9. Interim Authorization and Next Steps

The compliance phase now begins as the utilities (with input from the PRGs) finalize their competitive bid solicitations, select winning bidders and develop final program plans for our consideration. Per the schedule set forth in the CMS, the utilities will also present additional program detail to reflect their statewide coordination plans currently under development, and report on their statewide coordination activities in their compliance filings. To guide this process, the utilities and their PRGs should utilize the five policy objectives for statewide coordination presented in the CMS, as described in Section 6.7.

The utilities have submitted their proposed schedule for these compliance phase activities to the assigned ALJ. SCE, SDG&E and SoCalGas plan to submit their compliance filings on December 9, 2005. For PG&E, the date of the compliance filing is currently scheduled for February 2, 2006.¹⁶⁸

As directed in today's decision, the utilities will conduct sensitivity analysis to assess whether the compliance phase plans remain cost-effective and meet our savings goals if key parameters are lower than expected. We also require the utilities to hold a workshop with interested parties within 15 days of the effective date of this decision to discuss the energy efficiency avoided costs and cost-effectiveness calculator details used to estimate peak demand reductions. As discussed in this decision, besides being informational, this workshop should facilitate the identification of improvements to the E3 calculator that are relatively easy and quick to implement by the utilities, without causing delays to the current bid solicitation schedule. In addition, we expect that the workshop discussions will help Joint Staff and interested parties begin to identify (1) data collection requirements to improve load shape data and (2) what issues should be addressed during the post-compliance phase updating process described in today's decision.

In response to concerns over our current avoided cost valuation of peak demand reductions, in particular for those hours that are considered "critical peak," we take immediate steps today to evaluate the issues raised in this proceeding as part of the avoided cost updating process anticipated by D.05-04-024. In addition to considering refinements to the current avoided cost methodology with respect to the valuation of peak load reductions and related issues, this updating process will also consider (1) a common definition of peak demand reductions (and critical peak demand reductions or other terms, as appropriate) to use in evaluating energy efficiency resources, (2) refinements to the E3 calculator model that produces cost-effectiveness results and projections of peak load savings, and (3) improvements to the consistency in underlying load shape data and the methods by which that data is translated into peak savings estimates. As discussed in this decision, we intend to address these issues during the first half of 2006, or as soon thereafter as practicable.

Because we will not be able to address the compliance filings until after the 2006 program year has commenced, the utilities have submitted requests for interim authorization to implement the non-competitive bid portions of their portfolio plans. More specifically, the utilities seek to begin implementing their own programs, continuing third-party programs, and local government partnerships-on January 1, 2006. As the utilities acknowledge, there will likely need to be adjustments to individual program budgets and some rebalancing of the portfolio plans during the compliance phase. But we believe that this can be accomplished without holding up the roll out of the entire portfolio, an outcome that we believe would greatly jeopardize the achievement of our savings goals and overall energy efficiency objectives.

Accordingly, we authorize the utilities to begin implementing their non-competitive bid programs, as identified in their respective 2006-2008 energy efficiency program applications and supplements thereto, effective January 1, 2006. This interim authorization will be in effect until we approve the final program plans, which will be submitted during the compliance phase after the competitive bid solicitation process is complete. The program accomplishments of the portfolio plans achieved during this period of interim authorization shall be counted toward 2006 savings goals.

With our approval of the compliance plans, the 2006-2008 program budgets, and associated incremental revenue/funding requirements proposed by the utilities, will serve to fund their energy efficiency activities during the three year program cycle, including those activities implemented under the interim authorization we grant today.

In a separate phase of this proceeding (Phase 2), we will address EM&V plans and funding levels for the 2006-2008 program cycle. As discussed in D.05-02-055, this process is being informed by the EM&V protocol development activities coordinated by Joint Staff in our rulemaking proceeding, R.01-08-028. Our goal is to issue a decision on those plans and associated funding levels before the end of the year.

Finally, we believe that the roll out of this next generation of energy efficiency programs in early 2006 should be closely followed by a determination on the risk/reward incentive mechanism that will apply to, at a minimum, the energy efficiency programs that are designed primarily to replace more costly supply-side options ("resource programs"), including codes and standards advocacy programs. We have accomplished the groundwork for fully developing such a mechanism by addressing administrative structure issues and threshold EM&V issues related to performance incentives earlier this year in R.01-08-028.

We recognize that there are many steps to complete with respect to the 2006-2008 program plans, including the adoption of final EM&V plans and funding levels, before we can refocus our efforts on the remaining work needed to develop a risk/reward incentive mechanism. However, we believe that this should be the next priority for our energy efficiency, and direct the Assigned Commissioner in R.01-08-028 to establish a schedule for addressing this issue in that proceeding, or its successor proceeding, as soon as practicable. Per D.03-12-062, we will closely coordinate with our other resource proceedings, in order to ensure that the development of an energy efficiency risk/reward incentive mechanism is consistent with the overall procurement incentive policies being developed in R.04-04-003. We will also coordinate the development of a risk/reward mechanism with the post-compliance phase updating process we have established today.