IV. Budget Augmentation for PG&E

A. Overview of PG&E's Proposal

PG&E seeks an additional $21.3 million for its 2006 LIEE budget, and authority to spend an additional $12 million in unspent funds carried over from the 2005 LIEE budget. PG&E's existing budget for 2006 LIEE programs is currently $56.53 million. The increases it requests in its augmentation would bring that budget to just under $90 million or an increase of about 38% for 2006.

PG&E states the additional funds will assure it can implement the additional LIEE measures authorized by D.05-12-046 and the increased program participation anticipated by that order. The additional energy efficiency measures include high efficiency central air conditioners and duct testing and sealing. PG&E proposes the extra funding would permit it to install qualified energy efficiency measures in 62,500 homes in 2006, an increase from 56,000 homes in 2005 or 11%. PG&E states the additional funds will also permit it to pay for the cost of new Title 24 rules that require contractors to assure leakage on heating, ventilation and air conditioning (HVAC) ducts are limited to a certain percentage of fan flow. PG&E proposes to increase its Public Purpose Program rates to reflect the increased revenue requirement for LIEE funding, consistent with the current rate design practice of charging each rate group by an equal percentage and exempting residential rates for usage up to 130% of baseline quantities.

B. Response of DRA

DRA filed a response to PG&E's application. The response states that DRA does not have adequate information to assess PG&E's proposal to increase its LIEE budget. The pleading asks for more specific information about the actual costs of installations and equipment as a foundation for estimating future costs.

C. Discussion

PG&E's application to augment its 2006-2007 LIEE budget represents an increase of about 38% in order to increase LIEE participation by about 11% and assure adequate funds for the additional LIEE measures adopted in D.05-12-026. As DRA observes, PG&E's application does not provide information to support its estimates of additional costs and does not identify how additional funds in each category of spending might affect the number of installations or, alternatively, how such costs are affected by higher unit costs. The assigned Administrative Law Judge (ALJ), DRA and the Commission's Energy Division sought and received additional information from PG&E which would provide the foundation for more analysis of PG&E's application.

PG&E's application seeks a substantial budget increase to accomplish what the three other utilities say they can do with their existing budgets plus modest amounts of carry over funds. All four utilities must implement additional program elements and all have committed to increasing program participation by at least 5%. All four utilities must also implement new program elements and each has carry-over funds that are equal to about 20% of original 2006 program budgets.

The assigned ALJ sought information from PG&E to explain why it is seeking such a large budget increase when the other utilities state their existing budgets are adequate to accomplish their program objectives. PG&E's response reiterates reasons for additional spending that are common to all four utilities, which does not explain differences between the utilities. PG&E provides data to show that PG&E has treated more homes than the other utilities, but does not provide information about total and unit costs that would permit a comparison to the other utilities. By itself, information showing that PG&E is doing more than the other utilities is not useful because PG&E's existing budget is almost as large as all three other utilities combined. The only useful distinction PG&E makes between its own budget and those of the other utilities is that PG&E's plans to increase the number of targeted homes by 11% compared to the other utilities' increases of 5%. The 6% differential in utility targets, however, does not explain a budget increase of $21.3 million.

In response to inquiries from the Energy Division, PG&E provided additional information about specific program costs. DRA did not supplement its original pleading and we therefore presume it is satisfied with PG&E's request.

We note that the budget adopted for PG&E's LIEE program in D.05-05-019 includes an amount for administration and regulatory compliance (or "overheads") that, as a percentage of total budgets, is almost triple those of the other utilities:

PG&E 17.3%

SCE 6.73%

SoCalGas 5.70%

SDG&E 6.22%

PG&E proposes here to increase its administrative and regulatory budget from $9.8 million by $1.5 million for 2006. We do not know the reasons for PG&E's extraordinarily high overheads and an exploration of them would be outside the scope of this proceeding. Still, we do not intend to compound the discrepancy here. We therefore adopt PG&E's proposed augmentation with the condition that it may not allocate any additional funds to administration or regulatory compliance costs. We reduce the authorized amount by $1.5 million, which would have been allocated to overheads. Therefore, PG&E's total budget would be approximately $89 million and would include a total budget for administrative and regulatory compliance costs of $9.8 million. The allocation to overhead is more than 11% of the total budget and almost twice the amount allocated to these costs in the budgets of the three other utilities. We intend to disallow any administrative and regulatory compliance costs in excess of $9.8 million for the budget period.

As for program costs more generally, a measurement and evaluation study is to be conducted in 2006 pursuant to D.05-04-052. At that time, we expect to assess PG&E's costs for program elements and overheads. In the meantime, we expect PG&E to make effective and efficient use of the funds it has on behalf of the state's low-income customers.

Consistent with our policy to promote energy efficiency and to provide related services to low-income customers, we agree that PG&E's budget augmentation proposal is reasonable for 2006-2007 with the conditions discussed herein.