7. Assignment of Proceeding
Susan P. Kennedy is the Assigned Commissioner and Meg Gottstein is the assigned ALJ in this proceeding.
1. The Commission's review of earnings claims associated with the pending AEAPs have been delayed due to (1) limited resources in the wake of the electric crisis, (2) the Commission's inquiry into whether to reopen and reconsider the pre-1998 shared-savings mechanism, and (3) the necessary process undertaken to supplement the record with Energy Division's verification of retention and persistence study results, technical degradation factor assumptions and program milestone accomplishments.
2. The proposed settlements would resolve all pending earnings claims in this consolidated proceeding. In addition, for energy efficiency programs subject to the pre-1998 shared savings mechanism, the settlement agreements would resolve the earnings claims for energy efficiency activities undertaken in program years that are scheduled to receive their final earnings installments in future AEAPs.
3. The record in this proceeding provides an extensive review of the earnings claims associated with the pre-1998 shared savings mechanism. No aspect of this review refutes the reasonableness of these claims and, in fact, the review by Energy Division's consultant indicates that the utilities may have slightly underestimated the lifecycle savings associated with these energy efficiency programs, and therefore underestimated their earnings claims.
4. The record in this proceeding provides an extensive review of the 1999-2001 milestone-based incentive earnings claims by Energy Division's consultant, as well as by the CEC for selected milestones. As described in this decision, those reviews conclude that a very small percentage of the earnings claims would be potentially at risk, i.e., subject to downward adjustments.
5. WEM's contention that the 2005 DEER updates for CFL expected useful life (EUL) assumptions should be retroactively applied to PG&E's pre-1998 shared-savings earnings claims is not supported by the record. PG&E's residential CFL program was exclusively an information-only program during those program years. PG&E's non-residential CFL installations during the program years covered by the settlement agreement have significant technological differences and applications from those included in the studies that WEM cites, and composed a very small percentage (on the order of 2%) of the energy savings.
6. Contrary to WEM's assertions, the 2005 updated (EUL) assumptions for non-CFL energy measures also do not suggest that PG&E's earnings claims are based on unrealistic savings persistence assumptions. With few exceptions, the 2005 updated EUL assumptions for non-CFL energy efficiency measures have generally remained the same or increased relative to the pre-1998 EM&V protocol assumptions used to calculate savings and associated net resource benefits for the bulk of PG&E's pending AEAP earnings claims.
7. Discounting the stream of earnings claims that would be recovered in future AEAP installments back to the present captures the benefit of the time value of money associated with settling these claims today. The discounts from nominal earnings claims proposed in the settlement agreements are intended to reflect both the benefit of the time value of money associated with collecting some earnings claims before their scheduled recovery period and uncertainty about future recoveries.
8. WEM's approach to the discounting of PG&E's earnings claims assumes that payments to PG&E for future earnings installments will not be made until 2010, and that the future payment will be discounted at 8.5%. This results in a significant reduction in the nominal earnings claims for the time value of money, since it assumes that the bulk of the payments that are due to PG&E in early years accrue interest at a relatively low rate (less than 1.4% per annum), while they are discounted at a relatively high rate, 8.5%.
9. WEM provides no basis for the assumptions underlying its calculations.
10. A more reasonable assumption for this calculation would be that the AEAPs would be processed each year as expected, and that the discount rate would equal PG&E's weighted cost of capital (7.9%).
11. Applying the proper starting time and the appropriate discount rate to the nominal earnings claims reveals that the settlement amounts for PG&E, as well as for the other utilities, are lower than the resulting discounted claims.
12. The utilities' plans to amortize the authorized earnings over time without adding interest as these amounts are amortized will dampen the time value of money benefit associated with the settlements.
13. Contrary to WEM's assertions, none of the July 9, 2004 financial and management audit findings suggest that the ORA/PG&E settlement agreement is unreasonable and should be rejected by this Commission.
14. With respect to both the pre-1998 shared savings and 1999-2001 milestone earnings claims, the record suggests downward adjustments in earnings of approximately $1.2 million for PG&E, $260,000 for SCE, $475,000 for SDG&E and $655,000 for SoCalGas. This does not include the uncertainty with respect to the last round (related to the fourth earnings installment) of persistence/retention studies that would be submitted for some of the program years in subsequent AEAPs.
15. Even if WEM's argument regarding CFL persistence assumptions were correct in the extreme for PG&E's 1999-2001 milestone-based earnings claims-i.e., that zero savings should be attributed to all CFLs installed during those years, PG&E calculates that the impact on its earnings for these program years would only be on the order of $2.6 million. This is far less than the discount to pending earnings claims ($37 million in nominal dollars) that ORA and PG&E have agreed to in their settlement.
16. Even also assuming in the extreme that all LIEE pending earnings claims are potentially at risk pending the results of Energy Division's verification efforts, the settlement amounts would still be significantly less than the adjusted earnings claims, both in nominal and discounted dollars for each of the utilities. Moreover, Energy Division's verification of the LIEE claims could also result in higher earnings for the utilities if actual installations in 2000 were higher and/or if recorded costs for 1999-2001 were lower than originally projected at the start of each program year.
17. The whole record in this proceeding suggests that the utilities are settling for significantly less than would likely be due them for energy efficiency and LIEE activities undertaken through program year 2001 and 2003, respectively.
18. This represents a real cost savings to ratepayers or, put another way, allows ratepayers to retain a greater share of the net benefits from energy efficiency investments than anticipated.
19. The applications in this consolidated proceeding have included forecasts of total future incentives for the program years addressed in each filing, and the gross costs of these future claims has been explicitly considered in the record.
20. The settlement agreements address concerns over potential rate impacts associated with the payout of earnings by proposing rate recovery mechanisms that will amortize these earnings over time or consolidate them with other rate changes, in order to minimize or completely eliminate the need for any rate increases.
21. The utilities have clarified that no additional interest will accrue as the authorized earnings are amortized for rate recovery purposes.
22. Under the settlement agreements, the utilities will still perform the various measurement and evaluation studies required under the pre-1998 protocols and established by Commission decisions.
23. The settlement agreements are fully consistent with law and prior Commission decisions.
24. In addition to other benefits described in this decision, approval of these settlements agreements will reduce the expense of litigation, conserving scarce Commission resources, and also allow parties to reduce the risk that litigation will produce unacceptable results.
25. Implementing the terms of the settlement agreements will also allow this Commission to consider future risk/reward mechanisms for energy efficiency unencumbered by the remnants of past incentive mechanisms and associated earnings claims.
26. In keeping with the concept of a shared-savings incentive mechanism, the utility earnings authorized today via the settlements are much less than the savings ratepayers have already received by deferring or avoiding more costly supply-side investments with energy efficiency.
27. Today's decision addresses all remaining issues in this consolidated proceeding.
1. As discussed in this decision, WEM's submittals in response to the utilities' 2000/2001 AEAP applications were not responsive to the issues in this proceeding.
2. WEM's objections to the ORA/PG&E settlement agreement are without merit.
3. The settlement agreements are reasonable in light of the whole record, consistent with law and in the public interest. They should be approved in their entirety.
4. This consolidated proceeding should be closed.
IT IS ORDERED that:
1. The December 30, 2004 Settlement Agreement attached to the Motion of Joint Parties (Southern California Gas Company and San Diego Gas & Electric Company and Office of Ratepayer Advocates) for Adoption of Settlement Agreement, dated December 30, 2004, is approved.
2. The April 4, 2005 Settlement Agreement attached to the Motion of Pacific Gas and Electric Company and the Office of Ratepayer Advocates for Adoption of a Settlement Agreement, dated April 4, 2005, is approved.
3. The June 10, 2005 Settlement Agreement attached to the Motion of the Office of Ratepayer Advocates and Southern California Edison Company for Adoption of a Settlement Agreement, dated June 13, 2005, is approved.
4. No additional interest shall accrue as the authorized earnings approved today are amortized for rate recovery purposes.
5. As discussed in this decision, Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, and Southern California Gas Company ("the utilities") shall update the calculations of total net resource benefits and the benefits to ratepayers over and above program costs and the payout of shareholder incentives from energy efficiency activities, based on the earnings authorized by today's decision. The utilities shall jointly prepare this updated information and file and serve it as a compliance filing in Rulemaking 01-08-028 within 30 days from the effective date of this decision. The assigned Administrative Law Judge shall also provide further direction to the utilities on how to report this information in a consistent format and may, for due cause, modify the due date for this filing.
6. Application (A.) 00-05-002, A.00-05-003, A.00-05-004, A.00-05-005, A.01-05-003, A.01-05-009, A.01-05-017, A.01-05-018, A.02-05-002, A.02-05-003, A.02-05-005, A.02-05-007, A.03-05-002, A.03-05-003, A.03-05-004, A.03-05-009, A.04-05-005, A.04-05-008, A.04-05-010, A.04-05-012 are closed.
This order is effective today.
Dated , at San Francisco, California.
Gottstein Tables 1-6 and Attachments 1-6
Gottstein Tables 1-6 and Attachments 1-6
Gottstein Notice of Availability
