11. Assignment of Proceeding

Susan P. Kennedy is the Assigned Commissioner and Meg Gottstein is the assigned ALJ in this proceeding.

1. The sensitivity analysis performed in this proceeding indicates that each of the utility's proposed portfolios will be cost-effective even if they only achieve 60% of the forecasted program savings. For SCE and SDG&E, the portfolios would still be cost-effective at 40% of projected savings.

2. The utilities' portfolio plans to engage market participants in all aspects of energy efficiency improvements to homes, commercial buildings, and industrial/commercial processes are projected to be highly cost effective, taking reasonable account of uncertainty with respect to key cost-effectiveness input parameters. The competitive bid results and final program selections should enhance this expected portfolio performance, both in the short- and longer-term.

3. To achieve the cost-effective savings presented in the portfolio plans, annual ratepayer investments in energy efficiency will need to approximately double on an annual basis by 2008.

4. Although the projected savings from these portfolios are substantial, the record indicates some risk that the portfolio plans may not meet the Commission-adopted GWh and therm energy savings goals, due to uncertainties over free ridership assumptions and the estimated useful lives associated with certain lighting measures, among others.

5. As discussed in this decision, counterbalancing this risk is the contribution of savings from pre-2006 codes and standards advocacy work that led to the revised codes and standards effective in 2005 and 2006.

6. Conducting sensitivity analysis with respect to key input parameters, such as net-to-gross ratios, during the compliance phase provides a practical and effective way to assess the robustness of energy savings estimates before we authorize the final program plans.

7. Uncertainties over the specific net-to-gross ratios used for planning purposes will be further addressed through ex post true-up of these ratios in performance basis evaluation, consistent with our direction in D.05-04-051.

8. Postponing implementation of the cost-effective portfolio plans in order to first review and debate each specific ex ante input assumption, as some parties propose, places unwarranted emphasis on these issues for the purpose of evaluating the savings estimates uncertainty associated with the portfolio plans. Moreover, these efforts would be redundant to and possibly prejudge the efforts underway in the EM&V phase to develop protocols for all key parameters related to the estimation and evaluation of energy efficiency savings and net resource benefits.

9. ORA's proposal to adopt a single default net-to-gross value for essentially all energy efficiency activities may make it easier for planning and analysis, but the record indicates that this approach has the potential for increasing the risk of overstating savings forecasts within the portfolio.

10. While sensitivity analysis around estimated useful life assumptions will assist us in the program planning process, it is particularly important that the ex ante assumptions adopted for these parameters be based on the most recent evaluation studies, since they will not be further adjusted based on ex post studies when we evaluate 2006-2008 portfolio performance per D.05-04-051. This is especially important for the expected useful life assumptions for lighting measures, since they comprise a significant portion of the proposed portfolios.

11. TecMarket Works report indicates that the utilities' estimated useful life assumptions do not consistently take account of recent EM&V studies that were used to update DEER.

12. The ex ante assumptions for expected useful lives should be revised as needed to reflect the DEER August 2005 update, as directed in this decision. These updated values should be used when reporting actual installations during program implementation, and when submitting calculations of savings, portfolio cost-effectiveness and performance basis during the 2006-2008 program cycle.

13. Several unresolved issues must be addressed before we can fully assess whether the proposed portfolio plans will meet our demand reduction goals, including the appropriate definition of peak savings that should be used in the evaluation of energy efficiency resources. While parties' comments and the CMS provides significant insights into possible definitions of peak, the issues raised with respect to the use of a single common metric require further deliberation in coordination with updates to our avoided costs and E3 calculator refinements, as discussed in this decision.

14. The perspective of some parties that the utility portfolios must be significantly rebalanced towards critical peak load reductions appears to be based on the perspective that energy efficiency should primarily be deployed as a resource that addresses the needle peaks in demand. This perspective does not acknowledge that California has a clear need for both baseload and peak savings.

15. Energy efficiency should continue to target both baseload and peak loads, within the context of our overriding goal to pursue all cost-effective energy efficiency opportunities over both the short- and long-term. TURN's insistence that we hold up approval of the portfolio plans until funds are redirected towards residential space cooling applications ignores this context.

16. TURN's recommendations focus too narrowly on the perspective that measures with low load factors should take precedence over higher load factor measures-even if those higher load factor measures can reduce demand during critical peak hours and can do so cost-effectively.

17. The assessment provided by TURN and some of the PRGs with respect to compliance with Rule II.5 (critical peak loads) fail to recognize that:

18. The best way to ensure the optimal level of funding for various energy efficiency activities over time is to (1) clearly establish the parameters by which the utilities' portfolio performance in terms of peak load reductions will be evaluated, (2) properly value demand reductions that occur during peak periods for all peak reduction resource options and (3) update our peak savings goals for 2009 and beyond based on studies of peak savings potential, rather than historical program performance.

19. For the reasons discussed in this decision, before we adopt a common definition of peak load reductions for energy efficiency, either on an interim or permanent basis, we should further consider transition and implementation issues, as well as the broader context of how we should value energy efficiency across proceedings.

20. Given the transition and implementation issues associated with the "daily peak" definition of peak demand, adopting this definition and requiring the utilities to update their E3 calculator results based on it could cause potentially several months in delay in the roll out of 2006 program plans. Moreover, this definition and the associated calculations would be subject to subsequent change during our post-compliance phase updating process.

21. The performance basis for this next three-year cycle should be developed by incorporating all the updating discussed in this decision in a consolidated and coordinated manner, including updates to avoided cost and expected useful life assumptions. For the reasons discussed in this decision, this approach is preferable to requiring selected updates to the cost-effectiveness calculations before the compliance filings, and others a few months later.

22. It would not be in the public interest to forgo the savings that can be achieved with the completion of the compliance phase and roll out of the portfolio plans in early 2006, while we undertake necessary refinements to the performance basis that will require more time to complete.

23. There is considerable value in further information exchange during the compliance phase, so that interested parties become more familiar with how the utilities' E3 calculators produce peaks savings estimates for the portfolio as a whole, as well as for specific types of measures. This information exchange can also serve to identify any E3 calculator (model or input) "fixes" that are relatively easy to implement and where there is general consensus that such modifications are appropriate. It can also serve to help Joint Staff and interested parties begin to identify (1) data collection needs to improve load shape data and (3) the issues to be addressed during the post-compliance phase updating process described in this decision.

24. While the E3 methodology adopted in D.05-04-024 represents a vast improvement over the use of statewide values that do not reflect on-peak vs. off-peak reductions, or utility-specific cost differences, the Commission also recognized in D.05-04-024 that further refinements would be considered before final adoption of that methodology in Phase 3 of that proceeding.

25. The record in this proceeding indicates that the E3 calculator model presents cost-effectiveness results that are inconsistent with the California Standard Practice Manual, which is the methodology to be used by program administrators and implementers, per our adopted policy rules.

26. The record in this proceeding indicates that there are other corrections and refinements that may be needed to the E3 calculator model in order to improve the accuracy and consistency with which it calculates peak demand savings and cost-effectiveness calculations.

27. A common E3 calculator developed for use by all implementers will facilitate an apples-to-applies comparison of projected savings and cost-effectiveness calculations. It will also ensure consistency in assumptions while alleviating program implementers from the burden of carrying out data-intensive calculations involving hourly avoided costs and end-use load shapes.

28. The parties present conflicting views on how to address the issues raised in this proceeding with respect to current avoided costs and the E3 calculator model used to calculate cost-effectiveness. The debate over these issues raises questions concerning what load shape data underlies the E3 calculations, and how to establish a more uniform set of assumptions/methods to translate annual energy savings from energy efficiency measures into peak savings.

29. The most cost-effective and expeditious approach to addressing the avoided cost and E3 calculator-related issues raised in this proceeding is to build upon the E3 work conducted in R.04-04-025 and continue with the approach we have taken there for contracting with the appropriate expertise.

30. The timing for addressing the avoided cost and E3 calculator issues raised in this proceeding, even on an expedited schedule, will not permit the incorporation of resulting refinements into the ex ante estimated of avoided costs and other performance basis parameters before the compliance phase is complete. However, a final Commission decision on the issues is expected within just a few months following the roll-out of 2006 programs.

31. The direction in D.05-01-055 requires the utilities to establish a process that allows PRG members (including Energy Division consultant(s), if applicable) to monitor both the Stage 1 and Stage 2 selection process. Each utility should expect and facilitate the active involvement of PRG members in this monitoring process.

32. The bid solicitations differ with respect to overall scope and size, particularly between PG&E and the other utilities. As a result, the factors that PG&E will need to consider to evaluate and integrate third-party programs into the overall portfolio will be more involved than those required for the other utilities.

33. Although not identical across utilities, the evaluation criteria for each proposed solicitation have achieved overall consistency with the objectives stated in our policy rules, with the following minor modifications :

a. SCE's original Stage 2 evaluation criteria for its targeted solicitation should be adopted instead of the "SCE Revised" (or SCE PRG) proposal, because the latter proposals do not include any consideration of "lost opportunities."

b. SDG&E should evaluate "cost efficiencies" rather than "budgets" when evaluating its non-resource programs during Stage 2.

34. Given the scope and size of PG&E's proposed resource solicitation, it is reasonable to defer consideration of the PRG recommendation to also include a non-resource solicitation until the resource portfolio is complete. PG&E and its PRG should continue to explore this issue as PG&E prepares for the additional solicitations it plans to conduct during the upcoming program cycle.

35. The utilities' plan to offer a statewide California Energy Star New Homes program will ensure statewide consistency and coordination in the residential new construction market.

36. Arbitrarily granting ConSol sole responsibility for residential new construction, as it proposes, is an unnecessary limitation on a successful program and would be unfair to other potential third-party implementers.

37. As discussed in this decision, the results of the compliance phase bid solicitations may, as the winning bidders roll out their programs and program performance is evaluated in one or more service territories, reveal program designs that could also be well-suited to a single statewide competitive bid in the future. However, we cannot predict at this time what designs, and what sectors or programs might best lend themselves to this approach.

38. The interpretation of SDG&E and SoCalGas that the 20% minimum bid requirement applies to the non-EM&V portion of portfolio funding levels is consistent with the language of D.05-01-055.

39. Codes and standards advocacy work has been an essential and valuable component of the energy efficiency program portfolio in the past, and continues to be recognized as such in the energy efficiency policy rules.

40. Using ratepayer dollars to work towards adoption of higher appliance and building standards may be one of the most cost-effective ways to tap the savings potential for energy efficiency and procure least-cost energy resources on behalf of all ratepayers.

41. As discussed in this decision, the record in this proceeding supports the reconsideration of D.05-04-051 with respect to the treatment of savings associated with pre-2006 codes and standards advocacy work.

42. In particular, the record confirms that the 2005/2006 code and standards revisions were not accounted for in the studies of economic potential that led to the establishment of our savings goals and beyond. Now that the new standards are in place, this means that those standards could actually work against the utilities with respect to their ability to tap that economic potential with other types of energy efficiency activities.

43. The record also clarifies that the adopted "actuals only" method of accounting for program accomplishments towards our goals, in combination with the method by which Joint Staff developed estimates of achievable potential, creates a short-term transitional inconsistency between the two that should be addressed.

44. Over the longer-term, this inconsistency will resolve itself because commitments made in 2006 and 2007 will become "actuals" in the program years that follow, thereby assisting in the achievements of the adopted cumulative goals for later years. Moreover, the savings goals updating process that will occur in time for the 2009-2011 program cycle will reflect the "actuals only" accounting practice adopted by the Commission.

45. Reopening the goals decision (D.04-09-060) to make an adjustment to the short-term goals is an option that has significant drawbacks, as discussed in this decision.

46. Joint Staff's recommendation provides a more reasonable alternative, namely, to allow the utilities to credit some portion of the savings attributable to pre-2006 codes and standards advocacy work towards the Commission's savings goals during this transition, i.e., for program cycle 2006-2008.

47. As discussed in this decision and Attachment 10, the issue of whether to count these pre-2006 savings towards the goals in subsequent years must be considered in the context of how we update the savings potential and associated goals for those years. Resolution of this issue will depend a great deal upon the manner in which the baseline is established for the next round of saving potential studies.

48. The record in this proceeding raises the following questions with respect to the baseline to use in future savings potential studies: Should future energy efficiency savings goals be established based on the economic potential associated with the combination of codes and standards updates and other energy efficiency programs that can defer or replace the need for supply-side resources? Or should the impact of higher codes and standards (and the associated economic potential) be removed in developing the savings goals for utility energy efficiency portfolios?

49. The HMG methodology for estimating the savings attributable to pre-2006 codes and advocacy work has a logical coherence and covers the developmental steps that most outside observers agree are important in estimating the savings impacts of codes and standards advocacy work. However, there are inherent and potentially significant uncertainties associated with the approach taken to attribute savings to this pre-2006 work. In addition, specific input assumptions used by HMG to develop the ex ante savings estimates would benefit from further evaluation and verification in order to rely on them with confidence.

50. Given the uncertainty involved in measuring the realized savings associated with this pre-2006 program, Joint Staff's recommendation provides a rationale bound for the attribution of savings to pre-2006 codes and standards advocacy work. In addition, it strikes a reasonable balance among the various concerns with respect to the motivation and perceptions of the various stakeholders surrounding the value of codes and standards advocacy work.

51. The conditions that Joint Staff places on its recommendation for counting pre-2006 codes and advocacy work towards the 2006-2008 goals, as well as the utilities' response to them, address concerns expressed by ORA and others in this proceeding.

52. As discussed in this decision, addressing the performance basis and related issues raised by ORA and NRDC does not require that we reject or completely defer consideration of Joint Staff's recommendation.

53. In general, the stream of savings attributable to each round of codes and standards work that leads to increased efficiency codes and standards should be counted in the calculation of net resource benefits performance basis. Per D.05-04-051, these calculations would then be used as the basis for the risk/reward incentive mechanism that will be developed in a subsequent phase of our energy efficiency rulemaking.

54. As discussed in this decision, applying this general approach to performance basis for pre-2006 codes and standards advocacy work creates a fundamental policy inconsistency with respect to the cessation of shareholder earnings during program years when these pre-2006 investments were made.

55. This same policy inconsistency would arise if we counted towards performance basis the actual installations for 2006 and beyond that were the result of commitments made prior to 2006. These savings are explicitly excluded from the calculation of performance basis and cost-effectiveness calculations for 2006 and beyond, per D.05-04-051.

56. In general, the savings from codes and advocacy work would be counted in the calculation of portfolio cost-effectiveness when the standards are put into effect, while the costs of this work would be counted during the program cycle in which they occur, per our adopted policy rules.

57. Cost-effectiveness calculations should be developed on a consistent basis as net resource benefits for each program cycle. It makes no sense, and would also create undue confusion, to include the savings from pre-2006 codes and advocacy work in the former calculation, but not the latter.

58. As discussed in this decision, the timing and priority for EM&V studies specifically addressing local codes and standards efforts must be considered in the context of the overall EM&V priorities and associated budgets being developed during the EM&V phase.

59. As discussed in this decision, it is reasonable to consider the GBI 20% goal for improved efficiencies in the commercial sector as a subset of the overall savings goals we have established for the utility service territories, rather than as a state code or standard used to establish project-specific baselines. In that context, projects that achieve a 20% improvement over Title 24 should not be disallowed the claimed savings on the basis of GBI free ridership.

60. Today's direction for further work to more accurately project the contribution of the utilities' program plans to our savings goals, particularly in terms of peak demand reductions, does not call into question the overall level of portfolio budgets, as WEM contends. As discussed in this decision, the utilities, with input from their advisory groups and the public, will continue to rebalance and modify the specific program plans to enhance portfolio performance throughout the three-year program cycle. If greater savings per dollar can be achieved than currently projected, the authorized funding levels should be used in the pursuit of "all cost-effective energy efficiency opportunities over both the short- and long-term," per the Commission's policy rules.

61. The utilities have allocated the costs of their energy efficiency portfolios to customer classes in a manner that appropriately assigns costs relative to the expected share of program benefits, and the resulting rate and bill impacts are reasonable.

62. The issues raised in this proceeding concerning the valuation of critical peak load reductions in cost-effectiveness calculations warrants the limited exception to our general rule of not truing up avoided costs to evaluate the performance basis of prior program years, as discussed in this decision. It would also be unreasonable to ignore the resolution of related issues, such as the common definition of peak savings and E3 calculation issues just because the timing for the completion of this update, relative to the upcoming three-year program cycle, is off by a few months. Moreover, it is important that program administrators know that these improvements are in the making, and that they will be incorporated into the evaluation of the 2006-2008 portfolio performance as they finalize their program selections during the compliance phase of this proceeding.

63. The fund shifting rules adopted by today's decision considers each type of fund shifting flexibility and selects the option for each type that best meets the following objectives:

64. CCSF's recommendation that local governments on PG&E's short list should give their consent in order for PG&E to proceed with its compliance filing as an advice letter is beyond the scope of this proceeding and, as discussed in this decision, lacks merit on substantive grounds.

65. At least in the short-run, code compliance support has the potential to tap energy savings opportunities that would otherwise be irretrievably lost, particularly for HVAC end-uses.

66. WEM's allegations that the utilities are "double dipping" and rewarding non-compliance by providing code compliance market support is not supported by the record.

67. As a longer term program strategy, the issue of code compliance should be further investigated, as recommended in the TecMarket Works report.

68. Continued involvement of the PRGs is essential for matters best dealt with by non-financially interested parties, such as fund shifting and ensuring non-bias in the selection and ongoing implementation of utility and non-utility implemented programs. This involvement will help to ensure that all programs are evaluated and chosen for continuation based on their ability to meet the Commission's objectives for energy efficiency.

69. The groundwork has been accomplished for full consideration of an energy efficiency risk/reward incentive mechanism.

1. The utilities' 2006-2008 portfolio plans meet the Commission's threshold requirement of prospective cost-effectiveness, per the policy rules set forth in the Energy Efficiency Policy Manual adopted by D.05-04-051 ("Rules").

2. The utilities' 2006-2008 portfolio plans are consistent with other aspects of the Commission's Rules, as discussed in this decision. Remaining uncertainties over the ability of the portfolios to meet our savings goals can be adequately addressed in the short-term by conducting sensitivity analysis during the compliance phase, as discussed in this decision. Over the longer term, key uncertainties related to the utilities' peak demand reduction estimates will be addressed during the post-compliance updating process directed by this decision.

3. The competitive bid components proposed by the utilities in their June 1 applications and supplements thereto are reasonable and should be adopted. With the modifications discussed in this decision, the utility proposals for bid evaluation criteria and weightings presented in the Case Management Statement should be adopted.

4. Joint Staff's recommendations regarding the level of savings from pre-2006 codes and standards advocacy work that should count towards the 2006-2008 savings goals are reasonable, and should be adopted. Whether these savings should also be credited towards our savings goals for 2009 and beyond should be addressed in a later phase of R.01-08-028, or its successor proceeding, pending further consideration of the baseline and related issues described in this decision.

5. Today's determinations on how the savings from pre-2006 codes and standards work should be considered in performance basis and cost-effectiveness calculations are reasonable and should be adopted.

6. The level of program funding proposed by the utilities over the three-year program cycle, as well as their proposed cost allocation and associated ratemaking treatment, is reasonable and supported by the record.

7. As discussed in this decision, once we have approved the final compliance plans, the utilities should recover the incremental revenue/funding requirements associated with the non-EM&V portion of their proposed 2006-2008 portfolio funding levels.

8. The record in this proceeding supports further consideration of the E3 methodology with respect to critical peak values, as well as the E3 calculator model issues discussed in this decision, without delay. The ex ante avoided costs that will be used to evaluate the performance basis of 2006-2008 energy efficiency portfolios and programs should be updated, as appropriate, to reflect the Commission's final determinations on these issues. In addition, the common definition of peak load reductions and refinements to the E3 calculator developed during the post-compliance phase updating process should be used to assess the performance of 2006-2008 portfolios and programs. Improvements to the consistency in underlying load shape data and the methods by which that data is translated into peak savings estimates should also be incorporated into the calculations of cost-effectiveness and projections of energy and peak demand reductions. The EM&V protocols being developed in a separate phase of this proceeding will identify how and when this load impact data should be trued up to calculate performance basis for the 2006-2008 program cycle, per the Commission's direction in D.05-04-051.

9. The fund shifting rules approved today are consistent with the objectives for portfolio management described in this decision.

10. The EM&V budgets for the 2006-2008 program cycle and associated cost recovery should be addressed in the separate EM&V phase of this proceeding.

11. Ongoing involvement of the PRGs should continue throughout the program cycle, as discussed in this decision.

12. The next priority for energy efficiency should be the development of a risk/reward incentive mechanism, as discussed in this decision.

13. In order to proceed with the compliance phase as expeditiously as possible, this decision should be effective immediately.

INTERIM ORDER

IT IS ORDERED that:

1. Effective January 1, 2006, Pacific Gas & Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), collectively "the utilities", are authorized to implement their non-competitive bid programs, as identified in their 2006-2008 energy efficiency program applications and supplements filed in this proceeding.

2. This interim authorization shall be in effect until the Commission approves 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.

3. Funding authorization and associated budgets for evaluation, measurement and verification (EM&V) plans for the 2006-2008 program cycle shall be addressed in the EM&V phase of this proceeding.

4. The 2006-2008 program budgets proposed by the utilities, and associated incremental electric revenue/natural gas funding requirements, shall serve to fund energy efficiency activities during the three-year program cycle, including those activities implemented under the interim authorization we grant today. The authorized program budgets are presented in Attachment 4 under the "without EM&V" columns, by utility and year. The associated incremental electric revenue and natural gas funding requirements are presented in Tables 4 through 7. Upon approval of their compliance plans, the utilities are authorized to recover the non-EM&V incremental electric revenue and natural gas funding requirements under the following ratemaking treatment:

5. For the purpose of this decision, "Joint Staff" shall refer to the Energy Division and California Energy Commission staff team that has been assigned to work on energy efficiency issues in this and related proceedings.

6. As discussed in this decision, utilities are authorized to expend 2006 monies to fund activities in 2005 for programs that have a long start-up period to ensure timely implementation in 2006. The utilities may also use authorized 2006 funds to continue successful 2005 programs that are approved for implementation in this decision to avoid a hiatus in program availability provided all other funding options have been exhausted, as discussed in this decision. The utilities are authorized to use unspent funding authorizations for 2005 and prior program year carryover funding for the program continuity and start-up activities authorized in this decision, without requiring a filing (e.g., petition or motion) for Commission or Administrative Law Judge (ALJ) approval, and shall do so before tapping 2006 program funding budgets.

Program accomplishments from 2006 funds used for the 2005 program activities authorized by this decision shall be counted toward 2006 savings goals on an "actuals" basis. As directed in this decision, Energy Division and the utilities shall establish procedures for determining the amount of 2006 funding authority that was actually carried back to 2005 (after considering the balances in unspent funds from prior year carry forwards as well as program year 2005 authorizations) and for identifying the installations and associated costs (for example, by date and kind of activity) that were funded out of 2006 authorized budgets. If agreement can not be reached between Energy Division and the utilities, the assigned ALJ shall rule on these accounting matters.

7. Per D.01-05-055, the utilities shall submit compliance filings consistent with today's determinations. The compliance filings shall include

8. For their competitive bid solicitations, the utilities shall use the adopted evaluation criteria presented in Attachment 6. As discussed in this decision, each of the utilities shall continue to work with and involve their PRGs in the final integration phase, as well as Stage 1 and 2 bid evaluations. The PRG assessments of each utility's competitive bid process shall address all stages of bid evaluation, including how the bid results are considered in the context of portfolio plan integration.

9. The utilities shall hold a workshop within 15 days of the effective date of this decision to describe the energy efficiency avoided costs and cost-effectiveness calculator details used to estimate peak demand reductions. Besides being informational, this workshop should be structured to facilitate the discussion 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. Notice of the workshop shall be served on the service list in this proceeding and R.04-04-025, our avoided cost proceeding. As discussed in this decision, the utilities shall make available the underlying load shape data used to develop the inputs to all interested parties several days prior to the workshop. The workshop should be led by the E3 consultant, and he or she should be prepared to describe at the workshop how the 8760 hours of adopted avoided costs were mapped to that load shape data, particularly for the summer peak hours.

10. By November 1, 2005, the utilities shall file a report summarizing the discussion at the workshop described in Ordering Paragraph 9 above, and report the E3 calculator refinements they have made in response. Based on the workshop discussion, the report shall also present a preliminary list of issue that participants recommend be addressed during the updating process described in this decision. The report should also present the workshop discussion on further data collection that is needed to improve load shape information. The final workshop report will be issued for comment, as discussed in this decision.

11. In addition to any other refinements to the E3 model that result from the workshops described in Ordering Paragraph 8, the utilities shall incorporate the correction to the erroneous demand reduction estimated for lighting currently contained in DEER that is discussed in Section 8.3 of this decision.

12. As discussed in this decision, the utilities are required to use the August 2005 updates to ex ante expected useful life (EUL) assumptions posted to DEER when reporting actual installations during program implementation, and when submitting calculations of savings, portfolio cost-effectiveness and performance basis during the 2006-2008 program cycle. Joint Staff shall ensure that inputs to the E3 calculator are appropriately adjusted, so that these calculations will reflect the ex ante EUL values referenced above.

For this purpose, Joint Staff may hire a consultant and/or direct the utilities to submit updated EUL values consistent with today's direction, subject to Joint Staff review, or take other steps as necessary to ensure that these updated DEER EUL values will be used consistently in reporting portfolio performance and in calculating the performance basis for the 2006-2008 program cycle. Joint Staff shall complete this work as soon as practicable in 2006. In consultation with Joint Staff, the assigned ALJ shall establish a schedule for completion of these activities.

13. The assigned ALJ in R.01-08-028 or its successor proceeding, in consultation with the Assigned Commissioner and Joint Staff, shall establish the schedule and scope for updating the energy efficiency savings goals for 2009 and beyond. As part of the updating process, Joint Staff shall prepare a report to the ALJ with recommendations on the baseline and other issues related to the methodology for updating the savings potential studies and savings goals. As discussed in this decision, Joint Staff shall ensure that the methodology for estimating peak load savings potential is consistent with the definition of peak demand adopted in this decision, and that it is based on a careful evaluation of peak load savings potential for energy efficiency programs across all sectors. Joint Staff shall hold public workshops on these and other issues related to the updating of savings goals, prior to submitting its written recommendations. The ALJ shall issue Joint Staff's recommendations for written comment to the service list in R.01-08-028 or its successor proceeding.

14. As discussed in this decision, the savings attributed to pre-2006 codes and standards work shall be treated as follows:

15. As discussed in this decision, the Commission shall consider updating the avoided cost methodology adopted in D.05-04-024 ("E3 methodology") with respect to the valuation of peak load reductions. This updating process will include consideration of the appropriate definition of peak demand to use in evaluating energy efficiency across proceedings. For this purpose, the utilities shall contract with the appropriate expertise to update avoided costs and refine the E3 calculator model they have developed for use in calculating cost-effectiveness, in consultation with Energy Division staff. The costs of the contract shall be paid for out of the utilities' portion of EM&V budgets for the 2006-2008 program cycle.

The utilities shall ensure that the contractor(s) retained for this purpose develops a draft report by February 20, 2006 with specific recommendations on the refinements to be made to the avoided costs/E3 calculator discussed in this decision. In particular, the draft report should focus on the following tasks, taking specific account of the parties' comments in this phase of the proceeding and during the informational workshops:

Nothing in this decision is intended to preclude the Assigned Commissioner or ALJ from directing the utilities to broaden the scope of the consultant(s) work, or take any other steps that may be necessary to address to develop the record for our consideration during this post-compliance updating process.

16. After public workshops on the draft report submitted pursuant to Ordering Paragraph 15, Energy Division shall develop recommendations on the avoided cost/E3 calculator refinements for Commission consideration in R.04-04-025, as described in Section 8.8 of this decision. The assigned ALJ or Assigned Commissioner to R.04-04-025 shall establish the schedule for the submission of Energy Division's recommendations and for comments on those recommendations. All reports, notices of availability, notices of workshops or other filings related to the avoided cost/E3 calculator refinements discussed in this decision shall be distributed to the service list in this proceeding, the energy efficiency rulemaking (R.01-08-028), the distributed generation rulemaking (R.04-03-017), the avoided cost rulemaking (R.04-04-025), the procurement proceeding (R.04-04-003), including any separate service list established in that proceeding that is specific to resource adequacy issues, and the demand response rulemaking (R.02-06-001). The draft decision on these matters shall be issued for comment in the avoided cost rulemaking. Interested individuals or organizations who are not currently parties to R.04-04-025 are hereby placed on notice that they should file a motion to intervene with the assigned ALJ in R.04-04-025 as soon as possible, if they wish to reserve the right to comment on the draft decision in R.04-04-025 with respect to these issues.

17. As discussed in this decision, the common definition of peak load reductions, improvements to avoided cost valuation methodology and refinements to the E3 calculator that are developed through the process described above shall be used to assess the performance of the 2006-2008 portfolio and programs.

18. The fund shifting rules adopted in this decision, and presented in Table 8, shall apply to all energy efficiency program budgets adopted for 2006 and beyond, unless otherwise modified. Table 8 shall be appended to Appendix A of the Energy Efficiency Policy Manual (version 3) adopted by D.05-04-051. Energy Division shall post the updated Appendix A to the Commission's website as soon as practicable. As provided for in the policy rules adopted by D.05-04-051, the assigned ALJ in consultation with the Assigned Commissioner may provide necessary clarifications to the fund-shifting rules adopted today, or consider modifications to those rules, as appropriate.

19. Energy Division shall include a plan and associated budget for evaluating the issue of code compliance as a longer-term program strategy, and include this information in the EM&V plans being developed during the EM&V phase of this proceeding.

20. The utilities shall continue to work with Energy Division to develop the appropriate tracking mechanisms to determine progress towards meeting the Green Building Initiative efficiency improvement goals. This work and associated schedule, to be established by Energy Division, shall be incorporated into the EM&V roadmap that is issued and periodically updated by ALJ ruling per D.05-04-051.

21. Involvement of the PRGs in an advisory capacity to the utilities shall continue throughout the 2006-2008 program cycle, as discussed in this decision. Each utility program administrator shall meet with or confer with their PRG members to decide how frequently the PRG's should meet and for what purpose. After these meetings, the utilities shall inform the assigned ALJ of its proposed schedule for the next 12 months. Per D.05-01-055, the assigned ALJ, in consultation with the Assigned Commissioner, may provide additional clarification and direction with respect to these and other advisory group issues.

22. As soon as practicable, the Assigned Commissioner in R.01-08-028 shall establish a schedule for developing a risk/reward incentive mechanism for energy efficiency in that proceeding, or its successor proceeding. Per D.03-12-062, this effort shall be closely coordinate with 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. It shall also be coordinated with the post-compliance phase updating process described in today's decision.

23. As discussed in this decision, by October 15, 2006, the utilities and their PRGs shall jointly submit a report addressing whether single statewide bids and associated statewide review criteria should be developed for certain market sectors or programs, based on the results of the competitive bid solicitations and program performance observed during 2006. If such an approach is recommended, the report should also describe a schedule and associated implementation steps for developing a single statewide bid. This report shall be filed in Rulemaking (R.) 01-08-028, or its successor proceeding, and served on the service list in R.01-08-028 and this proceeding.

24. As discussed in this decision, the Assigned Commissioner in R.01-08-028, or its successor proceeding, shall determine the appropriate schedule for considering the issue of counting embedded energy savings associated with water efficiency towards energy savings goals and portfolio performance.

25. For all tasks assigned to Energy Division and/or Joint Staff in this decision, Energy Division may solicit the services of a consultant (or consultants) and/or staff or services from other agencies through interagency agreements to assist in these tasks, the cost of which shall be paid for out of energy efficiency program funds.

26. All submittals by Energy Division or Joint Staff required by this decision shall be served as an attachment to an ALJ ruling.

27. The Assigned Commissioner or ALJ may, for good cause, modify the due dates established by this decision.

28. To the extent that the Assigned Commissioner or ALJ finds it necessary to instruct the utilities and PRGs to report back to them on how they have worked through or addressed specific issues related to energy efficiency program design and implementation, they may do so by ruling at any time during the program cycle.

29. Unless otherwise indicated, all reports, formal filings or other submittals required by today's decision shall be served on the service list in this proceeding pursuant to the Electronic Service Protocols attached to the Assigned ALJ's ruling dated June 8, 2005, and consistent with Rules 2.3 and 2.3.1.

30. This proceeding remains open to address ongoing issues related to the 2006-2008 portfolio plans.

31. The Executive Director shall serve a copy of this decision on the parties whose names appear in the service list of R.04-04-025, the Commission's avoided cost proceeding.

This order is effective today.

Dated September 22, 2005, at San Francisco, California.

Comr. Grueneich recused herself
from this agenda item and was not part
of the quorum in its consideration.

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