Background

Procedural

These applications were filed on November 15, 2000, as required by Decision (D.) 00-07-017 (Ordering Paragraph (OP) 93) and in accordance with the Administrative Law Judge's Ruling Establishing Schedule and Process for PY 2001 Energy Efficiency Program Planning (Ruling on Schedule) issued on August 15, 2000 in A.99-09-049 et. al.1 The applications were formally filed following an extensive public input process, which culminated in the utilities' formal public presentation of the PY 2001 program plans during the week of October 23, 2000.

By ruling issued on November 20, 2000, the Chief Administrative Law Judge (Chief ALJ) shortened the time for protests and comments and scheduled a prehearing conference (PHC). The ruling also required the parties to file PHC statements and to meet and confer regarding the issues presented and proceeding schedule.

A PHC was held on December 5, 2000. At that time, several parties, including the four utilities, the Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), the Residential Energy Service Companies' United Effort (RESCUE) and SESCO, Inc. (jointly) (RESCUE/SESCO), National Resources Defense Council (NRDC), and the National Association of Energy Service Companies (NAESCO) presented a proposal to govern the proceedings, as agreed to in the meet and confer session required by the Chief ALJ's ruling. The participating parties proposed that we issue an Interim Order, after receipt of comments, authorizing some if not all of the program-specific elements set forth in the applications to commence on January 1, 2001, subject to mid-term modifications in a final decision. At the PHC, several other parties expressed support for the proposal while several intervenors objected because of the expedited and summary nature of the proceedings.

By ruling issued on December 8, 2000, the Assigned Administrative Law Judge (ALJ) directed the parties to submit comments on the proposal to issue an Interim Decision and the program plans, activities, and budgets to be considered for interim approval. (Ruling Setting Preliminary Schedule and giving Directions for Submitting Information and Other Filings Following Prehearing Conference.) The ruling further extended the date for filing protests until December 18, 2000 and ordered the utilities to supplement their applications with further information to facilitate review of the applications. Comments and/or reply comments on the issues raised in the December 8, 2000 ruling were filed by the four utilities, the CEC, TURN, ORA, Primis, Inc. (Primis), RESCUE/SESCO, NAESCO, the City of San Jose, and, jointly, NRDC and Center for Energy Efficiency and Renewable Technologies (CEERT).

Protests on the applications were filed by the CEC, TURN, the Residential Energy Efficiency Clearing House, Inc. (REECH), NAESCO, RESCUE/SESCO, Primis, and Robert Mowris and Associates (Mowris). Comments were filed by the Sierra Club and Appliance Recycling Centers of America, Inc. (ARCA).

Energy Efficiency Programs

Current energy efficiency program funding is authorized as a separate component of utility rates and is administered by the utilities under the Commission's direction. Public Utilities Code §381(a)2 provides for the collection of a separate rate component as a nonbypassable element of local electric distribution service, to fund, in part, energy efficiency programs. The utilities are directed to collect and spend these funds on "cost effective energy efficiency and conservation activities" at minimum funding levels, which for PY 2001 are: for SDG&E-$32 million; Edison-$50 million;3 PG&E-$106 million. (§381(c)(1).) PG&E's, SDG&E's and SoCalGas' natural gas energy efficiency programs are funded through rates set in the utilities' general rate cases.

Prior to 1998, the utilities administered demand side management (DSM) energy efficiency programs focused on decreasing energy use to save fossil fuels and reduce the need to build new utility plant, transmission, and distribution facilities ("resource acquisition").

With the enactment of Assembly Bill 1890 and Public Utilities Code sections 381 and 382, and the advent of electric deregulation, the Commission adopted new policy directions for the administration and implementation of energy efficiency programs: independent administration and market transformation. (D.97-02-014.) The Commission provided for continued interim utility administration and created an advisory board to oversee the transition to independent administration. The Commission also adopted a long-term policy of market transformation, and directed the utilities to make programmatic changes consistent with this objective. (D.97-12-103.)

The Commission created the California Board for Energy Efficiency (CBEE) and, when the transfer to independent administration was delayed, directed the utilities to work with the CBEE on program planning, proposals, and modifications. (D.97-04-044; D.97-09-117; D.97-12-103.) The utilities worked with the CBEE in filing program applications for 1998, 1999, and 2000.

After encountering structural difficulties with the transition to independent administration, the Commission extended the utilities' program administration through 2001. (D. 99-03-056.) Subsequently, the Commission set forth several principles for the interim utility administrators to follow in developing program plans for PY 2000 and 2001 (D.99-03-056) and then adopted selected policy, programmatic, and funding modifications to guide the programs. (D.99-08-021.) In D.99-12-053, the Commission approved, on an interim basis, PY 2000 programs and budgets, and, as discussed further below, in D.00-07-017, the Commission modified and gave final approval to those programs, directing that new applications be filed for PY 2001. Determining that the CBEE's legal structure has become cumbersome, the Commission then abolished the CBEE and provided for review through formal proceedings and Energy Division oversight. (D.00-02-045.)

PY 2001 Applications

These applications were filed pursuant to our explicit direction in D 00-07-017 after a lengthy and extensive public planning process. In D.00-07-017 we approved the utilities' PY 2000 programs, budgets, shareholder incentives, and related activities but declined to approve the proposed PY 2001 programs, budgets, shareholder incentives, and related activities because the utilities had not provided sufficient information to demonstrate compliance with our prior programmatic and budgetary directives and policy rules. Thus, we ordered the utilities to provide additional programmatic and budgetary detail, to engage in a public planning process, and to file new applications for PY 2001 incorporating changes designed to comply with our prior directives and responsive to issues raised during the public planning process. We delegated to the Assigned Commissioner and Assigned ALJ the responsibility for guiding the public planning process. (Id., mimeo, at pp. 210-211; OP 2-6.)

While D.00-07-017 provided programmatic and budgetary direction and ordered the utilities to submit program plans and budgets that complied with the direction given on many issues, the primary focus of the directives requires the utilities to: 1) target and increase funding for underserved residential and small commercial customers; 2) limit the participation of customers who have participated significantly in the past to reduce freeridership;5 and 3) ensure that there is equity in the programs so that program funds are provided to customer classes in rough proportion to the contributions made by those customer classes under the PGC surcharge.6

In approving the PY 2000 programs, we also recognized and addressed the rapidly escalating energy supply shortage by adopting the Summer 2000 Energy Efficiency Initiative (Summer Initiative) as a "rapid response procedure" to provide "measurable demand and energy usage reductions beginning in summer 2000." (Id., mimeo., at p. 199.) The Summer Initiative was specifically designed "to provide maximum impact of demand and energy usage reductions" during the current summer energy capacity shortage and for the potential energy shortage projected over the next few years. (Id.) Thus, we designated approximately $67 million in carry-over PGC funds for this program. As the energy supply shortage increased and wholesale prices escalated, we subsequently modified our policies for PY 2001 programs, to emphasize both total energy savings and peak demand savings.

Subsequently, upon enactment of Assembly Bill (AB) 970 (codified in §399.15(b)), which requires the Commission to, among other things, "adopt energy conservation demand-side management and other initiatives in order to reduce demand for electricity and reduce load during peak demand periods," we directed that the utilities' PY 2001 programs address the following program initiatives mandated by AB 970:


1. Expansion and acceleration of residential and commercial weatherization programs.


2. Expansion and acceleration of programs to inspect and improve the operating efficiency of heating, ventilation and air-conditioning (HVAC) equipment in new and existing buildings to ensure that these systems achieve the maximum feasible cost-effective energy efficiency.

(Assigned Commissioners' Ruling on Implementation of Public Utilities Code Section 399.15(b) issued on August 21, 2000 (ACR Implementing AB 970).)

Thus, we "add[ed] the objective of achieving peak demand savings, through energy efficiency programs, to the program goals set forth in Decision (D.) 00-07-017 and D.99-08-021." (Id.) We further explained that,

"while we do not set any target percentages for programs that target peak load reduction, we expect that the programs will balance peak and energy demand reductions, equity and targeting of underserved markets, and sustainable long-term energy savings, which is consistent with and furthers the objectives set forth in § 399.15." (Id.)

We also found that the CEC's work to modify the Title 24 and Title 20 standards provides an excellent opportunity for these expanded initiatives and directed the utility administrators to enhance and expand programs that build upon the proposed new codes and standards. Finally, we directed the parties to consider methods to address the system value of reduced load in the PY 2001 energy efficiency program planning process, thus addressing AB 970's mandate that we reevaluate all efficiency and cost-effectiveness tests in light of increases in wholesale electricity and natural gas costs to explicitly include the system value of reduced load on reducing market clearing prices and volatility. (Id; see, also, ALJ Ruling Concerning Cost-Effectiveness Inputs For Program Year 2001 Planning in A.99-09-049 et al., issued on September 14, 2000. (ALJ Ruling on Cost Effectiveness).)

The ALJ thus summarized the goals for PY 2001 programs in the September 6, 2000 workshop as follows:

(September 9, 2000 Joint Energy Division and Utilities PY2001 Program Planning Workshop Report, pp. 1-2.)

Pursuant to our delegation, the Assigned Commissioner and Assigned ALJ issued various rulings throughout the planning process to guide program and budget development and to guide modification of the shareholder incentive and milestone mechanism. We approve those rulings.

1 A.99-09-049 et al. is the docket in which the utilities filed PY 2000 and 2001 energy efficiency applications. As described further below, we decided in D.00-07-017 to conduct the planning process for PY 2001 applications under this docket. 2 All statutory references are to the Public Utilities Code unless otherwise stated. 3 Edison's minimum funding level is reduced, by statute, from $90 million for PY 2001 only. 4 This amount comes primarily from projected unspent funds from PY 2000 programs plus balancing account interest since the carry-over funds from PY 1998 and 1999 were expended on the Summer 2000 Energy Efficiency Initiative (Summer Initiative) authorized in D.00-07-017. (OP 86.) 5 Freeriders are customers that participate in a utility-sponsored program and undertake an energy efficiency measure, but would have undertaken the energy-saving project without the intervention.

6 In D.99-08-021, the utilities were directed to design the programs and budgets following eight specified program design and implementation principles and to modify programs and budgets to: 1) address issues regarding the nonresidential Standard Performance Contract (SPC) program (a third party contracting program that provides incentives based on realized energy savings), including increased targeting to smaller customers; 2) increase emphasis on other program elements where the SPC is not well-suited; 3) design local programs using the expertise of local governments to reach underserved communities; 4) increase funding for general and targeted third party solicitations; 5) increase funding for smaller nonresidential customers; 6) increase funding for activities that benefit underserved communities; 7) decrease funding for SPC targeted to large customers; 8) increase funding for the Residential Contractor Program (RCP) (a third-party contracting program providing incentives for both single family and multi-family residences); 9) increase funding for the Commercial Remodeling and Renovation Program; 10) give increased attention to the role of emerging technologies; 11) provide strategies and increased budgets to improve implementation of new standards; 12) provide funds to customer classes and sub-classes in proportion to their PGC contributions; and 13) provide opportunities for public input. (Id., OPs 6-14.)

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