Program Budgets

We preliminarily approve 80% of the utilities' budgets for the three program areas, residential, nonresidential, and new construction, as follows:

Program Area	Interim Budget Authorization ($ million)
PG&E
Residential	$40.22
Nonresidential	$49.71
New Construction8	$22.48
Total PG&E	$112.41
SCE
Residential	$23.17
Nonresidential	$27.94
New Construction9	$12.78
Total SCE	$63.89
SDG&E
Residential	$11.82
Nonresidential	$12.58
New Construction	$6.52
Total SDG&E	$30.92
SoCalGas
Residential	$7.19
Nonresidential	$11.69
New Construction	$4.91
Total SoCalGas	$23.79

We approve 80% of program budgets across the board at this time instead of 100% to provide the opportunity for a full review and evaluation of the program portfolios and because we believe that there should be programmatic changes made prior to issuance of the final decision. This adjustment will not impact utility programs because, as discussed below, utility administrators will be given flexibility to shift funds as needed to meet demand and to maximize energy savings. Further, it is highly unlikely that utility administrators will be in a position to expend even 80% of the funds prior to the issuance of a final decision, which we anticipate will issue by the spring of 2001.

In approving the utilities' overall budgets, we recognize that we are again approving the use of carry-over funds from prior years as well as balancing account interest. While we are extremely disappointed in the utilities' failure to use these funds to procure energy savings in 2000 and earlier, given the current energy supply shortage and rapidly escalating prices and the pressing need to step up efforts at energy conservation, we believe that these funds are appropriately budgeted for use in PY 2001.

Funding Flexibility

We will grant the utility administrators flexibility to shift funds between programs within a program area (e.g., within the residential program area, the nonresidential program area, and the new construction program area) during the course of the year, subject to the principles we set forth in D.00-07-017: equity and targeting underserved markets. We agree with the CEC that such flexibility is needed so that the utilities can expand and accelerate, as necessary, programs that achieve the maximum feasible reductions in uneconomic and peak electricity consumption as the need arises. We do not believe that compliance with our overarching principles of ensuring that the customers who contribute to the PGC benefit from the programs funded through the PGC and targeting underserved communities will limit the utilities in the management of their portfolios to achieve maximum energy and demand savings over the coming year. On the contrary, there are substantial untapped conservation opportunities in virtually all customer classes and communities. We make programmatic suggestions below but expect the utilities to design, implement, and fund programs that both meet these requirements and maximize energy and demand savings.

We will not, however, allow the utilities to shift funds between program areas without prior Commission approval. Further, we disapprove the utilities' proposal to combine the residential new construction budget with the residential program area budget and the nonresidential new construction budget with the nonresidential program area budget for fund-shifting purposes. Programs specifically targeted toward energy efficiency in new construction are an important part of our energy efficiency portfolio and have the potential for providing much needed energy and demand savings. Further, AB 970 specifically requires additional efforts to garner energy savings in new construction. Combining the new construction budgets with the residential and nonresidential budgets for fund-shifting purposes does not further the legislative mandate or energy saving goals. For this same reason, we believe that new construction budgets should be maintained at a minimum of 20% of the utilities' total program budget. Accordingly, we have increased Edison's and PG&E's new construction budgets from 19% and 16%, respectively, to 20%.

Refrigerator Rebates

In its application, Edison raises an issue with respect to incentives for qualified Energy Star refrigerators, stating that it did not include such incentives because of a provision set forth in SB 1194/AB 995 that precludes the payment of incentives for the purchase of new energy efficient refrigerators. PG&E also declined to include incentives for the purchase of energy efficient refrigerators in its program portfolio. However, Edison and PG&E have indicated a willingness to include incentives for qualified Energy Star refrigerators if we determine that SB 1194/AB 995 does not prohibit them. We do not believe that SB 1194/AB 995 prohibits rebates for the purchase of Energy Star refrigerators during PY 2001.

SB 1194/AB 995 adds Article 15 (commencing with §399) to Chapter 2.3, Part 1 of Division 1 of the Public Utilities Code. Section 399.4 (a)(1) sets forth the policy of the state and the intent of the legislature to "continue to administer cost-effective energy efficiency programs authorized pursuant to existing statutory authority." Subsection (b) provides that "the Commission, in evaluating energy efficiency investments under its existing statutory authorities, shall ensure both of the following: . . . (2) that no energy efficiency funds are used to provide incentives for the purchase of new energy efficient refrigerators."

SB 1194/AB 995 has many different parts. While several different sections have stated effective dates, there is no effective date attached to the new §399.4. Thus, the issue presented is whether this prohibition on funding for refrigerator rebates should be applied to PY 2001 programs or whether it is effective for programs conducted in PY 2002 and beyond. Since the statute is ambiguous and subject to more than one interpretation, we "look to a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part" (People v. Woodhead (1987) 43 Cal.3d 1002, 1008) in order to "ascertain the intent of the Legislature so as to effectuate the purpose of the law." (People v. Jenkins (1995) 10 Cal.4^th 234, 246; Select Base Materials, Inc. v. Board of Equalization (1959) 51 Cal.2d 640, 645.)

SB 1194/AB 995 is entitled "Electric Restructuring: public benefits programs." The Legislative Council's digest references the fact that existing law requires the utilities to identify and collect, as a nonbypassable element of local distribution, a separate rate component to fund cost-effective energy efficiency and conservation activities, public interest research and development, and development of renewable resources technology, through December 31, 2001, and in certain instances through March 31, 2002. It then explains that this bill extends the production incentives for renewable electricity to January 1, 2007, extends the collection of the nonbypassable system benefit charge to support energy efficiency programs through January 1, 2012, and provides for the appointment of an independent review panel to report on the benefits secured for residential customers by January 1, 2005.

Thus, we see that the overriding purpose of the bill was to extend funding for energy efficiency programs that were scheduled to sunset by the end of 2001 or early in 2002. For example, because §381(c)(1) provides for the collection of funds to support energy efficiency programs only through December 31, 2001, the bills add §399.4(d) to provide for funds to support energy efficiency programs from 2002 though 2012. Further, §399.4(a)(1) specifically states the policy of the state and the intent of the legislature to "continue to administer cost-effective energy efficiency programs." (Emphasis added.) Thus, we construe the prohibition on funding for refrigerator rebates set forth in the recently enacted §399.4(b)(2) to apply only to energy efficiency programs funded by this legislation; that is, to programs that are continued and funded by collections made after January 1, 2002.¹⁰ Further, program planning for PY 2001 must occur substantially prior to 2001, a fact to which the legislature must be deemed to have knowledge at the time it passed this legislation.

Thus, we find that the utilities are not prohibited by §399.4(b)(2) from providing incentives for qualified Energy Star refrigerators in their appliance programs for PY 2001. Refrigerators contribute substantially to residential energy use and incentives to encourage replacement of inefficient models may be an effective strategy for achieving energy saving.

Third Party Initiatives (TPI)

In D.00-07-017, the Commission ordered increased funding for general and targeted TPI, to "take advantage of the `unique expertise, relationships with customers, and ability to coordinate among related activities offered by individual or groups of local governments.'" (D.00-07-017, mimeo, at p. 147; see, also, OP 71; D.99-08-021 (OP 12(a); 11).) In so doing, we recognized that these programs are a source for new ideas and also provide for new program implementation agents. Our experience with the Summer 2000 Energy Efficiency Initiative, which was implemented as a general TPI solicitation, also confirms our view that there are many innovative, creative, and successful programs that have the potential of producing both short-term and long-term energy and demand savings.

A preliminary review of the utilities' applications shows the following TPI budgets for PY 2001 as compared to PY 2000:

TPI Funding ($ Millions)

Utility	PY 2000 Budget	PY 2000 Projected Spent Yr.-End	PY2001 Proposed Budget	PY2000 Summer Initiative TPI Funding
PG&E	8.700	8.700	2.110	3.500
SCE	2.150	2.249	4.000	1.700
SDG&E	0.508	0.190	1.975	1.000
SCG	3.111	3.163	0.861	-
Total	14.469	14.302	8.946	6.200

These budgets show that PG&E and SoCalGas decreased their proposed budgets for TPI while Edison and SDG&E slightly increased them. These proposals do not comply with either the wording or the intent of prior directives. Moreover, by failing to incorporate increased budgets for TPI, the utilities are losing out on a substantial opportunity to effectuate energy and peak demand savings through the use of innovative cost-effective programs. In their comments, Primis and Mowris also make a compelling case for the potential cost effectiveness of and energy savings contributed by various TPI programs that have been funded over the past several years. The current energy situation needs the increased involvement of the private sector and the innovation and cost-effectiveness it can bring.

Further, there is evidence that the utilities have not been able to reach a substantial number of consumers with their energy efficiency programs, at least, in part, because consumers are not convinced that they will in fact save money by instituting energy efficiency measures. Third parties with established community ties, both individuals and government entities, can assist in breaking down those barriers and effectively promote energy efficiency, as demonstrated by the successful program that PG&E operates with the City of San Jose. Finally, we note that the utilities have routinely failed to spend a substantial portion of program funds each year. Instead of carrying over these funds yet one more time, it is in the ratepayers' and utilities' interest to use these funds for creative and innovative new programs.

Thus, we direct each utility to reserve a minimum of 8% of their program budgets, across all three program areas, for TPI. The Summer Initiative is a separate program, which has been designed and implemented on a separate track from the PY 2000 and PY 2001 programs. Thus, the Summer Initiative TPI should not be included in the budget reserved for TPIs for PY 2001. The following table contains the minimum level of required TPI funding, assuming 80% budget authorization:¹¹

Utility	Required TPI Reserved Budget ($ million)
PG&E	$8.99
SCE	$5.11
SDG&E	$2.47
SoCalGas	$1.9012
Total	$18.47

Further, we direct each utility to immediately: 1) continue prior TPI programs that can be proven to be cost-effective; 2) develop new general and targeted TPI solicitations for PY 2001, which include both individual and governmental third parties; and 3) demonstrate a plan for publicizing the solicitations. The utilities should include their proposed plans and budgets in the testimony or comments to be filed in further proceedings prior to issuance of the final decision.

ORA continues to object to TPI because there is no provision for predetermining the programs that will be funded, how the funds will be spent, and who is responsible for tracking and monitoring the programs, there is no assurance that funds will be spent on the most effective programs, and there are no standards for selecting winners or rules for verification. While we believe that some of these are legitimate concerns, they point to the need for standards and protocols, not for eliminating TPI funding. Thus, in D.00-07-017, we directed the utilities, with input from interested stakeholders, to develop protocols to govern the cost-effectiveness analysis submitted by TPI bidders and reporting requirements, procedures, and standards for post-program collection of cost data for TPI programs, to adopt standards for defining and identifying each solicitation, and to provide for monitoring and reporting on TPI. (Id., mimeo, OPs 72-75 at p. 267.)

The utilities conducted a public workshop in an attempt to devise appropriate protocols, standards, and procedures for TPI. However, no consensus was reached; thus, the utilities submitted a workshop report recommending the adoption of proposed "Standards for Assessing Cost Effectiveness of Third Party Initiative Programs," that they had developed. Finding the utilities' proposal deficient, the ALJ ordered the utilities to revise and supplement their report. (ALJ Ruling on Cost Effectiveness.) The utilities filed a supplemental report on November 8, 2000. A preliminary review of the proposal, as supplemented, is still inadequate to meet the directives set forth in D.00-07-017 and to ensure that the TPI selection process is fair, and that the programs selected are reasonably designed to produce energy and/or peak demand savings, and are properly monitored, evaluated, and reported. Thus, we will revisit the appropriate standards and protocols to use with respect to TPI in further proceedings prior to issuance of a final decision.