire complex/park if at least 80% of all the individual dwelling units meet the LIEE program's income requirements. SCE and SoCal qualify a multifamily complex if at least 66% of the units not previously weatherized meet the income requirements, but qualify mobile home dwellers on an individual basis. That is, if an individual unit is occupied by a household that does not qualify (or if a unit is unoccupied), that unit cannot be treated. PG&E currently takes the same approach to qualifying the units in both multifamily complexes and mobile homes.

Under the utilities' joint proposal, all units in the complex/park that have not previously been treated under the program would become eligible if 80% of those units are occupied by income-eligible residents. If fewer than 80% qualify, those who individually qualify can still be treated.

SESCO argues that an 80% fractional qualification may be too high and, in any event, should apply to all the units in the complex/park, and not just those untreated. ICA recommends that 66% be the general requirement, unless the neighborhood is in the process of gentrification.

Under the joint utility proposal, the service provider would be required to income-qualify 80% of the units/mobile homes in a given program year that had not yet been treated. Under SESCO's proposal, the service provider would count units that were qualified and treated under the LIEE program in prior years towards the qualification requirement.

The purpose of adopting a fractional qualification requirement approach is to provide treatment for all units in a complex or mobile home park when it becomes obvious that the building caters overwhelmingly to low-income families. For this purpose, we believe that an 80% fractional qualification requirement is reasonable, as proposed by the utilities. However, we find that approach on how to apply the 80% rule that is currently in place for SDG&E, and recommended for all utilities by SESCO, makes the most sense. In its comments, SESCO provides a numerical example that highlights the shortcomings of the joint utility proposal:

"As an example, use the 80% rule in a 100 unit complex. During the PY 2000 program, outreach and treatment was completed for sixty units. During the next year's program, thirty more were treated. Under this scenario, 90% of all the units have been qualified and been treated. However, this would not qualify the building under the proposed system. In PY 2000, the provider qualified only 60% of the units not previously treated (60 out of 100). In PY 2001, the provider qualified and treated `only' 75% of the units not previously weatherized (30 out of the remaining 40 not yet weatherized)."¹⁵

We also agree with SESCO that the 80% rule should apply separately to attic insulation levels for common attic areas. It makes no sense from an energy efficiency perspective to insulate the common attic space over (for example) only 4 out of the 5 units, just because the occupant of one unit does not meet the income qualifications.

E. Minimum Necessary Weatherization and Other Eligibility Criteria

The utilities currently have no explicit policies with respect to the number of measures that must be needed by a home to qualify for participation in the LIEE program. As described in Attachment 4, the utilities propose to require such minimums. SESCO opposes these restrictions.

We agree with the utilities that the provision for not treating customers needing very few measures is necessary to maintain reasonable cost-effectiveness and will allow dollars to be spent on homes that have not yet received weatherization services.

SESCO also recommends that the current restrictions regarding refrigerator replacements and hard-wired fixtures in rental units be left open for further review. We understand from the utilities' response that these issues, along with the treatment of evaporative coolers in rental units, will be reconsidered during Phase 3.

F. Limits on Minor Home Repairs and Furnace Repairs/Replacements

As explained in the Phase 2 report, Res. E-3586 mandated per home cost limits on minor home repairs and furnace repairs for PG&E and SDG&E, and limited total expenditures on such repairs to no more than 20% of total program costs. SCE and SoCal currently have no such limits.

The utilities propose a standardized set of per home average cost limits and overall program expenditure limits. The per home average cost limits are similar to those currently in place for SDG&E and PG&E. The overall expenditure limits are $300 average cost per home receiving service for minor home repairs and $1,200 for furnace repairs and replacement (total combined cost for home receiving one or the other). SESCO objects to these proposed overall program expenditure limits, arguing that they substantially exceed the 20% limit established by the Commission.

The utilities respond by stating that (1) the current 20% limit does not apply to all utilities and (2) the two proposed restrictions (one relating to per average expenditures per home and one relating to total expenditures for individual homes) are adequate to ensure cost control. (Joint Reply, October 30, 2000, pp. 5-6.) However, these comments are not responsive to the issue raised in SESCO's comments. The utilities do not refute SESCO's contention that the average cost of all contractor incentives combined in the PG&E program, including outreach, measure installation, appliances and energy education, averages only $450. As SESCO points out:

"Were the use of the $300 average be allowed, this is equivalent to 67% of all other costs, more than three times the 20% guideline set by the Commission in its prior order on the subject. While we do not have similar numbers for the other utilities, we are sure that a $300 per house average is far in excess of the 20% guideline." (SESCO Comments, p. 7.)

There may be individual homes or even groups of homes that require significant repairs under this program and, for those, we should keep the per home limits proposed by the utilities. However, to preserve a reasonable balance between energy efficiency measures and home repairs, we believe it is reasonable to apply the 20% guideline adopted in Res. E-3586 to all utilities. If a utility sees that it is likely to exceed the 20% level, then it can request a relaxation of that guideline on a case by case basis, via Advice Letter.

SESCO contends that there is inadequate clarification in this report regarding which repairs, if any, are to be allowed so that the home may pass the combustion appliance safety test and receive infiltration measures, and whether there are limits to these expenditures. The utilities contend that Section 4 of the report clearly addresses all repairs that may be offered under the LIEE program, as well as expenditure limits. However, under PG&E's current policies and practices, it appears that the contractor may also utilize "the $750 set aside for building envelope repair" if more than $750 is needed for furnace repair and replacement to correct a gas leak problem.¹⁶ Thus, at least for PG&E, there appears to be an additional source of funds for repairs related to gas leak/carbon monoxide (CO) emissions problems. The Phase 2 report should be clarified to indicate under what circumstance additional repairs can be made (if any) by the LIEE weatherization contractor to respond to gas leak/CO emissions problems identified during the utility's gas appliance testing procedures, and what expenditure limits would apply to those repairs.

G. Spending Caps For Multi-Family Housing

In the Phase 2 report, the utilities state that they may limit expenditures on the treatment of multifamily dwellings to a specified percentage of the total program budget. However, the percentage cap for each utility is not provided nor is the basis for the caps explained. CSD recommends that the Commission require the utilities to publish the percentage cap applied by each utility, explain how the caps are determined and explain the relationship between the housing stock in each utility's service territory and the maximum percentage of funds devoted to treating multifamily housing. SESCO recommends that procedures for limiting expenditures by housing type be standardized.

In their comments, the utilities state that they will implement CSD's suggestion during Phase 3 and recommend that the Commission defer consideration of standardizing procedures for limiting expenditures by housing type until that phase. We will defer this issue until Phase 3. As discussed above, if the project team is able to address this issue before the April 15, 2001 deadline, it should submit its recommendations in an interim Phase 3 report.

H. Inspection Policies and Procedures

The Phase 2 report outlines the various differences in inspection policies and procedures across utilities, including the percent of homes receiving post-installation inspections, the use of in-house versus outsourced inspection services, measure pre-approval requirements, definitions of job "fails" and remedy requirements and dispute resolution procedures.

Attachment 4 presents the utilities' proposal for standardizing the inspection policies. Of particular note is the utilities' proposal to establish uniform, minimum sample sizes for post-installation inspections of all jobs not involving ceiling insulation.¹⁷ The minimum sample size presented in Table 5-2 of the report is established based on two parameters: the per home pass rate of the contractor and the number of homes allocated to the contractor. The sample sizes are designed to provide 90% confidence that the true pass rate is within 5% of the estimated value.

SESCO objects to the continued use of and referral to "per home inspection rates" as a performance indicator in the report. SESCO contends that the Commission made it clear that per measure pass rates (either alone or in conjunction with a per-home rate) were to be used in the future, and that the impact of the fails upon the energy savings of the home needed to be considered. SESCO also argues that the report should discuss how many inspections will actually be performed, not just the minimum levels. SESCO recommends that the standard be set at no less than that shown in Table 5-2 and no more than three times that level. SESCO also contends that the policy on inspection personnel described in the report contradicts Commission orders. In addition, SESCO argues that if pre-approvals are to continue, then providers should not be penalized for following that approval. Finally, SESCO objects to the resolution of inspection disputes by one of the parties in that dispute.

With respect to the issue of per-home pass rates, we discussed the shortcomings in using this type of pass rate as an indicator of relative performance quality and directed the utilities to propose alternatives in their PY 2002 applications. (D.00-07-020, mimeo. pp. 81-83, Ordering Paragraph 9.)¹⁸ Therefore, we view the proposed use of these rates for the purpose of establishing minimum inspection frequencies as interim in nature. On an interim basis, we will adopt the utilities' proposed Table 5-2. However, the basis of minimum inspection frequencies should be revisited after the Commission considers the use of alternate indicators of installation quality during the PY 2002 planning process. We do not agree with SESCO that the utilities need to establish specific upper limits to the inspections of jobs that do not involve ceiling insulation, at least not at this time. Nor do we find that the utilities' proposed maximum frequency cap on job corrections by inspectors discriminates against larger providers, as SESCO contends. However, the Phase 2 report should describe the circumstances that may warrant larger sample sizes than the minimums presented in Table 5-2, and we expect the utilities to keep records of actual inspection frequencies, by contractor, as well as the number of minor corrections.

We agree with SESCO that the Phase 2 report does not clearly reflect the Commission's stated policies with regard to the outsourcing of inspection personnel. Page 5-4 of the report states: "Utilities may use either in-house personnel, contract employees, or contractors to conduct inspections, provided that either the installation or the inspection function is outsourced." In D.00-07-020, we stated that utility could undertake in-house either the prime contractor (administration) function or the inspection function, but not both, with very limited exceptions. (Ordering Paragraph 1(a.) (b.).) The statement on page 5-4 does not conform to this directive, and should be corrected.

The Phase 2 report does not provide sufficient information with which to evaluate the "pre-approval" process that SESCO discusses in its comments. Apparently, only PG&E pre-approves measures, but this is done on an informational basis only. According to SESCO, if a contractor follows that approval and a subsequent PG&E representative states that the contractor action (or inaction) was incorrect, the contractor is charged with a fail regardless of any pre-approval to the contrary.¹⁹ The Phase 2 report (including the follow-up) does not address whether such pre-approvals are worthwhile and should be continued on a standardized basis across utilities. Nor does the report address how inspectors should evaluate contractors' work with respect to the pre-approval process in determining a "pass" or "fail" situation. The utilities should carefully examine these issues and present recommendations during Phase 3.

We note that the utilities do not propose to standardize inspection dispute resolution procedures, at this time. We believe that this is an important issue to address and direct the utilities to make this a high priority for Phase 3. We share SESCO's concerns that current dispute resolution methods may not provide sufficient impartiality on the part of the arbitrator if that person is also a utility employee. Alternates should be carefully considered.

I. Ceiling Insulation Levels

In the Phase 2 report submitted on September 15, 2000, the utilities presented a discussion of the issues associated with the determination of appropriate levels of ceiling insulation by climate zone, but they were not able to finalize their joint recommendations at that time. Those recommendations were submitted with the follow-up report on October 27, 2000.

As described in the report, current practices for determining the appropriate level of ceiling insulation vary across utility service territories, without specific consideration of climate zones. The utilities propose that the levels of ceiling insulation should be determined by climate zone in the future and, for this purpose, they propose to use an aggregation of the California Energy Commission (CEC) climate zones. Using various assumptions, they developed recommendations for what levels of ceiling insulation should be added to a dwelling, depending on the level of insulation currently installed and the climate zone. To arrive at these recommendations, the utilities made certain assumptions regarding the installed costs of insulation, gas and electric retail rates, avoided electric and gas costs, and space heating fuel mix (gas versus electric) for the low-income housing stock, among others. For each existing ceiling insulation level, the level of ceiling insulation that would produce the highest net benefits (present value of savings less the installed costs) was chosen as the amount of installation to add. Three scenarios were run: one that used avoided costs to value electricity and gas savings, one that used retail rates to value savings, and one that used averages of avoided costs and retail rates to value savings. ORA supports the utilities' proposal for ceiling insulation standardization.

In its comments, SESCO objects to several aspects of the utilities' analysis. First, SESCO objects to the aggregation of the 16 CEC climate zones into five. SESCO argues that this approach, by combining high air-conditioning climate zones with low ones, inappropriately reduces the importance of unusually high space cooling requirements as a variable in determining need. SESCO also objects to the utility's use of a single assumption (90% gas/10% electric) concerning the relative mix of gas and electric use in low-income housing, arguing that it obfuscates the needs of the electric heat customers. Similarly, SESCO objects to the utilities' assumption that all customers use 50% air conditioning in the calculation of appropriate ceiling insulation levels. Combined with the aggregation of climate zones, SESCO contends that this assumption has a very detrimental impact on the high air-conditioning user in a high air-conditioning climate zone. ICA echoes these objections in its reply comments.

SESCO also argues that, "since the program is specifically meant to help low income families," the appropriate benefit stream for ceiling insulation is the savings to the customer, i.e., the cost-benefit scenario that looks at retail rate impacts.²⁰ Although SESCO and ICA reject the use of avoided resource costs, they contend that the ones actually used in the report are inconsistent with the avoided costs being considered for non- low-income energy efficiency programs, which give a much higher value.

SESCO and ICA also object to establishing the level of ceiling insulation to add to an existing dwelling based on "highest net benefits." In their view, this is inappropriate for a program where the average total resource cost (TRC) test has historically been far below break-even (1.00). SESCO argues that additional ceiling insulation should be added to an existing dwelling as long as attic insulation as a measure has a higher TRC ratio than the program as a whole. Moreover, ICA and SESCO object to the discrete increments of insulation values (R-11, R-19 or R-30) proposed in the procedures. In their view, there is no reason to limit the added levels to values offered by batt insulation manufacturers when the overwhelming majority of insulated attics are blown.

In considering these comments, we first note that some degree of reduced accuracy is inevitable when aggregation or generic assumptions are utilized to simplify procedures for determining appropriate ceiling insulation levels. We agree with the utilities that, based on the public input at workshops, it is reasonable to attempt to simplify the process as much as possible so that field crews can work with these new requirements effectively. In this respect, we may diverge from the specific procedures currently in effect under the Department of Community Services Development's weatherization program, although the overall policy (i.e., specific consideration of climatic zones) is consistent. The issue we examine here is whether the approach proposed by the utilities to incorporate climatic differences in standardized, field procedures also provides a reasonable level of weatherization services to program participants, while protecting the interests of non-participating ratepayers who subsidize the program.

With respect to the use of five, versus 16, climate zones, utilities explain that the five areas developed from the CEC climate zones are reasonably homogeneous with respect to weather. These same zones are used by the California Windows Initiative and by the Department of Energy for the Energy Star windows program. The utilities also explain that the assumption that all low-income customers will use 50% air-conditioning is an extended attempt to incorporate hardship (comfort) into the analysis. Moreover, even if the analysis used all 16 climate zones, separated gas and electric heat and compared 100% a/c vs. 50% a/c in uncombined territories, the utilities respond that higher levels of insulation would only be indicated for a limited number of low-income electrically heated homes.

Regarding objections over the proposed method for selecting maximum ceiling insulation levels, the utilities point out that using the insulation level that gives the highest TRC net benefit is not equivalent to choosing the level with the highest TRC.²¹ They also explain that they do not propose using a TRC test in determining maximum ceiling insulation levels, but rather, a test that is designed to incorporate other considerations. On the issue of avoided cost assumptions, the utilities acknowledge that the designation of ceiling insulation levels will need to be revisited as new information on avoided costs becomes available, and plan to use Commission-approved avoided cost forecasts for subsequent determinations of appropriate ceiling insulation levels.

Finally, the utilities argue that limiting the number of approved insulation levels was intended to be responsive to workshop recommendations to keep the program simple.

Based on the above, we are persuaded that the utilities' proposal appropriately balances the objective of developing procedures to incorporate climate variations into workable, standardized ceiling insulation procedures, with the goal of providing a reasonable level of weatherization services to program participants at reasonable costs to non-participating ratepayers. In particular, we support the manner in which the utilities' proposal specifically considers the interests of non-participating ratepayers by considering the net benefits of various ceiling levels, and selecting the one that maximizes net benefits. The fact that the low-income programs as a whole may not be cost-effective from a TRC perspective should not deter us from trying to ensure the most efficient use of limited resources by incorporating traditional cost-effectiveness considerations into implementation procedures.

We recognize, as do the utilities, that the final determination on whether to establish ceiling insulation levels based on retail rates, avoided costs or a combination of the two will be a continuing issue until the overall LIEE cost-effectiveness methodology is determined. For now, the utilities proposal to establish the appropriate levels of ceiling insulation using an average of avoided costs and retail rates seems reasonable as a temporary assumption.

In the Phase 3 report, the project team should present an update on the designation of ceiling insulation levels based on the avoided cost determinations made in the PY 2001 energy efficiency program planning process, A.99-09-049 et al.

J. Natural Gas Appliance Testing

The Phase 2 follow-up report describes in some detail the current practices of the utilities with respect to natural gas appliance or what PG&E terms "combustion appliance safety (CAS)" testing, i.e., testing for gas leaks and CO emissions from natural gas appliances.²² Relatively speaking, PG&E's testing procedures are the most comprehensive.

To achieve greater consistency, the utilities recommend that a minimum set of procedures be implemented across LIEE programs. The minimum procedures recommended by the utilities address how the testing will be conducted, e.g., what inspectors will check for visually (flue and vent system, appliances) and CO test sampling procedures at the home. The procedures include olfactory tests, visual examinations, ambient CO tests and draft tests. They would be implemented whenever natural gas appliances are present in the dwelling and natural gas is served by the utility providing the LIEE program to the household.

The utilities propose that the minimum standard testing procedures be implemented either prior to the installation of measures (pre test), after the installation of measures (post test), or both before and after installation, at the utility's option. This provision allows the utilities to continue to have some discretion over their approach to authorizing infiltration measures for the household. For example, PG&E performs both pre- and post-testing of natural gas appliances. Based on the pre-test results, PG&E determines whether infiltration measures will be installed under the LIEE program. The other utilities install all feasible infiltration measures and conduct post-tests only.

ORA supports the utilities' recommendations regarding natural gas safety testing and recommends that the minimum standard procedures be reviewed periodically to determine whether they should be updated.

In SESCO's view, the minimum standard approach places many low-income customers at risk. Based the results of work undertaken by PG&E since 1999, during which SESCO was both the administrator and a major contractor in PG&E's LIEE program, SESCO argues that there is a "great hidden menace" from improperly working combustion appliances.²³ Rather than allowing utilities to implement different levels of natural gas appliance testing, SESCO recommends that the testing procedures be standardized across utilities based on PG&E's program. However, in order to eliminate the adverse effects of the current process, SESCO recommends that CAS testing be done after weatherization measures are installed. ICA supports SESCO's overall recommendations, but also urges the installation of CO monitoring in all homes treated.

As we stated in D.00-07-020: "The important issue for the safety of low-income customers receiving weatherization services is to ensure that the utuility's inspection and response procedures effectively protect all LIEE program participants from potentially hazardous situations in the home. By today's decision, we affirm the Assigned Commissioner's ruling that directs the utilities to achieve greater consistency in these procedures, including CAS testing."²⁴

The filings in this proceeding highlight fundamental differences in opinion regarding the extent of gas leak/CO emission risks and the proper means of mitigating them, as well as the extent to which infiltration reductions resulting from LIEE activities exacerbate existing conditions. In spite of these differences, the utilities have developed a proposal that "achieves greater consistency," as we directed. We believe that this is a reasonable first step. However, based on the filings in this proceeding, we also find that there are significant gaps in information on the issue of gas appliance safety that need to be addressed.

For example, we lack consistent data from PG&E's own experience with CAS testing since April 1998 with regard to the number and proportion of homes failing their CAS pre-test. PG&E does not agree with the 26% figure presented by SESCO in its filing, but also indicates that its data base does not keep track of this information.²⁵ Nor do we have information on the number and proportion of testing "fails" captured under the other utilities' testing systems. We also lack information on whether or not LIEE infiltration work exacerbates combustion safety. There should be sufficient data and expertise to assist us in obtaining needed data to further evaluate gas appliance testing issues in the future.

To this end, we will initiate an additional phase (Phase 4) of the Standardization Project to conduct a study of gas appliance safety conditions and alternative CAS testing procedures, e.g., pre- and post-testing, versus post-testing only. In evaluating testing alternatives, the project team should also explore and report on the feasibility of utilizing CO monitoring, as ICA recommends. The utilities may augment the project team with additional technical consultants, as needed, and Energy Division should continue to assist in coordinating the effort.

Consistent with past practices, the Assigned Commissioner will direct the project team with respect to the scope of work, budget and schedule for Phase 4. Our goal is to complete Phase 4 so that the Commission can further consider gas appliance testing issues during the PY 2004 program planning cycle. We establish this timetable in recognition of the fact that there are many low-income assistance issues to be addressed in Commission proceedings over the next year, and that we need to set realistic expectations for a study of this magnitude. After obtaining input from the public and interested parties to this proceeding, the project team should file a proposed study methodology, budget and schedule for Phase 4 by September 1, 2001. Copies should be served on the Assigned Commissioner and on all appearances and the state service list in this proceeding.

In the interim, we adopt the joint utilities' proposal for natural gas appliance safety testing procedures, as described in the Phase 2 Follow Up Report. However, as SESCO points out, the minimum standard presented in that report would permit differences in threshold CO levels. In their reply comments, the utilities state that they will proceed to develop a more detailed specification for the standard that will include threshold CO levels.²⁶ The utilities should present these detailed specifications in the Phase 3 Standardization Report, due on April 15, 2001.

Finally, the Phase 2 Follow Up Report state that the utilities "do not agree on the way in which these [LIEE gas appliance testing] activities should be funded," and indicate that this funding issue "will have to be considered further in the PY 2002 planning process."²⁷ In D.00-07-020 we reiterated our policy on this funding issue:

" . . . we agree with LIAB and Contractors' Coalition that carbon monoxide testing should not be billed to the LIEE program (or any other public purpose) funds. By Res. E 3515 and D.98-06-063, we made this policy very clear." (D.00-07-020, mimeo. p. 108.)

We will not relitigate this issue during the PY 2002 program planning cycle. SDG&E and SoCal also make the plea that they require Commission authorization to collect additional O&M funding to implement these minimum standards. We are not persuaded that an adjustment (increase) in rates is appropriate under current ratemaking procedures, especially without a more careful examination of all distribution rate accounts for both over- and under expenditures. In any event, the PY 2002 LIEE program planning process is not the appropriate forum to debate this issue. Rather, pending or future cost of service ratemaking proceedings are the appropriate forum for addressing whether and how the utility may recover specific O&M costs that were not specifically included in prior revenue requirement forecasts.

K. Eligibility of Evaporative Coolers For Rental Units

PG&E, SCE and SDG&E all provide evaporative coolers to owner-occupied units with functional air conditioning in some weather zones. However, these electric utilities differ with respect to the treatment of rental units. SCE has been given Commission authorization to continue to provide permanently installed evaporative coolers for renter-occupied dwellings. SCE requires a co-payment from the tenant. The other utilities do not offer any type of evaporative coolers to rental units.

In the Phase 2 follow-up report, the utilities presents pros and cons of offering evaporative coolers to rental units, but recommend that this issue be deferred to Phase 3. In their view, making a recommendation for a common treatment of evaporative coolers cannot be separated from the selection of specific measures to be offered by the utilities. Insofar as measure selection is being deferred pending the development of cost-effectiveness criteria by the RRM Working Group, the utilities believe that the resolution of this issue should be postponed. In addition, the utilities argue that the treatment of evaporative coolers raises a broader issue of the overall eligibility of rental units for program measures, which is a Phase 3 issue. Finally, they argue that the issue relates indirectly to the type of evaporative cooler installed in rental units, i.e., portable versus permanent, and that issue needs to be further explored.

In its comments, SESCO urges the Commission to specifically address the issue of whether or not low income customers are to be required or asked to make any co-payments on evaporative coolers, as currently done by SCE to both renters and home owners.

We direct the project team to fully address the issue of providing renters with evaporative coolers in Phase 3, including the issue of customer co-payments on evaporative coolers.

L. Eligibility of Master-Metered Units

Currently, master-metered customers are not eligible under PG&E's and SDG&E's LIEE programs. For SoCal, master-metered customers are eligible, but cannot exceed 15% of any contractor's allocation. For SCE (in the non-overlap area), master-metered customers are eligible as long as they have electric space heat. In the Phase 2 follow-up report, the utilities present estimates of the percentage of low-income master-metered dwellings in their service territories. For electric master meters, the range is roughly 5% to 10%, with PG&E falling at the top of the range and SDG&E at the bottom. The percentage of low-income households with gas service who live in dwellings with natural gas master meters seems to be in the range of 16% to 30%. SDG&E appears to be at the top of this range, while both PG&E and SoCal are close to the bottom.

The utilities describe the advantages and disadvantages of making master-metered units eligible, as follows:

Advantages:

· Tenants in master-metered units indirectly pay the Public Goods Charge through rents,

· Installation of measures could reduce these rents or at least reduce pressures for rent increases over time,

· Tenants receiving measures would enjoy increases in comfort, health and safety, all of which should be considered benefits of the program per AB 1393, and

· Some of the possibly neediest households in the State, including migrant farm workers, live in master-metered dwellings.

Disadvantages:

· There is no guarantee that tenants will receive the benefits of reductions in energy bills associated with the installation of LIEE measures,

· The installation of minor home repairs could even lead to increases in rents under some circumstances if measures increased the attractiveness of dwelling units,

· It is difficult to measure energy savings for a dwelling unit when master metering is present,

· It may be difficult to get owner approval in the event that master-metered housing is substandard, and

· Recruiting participants could cause friction between tenants and landlords if housing is substandard.

Although they acknowledge some of the arguments against making master-metered customers eligible for the program, the utilities recommend that master-metered customers be eligible for the LIEE program under the conditions outlined in Attachment 4.

One of the conditions reads: "If the master-metered dwellings are multifamily units, the fractional (80%) qualifications used for multifamily dwellings should be used for the purposes of qualifying tenants for the Program." SESCO interprets this to mean that no eligible customers in a master-metered, multi-family building will qualify unless 80% also qualify. In their joint response, the utilities explain that this condition provides for the same treatment as would be accorded multifamily tenants in individually-metered dwellings: "That is, if over 80% qualify, all can be treated. If fewer than 80% qualify, those who individually qualify can still be treated."²⁸ The utilities should add this clarification to the report, so that there is no misunderstanding about how the fractional qualification rule will be applied.

SESCO also objects to any cap on the maximum percentage of participants treated by a contractor in a program year that are master-metered, as the utilities propose. In SESCO's view, this policy is discriminatory in that it continues to treat low-income customers who live in master-metered units differently from any other type of low-income customer. If there is to be a maximum, SESCO argues that it should be standardized across the state and not left up to each utility. In addition, SESCO argues that any maximum should be set by budget dollars, not by units treated.

We do not find SESCO's argument against caps persuasive. Establishing a cap on the treatment of master-metered units is a reasonable way to find a balance in the treatment of low-income customers with different types of metering arrangements. As described above, there are disadvantages associated with treating master-metered customers. Most importantly, it is unclear that master-metered tenants will receive benefits from the program to the same degree as individually-metered tenants. While the disadvantages should not disqualify master-metered tenants from participating in the program, we believe that imposing a maximum on such participation is necessary to obtain a reasonable level of overall participant benefits from program budgets.

With regard to SESCO's proposal to set the cap based on budgets, rather than units treated, the utilities respond that the latter approach is preferable for two reasons. First, the utilities claim that it is easier to track the number of master-metered multi-family units treated than it is to track expenditures on those units. Second, the utilities are concerned that specifying the cap in terms of total budget could discourage contractors from providing comprehensive treatment of master-metered units.

While these arguments appear persuasive, we note that these same concerns about caps based on budgets would also seem to apply to multifamily units in general. However, as discussed above, the utilities propose to limit expenditures on treatment of multifamily units to a specified percentage of the total program budget, rather than on units treated. Therefore, we are left with an unexplained inconsistency on this issue. We direct the project team to further consider the manner in which the caps are established during Phase 3.

In addition, consistent with our discussion regarding spending caps for multi-family housing, the utility should publish the percentage cap it applies to master-metered units, along with an explanation of how the cap is determined in Phase 3. We will also defer consideration of standardizing maximum percentages on the treatment of master-metered units until that phase.