5. Comments on Draft Decision
The draft decision of Commissioner Lynch and Administrative Law Judge Gottstein in this matter was mailed to the parties in accordance with Section 311(g)(3) of the Public Utilities Code and Rule 77.7(f)(9) of the Rules of Practice and Procedure. AB 970 requires that these programs be implemented in March 2001. In order to meet this goal, we must reduce the 30-day period for public review and comment. As defined in Rule 77.7(f)(9), the public necessity of adopting this order outweighs the public interest in having the full 30-day period for review and comment. We therefore shorten the comment period to seven days. Comments were filed on March 9, 2001 by SCE, SDG&E/SoCal, PG&E, ORA, NRDC, TURN, and Caterpillar, Inc. In response to the comments, we make minor corrections and clarifications to the draft decision and attached report, but do not make substantive changes to the program or ratemaking directives contained therein.
1. Energy Division's proposed programs to comply with Pub. Util. Code § 399.15(b), as modified by this decision, are expected to produce sizeable public benefits in the form of electric peak-demand reductions, environmental and other benefits, relative to their cost. Some of these benefits (e.g., environmental) are expected to accrue to gas, as well as electric, ratepayers.
2. The Commission has not yet determined that the electric rate freeze has ended for SCE and PG&E. The electric rate freeze is over for SDG&E, although there is a rate cap on SDG&E's generation-related rate component and SDG&E is also subject to PBR for its distribution revenue requirements.
3. The self-generation programs adopted today will produce significant public (e.g., environmental) benefits for all ratepayers, including gas ratepayers.
4. The Legislature has not authorized an additional charge, above current electric rate freeze levels, to recover the costs of § 399.15(b) programs. The current allocation of energy efficiency funding between gas and electric customers, on a percentage basis, is a reasonable proxy for the allocation of benefits between these customers that we can expect from the self-generation program.
5. Energy Division's proposed programs, as modified by this decision, encompass a specific set of initiatives that can be tested on a pilot basis, without risking major investment of ratepayer funding on a full-scale rollout. The proposed programs complement, rather than duplicate, initiatives for peak-demand reductions that are being explored in other Commission proceedings, as well as programs being implemented by the CEC.
6. ORA's proposal to designate the San Diego Regional Energy Office as program administrator for the self-generation program in SDG&E's service territory provides us with an opportunity to explore non-utility administration on a limited, pilot basis.
7. ORA's proposal to establish non-utility administrators for energy-efficiency and self-generation programs for the longer-term is beyond the scope of the issues related to § 399.15(b) implementation and Energy Division's report.
8. Energy Division's requirement that the self-generation program be administered through the utility's existing SPC program for energy efficiency poses implementation problems because SoCal and the San Diego Regional Energy Office do not currently administer such a program. There may also be equally viable, and potentially less burdensome, program delivery choices.
9. Requiring administrators to outsource program evaluation, and involving Energy Division in the process, will ensure that the programs authorized today are independently evaluated. Requiring that the installation of technologies at customer sites be performed by independent contractors ensures that market actors other than the program administrators are involved in the programs. These requirements are consistent with the manner in which Commission-authorized energy efficiency and low-income assistance programs are implemented.
10. Because the programs we authorize today are new, it is difficult at this time to establish budget allocations across individual cost categories (e.g., administration, evaluation) that will not be unduly restrictive to program administrators. At the same time, affording program administrators unlimited flexibility in allocating the program budgets will not ensure that an appropriate level of funding is available for hardware installations and customer incentives.
11. The effectiveness of Energy Division's proposed demand-responsiveness programs will be enhanced by allowing some flexibility and experimentation in the design of customer incentives, marketing approaches, technology selections and other design parameters, within the guidelines described in this decision.
12. There is no evidence to support SDG&E's contention that limited- to moderate-income residential customers in its service territory are unlikely to use central air conditioning.
13. The residential and commercial demand-responsiveness programs require only that the thermostat itself is capable of internet interface, an option that does not require the customer to own or operate a personal computer.
14. Including several, very different information dissemination approaches in the interactive consumption and cost information pilot would detract from the focus of the pilot, i.e., to test a specific website approach, and would not enhance the effort.
15. Categorically excluding non-renewable technologies from the self-generation program adopted today would not be consistent with the legislative intent reflected in Pub. Util. Code § 399.15 (b), which also allows technologies to qualify if they enhance system reliability.
16. Without waste heat recovery, certain non-renewable self-generation technologies may be less efficient and more polluting than combined cycle technologies. Requiring that these technologies utilize waste heat recovery at the customer site mitigates these concerns and is consistent with our goal of improving the overall efficiency of the electrical generation system.
17. Creating an additional category under the self-generation program for fuel cells operating on a non-renewable fuel source recognizes that these systems do not yield the same benefits as those that operate on renewable fuels.
18. Without some form of size or funding limitation, a small number of very large self-generation units could easily use up most or all of the available program budget. This problem can be addressed by 1) establishing a unit size limit or 2) specifying a maximum percentage of funding that can be paid to a single customer or system. The latter approach, however, would result in widely varying system size limitations across service territories because of differing budget allocations.
19. A system size limit of 1 MW for self-generation projects represents a fairly large installation for a single customer site and, at the same time, will not use up an unreasonable amount of program funding.
20. Affording program administrators flexibility to design the self-generation incentive levels for their individual programs may confuse consumers, or cause them to wait for the possibility of higher incentives before installing self-generation systems. In addition, a uniform, statewide incentive for this program recognizes that the market for self-generation technologies is not limited to or differentiated by a particular region or utility service territory.
21. Establishing on-peak/off-peak operating requirements or differential financial incentives for self-generation systems may not be necessary or reasonable because:
1) It is likely that customers willing to invest in self-generation already have sufficient economic incentive from energy prices to operate their systems during peak periods,
2) The system output for solar technologies is already generally coincident with afternoon system peak, without any further requirements, and
3) The incentive approach (dollars per watt installed) proposed by Energy Division is consistent with the CEC's renewables buy-down program and maintaining that approach should help minimize market confusion and disruption.
22. Monitoring the extent to which self-generation units installed under the program operate during peak periods will assist us in improving program design and incentive mechanisms for self-generation programs in the future.
23. Requiring a five-year manufacturer's warranty for technologies eligible under CEC's renewables buy-down program is consistent with CEC's program requirements and industry practice for those technologies.
24. Manufacturers of other distributed generation equipment (e.g., microturbines) typically offer warranties of only three to 12 months. Requiring a three-year warranty, either from the equipment manufacturer or through a maintenance contract, is sufficient to ensure continued operation and reliability of the system, and will encourage manufacturers and vendors to offer high quality products.
25. Any determinations in this decision regarding the waiver of interconnection fees or standby charges could prejudge the issues being considered and addressed in R.99-10-025.
26. The cost-effectiveness methods and inputs applied to Energy Division's proposals are preliminary and limited only to these pilot programs. An appropriate cost-effectiveness method for future, longer-term programs still needs to be developed.
27. Participation in multiple load control and self-generation programs would potentially allow an individual customer to receive multiple incentive payments for taking a single action. For example, a commercial customer could be receiving an interruptible rate discount, while at the same time utilizing incentives from the self-generation program to assist in the purchase of on-site generation for use during interruption periods.
28. Careful coordination is required to ensure that consumers are not "double dipping" and inappropriately receiving incentives from more than one program, whether sponsored by this Commission, CEC, the ISO or other state agencies. Coordination is particularly needed between SoCal and SCE in implementing the self-generation program, since they generally serve the same service territory and customers.
1. Energy Division's proposed programs and annual funding levels for the implementation of Pub. Util. Code § 399.15(b), as modified by this decision and described in Attachment 1, are reasonable and should be adopted.
2. Until the Commission determines that the electric rate freeze has ended for SCE and PG&E, or until there is specific Legislative authority to impose an additional charge to recover the costs of § 399.15(b) programs, we cannot grant the rate relief requested by the utilities. Although the rate freeze has ended for SDG&E, it would be inconsistent with the PBR framework to address the level of SDG&E's distribution revenue requirements and rates on a piecemeal basis, rather than within the PBR context in its next PBR/cost-of-service proceeding.
3. The utilities should proceed with today's authorized programs without further delay and establish memorandum accounts to track all program costs. As discussed in this decision, the utilities should also track all program costs and benefits by customer class.
4. It is reasonable that program administrators for the demand-responsiveness programs should have flexibility to design the customer incentive and pilot program according to the guidelines established in this decision and within the adopted program funding levels.
5. The residential demand-responsiveness pilot program should also target limited to moderate-income areas, as recommended by Energy Division.
6. The interactive consumption and cost information pilot should implement and test the website approach recommended by Energy Division, and not be expanded to include other information dissemination approaches. However, nothing in today's decision is intended to diminish or replace other effective methods that PG&E might also employ to provide energy information to smaller customers.
7. Given the concerns raised by parties regarding utility administration of self-generation programs, it is reasonable to explore a non-utility administrative option, on a limited basis, during the implementation of today's adopted programs. For this purpose, ORA's proposal to designate the San Diego Regional Energy Office as program administrator for SDG&E's self-generation program is a reasonable approach and should be adopted.
8. Program administrators should have flexibility in selecting program delivery mechanisms for the self-generation program, as long as they meet the basic requirements described herein.
9. In implementing today's adopted pilot programs, program administrators should outsource program implementation and administrative activities according to the guidelines established in this decision.
10. It is reasonable to establish fund-shifting rules that provide program administrators with sufficient flexibility to manage program costs, while ensuring that an appropriate proportion of funding goes to hardware installations and customer incentives.
11. It is reasonable to require that certain distributed generation technologies also employ waste heat recovery, as a prerequisite for funding under the self-generation program.
12. It is reasonable to establish a third category of technology and incentive level under the self-generation program for fuel cells operating on non-renewable fuel.
13. The incentive structure described in this decision for the self-generation program is reasonable and should be adopted.
14. Hybrid self-generation systems that incorporate technologies from different incentive categories should receive payments based on the appropriate category, as described in this decision.
15. The self-generation incentive levels we adopt today should be fixed and applied uniformly on a statewide basis throughout the program period, unless modified by subsequent Commission decision.
16. It is reasonable to require a warranty period of five-years for Level 1 and 2 technologies. For Level 3 technologies, it is reasonable to require a warranty period of three years. The customer installing the self-generation system should purchase a minimum of a three-year warranty from the manufacturer or a vendor in order to comply with this requirement, if the system does not already include the required warranty. The customer may include the cost of this warranty in the system cost, for purposes of calculating their program incentive, up to the maximum percentage levels specified.
17. The appropriate forum for considering Energy Division's proposal to waive interconnection fees and standby charges is R.99-10-025, and not this proceeding. However, it is reasonable to use program funds to defray a portion of a project's interconnection fees (as defined in D.00-12-037) by including these fees in the total installation costs when determining the maximum size of the self-generation incentive.
18. As described in this decision, Energy Division should hire an independent consultant to develop a cost-effectiveness method that can be used on a common basis to evaluate all programs that will remove electric load from the centralized grid, including energy efficiency, load control/demand-responsiveness programs and self-generation.
19. The programs authorized today should be evaluated during and after the program period, as described in this decision.
20. Customers installing self-generation systems eligible for the CEC buy-down program should be allowed to augment the funding received from that program with funding available from today's adopted self-generation program, up to the maximum incentive limits.
21. It is reasonable that administrators of today's adopted self-generation programs should take advantage of the work already done by the CEC in developing appropriate program details to encourage self-generation.
22. SCE and SoCal should carefully coordinate their marketing and tracking of program incentives very carefully in order to ensure that customers do not receive incentives for the same self-generation equipment from both utilities. In the alternative, SoCal may administer the self-generation program for the combined geographic region, if SCE and SoCal so agree.
23. As discussed in this decision, the Assigned Commissioner may further clarify eligibility and other implementation issues by ruling, if and when such a need arises.
24. Public necessity, as defined in Rule 77.7(f)(9) requires that the usual 30-day review and comment period on the draft decision be shortened to seven days.
25. In order to implement today's adopted programs as expeditiously as possible, this order should be effective today.
1. The programs and annual budgets described in Attachment 1 are approved through December 31, 2004. Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCal), collectively referred to as "the utilities," shall implement these programs without delay, consistent with today's decision.
2. The annual program budgets approved today are as follows:
Utility |
Demand Responsiveness Budget |
Self Generation Budget ($ million) |
Total Annual Budget ($ million) |
|
PG&E |
$3,000,000 |
$60,000,000 |
$63,000,000 |
|
SCE |
$5,940,000 |
$32,500,000 |
$38,440,000 |
|
SDG&E |
$3,930,000 |
$15,500,000 |
$19,430,000 |
|
SoCal |
NA |
$17,000,000 |
$17,000,000 |
|
Total |
$12,870,000 |
$125,000,000 |
$137,870,000 |
Within 15 days of the effective date of this decision, PG&E and SCE shall file Advice Letters increasing their electric distribution revenue requirements, without modifying current rates, to include today's authorized program budgets. SDG&E shall address the funding of these programs in its next PBR and cost-of-service proceeding. PG&E, SDG&E and SoCal shall include the costs of the programs allocated to gas customers in their next gas rate recovery proceeding, e.g., the Biennial Cost Adjustment Proceeding. In these filings, PG&E and SDG&E shall present the specific factors they use to allocate self-generation program budgets between their electric and gas customers. These factors shall reflect the current allocation of energy efficiency programs between these customers, as discussed in this decision. The utilities shall establish memorandum accounts to track program costs, and shall also track all program costs and benefits by customer class.
3. The utilities shall be the program administrators for the demand-responsiveness programs described in Attachment 1. For the self-generation program authorized in SDG&E's service territory, SDG&E shall contract with the San Diego Regional Energy Office to provide administrative services at the full budgeted amount for that program ($15.5 million). PG&E, SCE and SoCal shall administer the self-generation programs in their service territories. However, as discussed in this decision, SoCal and SCE may assign to SoCal the administration of self-generation programs for their combined service territories.
4. In implementing today's adopted programs, program administrators shall outsource program implementation and administrative activities as directed below:
· Program administrators shall outsource to independent consultants or contractors all program evaluation activities.
· All installation of technologies (hardware and software) at customer sites shall be done by independent contractors and not utility personnel (or agency personnel, in the case of the San Diego Regional Energy Office).
· Program administrators shall also outsource as many other aspects of program administration and implementation as feasible. In particular, the majority of program marketing and outreach activities should be outsourced, to the extent feasible, although the program administrator shall actively participate and assist contractor efforts for this purpose.
· Program administrators shall have the flexibility to select the manner of outsourcing (e.g., competitive bidding, sole source contracting) for the programs adopted today.
5. Under the self-generation program authorized today, program administrators shall offer the following incentives on a uniform, statewide basis:
Incentive category |
Incentive offered |
Maximum percentage of project cost |
Minimum system size |
Maximum system size |
Eligible Technologies |
Level 1 |
$4.50/watt(W) |
50% |
30 kilowatt (kW) |
1 megawatt (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 and meeting reliability criteria _ Internal combustion engines and small gas turbines, both utilizing waste heat recovery and meeting reliability criteria |
6. As described in this decision, hybrid self-generation systems that incorporate multiple technologies shall be eligible for payments based on the appropriate incentive category, and the program applications should provide for these systems.
7. Interconnection fees for systems funded under the self-generation program shall be included in the total installation costs when determining the maximum size of the self-generation incentive. Today's decision does not address or adopt policies regarding the waiver of these fees or of standby charges for distributed generation technologies.
8. Level 1 and 2 technologies installed under the self-generation program shall be covered by a warranty of not less than five years, consistent with the requirements of the California Energy Commission's (CEC) Emerging Renewables Buy-Down Program. Level 3 technologies shall be covered by a warranty period of not less than three years. The customer installing the Level 3 system shall purchase a minimum of a three-year maintenance contract from the manufacturer or a vendor in order to comply with this requirement, if the system does not already include the required warranty. The customer may include the cost of this warranty in the system cost, for purposes of calculating the program incentive, up to the maximum percentage levels allowed.
9. As described in this decision, program administrators shall have flexibility in selecting program delivery mechanisms for the self-generation program, subject to the following requirements:
· Available incentive funding (dollars per watt or percentage of system cost) is fixed on a statewide basis at the levels authorized in today's decision.
· Inspections are conducted to verify that the funded self-generation systems are actually installed and operating.
· The measurement and verification protocols established by the administrators include some sampling of actual energy production by the funded self-generation unit over a statistically relevant period.
10. Program administrators shall have flexibility to reallocate and shift funds within the authorized program budgets as described in this decision.
11. As described in this decision, program administrators for the demand-responsiveness programs shall have flexibility within the adopted program funding levels to 1) select the design and level of customer incentive, 2) establish monthly consumption threshold levels for defining the high consumption target groups, and 3) select the specific technologies employed in the residential and small commercial demand-responsiveness programs. However, any technology installed for these programs must include the following features:
· Provide customers some level of control (e.g., thermostat setting override) over their own heating, ventilation and air-conditioning equipment.
· Provide interactive information for consumers to make consumption decisions (e.g., via the thermostat or a computer internet connection), and
· Allow the administrator to verify actual interruption of the individual device at the customer site, including duration and level of kW demand reduction.
12. The programs authorized today shall be evaluated during and after the program period, as follows:
· For the residential and small commercial demand-responsiveness pilot programs, SDG&E and SCE shall each conduct a process evaluation during 2001 and an energy savings and peak demand savings impact study at the end of 2002.
· For the interactive and cost information pilot program, PG&E shall contact site users and non-users to discuss their satisfaction with the information on the site and suggest potential improvements.
· Program administrators for the self-generation program shall perform program evaluations and load impact studies to verify energy production and system peak demand reductions. In particular, program administrators shall monitor the extent to which self-generation units installed under this program operate during peak periods. The costs of monitoring equipment installed for this purpose shall be paid from program funds. Program administrators shall direct their independent evaluation consultants or contractors to develop a process for monitoring and collecting this data from program participants. At the end of the first program year, administrators shall report to the Commission on peak operation from the program, and continue this reporting in subsequent years. By the end of the second program year, the consultants or contractors shall present recommendations on incentive or program designs that could improve on-peak load reduction from self-generation.
· Program administrators for the self-generation program shall also conduct an independent analysis of the relative effectiveness of the utility and non-utility administrative approaches we adopt today.
13. Program administrators shall outsource to independent consultants or contractors all program evaluation activities. Energy Division shall assist program administrators in the development of the scope of work, selection criteria and the evaluation of submitted proposals to perform these program evaluations. The assigned Administrative Law Judge, in consultation with Energy Division and the program administrators, shall establish a schedule for filing the required evaluation reports. Energy Division shall hold a workshop with program administrators as soon as practicable to develop scheduling proposals for this purpose.
14. As described in this decision, Energy Division shall hire an independent consultant to develop a cost-effectiveness method that can be used on a common basis to evaluate all programs that will remove electric load from the centralized grid, including energy efficiency, load control/demand-responsiveness programs and self-generation. Energy Division shall utilize funds appropriated for the implementation of AB 970 for this purpose.
The scope of work shall encompass the development of methodologies, input assumptions and forecasts for addressing § 399.15(b)(8) and other cost-effectiveness issues. Energy Division shall submit the final consultant report no later than December 31, 2002, and serve a notice of its availability to all appearances and the state service list in this proceeding (or its successor) . Energy Division may hold public workshops with the consultant and interested parties during the development of this methodology, as it deems appropriate. The Assigned Commissioner or Administrative Law Judge shall establish a schedule for comments on the final report.
15. Customers installing self-generation systems eligible for the CEC Emerging Renewables Buy-Down Program may augment the funding received from that program with funding available from today's adopted self-generation program, up to the maximum incentive limits. Program administrators shall work with the CEC to ensure the appropriate tracking and accounting of who receives funding, so that an applicant can be easily crosschecked to make sure that there is no duplication.
16. Program administrators should take advantage of the work already done by the CEC in developing appropriate program details to encourage self-generation, and SoCal shall convene a working group including PG&E, SCE, SDG&E, and the San Diego Regional Energy Office to select final program details for statewide implementation, as soon as practicable.
17. SCE and SoCal shall coordinate their marketing and tracking of program incentives very carefully in order to ensure that customers do not receive incentives for the same self-generation equipment from both utilities. In the alternative, SoCal may administer the self-generation program for the combined geographic region, if SCE and SoCal so agree.
18. The Energy Division shall work with the respondent utilities and the California Energy Commission (CEC) to develop reliability criteria for fossil generators participating in the self-generation program and to ensure coordination with CEC programs as discussed in this decision.
This order is effective today.
Dated March 27, 2001, at San Francisco, California.
LORETTA M. LYNCH
President
CARL W. WOOD
GEOFFREY F. BROWN
Commissioners
I dissent.
/s/ HENRY M. DUQUE
Commissioner
I dissent.
/s/ RICHARD A. BILAS
Commissioner
