COM/LYN/ALJ/MEG/hkr Mailed 3/29/2001

Decision 01-03-073 March 27, 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 6

3. Energy Division's Program Recommendations 7

3.1 Demand-Responsiveness Programs 7

3.1.1 Residential Demand-Responsiveness Pilot Program 8

3.1.2 Small Commercial Demand-Responsiveness Pilot Program 9

3.1.3 Interactive Consumption and Cost Information For Small Customers 9

3.2 Self-Generation Program 10

4. Discussion 11

4.1 Cost Recovery and Ratemaking 11

4.2 Size and Scope of AB 970 Initiatives 14

4.3 Program Administration 16

4.4 Budget Allocations and Fund Shifting Flexibility 20

4.5 Design Parameters For Demand-Responsiveness Pilot Programs 21

4.6 Design Parameters For Self-Generation Program 24

4.6.1 Technology Categories, Incentive Levels and Size Limits 24

4.6.2 Monitoring Peak Demand Reductions 30

4.6.3 Warranty Requirements 32

4.6.4 Waiver of Interconnection Fees and Standby Charges 33

4.7 Cost-Effectiveness 33

4.8 Program Evaluation 35

4.9 Coordination and Eligibility Issues 36

5. Comments on Draft Decision 38

Findings of Fact 39

Conclusions of Law 44

ORDER 47

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. Nor can we ignore the Legislature's clear direction to include the cost of these programs in distribution revenue requirements. We recognize that SDG&E's rate freeze is over, although there is a rate cap on SDG&E's generation-related rate component. However, SDG&E is also subject to performance-based ratemaking (PBR) for its distribution revenue requirements. 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. Instead, SDG&E should address the costs of these programs within the context of the PBR mechanism in its next PBR and cost-of-service proceeding. For PG&E and SCE, where the rate freeze is still in effect, we direct them to increase their distribution revenue requirements, without modifying current rates, to reflect today's authorized budgets.

Within 15 days, PG&E and SCE shall file Advice Letters increasing their electric distribution revenue requirements, without modifying current rates, for this purpose. SDG&E shall address the funding of these programs in its next PBR and cost-of-service proceeding. On the gas side, PG&E, SDG&E and Southern California Gas Company (SoCal) should include the costs of these programs in their next gas rate recovery proceeding, e.g., the Biennial Cost Adjustment Proceeding. In the interim, all program costs should be tracked in memorandum 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 sufficient waste heat recovery
Level 3	$1.00/W	30%	None	1 MW	_ Microturbines utilizing sufficient waste heat recovery and meeting reliability criteria _ Internal combustion engines and small gas turbines, both utilizing sufficient waste heat recovery and meeting reliability criteria

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. Independent contractors, and not program administrators¹, will perform all installation of technologies (hardware and software) at customer sites. 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.