VI. Implementing the EAP Loading Order

The EAP prioritizes resources in a "loading order" of policy preferences that emphasizes energy conservation, resource efficiency and reducing per capita demand on the demand side of the equation, and favors renewables over fossil-fueled resources on the supply side.  The order of resource priorities is:  EE and DR, renewables (including renewable DG), clean fossil-fired DG, and clean
central-station generation. Sensible transmission investments should be made in concert with these other resource commitments.

Sections of this decision describe the objectives and direction for aggressive procurement of renewable generation resources, contain guidance for procuring clean fossil resources and discuss transmission and DG, respectively. The direction is clear: IOUs should implement the EAP loading order when soliciting resources as a result of this decision.

All three IOUs' LTPPs present resource procurement scenarios that indicate that they intend to follow the EAP loading order as they go forward with procurement solicitations, evaluations and determinations.  In particular they all say they will follow all Commission orders and directives from the companion umbrella proceedings in meeting target goals for EE, DR, renewables and DG, and will consider the targets as floors, not ceilings, in terms of evaluating options.  The IOUs followed the EAP loading order for each load and resource scenario, and should continue to do so when conducting procurement pursuant to this decision.

A. Energy Efficiency

1. Cost Recovery for IOUs to Meet
EE Savings Goals

While each of the utilities' LTPPs reflected EE as the top priority resource, they differed in their requests for funding approval to procure this resource. As NRDC noted in its reply brief, "PG&E specifically requests that the Commission approve funding for its 2006-2008 procurement of energy efficiency. In contrast, SCE's brief did not address how it intends to request funding approval for the efficiency procurement. And SDG&E requests that the Commission authorize it to file an advice letter (AL) to adjust its electric procurement energy efficiency balancing account (EPEEBA) to match the budgets approved in [D.] 04-09-060."⁸⁰ NRDC urges the Commission to approve each utility's proposed investments to procure EE programs for 2006 through 2008, noting that the Commission cannot do so in the EE rulemaking (R.01-08-028) because it is not a ratesetting proceeding. PG&E shares similar views, further noting that the EE rulemaking authorizes only expenditures of public goods funds (PGC) funds and is not the appropriate forum for augmenting EE expenditures by the utilities. SDG&E also noted that D.04-09-060 approved much larger budgets to achieve the adopted energy savings targets but did not explicitly discuss what source will fund the incremental budget. SDG&E assumed that the incremental budget could be authorized in this proceeding, just as D.03-12-062 approved the utilities' 2004-2005 procurement EE funding.

In addition, both PG&E and NRDC propose that the Commission approve additional EE funding if savings targets are expected to be met and funds for 2006-2008 are depleted before the end of the three-year period. NRDC supports this proposal based on its analysis showing that more cost-effective energy savings remain in the outer years of the utilities' LTPPs.⁸¹

We agree with NRDC and others that this proceeding should be the appropriate forum for authorizing increases in procurement rates to fund incremental EE investments over and above the PGC funding levels. However, since approving the utilities' procurement budget for EE in 2004-2005, we have consolidated consideration of both the administration and funding of EE in our EE rulemaking proceeding. R.01-08-028, consistent with our decision in D.04-01-050 that:

"As the Commission will authorize a uniform of energy efficiency, we believe it is necessary that the Commission have in place a unified administrative structure to oversee all energy efficiency programs regardless of the source of funding in the years ahead. For this reason, we are referring the issue of administration of energy efficiency programs authorized in this proceeding."⁸²

Accordingly, we directed in D.04-09-060 that the program administrators we ultimately select for EE (which may or may not be the utilities) would submit proposed EE program plans and funding levels to meet the Commission-adopted savings goals every three years, in ratesetting applications, beginning with a PY 2006-PY 2008 program implementation by Assigned Commissioner or ALJ ruling in R.01-08-028.⁸³ Authorizing the utilities to request incremental funding via procurement rates for PY 2006-2008 in the manner that NRDC, PG&E and SDG&E propose, would prejudge the issues being addressed in R.01-08-028 and result in a bifurcated administrative structure - which we expressly rejected in D.04-01-050. Therefore, we leave to the EE rulemaking all issues related to the funding levels for the next cycle of EE programs, and how the cost associated with programs will be recovered in rates.

We see this as a transitional phenomenon. We want the utilities to develop fully-integrated resource plans, and cost-effective EE programs should be the first-priority resources. In order for EE to be as effective as possible in displacing the need for central station power plants and other generating resources, the EE efforts must be focused in a manner to meet localized, area-specific needs. This requires an understanding of expected patterns of local load growth, the nature of existing and expected distribution and transmission constraints, and the particulars of local load profiles. In order to encourage the implementation of all cost-effective EE programs, they must be considered in the same context with all other relevant investment options.

All of these factors support ultimately folding the consideration of EE options into the integrated plans. However, we must first establish a long-term program administrative structure and the initial generation of programs to be pursued through that structure. Completion of this process lies many month ahead, dictating an artificial separation of EE planning from other resource planning in this planning cycle. We will expect and require that for future planning iterations, the utilities will fully analyze and propose an EE strategy that will optimize our EE goals and support a low-cost, reliable, diversified resource mix.

2. Energy Efficiency Data in Future LTPPs

NRDC proposes that the Commission establish a list of required data on the EE programs that the utilities should provide at a minimum in their LTPPs. UCS concurred with NRDC's suggestion. This list includes:

· Total proposed investments in EE every year over the next decade, broken out into the PGC and procurement component (in real and nominal dollars);

· New annual and cumulative energy savings as a result of the programs every year over the next decade, broken out into the PGC and procurement components (in GWh);

· New annual and cumulative peak savings every year over the next decade, broken out into the PGC and procurement components (both coincident-peak and non-coincident-peak, in MW);

· The total resource cost (TRC) test net benefits of the proposed investments;

· The average levelized cost of the EE resources;

· Comparison of cumulative energy and peak savings to the Commission's targets;

· The projected percent of demand growth reduced by the programs; and

· The per capita electricity consumption for the service territory over the next decade after factoring in the energy savings from the programs.

We agree that providing information about the EE programs in a consistent format in the utilities' future LTPP filings will facilitate the Commission and parties' analysis of the proposals. NRDC's list provides a good starting point; hence, we will direct the utilities to provide the said information to the extent possible.

B. Distributed Generation

The EAP prioritizes DG in the loading order along with renewable resources and enumerates the following policy objectives:

i. Promote clean, small generation resources located at load centers;

ii. Determine whether and how to hold DG customers responsible for costs associated with DWP purchases;

iii. Determine system benefits of DG and related costs;

iv. Develop standards so that renewable DG may participate in the RPS program;

v. Standardize definitions of eligible DG technologies across agencies to better leverage programs and activities that encourage DG;

vi. Collaborate with the Air Resources Board, Cal-EPA and representatives of local air quality districts to achieve better integration of energy and air quality policies and regulations effecting DG; and

vii. Work together to further develop DG policies, target research and development, track the market adoption of DG technologies, identify cumulative energy system impacts and examine issues associated with new technologies and their use.⁸⁴

The IOUs state that they are meeting the EAP policy goals for DG by reflecting customer-side DG in their load forecasts, by participating in the Rule 21 Interconnection Work Group, and by having Commission-approved methodologies in place for evaluating DG as a distribution alternative in system planning. Intervenors did not file testimony specifically relating to DG and the EAP.

The state is currently meeting the goals of the EAP through two ratepayer-funded incentive programs: (1) the PUC's Self Generation Incentive Program; and (2) the CEC's Emerging Renewable Technology program. We also expect that the Governor's solar systems initiative when implemented, will contribute towards achievement of EAP goals by virtue of its focus on promoting and funding DG installations.

We find that the initiatives cited by the utilities in their LTPP (i.e., DG forecasting, the Rule 21 Work Group, including DG in distribution system planning) are consistent with EAP goals for DG. Furthermore, as we noted elsewhere in this decision, we expect that the cost-effectiveness work underway in R.04-03-017 will provide future guidance to the utilities for incorporating DG in resource planning.

⁸⁰ NRDC reply brief, p. 9.

⁸¹ NRDC opening brief, p. 56.

⁸² D.04-01-050, p. 106

⁸³ See D.04-09-060, Ordering Paragraphs, 1,4 and 5.

⁸⁴ EAP, pp. 4 & 8.