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STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

March 2, 2001

TO: PARTIES OF RECORD IN RULEMAKING 98-07-037

This is the draft decision of Commissioner Lynch and Administrative Law Judge (ALJ) Gottstein. It will be on the Commission's agenda at the next regular meeting 13 days after the above date. The Commission may act then, or it may postpone action until later.

When the Commission acts on the draft decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Rule 77.7(f)(9) provides for reduction or waiver of the 30-day period for public review and comment when public necessity requires such reduction. We must balance whether the public necessity of adopting an order outweighs the public interest in having the full 30-day review and comment period. We are convinced that this draft decision falls under Rule 77.7(f)(9), and for that reason, we established a shortened period for comments on the draft decision.

Comments on the draft decision must be filed within seven days of its mailing and no reply comments will be accepted.

In addition to service by mail, parties should send comments in electronic form to those appearances and the state service list that provided an electronic mail address to the Commission. Finally, comments must be served separately on the ALJ and the Assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious methods of service.

/s/ LYNN T. CAREW

Lynn T. Carew, Chief

Administrative Law Judge

LTC:hkr

Attachments

COM/LYN/ALJ/MEG/hkr DRAFT Item 3

Decision DRAFT DECISION OF COMMISSIONER LYNCH AND
ALJ GOTTSTEIN (Mailed 3/2/2001)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on the

Commission's Proposed Policies and Programs

Governing Energy Efficiency, Low-Income

Assistance, Renewable Energy and Research

Development and Demonstration.

Rulemaking 98-07-037

(Filed July 23, 1998)

INTERIM OPINION: IMPLEMENTATION OF PUBLIC UTILITIES

CODE SECTION 399.15(b), PARAGRAPHS 4-7; LOAD CONTROL

AND DISTRIBUTED GENERATION INITIATIVES

TABLE OF CONTENTS

Title Page

INTERIM OPINION: IMPLEMENTATION OF PUBLIC UTILITIES
CODE SECTION 399.15(b), PARAGRAPHS 4-7; LOAD CONTROL
AND DISTRIBUTED GENERATION INITIATIVES 2

1. Summary 2

2. Background 5

3. Energy Division's Program Recommendations 6

4. Discussion 10

5. Comments on Draft Decision 35

Findings of Fact 36

Conclusions of Law 41

ORDER 45

Attachment 1 Adopted Programs to Fulfill AB 970 Load Control and
Distributed Generation Requirements

INTERIM OPINION: IMPLEMENTATION OF PUBLIC UTILITIES

CODE SECTION 399.15(b), PARAGRAPHS 4-7; LOAD CONTROL

AND DISTRIBUTED GENERATION INITIATIVES

1. Summary

By today's decision, we adopt the Energy Division's program proposals for load control and distributed generation initiatives, pursuant to Pub. Util. Code § 399.15(b), with certain modifications and clarifications. We authorize a total of $137.8 million in funding for these programs, on an annual basis through December 31, 2004.

As discussed in this decision, we cannot raise electric utility rates until the Commission has determined that the rate freeze is over, or unless the Legislature specifically authorizes us to impose an additional charge during the freeze to recover these program costs. Accordingly, as directed by Assembly Bill (AB) 970, we will include the costs of these programs in the utility's distribution revenue requirement, on the electric side, and defer consideration of an electric rate increase until the rate freeze ends. Within 15 days, Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE) shall file Advice Letters increasing their electric distribution revenue requirements, without modifying current rates, to include today's authorized program budgets. On the gas side, PG&E, SDG&E and Southern California Gas Company (SoCal) should include the costs of the self-generation programs allocated to gas customers in their next gas rate recovery proceeding, e.g., the Biennial Cost Adjustment Proceeding. In the interim, all program costs should be tracked in balancing accounts, and the utilities should establish such accounts for this purpose.

By directing this Commission to adopt new utility programs to reduce demand for electricity within six months of the passage of AB 970, the Legislature clearly stated its intent to proceed expeditiously with the deployment of these initiatives. Accordingly, PG&E, SDG&E, SCE and SoCal, collectively referred to as "the utilities," are directed to implement these programs without delay.

Under the adopted programs, SDG&E will administer a demand-responsiveness pilot program, targeted to reach 5,000 residential customers in its service territory. SCE will administer a similar pilot program, targeted to 5,000 small commercial customers. SDG&E and SCE will provide financial incentives to customers who agree to set their thermostats at pre-specified levels. Through an internet interface, the utility will monitor and verify actual interruption of loads at the customer site and provide interactive information to customers about their electric usage, in order to encourage peak demand reduction. Within certain parameters, customers will have the flexibility to override the thermostat settings, subject to pre-specified penalties.

We also authorize a pilot program to provide interactive consumption and cost information to small customers, such as historical energy bill information, representative energy usage and cost information for common appliances, and tariff options. PG&E will contract with an independent web designer to develop a website that provides customer online access to this information. Our goal is to reach 10,000 to 15,000 customers in PG&E's service territory. The program will be targeted to residential customers with relatively high monthly energy consumption, residential customers with swimming pools, homes and small businesses in the San Francisco peninsula or in Silicon Valley, and/or rural residences and small businesses.

We also authorize today a self-generation program across all the utility service territories. "Self-generation" refers to distributed generation technologies (microturbines, small gas turbines, wind turbines, photovoltaics, fuel cells and internal combustion engines) installed on the customer's side of the utility meter that provide electricity for a portion or all of that customer's electric load. Under the program, financial incentives will be provided to distributed generation technologies as follows:

Incentive category

Incentive offered

Maximum percentage of project cost

Minimum system size

Maximum system size

Eligible Technologies

Level 1

$4.50/W

50%

30 kW

1 MW

_ Photovoltaics

_ Fuel cells operating on renewable fuel

_ Wind turbines

Level 2

$2.50/W

40%

None

1 MW

_ Fuel cells operating on non-renewable fuel and utilizing waste heat recovery

Level 3

$1.00/W

30%

None

1 MW

_ Microturbines utilizing waste heat recovery

_ Internal combustion turbines and engines utilizing waste heat recovery

For SDG&E's service territory, the program will be administered (via contractual arrangement) through the San Diego Regional Energy Office. PG&E, SCE and SoCal will administer programs in their service territories.

All program administrators are required to outsource to independent consultants or contractors all program evaluation activities, and are encouraged to outsource as many other aspects of program implementation as possible. All installation of technologies (hardware and software) at customer sites will be done by independent contractors, and not utility personnel. We encourage the program administrators to coordinate and work closely with local governments, community-based organizations and business associations to recruit and contact interested customers.

Attachment 1 describes the authorized programs and funding levels in greater detail.

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