Decision ALJ LRB eap Mailed 7 11 2000 Decision

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					ALJ/LRB/eap *                                         Mailed 7/11/2000

Decision 00-07-017 July 6, 2000

 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of SOUTHERN CALIFORNIA
EDISON COMPANY (U 338-E) for Approval of
Program Year 2000 and 2001 Energy Efficiency         Application 99-09-049
Program Plans, Budgets, and Performance Award      (Filed September 27, 1999)
Mechanism.


Application of Pacific Gas and Electric Company      Application 99-09-050
for Approval of Program Years 2000 and 2001        (Filed September 27, 1999)
Energy Efficiency Programs (U 39 M).


Compliance Application of San Diego Gas &
Electric Company (U 902-M) for Approval of 2000      Application 99-09-057
and 2001 Energy Efficiency Programs, Budgets,      (Filed September 27, 1999)
Performance Incentive Structure.


Compliance Application of Southern California
Gas Company (U 904-G) for Approval of 2000           Application 99-09-058
and 2001 Energy Efficiency Programs, Budgets,      (Filed September 27, 1999)
Performance Incentive Mechanism.



                   (See Appendix A for List of Appearances)




74413                             -1-
                                              TABLE OF CONTENTS

                       Title                                                                                               Page
O P I N I O N ..................................................................................................................... 7
I.    Summary ................................................................................................................. 7
II.   Overview................................................................................................................. 7
      A. Procedural Background................................................................................... 7
      B. Energy Efficiency Background ..................................................................... 11
      C. Scope of Review ............................................................................................. 15
          1. D.99-08-021 Requirements ....................................................................... 16
          2. Program Design and Implementation Principles ................................ 20
      D. Utilities‘ Overall Position on PY 2000/2001 Applications ....................... 22
III.  Cost-effectiveness ................................................................................................ 25
      A. Policy ................................................................................................................ 25
      B. Utilities‘ Cost-effectiveness Ratios ............................................................... 26
      C. Overview of Issues ......................................................................................... 28
          1. ORA‘s Challenge ...................................................................................... 28
          2. Utilities‘ and CEC‘s Response ................................................................ 29
          3. Discussion .................................................................................................. 30
      D. NTG Ratio........................................................................................................ 30
          1. Background ............................................................................................... 30
          2. ORA‘s Position .......................................................................................... 31
          3. Utilities‘ Responses .................................................................................. 32
          4. Discussion .................................................................................................. 33
      E. Avoided Costs ................................................................................................ 35
          1. Background ............................................................................................... 35
          2. ORA‘s Position .......................................................................................... 36
          3. Utilities‘ Response .................................................................................... 36
          4. Discussion .................................................................................................. 37
      F. Non-Energy Benefits and Costs and Market Effects Multipliers ............ 38
          1. Background ............................................................................................... 38
          2. Utilities‘ Applications .............................................................................. 39
          3. ORA‘s Position .......................................................................................... 41
          4. Utilities‘ Responses .................................................................................. 42
          5. Discussion .................................................................................................. 42
      G. Incremental Measure Cost (IMC) ................................................................ 45
          1. Background ............................................................................................... 45
          2. ORA‘s Position .......................................................................................... 46
          3. Utilities‘ Responses .................................................................................. 47


                                                               -2-
         4. Discussion .................................................................................................. 48
      H. SoCalGas‘ Use of Electric Savings ............................................................... 49
         1. Parties‘ positions ....................................................................................... 49
         2. Discussion .................................................................................................. 49
      I. Impact of Cost-Effectiveness Recommendations on SoCalGas‘
         Portfolio ........................................................................................................... 50
         1. ORA‘s Position .......................................................................................... 50
         2. Utilities‘ Responses .................................................................................. 51
         3. Discussion .................................................................................................. 52
      J. Conclusion....................................................................................................... 54
IV.   Program Designs and Budgets—Overview ..................................................... 55
V.    Residential Programs .......................................................................................... 57
      A. Overview ......................................................................................................... 57
      B. Program Eligibility and Communication ................................................... 58
         1. ORA‘s Recommendations ....................................................................... 58
         2. Responses to ORA‘s Recommendations ............................................... 59
         3. Discussion .................................................................................................. 60
      C. REECH‘s Administrative, Programmatic, and Budgetary Proposals .... 61
         1. REECH‘s Proposals .................................................................................. 61
         2. Utilities‘ Response .................................................................................... 62
         3. Discussion .................................................................................................. 63
      D. Residential Retrofit and Renovation: Residential Contractor
         Program ........................................................................................................... 64
         1. Program Description ................................................................................ 64
         2. Budgets....................................................................................................... 65
         3. Program Design and Implementation ................................................... 66
         4. Positions of the Parties ............................................................................. 67
            a) ORA....................................................................................................... 67
            b) NAESCO............................................................................................... 68
            c) CEC ....................................................................................................... 69
            d) Utilities‘ Responses ............................................................................. 69
         5. Discussion .................................................................................................. 71
      E. Other Residential Programs ......................................................................... 73
         1. Statewide Lighting and Appliance Programs ...................................... 73
         2. Refrigerator Recycling ............................................................................. 77
         3. Residential Financing Strategies............................................................. 78
            a) Background .......................................................................................... 78
            b) CBEE‘s Recommendations................................................................. 79
            c) Utilities‘ Positions ............................................................................... 80
            d) Discussion ............................................................................................ 80


                                                           -3-
         4. School-Based Education and Information Strategies .......................... 81
            a) CBEE‘s Recommendations................................................................. 81
            b) Utilities‘ Responses ............................................................................. 81
            c) Discussion ............................................................................................ 82
      F. Targeting of Under-served Communities .................................................. 82
         1. Policy .......................................................................................................... 82
         2. CBEE‘s Recommendations ...................................................................... 83
         3. Utilities‘ Programs and Positions ........................................................... 84
         4. Discussion .................................................................................................. 85
VI.   Nonresidential Programs ................................................................................... 86
      A. Background ..................................................................................................... 86
      B. Aligning Revenues and Expenditures by Large/Small Customer
         Sub-Classes...................................................................................................... 88
         1. Policy .......................................................................................................... 88
         2. Utilities‘ Alignment .................................................................................. 88
         3. CEC‘s Proposed Realignment ................................................................. 92
         4. Discussion .................................................................................................. 93
      C. Programming and Funding For Large v. Small/Medium Customers ... 99
         1. Policy .......................................................................................................... 99
         2. Budgets..................................................................................................... 100
         3. CBEE‘s Comments .................................................................................. 104
         4. The CEC‘s Recommendations .............................................................. 105
         5. Utilities‘ Positions ................................................................................... 106
         6. Discussion ................................................................................................ 107
      D. Standard Performance Contract ................................................................ 113
         1. Background ............................................................................................. 113
         2. Positions of the Parties ........................................................................... 115
            a) Overall ................................................................................................ 115
            b) CBEE‘s Comments ............................................................................ 116
            c) ORA‘s Recommendations ................................................................ 117
            d) The CEC‘s Recommendations ......................................................... 118
            e) CALEP‘s Recommendations ........................................................... 120
            f) REECH‘s Recommendations ........................................................... 120
            g) Responses ........................................................................................... 120
         3. Discussion ................................................................................................ 126
            a) Overview ............................................................................................ 126
            b) Large SPC Budgets and Customer and Measure Limits ............. 127
            c) CEC‘s Monitoring Recommendations ........................................... 136
            d) Program Design................................................................................. 136
      E. Commercial Remodeling and Renovation—Program Design .............. 139


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         1. CBEE‘s Recommendation ...................................................................... 139
         2. Parties‘ Positions ..................................................................................... 139
         3. Discussion ................................................................................................ 140
      F. Express Efficiency Program ........................................................................ 140
      G. Targeting Under-served Communities ..................................................... 142
         1. Policy ........................................................................................................ 142
         2. CBEE‘s Recommendations .................................................................... 142
         3. Utilities‘ Programs and Responses ...................................................... 143
         4. Discussion ................................................................................................ 144
VII. New Construction ............................................................................................. 146
      A. EAHP ............................................................................................................. 146
      B. Codes and Standards ................................................................................... 147
VIII. Cross-Cutting Programs ................................................................................... 147
      A. Statewide Energy Guides ............................................................................ 147
         1. Background ............................................................................................. 147
         2. Discussion ................................................................................................ 148
      B. Energy Centers ............................................................................................. 149
         1. Background ............................................................................................. 149
         2. Parties‘ Positions ..................................................................................... 150
         3. Discussion ................................................................................................ 152
      C. Third Party Initiatives (TPI) ........................................................................ 153
         1. Background ............................................................................................. 153
         2. Positions of the Parties ........................................................................... 154
            a) CBEE ................................................................................................... 154
            b) ORA..................................................................................................... 155
            c) The CEC .............................................................................................. 156
            d) Utilities‘ Responses ........................................................................... 156
            e) Discussion .......................................................................................... 158
      D. Emerging Technologies ............................................................................... 161
      E. Co-Mingled Activities ................................................................................. 162
         1. ORA‘s Recommendation ....................................................................... 162
         2. Utilities‘ Responses ................................................................................ 163
         3. Discussion ................................................................................................ 164
IX.   Market Assessment and Evaluation (MA&E) Studies ................................. 164
      A. Background ................................................................................................... 164
      B. CBEE‘s Comments ....................................................................................... 166
      C. CADMAC/CALMAC ................................................................................. 168
      D. Joint Stipulation Regarding Baseline and Market Data Collection ....... 168
      E. Utilities‘ Responses ...................................................................................... 169
      F. Discussion ..................................................................................................... 169


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X.    Priority and Funding MA&E Studies ............................................................. 171
XI.   Milestones ........................................................................................................... 173
      A. Procedural Background............................................................................... 173
      B. Milestone Background................................................................................. 174
         1. Standard ................................................................................................... 174
         2. Utilities‘ Proposed Milestones .............................................................. 176
             a) SDG&E ................................................................................................ 178
             b) SoCalGas ............................................................................................ 179
             c) Edison ................................................................................................. 180
             d) PG&E................................................................................................... 181
      C. Positions of the Parties ................................................................................ 182
         1. Utilities ..................................................................................................... 182
         2. The CBEE ................................................................................................. 182
         3. TURN........................................................................................................ 184
         4. The CEC ................................................................................................... 186
         5. REECH ..................................................................................................... 187
         6. ORA .......................................................................................................... 187
         7. Utility Responses .................................................................................... 187
      D. Discussion ..................................................................................................... 190
         1. Incentive Award Modification to Reflect 7% Shareholder
             Incentive Cap .......................................................................................... 192
         2. Aggressive Implementation .................................................................. 195
         3. Specific Milestone Changes and Corrections for PY2000 ................. 197
      E. PY 2001 Milestones ...................................................................................... 200
XII. Fund-shifting and Other Redirection of Funds ............................................. 201
      A. Fund-shifting ................................................................................................ 201
      B. Redirection of Funds.................................................................................... 202
XIII. Summer 2000 Energy Efficiency Initiative ..................................................... 203
      A. The Issue ........................................................................................................ 203
      B. Sources of Funds .......................................................................................... 205
         1. Carry-over Funds ................................................................................... 206
         2. Use of Funds Allocated to CBEE .......................................................... 207
         3. Shareholder Incentive Budgets ............................................................. 208
         4. Summary of Funds Available for the Initiative.................................. 208
      C. Initiative Programs....................................................................................... 209
XIV. On-Going Planning Process ............................................................................. 209
      A. Issue................................................................................................................ 209
      B. Discussion ..................................................................................................... 210
XV. Program Changes .............................................................................................. 211
XVI. PY 2001 Applications, Reports, and Other Filings ........................................ 213


                                                             -6-
      A. Quarterly Program and Expenditure Reports ......................................... 213
      B. Administrator Program Portfolio Manual................................................ 214
      C. PY 2001 Applications ................................................................................... 215
XVII. Comments on Proposed Decision ................................................................... 218
Findings of Fact ............................................................................................................. 223
Conclusions of Law ...................................................................................................... 238
ORDER ........................................................................................................................... 255
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D

                                                       OPINION

I.        Summary
          The decision adopts revisions to the Program Year (PY) 2000 energy
efficiency programs, market assessment and evaluation (MA&E) studies, and
budgets implemented by Southern California Edison Company (Edison), Pacific
Gas and Electric Company (PG&E), San Diego Gas & Electric Company
(SDG&E), and Southern California Gas Company (SoCalGas) (utilities) pursuant
to Interim Decision (D.) 99-12-053. We modify and approve performance award
mechanisms and milestones for PY 2000. We require the utilities to submit
revised budgets and other compliance filings, quarterly status reports, and
program manuals. We also require the utilities to file new applications for
PY 2001 by a date to be determined by the Assigned Commissioner and Assigned
Administrative Law Judge (ALJ) after further proceedings and adopt protocols
for those filings.

II.       Overview

          A. Procedural Background
               The Applications for Approval of PY 2000 and 2001 Energy Efficiency
Programs, Budgets, Performance Incentive Mechanisms, and MA&E studies were


                                                               -7-
filed on September 27, 1999, as required by D.99-08-021. 1 The applications seek
approval of a statewide estimated budget of $333.4 million for PY 2000 and a
preliminary budget of $272.5 million for PY 2001. The PY 2000 estimate includes
a projected carryover of $59.3 million from previous years and the PY 2001
estimate includes a projected carryover of $33.3 million. These cases have been
consolidated for further proceedings.
          Protests were filed by the Office of Ratepayer Advocates (ORA), The
Utility Reform Network (TURN), Residential Energy Efficiency Clearing House,
Inc. (REECH), and, jointly, the Residential Energy Service Companies‘ United
Effort (RESCUE) and SESCO, Inc. Comments were filed by the California Energy
Commission (CEC), the National Association of Energy Service Companies
(NAESCO), the California Association of Lighting Efficiency Professionals
(CALEP), Latino Issues Forum/Greenlining Institute, and the California Board
for Energy Efficiency (CBEE)2, and responses were filed by the utilities.3
          Prehearing conferences (PHC) were held on October 13, 1999,
November 3, 1999 (following a November 2, 1999 meet and confer session), and




1 The due date for filing the applications was extended by letter dated August 17, 1999
from the Commission‘s Executive Director.
2 The CBEE was an Advisory Board to the Commission. As such, it was not a party to
these proceedings. By ALJ Ruling, the CBEE was permitted to file Comments and
Reports but not to submit testimony or file briefs. The CBEE‘s initial Comments and
Recommendations on the Utility Applications for Approval of Program Year 2000 and
2001 Energy Efficiency Programs was filed on October 27, 1999 and is referred to herein
as CBEE October 27, 1999 Comments.
3The Natural Resources Defense Council (NDRC) did not file a protest or comments
but participated in the prehearing proceedings.




                                          -8-
January 13, 2000. The Assigned Commissioner was present at the October 13 and
November 3, 1999 PHCs.
         On November 16, 1999, the Assigned Commissioner issued a Scoping
Memo designating Administrative Law Judge (ALJ) Bytof as the principal
hearing officer for this proceeding and affirming the categorization of the cases as
ratesetting. On December 16, 1999, we issued an Interim Opinion authorizing the
utilities to implement their proposed PY 2000 energy efficiency programs, as
designed and budgeted, and their proposed MA&E studies and budgets,
effective January 1, 2000 subject to prospective modification in the final decision.
(D.99-12-053.) We declined to authorize the utilities‘ proposed program-specific
performance award mechanisms, including milestones and award levels, and
deferred the determination of those issues to the final decision.4
         Workshops on the utilities‘ statewide Standard Performance Contract
(SPC) program and Residential Contractor Program (RCP) were held on
December 1 and 2, 1999, respectively, with workshop reports issuing on
December 8, 1999 and subsequent comments by the parties and by CBEE. By
direction of the ALJ, on November 24, 1999, CBEE also filed a Supplemental
Report on the Cost-Effectiveness of and Performance Award Milestones For
Program Year 2000 Energy Efficiency Programs (CBEE November 24, 1999
Supplemental Report). On December 16, 1999, CBEE filed Comments and
Recommendations on the Southern California Gas Company Application for



4 Because the program hiatus in PY 1999 caused many difficulties, including customer
problems and losses to participants, and given the extensive input process preceding
the filing of these applications, together with the limited nature of our review, we
determined that the utilities should be permitted to go forward with their energy
efficiency programs immediately on January 1, 2000.




                                        -9-
Approval of Program Year 2000 and 2001 Energy Efficiency Programs (CBEE
December 16, 1999 Comments.)
            Seven days of hearing were held on January 24, 25, 26, 27, 28, 31, and
February 1, 2000. The utilities, ORA, CEC, REECH, NAESCO, and TURN
participated in the evidentiary hearing. CALEP filed a document on December
16, 1999 that it styled as ―Testimony.Comments.‖ CALEP did not participate in
the evidentiary hearing and, on January 31, 2000, advised the ALJ and the parties
that its ―Testimony.Comments‖ should be considered comments only.5 After
filing their protests and comments, respectively, RESCUE/SESCO and Latino
Issues Forum/Greenlining Institute did not participate again.6 The parties filed
opening and reply briefs and the case was submitted on February 29, 2000.
            On May 4, 2000, D.00-05-019 was issued in Application (A.) 99-05-002.
In that decision, we concluded that the overall shareholder cap should be
reduced from the 11% authorized for the PY 1999 program to 7% for the PY 2000
and PY 2001 programs. We also concluded that the parties‘ recommendation for
a California Measurement Advisory Council (CALMAC) to develop and oversee
procedures and protocols for measuring and calculating costs and benefits from
energy efficiency programs is a reasonable concept, with the understanding that
the CALMAC would not be an officially-recognized advisory body to the CPUC.


5   NRDC did not participate after the prehearing procedures.
6 RESCUE, an association of residential energy efficiency service companies (EESPs)
and contractors, and SESCO, a large EESP, sought to have a residential SPC program
adopted. Latino Issues Forum/Greenlining Institute sought to ensure that the utilities
take actions to reach under-served communities, such as to conduct needs assessments
in those communities, to monitor participation rates, to use community-based
organizations to disseminate program information, and to seek other non-traditional
outreach methods.




                                          - 10 -
         B. Energy Efficiency Background
             Energy efficiency program funding is authorized as a separate
component of utility rates and is administered by the utilities under the
Commission‘s direction. Prior to 1996, the utilities administered energy
efficiency programs under the rubric of ―DSM,‖ or Demand Side Management.
The goal of the program was to decrease energy use to both save fossil fuels and
to reduce the need to build new utility plant, transmission, and distribution
facilities. The DSM program, with its ―resource acquisition‖ focus, had
standardized reporting requirements,7 practices for calculating cost-
effectiveness,8 and protocols for measuring energy savings.9
             With the advent of deregulation of electric generation, and the
enactment of Assembly Bill (AB) 1890 and Pub. Util. Code §§ 381 and 38210, we
adopted a new direction for the administration and implementation of energy
efficiency programs. In D.97-02-014 we set forth two new policy directions:
independent administration and market transformation. Because of the utilities‘
inherent conflict of interest between reducing sales through energy efficiency and
maintaining market share in the new competitive market, we advocated
transferring the administration of energy efficiency programs away from the
utilities. We allowed the utilities to continue as interim administrators and

7Demand-Side Management Reporting Requirements Manual, issued and updated by the
Energy Division beginning in the late 1980s.
8CPUC/CEC Standard Practice Manual –Economic Analysis of Demand-Side Management
Programs. (December, 1987) (SPM)
9Protocols and Procedures for the Verification of Costs, Benefits, and Shareholder Earnings from
Demand-Side Management Programs, issued and updated by the Energy Division.
10   All statutory references are to the Pub. Util. Code, unless otherwise stated.




                                             - 11 -
created an advisory board to oversee the transition to independent
administration. We also adopted a long-term policy of market transformation, in
which we hoped to encourage the development of a vibrant energy efficiency
marketplace, which would continue without ratepayer-funded subsidies.11 In
D.97-12-103 we directed the utilities to make changes in their energy efficiency
programs consistent with the market transformation objectives we identified in
D.95-12-063 and D.97-02-014.12
             We created the CBEE in D.97-02-014 and when the transfer to
independent administration could not be expeditiously effected, directed the
utilities to work with the CBEE on program planning, proposals, and
modifications. (D.97-09-117; D. 97-12-103.) CBEE was given the responsibility,
subject to our direction, control, and approval, to develop policy guidelines to
govern delivery of energy efficiency programs and to oversee the programs.
(D.98-02-040.) D.98-04-063 directed the CBEE and utility administrators to jointly


11   In D.97-02-014 we stated:

         Our focus for energy efficiency programs has changed from trying to
         influence utility decision makers, as monopoly providers of generation
         services, to trying to transform the market so that individual customers
         and suppliers in the future, competitive generation market will be making
         rational energy choices. (Id., Findings of Fact No.1, p. 81)
12   Market transformation is defined as:
         Long-lasting, sustainable changes in the structure or functioning of a
         market achieved by reducing barriers to the adoption of energy efficiency
         measures to the point where further publicly-funded intervention is no
         longer appropriate in that specific market. Using the terms in this section,
         Market Transformation is a reduction in Market Barriers resulting from a
         Market Intervention, as evidenced by a set of Market Effects that lasts long
         after the intervention has been withdrawn, reduced, or changed. (Policy
         Rules Definitions, p. 12.)




                                            - 12 -
develop annual program plans and budgets and submit them as advice filings.
The utilities‘ worked with the CBEE in filing program applications for 1998 and
1999. PY 1999 programs were reviewed via an advice letter process and
approved in Resolution E-3592.
            We conditionally adopted new policy rules setting forth our objectives
in D.98-04-063 and formally adopted them in D. 98-07-036.13 Some of the new
programs emphasizing the market transformation goal include the Standard
Performance Contract Program (SPC), to foster relationships between private
market participants and customers (shifting funds away from traditional rebate
programs), the Third Party Initiative Program (TPI), to promote market
participants designing their own energy efficiency programs, and Upstream
Market Transformation Programs, to encourage product and service
manufacturers, distributors, retailers, and builders to make, promote, and
advertise energy efficient products and services. The ―new era‖ also seeks to
ensure that overall funding for residential and nonresidential programs reflect
customer class contributions and reduces incentive award levels while delinking
the size of incentive payments from the outcome of sophisticated and often
disputed measurement and evaluation studies, and an increase in activity-based
performance milestones.
            After encountering structural difficulties with a transition to
independent administration, we suspended our quest and extended utilities‘


13   Policy Rule II-4 provides:
          The mission of PGC-funded programs is to transform markets and
          ultimately privatize the provision of cost-effective energy-efficient
          products and services so that customers seek and obtain these products
          and services in the private, competitive market.




                                           - 13 -
administration of the programs through 2001. (D.99-03-056.) We also continued
the CBEE‘s advisory role with respect to policy setting and program
administration and the CBEE facilitated the utilities‘ program planning for the PY
2000/2001 applications. We stated our intent to ―‘rely on the Boards‘ expertise
and detailed evaluations of relevant matters in making decisions on . . . energy
efficiency topics.‖ (D.99-03-056, p. 34.) 14
          In D.00-02-045, we determined that since the energy efficiency
programs have now incorporated policy changes addressing our market
transformation goals and the CBEE‘s legal structure has become cumbersome,
the CBEE should be abolished. We also determined that there is a continuing
need for substantial regulatory oversight of the utility administrators to protect
ratepayer and consumer interests and that we can achieve our procedural and
substantive goals for energy efficiency through formal proceedings and Energy
Division oversight.
          Section 381 provides for the collection of a separate rate component as a
nonbypassable element of local electric distribution service, to fund, in part,
energy efficiency programs. (§ 381(a).) The utilities are directed to collect and
spend these funds on ―cost-effective energy efficiency and conservation
activities‖ at minimum funding levels, which for PY 2000 are: SDG&E—$32
million; Edison—$90 million; PG&E—$106 million. For PY 2001, SDG&E and
PG&E are required to collect and spend the same amounts; Edison‘s minimum
funding, however, drops to $50 million. (§ 381(c)(1).) There is currently no
provision for funding levels after 2001. Natural gas energy efficiency programs


 This decision refers to both the CBEE and the Low-Income Governing Board (LIGB),
14

which is now called the Low-Income Advisory Board (LIAB).




                                         - 14 -
for PG&E, SDG&E and SoCalGas continue to be funded through the utilities‘
rates.

         C. Scope of Review
           In the Interim Opinion, we stated:

           These applications are compliance applications, filed pursuant
           to our explicit direction in D.99-08-021. In D.99-08-021,
           where we adopted selected policy, program, and funding
           modifications to the utilities‘ energy efficiency programs for
           PY 2000. (Ordering Paragraph 5.) The proceedings
           culminating in the issuance of D.99-08-021 provided the
           forum for raising, considering, and modifying the policies,
           goals, and objectives of the utilities‘ energy efficiency
           programs, as well as program and funding modifications.
           (D.99-12-053, mimeo. at pp. 4-5.)

           Based upon the decisions and rulings preceding the filing of the instant
applications, we set forth the scope of our review as follows:

           [R]eview of the utilities‘ PY 2000 and 2001 programs is
           limited to consistency with the requirements of D.99-08-021
           and with the adopted policy rules for energy efficiency
           activities. As the Assigned Commissioner stated in the
           Scoping Memo, policy issues that were or could have been
           raised in prior policy-making proceedings will not be
           revisited in this proceeding. Further, the procedural history
           demonstrates that the planning process for PY 2000 and 2001
           has been a lengthy and extensive process, directed by the
           Commission and conducted in large part by the CBEE.
           Further, since the vast majority of the utilities‘ PY 2000
           energy efficiency programs are on-going programs, many of
           these programs have been subjected to substantial review
           prior to this proceeding. (Id. at p. 8.)

           The Assigned Commissioner further explained the scope of the
proceedings in the Scoping Memo:




                                        - 15 -
         [T]his proceeding will be limited to a review of the PY 2000
         and 2001 programs for consistency with the requirements of
         D.99-08-021 and with the adopted policy rules for energy
         efficiency activities. Issues that were previously raised will
         not be relitigated. Further, the Commission will not, at this
         time, undertake a broader review of the merit and efficacy of
         the utilities‘ energy efficiency programs. While there may be
         broader policy issues that must be addressed regarding the
         future of these programs, those issues will be appropriately
         addressed in future proceedings. (p. 5.)

         The Scoping Memo also established that review of the utilities‘
compliance applications would be governed by the following:

         [T]he scope of this proceeding is framed by the ordering
         paragraphs in D.99-08-021, particularly, Ordering
         Paragraphs 7-14, which specifically describe the changes the
         utilities were expected to make in their PY 2000 and 2001
         compliance applications. . . . The decision also adopted
         selected modifications to the Adopted Policy Rules for
         Energy Efficiency Activities, which also govern this
         proceeding. (Ordering Paragraph 2; Attachment 2). Further,
         the applications should be consistent with the program
         design and implementation principles set forth in Resolution
         (Res.) E-3592, and the principles set forth in the Assigned
         Commissioner‘s (AC) March 26, 1999 Ruling Regarding
         Program Year 2000/2001 Planning. (p. 4.)

         1. D.99-08-021 Requirements
            D.99-08-021 established the following rules to guide the utilities
PY 2000 and 2001 applications:
             The utilities shall carryover to PY 2000 and PY 2001 all
              unallocated program funds in PY 1999 and all unexpended and
              uncommitted funds from PY 1998. (Ordering Paragraph 3.)
             The utilities shall facilitate an ongoing public planning process in
              order to refine and develop proposals to implement specific
              CBEE recommendations, as well as others, that continue progress



                                      - 16 -
               toward the Commission‘s energy efficiency and market
               transformation policy objectives. (Ordering Paragraph 6.)
             In their compliance applications, the utilities shall submit an
              analysis of the sources of public goods charge energy efficiency
              and gas demand-side management funds by customer class and
              sub-class. The utilities shall conduct the available funds analysis,
              including prior year(s) unexpended and uncommitted funds, that
              the CBEE performed for PY 1999 programs. This analysis shall be
              conducted jointly, and the information should summarize
              statewide, utility-specific and electric and gas funds. (Ordering
              Paragraph 7.)
             In their compliance applications, the utilities shall develop
              program-specific adjustments in award mechanisms that shift the
              priority or weights among program incentive design elements to:
               a. Emphasize effective and efficient program
                  administration , as reflected in achievement of
                  program activity-based milestones,
               b. Place greater emphasis on market transformation,
                  as reflected in achievement of market changes and
                  effects, and
               c. Reduce the degree of reliance on milestones
                  associated with new program roll-out, without
                  eliminating roll-out milestones entirely.
            In addition, the utilities shall address the problems with the current
milestones described by CBEE in its May 12, 1999 and June 14, 1999 filings.
(Ordering Paragraph 8.)
             In their compliance applications, the utilities shall monitor,
              modify, and supplement, as appropriate, the nonresidential
              Standard Performance Contracting (SPC) intervention strategy.
              The compliance filings shall also describe efforts to ensure that
              pursuit of statewide consistency is balanced with innovative or
              local approaches that will increase the effectiveness of programs.
              (Ordering Paragraph 9.)
             To further the objectives articulated in Ordering Paragraph 8, the
              utilities shall consider the following modifications in preparing
              program plans for PY 2000 and 2001:


                                      - 17 -
                 a. Limitations on participation for market segments
                    that are or have now been sufficiently transformed
                    (e.g., some large customer segments);

                 b. Increased targeting to smaller nonresidential
                    customers that may face different combinations of
                    market barriers to cost-effective energy efficiency
                    investments and practices than those addressed by
                    current SPC designs;

                 c. Limitations on participation for customers that
                    have participated extensively previously; and

                 d. Additional changes in pricing (such as reduction in
                    incentive levels or elimination of a particular
                    measure) or other design features in response to
                    the diminishing (or increasing) need for ratepayer
                    funding to support market transformation for
                    specific technologies.
            In addition, the utilities shall consider increased emphasis on other
program elements and intervention strategies that may be needed to capture
market opportunities and segments for which the SPC strategy is not well-suited.
Examples of these opportunities and segments include those targeted by the
Commercial Remodeling and Renovation, Heating Ventilation and
Air-Conditioning Turnover, and Motor Turnover programs. (Ordering
Paragraph 10.)
             To further the objectives articulated in Ordering Paragraph 8, the
              utilities shall also consider program offerings for PY 2000 and
              2001 that:
                 a. Are available to under-served communities and
                    customer groups,
                 b. Can take advantage of the unique expertise,
                    relationships with customers, and ability to
                    coordinate among related activities offered by
                    individual or groups of local governments, or



                                       - 18 -
   c. Can explore promising concepts considered in the
      design of the statewide residential contractor
      programs, but which ultimately could not be
      implemented on a statewide basis (e.g., innovative
      approaches to duct sealing, contractor certification,
      and building performance metrics). (Ordering
      Paragraph 11.)
 In their compliance applications, the utilities shall propose
  revised program budget ranges, funding caps, and funding
  floors, as appropriate, that result from considering the changes
  described in Ordering Paragraphs 9 and 10. In particular, the
  utilities shall consider revisions in programs, program elements
  and intervention strategies that address the following:
   a. general and targeted third party solicitations
      (increases in funding);
   b. activities targeted to smaller nonresidential
      customers (increases in funding);
   c. activities that benefit under-served communities
      and customer groups, such as renters (increases in
      funding);
   d. SPC intervention strategies targeted to large
      customers (decreases in funding or decrease in the
      funding cap);
   e. the residential contractor intervention strategy
      (potentially, increases in funding, if the program is
      performing well); and
   f. the Commercial Remodeling and Renovation
      program (increases in funding). (Ordering
      Paragraph 12)
 In their compliance applications, the utilities shall address
  intervention strategies and other activities (including budgets) to
  improve the implementation of the new standards and the
  development of the next round of standards. In addition, the
  utilities shall describe ways to coordinate these intervention
  strategies and activities with the California Energy Commission
  (CEC) and other utilities. (Ordering Paragraph 13)



                          - 19 -
              In their compliance applications, the utilities shall address the
               role of emerging technologies in their program, including the
               coordination of these activities with other utilities and the CEC.
               The utilities may also consider a more formal role for the
               California Institute for Energy Efficiency, as long as it is
               consistent with our determination that the utilities, not other
               entities, continue as program administrators for energy efficiency
               through December 31, 2001. (Ordering Paragraph 14)

         2. Program Design and Implementation
            Principles
             In D.99-08-021 and Resolution E-3592, approving the PY 1999
programs, we also directed the utilities to incorporate the following eight
program design and implementation principles into their programs:
             1. Continue movement toward uniform statewide
                program designs and implementation.
             2. Continue transfer of program implementation away
                from administrators.
             3. Rely on competitive processes when outsourcing
                activities.
             4. Continue third party initiatives (TPI) and use targeted
                solicitations.
             5. Coordinate program activities with regional and
                national entities, where appropriate.
             6. Support commercialization of emerging technologies.
             7. Seek broad input from customers on the design of
                programs.
             8. Ensure program offerings are available to under-served
                communities and customer groups.
             The utilities‘ compliance with these principles will be considered, for
the most part, in the context of the issues raised by the protests, questioned
during the evidentiary hearing, and discussed in the briefs.




                                       - 20 -
             The procedure and schedule for PY 2000 and PY 2001 program
planning was established by a March 26, 1999 Assigned Commissioner‘s Ruling
Regarding Program Year 2000/2001 Planning. (March 26, 1999 ACR.) At that
time, the ACR determined that the CBEE would institute a public process and
then recommend ―selective changes to policy rules guidelines on programs,
budgets and program administrative issues that would apply to energy efficiency
activities through the rest of the interim utility administration period, i.e.,
through December 31, 2001.‖ (March 26, 1999 ACR, p. 2.) The ACR thus
determined that the utilities‘ applications filed in September of 1999 would cover
both PY 2000 and PY 2001 and we would not engage in ―PY 2001 planning
process with utility applications for budget and program change proposals.‖ (Id.,
at p. 4.) We adopted this position in D.99-08-021.
             However, we have now determined that proper program oversight
requires that the utilities file new applications for PY 2001. While this decision
may insert some small amount of uncertainty into the process, we believe that it
is necessary to satisfy our statutory oversight duties and to provide the
opportunity for stakeholders to have more input into the programs.
             As we discuss in much greater detail below, while the utilities have
made some progress toward statewide uniform programs and procedures, more
guidance is necessary. Further, we find that the utilities have not provided
sufficient information to demonstrate that they have complied with our
directives in D.99-08-021. To adequately review the utilities‘ programs, and to
determine compliance with our directives in D.99-08-021, additional program
data needs to be provided and summarized in different forms, cost-effectiveness
calculations need to be more standardized and use more consistent input values,
program baseline data needs to be provided, and evaluation studies need to be
completed and analyzed. Thus, we order the utilities to file new applications for


                                         - 21 -
PY 2001. Because of the short timeframe for gathering and providing the data we
seek herein, we delegate to the Assigned Commissioner and Assigned ALJ the
determination of the appropriate filing date. We anticipate that the Assigned ALJ
will work with all interested parties in setting a schedule for provision of the
required information which will be followed by the filing of final applications for
PY 2001. We will take all reasonable efforts to ensure that the PY 2001 program
evaluation is completed in time for implementation on January 1, 2001. In any
event, as we decided in D.99-03-056, the programs and funding levels we
approve today are authorized through December 31, 2001 unless and until
modified by further Commission order.

      D. Utilities’ Overall Position on PY 2000/2001 Applications
         In sum, the utilities contend that the applications meet all the standards
and requirements set forth in the ordering paragraphs of D.99-08-021, the
program design and implementation principles, the adopted policy rules, and the
principles set forth in the March 26, 1999 ACR.15 Citing the ACR and D.99-08-
021, they contend that the bulk of the proposed programs for PY 2000 and 2001
are continuation of programs in effect in 1999, with limited new offerings, in
accordance with our directive that only selected changes should be adopted. The
utilities state that the proposals made by the protestants in this proceeding are
out of scope because they seek major programmatic changes or seek to modify
Commission policies previously established. For the most part, the utilities‘
briefs merely reiterate the positions taken in their applications and fail to provide
any detailed analysis of the issues raised by the parties or the ALJ.


15While all four utilities make this statement, only SDG&E and SoCalGas demonstrate
in their briefs how they believe that the applications meet the stated criteria.




                                        - 22 -
         The utilities also contend that we should adopt the applications as
submitted because the proposed programs contain only limited modifications
which were made after working closely with the CBEE and other interested
stakeholders, and an extensive public input process, including a series of
workshops and focus groups. The utilities claim that we should give deference
to this public process and give less weight to proposals now made by parties who
either did not participate or participated to a limited degree, like ORA and
TURN. The utilities also characterize many of ORA‘s, TURN‘s, CALEP‘s, and
REECH‘s issues as policy issues reflecting a fundamental disagreement with our
adopted market transformation goal or with policy choices made by the CBEE,
although they recognize that some of those issues, and those raised by the CEC,
NAESCO, and CALEP are program modification issues.
         While we are sympathetic to the utilities‘ position, we believe that it is
necessary to conduct a more in-depth review of the programs. In the Scoping
Memo, the Assigned Commissioner determined that the Intervenors and
Protestants raised issues regarding the utilities‘ proposed programs—their
design and budgets, cost-effectiveness, and the appropriateness of proposed
performance award milestones and incentive levels—that were appropriately
within the scope of the parameters set forth in D.99-08-021. In this regard, we
note that our direction in D.99-08-021 regarding potential program and budget
modifications for PY 2000/2001 is quite broad. Further, while we believe that it is
appropriate to give some deference to CBEE, and to rely to a great degree on the
extensive public planning process facilitated by CBEE prior to the filing of the
instant applications, we are mindful that we cannot and will not delegate our
authority to the CBEE. It remains our statutory and fiduciary duty to fully
review the utilities‘ program applications and to ensure that the public goods




                                       - 23 -
charge (PGC)16 collected from ratepayers and expended on their behalf through
these energy efficiency programs are expended in the public interest.
          Our responsibility to fully review these programs is made more
important in light of several new developments. First, we recognize that the
policies and programs were developed as a corollary to independent
administration. Since that goal has been put on hold, we must ensure that both
our policy direction and utility program administration remains appropriate.
Second, our duty also takes on additional significance since we have now
abolished the CBEE and have decided to rely upon our Energy Division for
program review and evaluation. Finally, we are mindful that we have not
reviewed many of these programs in detail17 and there has been little opportunity
for parties who, for one reason or another, are distrustful of the CBEE-led public
process, to examine the programs in our public proceedings. We also must
conduct an in-depth review of the proposed PY 2000 programs precisely because
the applications are considered compliance filings. Thus, we are charged with
determining whether the proposed programs comply with our directives in
D.99-08-021. To do so necessarily requires us to review the utilities‘ programs in
some detail. Thus, we agree with the protestants that the public interest requires
a more complete examination of the applications.



16We use the ―PGC‖ as defined in our policy rules, to refer to electric PGG funds for
energy efficiency pursuant to AB 1890, energy efficiency funds resulting from a gas
surcharge mechanism, and gas DSM funds for energy efficiency authorized in the
interim until a gas surcharge mechanism is implemented. (Policy Rules, p. 1, n. 2.)
17For example, the RCP program design was completed after we issued our decision on
the PY 1999 programs (Res. E-3592) and this has never been formally reviewed or
approved.




                                         - 24 -
           In the discussion that follows, we address the primary issues raised by
the parties, beginning with overall program portfolio cost-effectiveness, and
continuing through the various recommended programmatic and budgetary
changes.

III.   Cost-effectiveness

       A. Policy
           Cost-effectiveness is a central ingredient of energy conservation and has
been a legislatively mandated priority of energy efficiency programs since they
have been instituted. Section 701.1(b) provides that:

           The Legislature further finds and declares that, in addition to
           any appropriate investments in energy production, electrical
           and natural gas utilities should seek to exploit all practicable
           and cost-effective conservation and improvements in the
           efficiency of energy use and distribution that offer
           equivalent or better system reliability, and which are not
           being exploited by any other entity.

           Under electric restructuring, cost-effectiveness remains a core
requirement of energy efficiency programs. Section 381(b), adopted as part of
AB 1890, requires the Commission to allocate funds to programs that provide
cost-effective energy efficiency and conservation activities.
           Under our policy rules, cost-effectiveness is also a threshold condition
for program approval. Policy Rule IV-1 provides:

           PGC-funded activities are expected to be cost-effective using
           the public purpose test. . . A prospective showing of cost-
           effectiveness for the entire portfolio of PGC-funded activities




                                         - 25 -
          and programs. . . is a threshold condition for eligibility for
          PGC funds.18

          The Policy Rules establish the ―public purpose test‖ (PPT) as the
appropriate measure of cost-effectiveness. (Policy Rule V-2.) The PPT, which is
generally based upon the Societal Test and the Total Resource Cost Test (TRC) as
defined in the Standard Practice Manual (SPM):

          explicitly recognizes the appropriateness of including certain
          elements that have not traditionally been included in the
          practice of calculating the TRC. The new elements may
          include: 1) program spillover savings; 2) non-energy costs
          and benefits; 3) externalities, including environmental costs
          and benefits; and 4) reductions in the cost of measures or
          practices caused by the program. (Id.)

          The cost-effectiveness calculation includes several components, which
are, for the most part, set forth in the SPM. Some of the components have been
modified by the CBEE in the Policy Rules and in Resolution E-3592. The CBEE
recommended in Advice Letter 1-G/1-E that we adopt a common set of selected,
statewide input values and conventions for demonstrating cost-effectiveness
following the policy rules, which we did in Res. E-3592.

       B. Utilities’ Cost-effectiveness Ratios
          In their applications, the utilities forecast the PY 2000 program portfolio
cost-benefit ratios, using the PPT, as follows:




18―On-going demonstration of continued expectations for cost-effectiveness of the
portfolio. . . (on at least an annual basis)‖ is also a condition for continued receipt of
PGC funds. (Policy Rule IV-3.) The cost-effectiveness of individual programs within
the portfolio is considered together with their contribution to a balanced portfolio of
programs geared to achieving market transformation. (Policy Rules IV-4; II-6.)




                                           - 26 -
                                 PG&E          Edison        SDG&E         SoCalGas19
     Cost/Benefit Ratio           1.73          1.96           1.36           1.02
          In its November 24, 1999 Supplemental Report, CBEE confirmed that
the overall portfolios of PGC-funded activities for PG&E, EDISON, and SDG&E
are cost-effective, but found that the overall portfolio for SoCalGas is not.
However, the CBEE found that the workpapers to support the calculations are
deficient, particularly in that they do not fully document the assumptions used or
the sources for underlying estimates of participation, savings, and measure cost.
The CBEE further found that the utilities‘ compliance applications are incomplete
because they do not implement the public purpose test correctly for one or more
of the following reasons:

          1. Do not report cost-effectiveness for the entire portfolio. PG&E only
             reports PPT results for each program area.
          2. Do not include all costs that are not assignable to individual
             programs. PG&E does not include MA&E and CBEE operating
             costs. Edison and SDG&E do not include CEC-administered MA&E
             and CBEE operating costs. SoCalGas does not include performance
             incentives and MA&E costs.

          3. Made errors in calculation. PG&E‘s application of market effects
             adders to two residential programs is in error. SDG&E‘s application

19 SoCalGas‘ cost/benefit ratio was recalculated several times. As submitted in the
Application, it was 1.02. After ORA raised an issue regarding the cost-effectiveness of
its portfolio, the CBEE reviewed the calculations and, in its November 24, 1999
Supplemental Report, recommended several changes. These changes, plus a change
made by SoCalGas independently to correct an omission, resulted in a ratio of 1.17,
which SoCalGas presented in its December 3, 1999 Comments on the CBEE Report.
SoCalGas had some confusion over the correct discount rate to use in the calculations
and first revised its calculations to use an 8.5% rate, resulting in a cost/benefit ratio of
1.14 as set forth in SoCalGas Exh. 402 (Rebuttal Testimony) and, subsequently, to use
the appropriate discount rate of 8.15% as provided in Res. E-3592 (Finding No. 41),
which results in a ratio of 1.16.




                                            - 27 -
             is inconsistent in its reporting of PPT benefits for at least one
             program activity.
          The CBEE thus makes adjustments to address these issues and
recalculates the forecasted cost/benefit ratios as follows:
                             PG&E         Edison         SDG&E        SoCalGas
     Utility C/B Ratio       1.73         1.96           1.36         1.02
     CBEE Revised Ratio      1.51         1.93           1.33         .92
          Subsequently, CBEE reviewed SoCalGas‘ revised cost-effectiveness
calculations, found them appropriate, reasonable, and consistent with CBEE‘s
suggestions, and concluded that SoCalGas‘ portfolio is cost-effective on a
prospective basis. (CBEE December 16, 1999 Comments.)

       C. Overview of Issues

          1. ORA’s Challenge
             ORA has challenged the utilities‘ input values for several of the
components of the cost-effectiveness calculation including to the 1) net-to-gross
(NTG) ratio, 2) measurement life for avoided costs, 3) use of non-energy
environmental adders and market effects multipliers, and 4) incremental measure
costs (IMC). ORA also challenges SoCalGas‘ inclusion of electric savings in its
benefit calculations. To improve the credibility and reasonableness of the cost-
effectiveness showings ORA recommends that we: 1) adopt a NTG ratio that
better estimates the impacts of ―free-riders‖20 on the cost-benefit analysis;
2) require the use of updated, uniform avoided costs, including a uniform
measurement life; 3) reject the use of non-energy environmental adders and
market effects multipliers; and 4) reject SoCalGas‘ inclusion of electric savings

20Free-riders are customers that participate in a utility-sponsored energy efficiency
program and undertake an energy efficiency measure, but would have undertaken the
energy-saving project without the intervention.




                                        - 28 -
benefits. According to ORA, using these recommendations will lower the
utilities‘ cost/benefit ratios, although it will have minimal impact on the cost-
effectiveness of PG&E‘s, Edison‘s and SDG&E‘s portfolios. However, ORA
contends that SoCalGas‘ portfolio, which is marginally effective as proposed, will
be shown to be not cost-effective. Accordingly, ORA recommends that we
terminate SoCalGas‘ role as an administrator of its energy efficiency programs
and return the collected funds to ratepayers. ORA also recommends that all the
utilities file recalculated cost/benefit analyses using the revised inputs as a post-
decision compliance filing so that we can compare forecast performance to actual
performance through the Annual Earnings Assessment Procedure (AEAP)
process.

           2. Utilities’ and CEC’s Response
             The utilities contend, as they have throughout this proceeding, that
ORA‘s cost-effectiveness recommendations are outside the scope of this
proceeding because they are not one of those ―limited number of selected
changes to PY 1999 programs and funding‖ that we agreed to consider for
PY 2000/2001.
             Edison argues that since our goals have shifted in focus from the
former detailed, resource-benefit-driven, cost-effectiveness calculations to less
quantifiable market transformation objectives, the emphasis on cost-effectiveness
is lessened. Thus, it recommends that we only consider ORA‘s detailed changes
to cost-effectiveness inputs if we decide to change policies to focus on resource
benefits, as in the pre-1998 era. Edison also opposes ORA‘s recommendation to
use CEC marginal costs for PY 2000 and PY 2001 program planning because the
costs used for the PY 1999 programs are sufficient and changes to the forecasts
for PY 2000/2001 would provide an unnecessary complication to the planning
process relied upon for years.


                                        - 29 -
             The CEC recommends against changing the cost-effectiveness inputs
related to forecasts of marginal energy prices, environmental adders, and
measure lives for PY 2000 because these inputs should be determined at the
beginning of the program planning process to allow parties to effectively design
their programs consistent with Commission directives. While the CEC also does
not see the need to change the inputs for PY 2001, it recommends that if we do so,
we should direct the utilities to use the latest forecast of avoided costs.

         3. Discussion
             As the foregoing policy discussion shows, cost-effectiveness is both a
threshold condition for program approval and an on-going requirement for
continued receipt of PGC funds, pursuant to both § 381 and our policy rules,
which were adopted specifically to facilitate market transformation. Edison‘s
argument regarding their importance is misguided. Further, these provisions
also demonstrate that a cost-effectiveness review is always within the scope of
program evaluation. While the decision to use the PPT test and to allow the use
of various inputs, e.g., non-energy environmental adders, may not be challenged
in this compliance proceeding, the reasonableness of the input values used by the
utilities is not only within the scope of these proceedings but review is critical to
meeting our statutory obligations.

      D. NTG Ratio

          1. Background
             The NTG ratio is a component of the cost-effectiveness calculation.
As explained in the SPM, the NTG ratio attempts to isolate costs and benefits
associated with a program that can be attributed to the activity or intervention
undertaken by the utility and not to other sources. The principle is that credit
should only be taken for benefits that are directly attributable to the program.



                                        - 30 -
The NTG ratio thus attempts to measure those benefits, excluding from benefits
both free-riders and ―spillover.‖21 A NTG ratio less than 1.0 indicates the
presence of free-riders; a NTG ratio greater than 1.0 indicates spillover, and a
NTG ratio of 1.0 assumes either no free-riders and no spillover or that free-riders
and spillover are equal in effect. Using a NTG ratio less than one thus reduces
the cost-benefit ratio. The utilities all used a NTG ratio of 1.0 in their cost-
effectiveness calculations.

          2. ORA’s Position
             ORA contends that the 1.0 net-to-gross ratio used by the utilities in
the cost-effectiveness calculation is unreasonable and should be replaced with an
assumed ratio of .75 for all programs except for large nonresidential, for which it
recommends using an assumed ratio of .25. ORA points out that using a NTG
ratio of 1.0 either assumes there are no free-riders or that spillover offsets the
effects of free-riders. It contends that the studies performed to date do not justify
such an assumption and, on the contrary, show substantial free-riders, as
reflected in NTG ratios often below .7 or .75. ORA points out that a .75 NTG ratio
also has been used as a default in the past when the NTG ratio is difficult to
measure. (Protocols and Procedures for the Verification of Costs, Benefits, and
Shareholder Earnings from Demand–Side Management Programs, p. C-15.)
             While application of a revised NTG ratio will not make PG&E‘s,
Edison‘s, or SDG&E‘s portfolios less than cost- effective, ORA contends that we
should order revised NTG ratios for PY 2000 programs to improve the credibility




21Spillover occurs when a customer engages in an energy-saving project without
participating in a utility-administered energy efficiency project.




                                         - 31 -
of the analysis. With respect to SoCalGas, ORA posits that a proper analysis
would drop the cost/benefit ratio to ―at least 1.0.22‖
             The CEC recommends that the utilities collect data on the NTG ratio
for the PY 1999 nonresidential Large SPC program and incorporate the results
into any analysis provided to the Commission.

          3. Utilities’ Responses
             The utilities contend that they used the 1.0 NTG ratio adopted in
Res. E-3592. They also contend that a 1.0 NTG ratio is reasonable because 1) past
studies of free-riders (which would warrant use of a lower NTG ratio) were
based upon resource acquisition and not market transformation; 2) the NTG ratio
was more important when shareholder incentives were based on the net energy
benefits of the programs and that its role in market transformation programs is
―changed and diminished‖ ( PG&E); 3) the ―right‖ NTG ratio for each program is
―neither known nor knowable‖(SDG&E/SoCalGas); 4) use of a lower NTG ratio
will ―deflate the cost-effectiveness of utility portfolios and place pressure on
utility administrators to return to programs of the past, with less emphasis on
market transformation activities;‖ and 5) it is reasonable to assume that the
market transformation programs would have a greater amount of spillover than
the pre-1998 programs and result in a higher NTG ratio since that is how the
programs have been designed (Edison).




22ORA contends that the cost/benefit analysis SoCalGas produced using a .75 NTG
ratio improperly excludes shareholder incentives and other administrative costs, so that
SoCalGas‘ reported cost/benefit ratio should drop to at least 1.0.




                                         - 32 -
         4. Discussion
            The appropriateness of continuing to use a NTG ratio of 1.0 is
doubtful23 Res. E-3592, approving the PY 1999 programs, adopted the cost-
effectiveness values recommended by CBEE in its Advice Filing 1G/I-E, which
included this statement about the 1.0 NTG ratio:

            The CBEE recommends provisional adoption of a
            consistent factor, 1.0, to adjust gross program savings and
            measure costs for net program savings and measure costs
            for prospectively establishing the value of PY99
            programs. In making this recommendation, the CBEE
            emphasizes that credit should only be taken for the net
            effects of PGC-funded activities, but recognizes that
            additional study is required to develop more reliable
            estimates. In particular the CBEE believes that past
            studies do not provide a sufficient basis for developing
            these estimates because they are based on programs for
            which market transformation was not a central focus. As
            a result, the CBEE believes it is better to stipulate to a
            common estimate, rather than continue to rely on past
            estimates for which the biases are only partially
            understood. The CBEE‘s recommendation should be
            viewed as provisional. In PY98, the CBEE initiated
            several analysis activities that will lead to the
            development of more reliable estimates of the net effects
            of PGC-funded energy efficiency market transformation
            programs. The CBEE will address this issue in public
            workshops in PY99. (Id., p. A-21)

            Thus, CBEE‘s recommendation was provisional, for PY 1999
programs only, pending development of more reliable NTG ratio estimates. The


23We reject SDG&E/SoCalGas‘ suggestion that this issue be deferred to the Rulemaking
and address it here. We note that the NTG ratio used by the utilities was originally
adopted during the 1999 advice letter process.




                                       - 33 -
CBEE specifically anticipated reviewing new studies and discussing new NTG
ratios in workshops in 1999. What happened in 1999 is not clear and the CBEE
did not address this issue in its comments in this proceeding. Subsequent
decisions are also silent on this issue. We also note that CBEE‘s recommendation
is not particularly clear since earlier in the same report it recommended that the
Commission direct the utilities to use a common estimate of NTG ratio of .75. (Id.
at p. A-19.) Res. E-3592 adopted the 1.0 NTG ratio without comment.
             Further, the only study placed into evidence in these proceedings,
the Evaluation of 1998 NSPC Program Final Report Volume I, prepared by Xenergy,
Inc. (Xenergy Report), concludes that the NTG ratio for large nonresidential
customers is .36-.54, substantially less than 1.0. (Jt. Exh. 8, p. 4)24 While Xenergy
indicates that this report is preliminary, together with ORA‘s testimony and the
CBEE‘s comments in Advice Letter 1G/1E, it casts substantial doubt on the use of
an assumed NTG ratio of 1.0 for all programs.
             We understand the preliminary need in PY 1999 to use an assumed
ratio and, at that time, a NTG ratio of 1.0 may have been reasonable. However,
we are unable to conclude that its continued use is reasonable. Apparently, there
was no follow-up on this issue by the CBEE or other parties. Thus, we do not
have a sufficient basis upon which to adopt a different NTG ratio, either a
substituted assumed NTG ratio for all programs or appropriate NTG ratios for
individual programs. We are unwilling to adopt assumed NTG ratios of .75 for
some programs and .25 for other programs without a comprehensive review of
the pertinent studies and discussion among all stakeholders. We also note that


24This means that 46-64% of nonresidential customers in the SPC program would have
installed the measures without the incentives.




                                        - 34 -
ORA offers no rationale for its use of a .25 NTG ratio for large nonresidential
customers which, on its face, is substantially lower than the preliminary Xenergy
Report results for this customer class.
             Under these circumstances, we will not make any changes for
PY 2000 programs but will direct the utilities to jointly collect data on free-riders,
to review field studies and gathered information, including the final Xenergy
Study on the nonresidential SPC program scheduled to be completed this year,
and, jointly with other stakeholders, after conducting a public process, develop
NTG ratios to be used for PY 2001 programs, including a default ratio to be used
where sufficient credible program-specific data may not exist. If there is credible
evaluative measurement of the NTG ratio for individual programs, the utilities
should use that data for PY 2001. If there is only more generalized data, the
utilities should use a default ratio for PY 2001.

      E. Avoided Costs

          1. Background
             Avoided costs are also an input into the cost-effectiveness
calculation, in this case on the savings or benefit side. The cost-benefit analysis
forecasts savings associated with avoided costs of electricity consumption,
electric transmission and distribution (T&D), and natural gas consumption,
including energy-related externalities such as NOx, SOx and carbon. Prior to
electric restructuring, avoided costs were based upon the individual utility‘s
avoided costs. With electric restructuring, the individual utility‘s service-
territory-specific input values for these avoided costs are no longer relevant.
Thus, the CBEE recommends that the avoided cost input be based on uniform
statewide values. It recommends use of the CEC‘s forecast of market clearing
prices, an estimate of the price of ancillary services, and a statewide T&D loss
factor to establish the value of electric generation avoided by PY 1999 programs,

                                          - 35 -
which at the time was set forth in the CEC‘s Interim Staff Market Clearing Price
Forecast for the California Energy Market: Forecast methodology and Analytical Issues
(12/10/97). (CBEE Advice Letter 1G/1E, p. A-20.)25 The CEC Report forecasts
the cost of electric generation for a 20-year period from 1998-2017.
             In their applications, the utilities used avoided cost forecasts in their
calculations of the benefits accruing under the useful life of the energy efficiency
measures, which in some cases exceeds 20 years. In doing so, they extrapolated
the appropriate values from the CEC Report.

         2. ORA’s Position
             ORA objects to the utilities‘ use of measure lives exceeding 20 years,
arguing that 1) the CEC Report limits the forecasts to 20 years; 2) using a period
greater than 20 years is inconsistent with the move toward uniform statewide
avoided cost estimates; 3) recent studies question how long energy efficiency
measures will really last; and 4) energy-using appliances are likely to be replaced
on factors other than the appliances‘ useful life.
             ORA also contends that the CEC forecasted values in the 1997
Report are outdated because they were based upon forecasts prepared before
deregulation and before there was any experience in the operation of a statewide
market. ORA recommends that the most recent, higher, CEC avoided cost
estimates be adopted and used in the PY 2001 applications.

          3. Utilities’ Response
             The utilities contend that they have used the adopted stream of
avoided costs that was recommended by the CBEE and adopted in Res. E-3592.


 CBEE also recommends using sales-weighted average forecasts for avoided electricity
25

T&D and natural gas costs. No issue has been raised with respect to these input values.




                                         - 36 -
They argue that many energy efficiency measures have useful lives exceeding 20
years and that they have routinely used, in prior years, including PY 1998 and
1999, varying measure lives without protest so there is no reason to arbitrarily cut
off the calculated benefits of long-lived measures now. SDG&E/SoCalGas point
out that ORA recommended that we adopt these values for PY 1999 programs.
The CEC believes this is reasonable. Edison also opposes ORA‘s
recommendation because changes to the forecasts for PY 2000/2001 would
provide an unnecessary complication to the planning process.

          4. Discussion
             There is nothing in the CBEE recommendation or Res. E-3592 that
limits the measure life used in the forecasted values for avoided costs to a 20-year
period. The table in the CEC report (Attachment E to CBEE Advice Letter 1-G/1-
E) merely sets forth 20 years of values; there is no indication why 20 years was
selected for illustration. It is a simple mathematical task to extrapolate values for
additional years. Nor is there any logical reason to limit avoided costs to an
artificial 20 year period.
             We note, however, that Joint Exhibit 10, prepared in response to the
ALJ‘s request, shows that the utilities have used different measure lives for the
same measures. There is merit in ensuring that the utilities use the same measure
life estimate for the same energy saving measures, e.g., each utility should use
the same useful life for T-8 lighting. There is also value in having the measure
lives standardized and reported. We direct the utilities, jointly with interested
stakeholders, after engaging in a public process, to devise a table showing the
proposed measure life for each energy efficiency measure included in their
programs, and to include the table in the PY 2001 applications. The table should
detail any remaining disagreement among the parties. The utilities should use
the agreed upon values in their PY 2001 applications. As a general rule, the


                                        - 37 -
utilities should use the same measure lives in cost-benefit calculations,
particularly for statewide programs. Where there is a reason for using varied
measurement lives, e.g., climatic reasons, the table should include agreed upon
variations in the PY 2001 applications and the utilities should explain the basis
for the variations.
             It appears that the CEC will have a new electricity forecast for
avoided costs coming out in the near future. Use of the most updated costs
available is appropriate. The utilities should use the CEC updated forecast if the
report is issued prior to the filing of PY 2001 program applications.

      F. Non-Energy Benefits and Costs and Market
         Effects Multipliers

          1. Background
             The PPT test is used to evaluate the cost-effectiveness of the energy
efficiency programs and portfolio. Policy Rule V-2 provides:

             [T]he PPT explicitly recognizes the appropriateness of
             including certain elements that have not traditionally
             been included in the practice of calculating the TRC. The
             new elements may include: (1) program spillover
             savings; (2) non-energy costs and benefits; (3)
             externalities, including environmental costs and benefits;
             and (4) reductions in the cost of measures or practices
             caused by the program.

             The policy rules further explain that the PPT may be calculated by
treating programs on a multi-year basis (Policy Rule V-3) and recognize that the
inclusion of these new elements may lead to greater imprecision in the cost-
effectiveness calculations. (Policy Rule V-4.)




                                        - 38 -
               According to the utilities, the CBEE requested that they include
some market effects or non-energy benefits and costs in the PPT calculations for
the PY 2000 applications.26 Apparently, on July, 29, 1999, the CBEE requested
that the utilities include estimates of market effects for some information and/or
training programs in each utility‘s filing. (PG&E Exh. 101, p. 12-278.) Thus,
PG&E asked a contractor who was conducting a related MA&E study, Regional
Economics Research, Inc. (RER), to ―develop a list of non-energy benefits and
costs that can be quantified with reasonable precision for the current round of
utility filings‖ and to ―develop value estimates for these market effects/non-
energy benefits and costs, based upon a review of the literature.‖ (PG&E Exh.
116, p. 18.)
               RER developed market effects multipliers for the estimated market
transformation impact of a few measures, including efficient refrigerators,
compact fluorescent lamps (CFLs), efficient clothes washers, and efficient motors.
(PG&E Exh. 101, pp. 12-277-284.) These multipliers were ―designed to transform
more conventional estimates of energy impacts into broader estimates of multi-
period impacts.‖ (Id. at p. 12-280.) It also developed initial estimates of the
informational impacts (benefits) associated with large energy centers. It did not
develop estimates for other non-energy benefits and costs.

          2. Utilities’ Applications
               For PY 2000/2001, the utilities included new market effects and non-
energy environmental adders in their cost-effectiveness calculation, but their



26The non-energy benefits and costs are distinct from the energy-related environmental
externality adders for which the CBEE provides standardized values in the Advice
Letter G1/E1 filing.




                                         - 39 -
treatment of market effects multipliers and non-energy environmental adders is
not consistent.
             PG&E applies the RER multi-period market effects multiplier to the
following end uses: Residential Refrigerators, Residential Clothes Washers,
Residential CFLs, Nonresidential High Efficiency Motors, and its Pacific Energy
Center (PEC) located in San Francisco. It does not use any non-energy
environmental adders.27
             Edison applies the RER multi-period market effects multiplier to the
following end-uses: Residential Refrigerators, Residential Clothes Washers,
Residential CFLs, Nonresidential High Efficiency Motors, and its Customer
Technology Applications Center (CTAC). Edison also uses the CFL estimate in
its calculation of a single unit measure in the RCP. It does not use any non-
energy environmental adders.
             SDG&E applies the RER-developed market effects multiplier
calculated for the PG&E and Edison energy centers and draws from other studies
on residential audits to estimate savings for selected information-based
strategies.28 It does not use RER developed multipliers for individual
technologies or any non-energy environmental adders.



27The CBEE notes that PG&E made a mistake in their application, which CBEE
corrected.
28SDG&E does not have any energy centers. SDG&E included its estimates for
residential programs, including Contractor Training Program, Statewide Energy Guide,
Information and Education, Time of Sale Home Energy Rating, Energy Efficient
Mortgages, In-Store Demonstrations, nonresidential programs, including Energy
Management Services Information, Energy Efficiency Financing, Building Operator
Certifications, Technical Assistance for Small Comprehensive Retrofit, Technical
Assistance for Process Overhaul, and new construction programs, including the

                                                          Footnote continued on next page


                                       - 40 -
             SoCalGas does not apply the RER-developed market effects
multipliers to any end uses. It does, however, provide non-energy based water
savings estimates for its horizontal clothes washers. It states that the source of its
estimates is the Statewide Appliance Program implementation contractor but
does not provide the underlying calculations.
             In its PY 2000 application, PG&E submitted two sets of calculations,
one based upon the previously approved avoided costs and a second
―expanded‖ calculation using the market transformation impact multipliers
developed by RER. (PG&E Exh. 100, p. 3-1; Exh. 101, p. 12-280.) The other
utilities did not do so. However, the CBEE recalculated the utilities‘ submitted
cost/benefit ratios without use of market effects and obtained the following
results:
                                    PG&E         Edison      SDG&E        SoCalGas
    Utility C/B Ratio               1.73         1.96        1.36         1.02
    CBEE Revised Ratio              1.51         1.93        1.33         .92
    CBEE Rev. No Market Effects     1.46         1.83        1.37         .92


           3. ORA’s Position
             ORA contends that the use of these market transformation impact
multipliers and non-energy benefits and costs is not justified because there is no
showing of the information, assumptions, or calculations used by RER to develop
these values. ORA argues that there must be some showing that estimates for
new elements added to the PPT are reasonable and that the utilities have not
done so. ORA also points out that the CEC‘s forecast does not include non-
energy environmental adders. It recommends that the utilities, except PG&E, be


statewide programs, Manufactured Housing, CHEERS, Consumer Information &
Awareness, and Industrial & Agricultural New Construction.




                                        - 41 -
directed to submit a compliance filing showing cost-effectiveness without the
non-energy adders.

          4. Utilities’ Responses
             The utilities maintain that the use of these multipliers and factors is
appropriate because the policy rules explicitly permit the use of non-energy
factors and the CBEE urged the utilities to use some in their PY 2000/2001 cost-
effectiveness calculations. Edison argues that they should be allowed to use the
RER multipliers because they estimate spillover effects, which are a key element
in measuring market transformation.
             Edison and PG&E also point out that eliminating the multipliers and
non-energy factors will have a negligible effect on the cost/benefit ratio and will
not reduce the cost-effectiveness of the program portfolios below one.
SDG&E/SoCalGas contend that ORA has not shown that the numbers SoCalGas
used for water savings are wrong. Also, SoCalGas represents that exclusion of
non-energy environmental adders would result in a cost/benefit ratio slightly
above 1.0 for its portfolio.

          5. Discussion
             Our adopted PPT cost-effectiveness test clearly permits and indeed
encourages the inclusion of these types of factors and multipliers in the
calculations. We understand the CBEE‘s interest in jump-starting the utilities to
think in this more expansive manner. However, we are concerned that the
appropriate studies, research, and review has not been conducted to date to
ensure that the calculations achieve the standard of reliability necessary to
provide a good evaluation of the costs and benefits of the energy efficiency
programs. RER‘s study was done on a rushed basis, using very limited, and
admittedly, inadequate information. RER stated:



                                        - 42 -
               Our charge was to spend a couple of weeks developing
               estimates for market effects that could be quantified
               with reasonable precision using readily available
               information. The scope of this effort was circumscribed
               by time, and more importantly by the nature of the
               available information and the state of the art for
               estimating energy impacts. It should be understood
               from the outset the projection of market acceleration is
               an inherently uncertain process. Methods for
               estimating market acceleration impacts of energy
               efficiency programs are in their infancy. (PG&E Exh.
               101, p. 12-279.)
The lack of available information was even more pronounced for development of
impact values for the energy centers:
               To accommodate CBEE‘s special interest in having the
               PY 2000/2001 PPT table include some benefits for
               information/training interventions, we expanded the
               original scope of this project somewhat and developed
               estimates of market acceleration attributable to the
               energy centers without the benefit of ―readily available
               information‖ linking activity to the centers to energy
               savings. (Id.)
               Our policy rules explicitly acknowledge that the inclusion of new
elements in the cost-effectiveness measurement may lead to greater imprecision.
However, they also provide for ways to address the risks of an imprecise
calculation:

               For example, for program planning purposes, risks can be
               mitigated through the use of scenario analysis, direct
               comparison of risks to opportunities, inclusion of explicit
               safety factors, (e.g., requiring that the PPT exceed some
               threshold ratio greater than 1.0), and rigorous testing of
               the strength of a program‘s underlying theory of how it
               seeks to transform a market(s.) (Policy Rule V-4.)

               There is no evidence that any such safeguards were employed for
PY 2000. Nor were the multipliers subjected to any public process prior to their


                                         - 43 -
use, which is standard procedure. Accordingly, the use of the market effects
multipliers and estimates used by PG&E, Edison, and SDG&E is disallowed.
             While we disallow use of the markets effects multipliers for PY 2000,
we realize that this information is valuable and should be provided so that it can
be fully reviewed and evaluated with the goal of using appropriate values in the
future. The extent of its use will be dependent on the quality of the available
information and analysis.29
             We direct PG&E, Edison, and SDG&E to submit a report to the
Energy Division showing cost/benefit calculations, updated with end-of-the-year
information, both using and omitting market effects multipliers for PY 2000. The
calculations should also explicitly identify 1) the non-energy costs and benefits
and market effects multipliers used; 2) the programs or measures affected; and 3)
the calculation. For PY 2000, the utilities are not required to standardize the use
of market effects multipliers.
             SoCalGas is the only utility to use a non-energy environmental
adder and its use was limited to water savings associated with horizontal
washing machines. Because of the limited use, and because water savings are
relatively easy to document, we will not automatically disallow their use for PY
2000/2001 cost-effectiveness calculations. However, since SoCalGas did not
provide the basis for its water savings estimates, we are unable to determine, on
this record, whether those estimates are reasonable. We direct SoCalGas to file
an advice letter providing the basis for its calculations, with an explanation of the


29We note that multi-period market effects multipliers include estimated spillover
effects associated with energy efficiency measures. (PG&E Exh. 101, p. 12-279.) This
also raises the question of whether an adopted NTG ratio of 1.0 is reasonable to the
extent that it assumes that spillover effects equal free-rider effects.




                                         - 44 -
reasonableness of the estimate. SoCalGas should also provide cost/benefit
calculations, updated with end-of-the-year information, both using and omitting
non-energy factors. The calculations should also explicitly identify 1) the non-
energy factors and market effects multipliers used; 2) the programs or measures
affected; 3) the calculation; and 4) the justification for using them.
             For PY 2001, we direct the utilities, jointly with interested
stakeholders, to engage in a public process to discuss and review the basis for the
development of any non-energy factors and market effects multipliers they seek
to include in their PY 2001 applications. The review should include a follow-up
on the RER study and should consider the mitigations proposed in Policy Rule
V-4. The utilities should report on that process, including agreements reached
and remaining areas of disagreement, in the PY 2001 applications.
             Further, for PY 2001, the utilities are ordered to submit two sets of
cost/benefit calculations, one including and one omitting, non-energy factors and
market effects multipliers. The utilities should use the same factors and
multipliers for like measures. The calculations should also explicitly identify
1) the non-energy factors and market effects multipliers used; 2) the programs or
measures affected; 3) the calculation; and 4) the justification for using them.

      G. Incremental Measure Cost (IMC)

          1. Background
             Incremental measure cost is the cost associated with achieving
energy efficiency savings greater than minimum baseline standards. It is an
established element in the determination of cost-effectiveness and is used to
evaluate the benefits received as a result of the measure implemented.
             The utilities calculate IMC for many of their programs, particularly
those programs where the installation of a particular product can be reasonably
predicted. The utilities have reported some IMC costs as a ―0‖ value in the

                                         - 45 -
cost/benefit calculations, particularly for those programs associated with third
party providers, e.g., Third Party Initiatives (TPI) and the SPC program,
upstream market transformation programs, and information programs.

          2. ORA’s Position
             ORA contends that reporting these costs as ―0‖ erodes the credibility
of the cost-effectiveness analysis and results in an overstatement of the
cost/benefit ratio. ORA acknowledges that there are difficulties in estimating
IMC costs. For example, in the TPI program and upstream market
transformation measures, it is virtually impossible to estimate costs before an
actual program is proposed. Further, it is difficult to estimate IMC for large
facilities such as industrial processes. ORA also points out that it is not known
whether the targeted products in upstream marketing strategies are being
installed in California. ORA is concerned that if there can be no credible showing
of cost-effectiveness prior to program approval and there is no mechanism to
ensure that IMC data will be collected after program completion, some of these
programs have no accountability.
             ORA believes that this IMC issue needs to be addressed to ensure
credibility of the cost-effectiveness calculations but believes that it only materially
impacts SoCalGas‘ cost/benefit ratios for PY 2000. ORA does not believe it will
affect the cost/benefit ratios of the other utilities because a substantial amount of
the budgeted funds are for the very cost-effective SPC program. SoCalGas‘
portfolio, on the other hand, ORA contends, is marginally cost-effective, does not
have an SPC program to bolster its cost-effectiveness, and devotes a significant
portion of its budget to TPI and upstream market transformation programs.
             ORA‘s recommendations relate to 1) scaling back the measures for
which credible IMC estimates cannot be determined (e.g., TPI and upstream
market transformation programs); 2) the reporting and use of IMC data; and


                                        - 46 -
3) the use of a default ratio for IMC costs. ORA‘s programmatic
recommendations are addressed infra. With respect to reporting and use of IMC
data, ORA recommends that 1) IMC for any program elements in the residential
and nonresidential Program areas be based upon the data contained in the CEC‘s
Database for Energy Efficiency Resources (DEER); 2) these values be adjusted by
the application of the NTG ratio for the corresponding set of costs and budgets;
and 3) for purposes of ex post review, the values reported in the expected CEC
update to the IMC values be utilized.
             For measures or classes of measures not covered by the above
recommendations, ORA recommends that a ratio of 1.5 of estimated costs of
financial assistance (assumes half of the measure cost would be provided and
subsidized through financial assistance) be utilized instead of an assumption that
there are zero incremental costs. ORA contends that this assumption is
consistent with Policy Rule V-4 which suggests using more conservative
assumptions in the cost-effectiveness analysis to counter the risks associated with
the uncertainty inherent in new elements.

         3. Utilities’ Responses
             The utilities contend that they used the most recent measure cost
studies for calculating the cost-effectiveness of their respective portfolios and that
they cannot use uncompleted studies. They point out that there is no basis for
using ORA‘s proposed IMC ratio of 1.5 which ORA‘s witness admitted he
―made [ ] up.‖ (TR. Vol. 7, p. 1056.) PG&E argues that ORA‘s proposal also
misses the point of the SPC and TPI programs, which is to build relationships
and public perception to transform markets, which means that IMC are ―nearly
irrelevant to those goals of the market.‖ SDG&E/SoCalGas recommend that this
issue be delegated to a measurement advisory group, such as the proposed
CALMAC. Edison does not object to using a statewide database of these costs


                                        - 47 -
(such as the DEER) in the future but believes that a recalculation now is not
useful and would have a negligible impact on the cost/benefit ratios.

         4. Discussion
              We do not have sufficient evidence on this record to fully resolve the
IMC issue. We believe that accurate reporting of IMC is important to the
credibility of the statutorily-required cost-effectiveness analyses but recognize
the difficulties inherent in making appropriate IMC estimates for certain
programs. We also believe that it is important to have uniformity in the use and
reporting of IMC values. There is insufficient evidence on this record to adopt
ORA‘s recommended default IMC value. Accordingly, we will not require any
modifications to the Utility‘s IMC calculations for PY 2000.
              However, we believe that this issue should be resolved for PY 2001.
We direct the utilities to develop, with interested stakeholders, in a public
process, 1) protocols, including mechanism and standards, for the collection and
use of IMC data, including the use of a statewide database such as DEER;
2) guidelines or standards for estimating IMC costs associated with the various
program strategies and elements, including possible default assumptions;
3) other mitigations, or avenues to ensure that the cost-effectiveness calculations
are reasonable where credible IMC data is not available, such as those set forth in
Policy Rule V-4. The utilities should attempt to have at least a preliminary
agreement in place prior to filing PY 2001 applications. The utilities‘ PY 2001
applications should report on the development of IMC standards and protocols,
use uniform, agreed-upon IMC for like measures, and explain the basis for any
deviations.




                                        - 48 -
      H. SoCalGas’ Use of Electric Savings

          1. Parties’ positions
               ORA argues that SoCalGas should not be allowed to include in its
cost-benefit analysis benefits derived from electric energy savings, pointing out
that the Policy Rules do not state that a gas utility can claim electric savings or an
electric utility can claim gas savings. ORA contends that SoCalGas is the only
utility to do so in this proceeding. ORA calculates that 21%30 of SoCalGas‘ PPT
lifecycle benefits come from electric energy savings lifecycle benefits.
               SDG&E/SoCalGas contend that no rule prohibits SoCalGas from
taking credit for electric benefits in cost benefit calculations like it did in 1999 and
prior years.

          2. Discussion
               The electric savings SoCalGas includes in its analyses are for end
uses where both electricity and gas are used by the same appliance, such as
dishwashers, clothes washers, kilns, and its new gas-fired air conditioners. We
find no basis to disallow SoCalGas‘ use of electric savings as benefits in its cost-
effectiveness ratio simply because it is a single-fuel utility. Electric savings are
legitimate energy savings and are appropriately included in the benefits analysis
of the dual-fuel utilities, PG&E and SDG&E.




30ORA calculated electric energy savings comprised $10,720,163 of SoCalGas‘ total
$50,544,789 savings.




                                         - 49 -
      I. Impact of Cost-Effectiveness Recommendations on
         SoCalGas’ Portfolio

          1. ORA’s Position
             ORA contends that correction of the deficiencies in the cost-
effectiveness analysis described above will drop SoCalGas‘ calculated 1.16
cost/benefit ratio for its portfolio below 1.0 and thus recommends that SoCalGas‘
role as an administrator be terminated or, at a minimum, that its portfolio be
scaled back to focus only on those program areas that are truly cost-effective.
             In testimony, ORA did not submit calculations demonstrating that
SoCalGas‘ portfolio would not be cost-effective if ORA‘s revised input values are
used, instead arguing that 1) ―downward pressure‖ is placed on the cost/benefit
ratio because of benefits estimates that are ―spurious, inflated or
unsubstantiated,‖ 2) there is an ―under-accounting or unsubstantiated
accounting,― of IMC cost elements in the TPI area, which constitutes 16% of its
overall budget, 3) reliance on benefits from measures and products that will
reduce electric loads of Edison or municipal utility districts (MUDs) should not
be allowed, and 4) the lack of plans to undertake measurement activities to
substantiate estimates of ―key elements‖ of PY 2000 costs and benefits make the
estimates unreliable. In its reply brief, ORA argues that SoCalGas‘ assumption of
―0‖ IMC for Residential Heating & Cooling systems and New Construction
Codes and Standards and use of $10,720,163 of electric energy savings reduces
the cost/benefit ratio to .91.
             ORA argues that terminating SoCalGas‘ energy efficiency programs
will not adversely impact ratepayers (who will save $32 million) and will not
negatively impact energy efficiency savings. It points out that the cost-
effectiveness of natural gas energy efficiency programs have declined over the
years as gas prices have declined and standards for buildings and appliances



                                        - 50 -
have increased. ORA also argues that customers of both SoCalGas and Edison
will still receive the benefits associated with electric savings, which SoCalGas
includes in its cost-effectiveness analysis. On the residential side, ORA contends
customers will be benefited by Edison‘s informational services and by energy
consumption reduction services such as the installation of high efficiency,
combined unit, heating and cooling systems or services that improve the thermal
integrity of buildings that have combined heating and cooling duct systems.
             On the nonresidential side, ORA argues that ratepayer benefits from
gas demand reducing measures are limited in scope, that customers who seek gas
cooling systems will be motivated by SoCalGas‘ rate discount program, and a
SoCalGas affiliate, Sempra Energy Solutions, is providing gas and electric energy
efficiency products to customers in this service territory. In making its
recommendations to terminate SoCalGas‘ administration of this program, ORA
does not ascribe any fault to SoCalGas; instead it states that we must have a long-
term view and determine whether the money saved by ratepayers in scrapping
the rate dedicated to energy efficiency programs is better preserved for
ratepayers to make their own energy efficiency choices through third party
entities. ORA also points out that the Commission will benefit from
deauthorization because SoCalGas has required special regulatory attention as
the only gas-only provider in California.

          2. Utilities’ Responses
             SDG&E/SoCalGas contend that SoCalGas‘ PY 2000 cost/benefit
ratio, based on existing rules, is well above the threshold requirements and
exceeds the 1.10 ratio approved for its PY 1999 programs. SoCalGas points out
that its cost-effectiveness ratio is lower than the other utilities because of the
greater opportunities for energy savings on the electric side as opposed to the gas



                                         - 51 -
side. Nevertheless, it contends that this fact does not mean that savings on the
gas side are minimal or should not be aggressively pursued.
             SDG&E/SoCalGas also contend that deauthorization would make
bad policy. They point out that there is no evidence that in SoCalGas absence
customers would receive comparable services from other utilities. Moreover,
even if the overall program portfolio were to be found to be not cost-effective, the
more appropriate remedy would be to require SoCalGas to restructure its
programs to make them more cost-effective.

         3. Discussion
             In the preceding sections, we determined that, for PY 2000, we have
no basis for adopting a NTG ratio of .75, an IMC of 1.5, or otherwise altering the
IMC calculations. We also concluded that use of measure lives extending past 20
years is permitted, as is SoCalGas‘ use of electric energy savings in its benefits
calculation. Finally, we directed SoCalGas to submit additional data showing the
basis for its water-savings estimates associated with horizontal clothes washers.
Using values thus approved for PY 2000, SoCalGas‘ program portfolio for
PY 2000 appears to be prospectively cost-effective. In this regard, we also note
that SoCalGas testified that it used an IMC value of ―1‖ and not ―0‖ for its TPI
programs, which makes its estimates more reasonable. Using a NTG ratio of .75
as the utilities did in response to ORA‘s request, does not reduce its cost/benefit
ratio below 1.0. Nevertheless, given our skepticism of the adopted NTG ratio
and IMC measures and the necessity of further review of SoCalGas‘ water
savings, we are concerned with the marginal cost-effectiveness of SoCalGas‘
portfolio. We also note additional uncertainty surrounding the cost-effectiveness
of SoCalGas‘ portfolio since it has not done a cost-effectiveness analysis of its




                                        - 52 -
New Construction, Energy Advantage Home Program (EAHP) as modified by its
agreement with the CEC . (SoCalGas Exh. 404.)31 CBEE, in its December 16, 1999
Comments, also notes its concern that SoCalGas‘ EAHP program is not cost-
effective because of high non-measure costs and suggested that it be redesigned.
                 We recognize that SoCalGas has followed the CBEE‘s direction and
devoted substantial resources to the TPI and upstream market transformation
programs; however, insofar as these programs serve to decrease the cost/benefit
ratio of SoCalGas‘ portfolio, SoCalGas must consider revising or eliminating
some of these programs. As we stated above, while individual programs may
not need to be cost-effective, our policy rules and indeed our statutory directive
are clear that the portfolio must be cost-effective. We cannot justify a non-cost-
effective portfolio in the name of ―market transformation.‖
                 We thus direct SoCalGas to file an advice letter to inform us of the
manner in which it intends to modify its PY 2000 program portfolio to ensure
that it is cost-effective. The advice letter filing should include a thorough
description of the proposed program and budget changes and be supported by
workpapers showing the cost-effectiveness calculations, including the basis for
all assumptions and input values. SoCalGas should consider the modification or
elimination of TPI or upstream marketing programs, information programs that
may be duplicative of Edison‘s programs, design changes to the EAHP and other
methods recommended by CBEE in its November 24, 1999 Supplemental
Report.32 SoCalGas should include the revised calculations for its modified


31   SoCalGas stated that it intends to submit this analysis later via an advice letter.
32CBEE offers suggestions to improve the cost-effectiveness of the SoCalGas‘ portfolio
by: (a) re-examining the cost-effectiveness assumptions and inputs; (b) exploring
program redesign to reduce non-measure program costs and/or eliminate less cost-

                                                                  Footnote continued on next page


                                              - 53 -
EAHP. SoCalGas should submit calculations using 1) NTC ratios of 1.0 and .75
and, 2) including and excluding water savings associated with high efficiency
washing machines.
             Since we do find that SoCalGas‘ PY 2000 portfolio is cost-effective,
we do not address ORA‘s deauthorization recommendation.

      J. Conclusion
          The purpose of a cost-effectiveness analysis is to determine whether the
benefits achieved through energy efficiency programs—reduced energy use—
outweigh the costs of getting there. Our policy rules recognize that cost-
effectiveness, both for the portfolio and for individual programs, is an important
measure of value and performance. The statute requires funding cost-effective
programs. The reasonableness of cost-effectiveness calculations is obviously
dependent upon the reasonableness and credibility of the input values and
assumptions that make up the equation.
          We agree with ORA that the statutory requirement that these programs
be cost-effective is simply not furthered by assuming away costs that are real but
difficult to quantify (e.g., IMC), by ignoring evidence indicating current
assumptions used in the analysis are unreasonable (e.g., a net-to-gross ratio of
1.0), and by using hastily put together market transformation multipliers and
non-energy related benefits that are unsupported, unexplained, and essentially
unreviewed by peers or stakeholders. We also agree that a market
transformation goal cannot be supported by a policy in which the ends justify the
means. The utilities must demonstrate that their portfolios are cost-effective as a


effective activities and measures; (c) lowering the performance award cap; and (d) as a
last resort, eliminating non-cost-effective programs. (November 24, 1999 Supplemental
Report.)




                                         - 54 -
prerequisite to program authorization and funding – not just after the fact in the
AEAP.

IV.     Program Designs and Budgets—Overview
        Pursuant to CBEE‘s direction, the applications and budgets are organized
into three program administrative areas: Residential, Nonresidential, and New
Construction, comprised of 14 program ―definitions‖ that relate to specific
markets that energy efficiency activities seek to transform. The residential area
has four program definitions, the nonresidential area has six, and the new
construction area has four. Each program definition or market consists of a
multitude of program ―elements‖ and intervention strategies. While 14 program
definitions or markets are common to all the utilities, each may focus on different
elements, use different strategies and budget differing amounts. The proposed
program budgets, excluding administrative and MA&E cost categories, for PY
2000 are broken down as follows:
 PY 2000 Program Budgets ($M)
                                        PG&E        Edison     SDG&E     SoCalGas        Total

Residential Total                       $58.348      $27.538   $12.520       $8.938      $107.345
Heating & Cooling                         9.875        2.094     1.021         0.805       13.796
Lighting                                  9.078        4.326     2.767    ----             16.172
Appliances                               15.102       15.900     2.754         0.794       34.551
Retrofit & Renovation                    24.293        5.218     5.977         7.339       42.827

Nonresidential Total                     66.140       39.713    17.981       14.383       138.217
Small Comprehensive Retrofit             18.069        8.756     5.236         8.548       40.609
Large Comprehensive Retrofit             19.900       15.337     6.716    ----             41.953
HVAC Equipment Turnover                   2.600        7.027     2.731         1.051       13.409
Motor Turnover                            1.300        1.944     0.782    ----              4.026
Process Overhaul                         17.200        3.861     1.457         4.784       27.302
Commercial Remodeling/Renovation          7.070        2.787     1.058    ----             10.915

New Construction Total                   21.382       11.949     4.913           6.418     44.662
Residential                               9.951        3.405     2.247           3.975     19.578
Commercial                                8.567        5.033     2.036           1.424     17.060
Industrial & Agricultural                 1.349        2.191     0.180    ----              3.720
Codes & Stds, Local Gov't Initiatives     1.515        1.320     0.449           1.019      4.303




                                                  - 55 -
         Strategies may cross-cut different program areas. For example, the
Nonresidential Standard Performance Contract or SPC program33 is a strategy
that is utilized in the large and small nonresidential retrofit, motor turnover and
process overhaul markets. Similarly, the TPI strategy may be used in virtually
any of the 14 markets.

         Several of these strategies or programs are statewide programs. Statewide
programs are intended to be uniform in design and implementation, sharing
common guidelines and procedures. Some of the statewide programs share
common design and implementation procedures, developed by a committee of
representatives from each utility, but implementation is left to the individual
utility administrators. Others are implemented by a single outsourced
implementer. The statewide programs include the following:

         Residential: Residential Contractor Program (RCP), Upstream Lighting
         Program, Upstream Appliance Program, and Statewide Residential Energy
         Guide. The Lighting and Appliance Programs are implemented by a third
         party contractor.34

         Nonresidential: Large SPC Program,35 Small SPC Program,36 Express
         Efficiency Program, and Statewide Business Energy Guide.



33The SPC, as we discuss below, is split into two programs, the Large SPC and the
Small SPC. The entire SPC is sometimes referred to as the NSPC or (NRSPC)
(nonresidential SPC).

 PG&E, Edison, and SoCalGas also independently operate ―energy centers‖ which, for
34

PY 2000 they intend to coordinate.
35The Large SPC is sometimes referred to as the LSPC or LNRSPC (large nonresidential
SPC).
36   The Small SPC is sometimes referred to as the SBSPC (small business SPC).




                                           - 56 -
         New Construction, Nonresidential: Savings By Design Program, the
         Energy Design Resources Program, and the Codes and Standards Support
         effort. The New Construction statewide programs are new for PY 2000.
         In their applications, the utilities did not provide summary tables showing
the proposed budgets by strategy or by statewide program, making analysis of
those budgets virtually impossible.

V.       Residential Programs

         A. Overview
              The residential program area includes four program definitions or
markets: Heating and Cooling, Lighting, Appliances, and Retrofit and
Renovation. Strategies used include, for example, the statewide RCP, upstream
appliance and lighting programs, financing, financial incentives, including
rebates, education, training (including through energy centers), and energy
management services (EMS), such as consumer information, energy guides,
surveys and paper audits.
              The utilities‘ PY 2000 budgets are as follows:
($M)
          PY 2000             PG&E               Edison        SDG&E     SoCalGas    TOTAL
Heating & Cooling              9.875              2.094         1.021      0.805      13.796
Lighting                       9.078              4.326         2.767       ----      16.172
Appliances                    15.102             15.900         2.754      0.794      34.551
Retrofit & Renovation         24.293              5.218         5.977      7.339      42.827
TOTALS                       $58.348            $27.538       $12.520     $8.938    $107.345

              The utilities‘ PY 1999 budgets and estimated funds spent or committed
in PY 1999 as set forth in their Fourth Quarter Reports are as follows:
       ($M)
Residential     PG&E     PG&E          Edison      Edison       SDG&E    SDG&E      SoCalGas   SoCalGas
PY 1999
                PY1999   Expended      PY1999      Expended     PY1999   Expended   PY1999     Expended
                Budget                 Budget                   Budget              Budget
Heating &        6.200     3.308        2.157        2.064       0.843     0.946      0.864      0.898
Cooling
Lighting         6.988     4.973        2.888        2.426       2.603     2.941       -----      ----
Appliances      11.735    13.239       15.772       16.738       3.043     2.573      1.042      0.868
Retrofit &      14.940     9.977        5.145        4.011       5.663     4.791      7.389      5.540


                                                   - 57 -
Renovation
TOTALS         $39.863   $31.497   $25.962   $25.239   $12.152   $11.251    $9.295     $7.306

         B. Program Eligibility and Communication

             1. ORA’s Recommendations
                ORA recommends placing three restrictions on eligibility in the
residential program area which it believes would promote programs that are
capable of transforming markets: 1) programs should focus on customers who
are not eligible to participate in the low-income energy efficiency (LIEE) program
because of the potential overlap between programs, duplication of costs and
double counting of benefits and to free up funds for other residential market
segments;37 2) product support for single family units should be limited to
higher-than-standards-refrigerators and freezers, products that reduce the
consumption of electricity for lighting, and products that reduce the
consumption of electricity or natural gas for heating, ventilation or air
conditioning (HVAC) because these activities are the most studied, measured,
and cost-effective and are most likely to reduce customers bills; and 3) Energy
Efficiency Service Providers (EESPs)38 should be limited to providing services to
owners of multi-family dwellings.39
                ORA also recommends that all residential EMS services should
henceforth be provided, jointly by all utilities, through the Internet on a common


37In its reply brief, ORA clarifies its position to say that it is only recommending that
efforts in residential area focus to the extent practicable on customers not eligible to
participate in LIEE program.
38EESPs are contractors and businesses specializing in the provision and installation of
energy efficiency products and services.

39   This recommendation is related to the RCP and is treated with that discussion, infra.




                                             - 58 -
website that provides services to residential and small commercial customers.
ORA points out that the Internet provides a superior, low-cost means of
providing higher quality information and argues that it is now appropriate since
50% of households have Internet access. In its reply brief ORA modified its
position to propose only an increased reliance on the Internet through a jointly-
operated website in conjunction with a December 31, 2000 phase-out of costly in-
home audits. It now supports mail-in audits.

         2. Responses to ORA’s Recommendations
             The utilities contend that we should reject ORA‘s proposal because it
is 1) discriminatory to deny participation in these programs to low-income
customers, 2) impracticable in that there is no way to prohibit a retailer from
selling products to customers based upon their income or to prohibit a contractor
from contracting with low-income customers to provide services and to even
attempt to do so, by making the necessary inquiries, would be objectionable, and
3) contrary to our policy since we developed specific low-income programs
because those customers did not typically participate in traditional incentive-
based programs which often require up-front capital investments. They further
note that ORA has presented no evidence that participation by low-income
customers reduces funding for other customers or creates problems of overlap,
duplication, or double-counting.
             The utilities for the most part agree that the Internet can be a
valuable tool in providing information-type services but disagree that it should
be the only tool. They believe that in-home and mail-in audit services still
provide essential services and mail and telephones are still good means of
communication. Moreover, the utilities believe that adopting ORA‘s plan would
exclude many customers in under-served communities, e.g., low-income, non-



                                        - 59 -
English speaking, and seniors, from accessing energy management services,
which is inconsistent with our adopted goals.
               The utilities urge rejection of ORA‘s eligibility limitations because
they have developed portfolios containing intervention strategies that promote
energy efficiency for as many end users as practicable and because promoting a
wide array of measures sends a message to consumers that energy efficiency
applies to all energy use.

         3. Discussion
               We agree with the utilities that there is no evidence of overlap,
duplication, or double-counting with the low-income program or customers.
Nor is there a practicable way to eliminate all possible overlap since we believe
that it would be an unwarranted intrusion into customers‘ private lives to
monitor purchases and receipt of services in order to ensure there is no
duplication. However, we believe it appropriate to design the programs to
minimize overlap and expect the utilities to do so. If ORA has any specific
examples of duplication or ideas for redesigning programs to limit duplication, it
can discuss those with the program administrators during the planning process
for PY 2001.
               We find insufficient evidence on this record to limit product support
to higher-than-standards refrigerators and freezers, HVAC, and lighting projects
for single family units as recommended by ORA and decline to do so at this time.
               We find merit in ORA‘s proposal to begin to place more emphasis on
the use of the Internet for EMS Services. We do not believe that this approach
should be the only avenue for EMS services since its use is not universal and is
limited in its ability to reach under-served customers and communities.
However, it is a cost-effective way to reach a substantial group of residential and



                                          - 60 -
small business customers. We also believe that provision of EMS services
through the Internet is appropriate for statewide implementation.
             Accordingly, we direct the utilities to jointly create a master energy
efficiency website that describes all the statewide energy efficiency programs in
detail and has appropriate links to the utilities‘ own websites for specific
programs. We will not limit in-home or mail audits for PY 2000 since we have no
record upon which to judge the extent of their use or their cost-effectiveness, but
we will direct the utilities to gather appropriate data on in-home and mail-in
audits, to review the data in a public process, to include a report on the audit
programs, including their use and cost-effectiveness in the PY 2001 applications,
and to consider phasing out or limiting in-home and mail audits in PY 2001.

      C. REECH’s Administrative, Programmatic,
         and Budgetary Proposals

          1. REECH’s Proposals
             REECH makes several administrative, programmatic, and budgetary
recommendations in the residential area. Administratively, REECH contends
that the residential sector is insufficiently segmented for program management
and strategy purposes and proposes that the program areas and elements be
organized around customers in a new elaborate market segmentation approach.
             Programmatically, REECH recommends that we direct the utilities to
1) jointly create a system for residential customers to access their energy use,
which it believes is more cost-effective than site audits; 2) establish three program
element ―directions,‖ in the residential contractor program (RCP) with equal
budgets that are not subject to fund-shifting,40 3) prepare an exit plan to transfer

40The three directions are 1) the existing RCP, 2) a competitively bid program for
contractors to provide services to multi-family (MF) units with a minimum of 200 units,

                                                            Footnote continued on next page


                                         - 61 -
administration by December 31, 2001, and 4) for the multi-family sector, embark
on a new program of assessing options for the replacement, retrofit, or system
conversion of gas wall furnaces, which it asserts are very inefficient and
hazardous and should be a priority for funding since it serves the interests of
efficiency, safety, and under-served markets.
             With respect to budgets, REECH recommends transfer of funds to
correct what it considers to be unjustified, inequitable cross-rate subsidizations.
REECH makes specific recommendations in the residential area.

         2. Utilities’ Response
             Edison recommends that we reject REECH‘s proposals to further
segment the residential sector and target new types of providers and certain
geographical areas as unnecessary because the RCP eligibility criteria is designed
to encourage participation from a wide array of service providers, available data
suggests that a range of providers are participating, and Edison has performance
milestones incenting it to enlist new providers.
             PG&E recommends that we reject REECH‘s proposals as ambitious,
ill-defined, and untimely since they were first presented in post-hearing briefs,
and asks that we direct REECH to make proposals earlier in program
development process.
             With respect to REECH‘s proposal for replacing gas wall furnaces,
the utilities point out that we have such a program on the low-income program
side but the rationale for doing so was safety and comfort and not energy



with PG&E as the statewide administrator, and 3) a ―vigorous‖ pilot program
incentivizing providers to provide discrete energy efficiency services bundled into a
service the provider is currently providing.




                                         - 62 -
efficiency. Moreover, they contend that REECH does not show how this would
be a cost-effective energy efficiency activity appropriate for funding.

          3. Discussion
             We do not adopt REECH‘s recommendations at this time. Its
proposal for a redesigned residential program separated into three program
elements is not within the scope of these compliance proceedings, which
presuppose maintenance of the previously adopted 14 programs. However, we
note that infra, we order the utilities to take specific actions to target under-
served customers, such as renters, and to reach a wider array of customers,
which may address some of REECH‘s concerns. We reject REECH‘s proposal for
revision of the RCP for similar reasons; REECH‘s proposals do not represent fine
tuning of an existing program but a retooling of the entire program structure,
which is likewise outside the scope of these proceedings. REECH can pursue its
program design issues in the public meetings held by the utilities on the RCP to
facilitate PY 2001planning.
             REECH‘s proposal that the utilities jointly create a system for
residential customers to access their energy use is also out of scope in that there
has been no showing of the relationship of the proposal to energy efficiency and
because it was not raised until post-hearing briefing. However, this is a proposal
that REECH might pursue further with the utility representatives who will be
implementing the joint website pursuant to our direction. Similarly, while it very
well may be a worthwhile project, there is no evidence in this record regarding
the feasibility or desirability of adopting a gas heater replacement program. We
direct REECH to work with the utilities early in the program planning process if
it has specific program proposals it wishes to be considered for PY 2001. These
types of proposals for new programs cannot be considered at this late date.



                                         - 63 -
             Because REECH did not present testimony, we cannot determine the
basis for its very specific recommendations for redirecting program budgets and
thus reject the broad proposal. However, REECH‘s proposal that PG&E shift
funds into appliance recycling is adopted, in part, and addressed, infra.

      D. Residential Retrofit and Renovation:
         Residential Contractor Program

          1. Program Description
             The strategy raising the most controversy in the residential area
relates to the design, implementation, and budget of the statewide RCP which we
address here.41
             The RCP is a statewide program, although it is implemented
separately by each utility. It has been designed by a statewide team consisting of
representatives from the four utilities. The program was revised substantially for
PY 1999 to replace an unsuccessful PY 1998 program, with a goal of broadening
the opportunities for small contractors to participate. The RCP is divided into
two elements: single family (SF) and multi-family (MF). The program was still
being worked out at the time the PY 1999 programs were approved in Resolution
E-3592 and was implemented at later date.
             The single family element provides vouchers to customers to hire
contractors to perform diagnostics and upgrade primarily
heating/cooling/water heating systems, to improve insulation, and to install
high efficiency windows, taking a ―whole-house‖ approach. In addition to


41While the RCP is a strategy that could be used in the different markets, for PY 2000,
the strategy primarily is used in the retrofit and renovation market. The exception
appears to be Edison which includes a small RCP budget in its lighting market. Our
discussion is relevant to the RCP program wherever it is used.




                                          - 64 -
vouchers, the program funds information dissemination to customers and
training of contractors. It is designed around the existing market of service
providers, who are primarily local contractors. Its goal, as a market
transformation project, is to foster a sustainable relationship between
homeowners and contractors, by increasing the number and level of participation
and skill of contractors serving the program element.
                The multi-family element is a pay for performance contract program,
or SPC program, where third party EESPs, energy service companies (ESCOs), 42
or contractors provide energy efficiency services to apartment building owners
and property managers. The incentive provided is based on the level of savings
achieved. The program was designed to foster relationships between these
EESPs and contractors and multi-family building owners and property
managers. This program was substantially revised in 1998.
                The utilities operate the program in substantially the same manner
except for a few minor details. (Jt. Exh. 1.) For example, the utilities are testing
out different delivery methods for distributing vouchers to customers, SDG&E
and PG&E require Combustion Appliance Safety (CAS) testing when heating or
cooling systems are upgraded, while Edison and SoCalGas do not, and SDG&E,
Edison, and SoCalGas have the contractors sign agreements with a third party
screener, while the contractors sign agreements directly with PG&E.

            2. Budgets
                The utilities‘ applications do not provide aggregated proposed
budgets for the RCP program, but the utilities provided the following PY 2000
budget breakdown in response to the ALJ‘s request:


42   ESCOs are a subset of EESPs.




                                         - 65 -
              PG&E           Edison     SDG&E      SoCalGas     Total
              $14.9 mil      $3.0 mil   $3.1 mil   $4.4 mil     $25.4 mil

               In PY 1999 according to the utilities‘ Fourth Quarter Reports, the
utilities budgeted and estimate that they have spent and committed the following
funds to the RCP:
          PG&E                  Edison             SDG&E             SoCalGas
          Budget   Spent43      Budget Spent       Budget Spent      Budget   Spent
          Not      $1.5M+       $2.6M $1.942M      $3M $506,877      $4.473M $1.603M
          provided                     (75%)              (17%)               (36%)
Thus, it would appear that Edison slightly increased its PY 2000 RCP budget and
committed 75% of its PY 1999 budget, SDG&E slightly decreased its PY 2000
budget and committed 17% of its 1999 budget, and SoCalGas kept its PY 2000
budget roughly the same and committed 36%. We have no information for
PG&E.44

            3. Program Design and Implementation
               The RCP workshop held on December 2, 1999 disclosed several
problems with program implementation that were perceived as barriers to
participation. Accordingly, the utilities agreed to make certain changes in the
program‘s operation by the end of the first quarter of this year. These changes

43   Spent includes commitments.
44The utilities‘ Fourth Quarter Reports also show the following: PG&E: SF: 5,335
vouchers issued totaling $1.5 million; 1,243 vouchers received from contractors for
payment, totaling $194,000; MF: 3 applications received. Edison: Does not break out
SF/MF funds. SF: 7200 vouchers issued; MF: 90 project applications received. Other
documents indicate that only 1 MF project was funded. SDG&E: While only 17% of
budgeted funds were spent by October, it projects expenditures of $2.1 million (70%).
SF: processed 861 vouchers; MF: no information provided other than to say that it ―did
not perform to expectations.‖ SoCalGas: SF: 3000 vouchers redeemed totaling
$400,000. MF: no figures provided but states it ―has begun much more slowly.‖
SoCalGas does not explain how the other $1.2 million was spent.




                                          - 66 -
include changes in the pricing structure, the implementation of a calculated
savings approach for certain measures, including lighting, and the simplification
of the application process for those same measures, e.g., allowing handwritten
applications, and developing streamlined forms for other applications. The
utilities indicated that all energy measures would be considered for incentives;
however, the utilities retain the discretion, after considering the cost-effectiveness
of a proposal, to determine whether to include the measure in the program.
             The utilities advised that they have sought input from interested
persons and entities on program design and operation, but there is currently no
institutionalized means to do so. The utilities provide information about the RCP
program on their individual websites but there is no master website for RCP or
for energy efficiency programs. The RCP program does not have an independent
third-party implementer but has a consultant who works with the statewide team
to develop policy, procedures, and manuals, and soon will be doing a statewide
evaluation of the program.

         4. Positions of the Parties

             a) ORA
                ORA enthusiastically supports the RCP multi-family program,
which is operated through the use of EESPs. ORA maintains that the multi-
family dwelling market, with its energy usage dominated by electric and natural
gas space heating, lighting, and refrigeration, is similar to the nonresidential
market where large amounts of energy usage can be aggregated and more
comprehensive packages of energy efficiency measures can be installed. ORA
essentially recommends the elimination of the single family RCP in the retrofit
and renovation market. ORA argues that there is little chance of further success
in the single family market because, due to the penetration rate over the years,
there is a declining opportunity for weatherization-type activities, particularly in

                                        - 67 -
Southern California. ORA also points out that residential retrofit programs are
―typically‖ much less cost-effective than the nonresidential retrofit programs. It
recommends that we focus on the multi-family sector because it offers the
greatest chance of success in furthering our market transformation goal. In its
reply brief, ORA indicates that it agrees with NAESCO that the RCP needs to be
redesigned but disagrees with NAESCO‘s proposal to eliminate customer
contributions because it is contrary to market transformation goals.

            b) NAESCO
                NAESCO supports the RCP although it believes that the program
must be restructured to be effective. NAESCO recommends several ways in
which it believes that RCP program can be improved to reduce the market
barriers that prevented ESCOs from participating in the RCP in 1999, including
the program funding levels, complexity of the measurement and verification
(M&V) protocols, the requirement of customer contributions in the under-served
markets, administrative requirements that inhibited ESCOs from packaging and
submitting projects on a case-by-case basis, insufficient resources for marketing
and development efforts, and unnecessarily complex administrative process and
paperwork requirements. NAESCO supports the changes the utilities have
agreed to make to the PY 2000 program, such as the decision to use a calculated
savings approach to replace the M&V requirements for lighting measures and to
consider use of calculated savings for other measures. NAESCO supports the
proposed changes to simplify the administrative process. NAESCO supports the
revision of the pricing structure following the criteria proposed by Edison in its
rebuttal testimony, including bonuses on the total incentive for projects
undertaken in multi-family, mobile home and lower income markets, and the
proposals to encourage comprehensive treatment of residential dwellings and
retain individual measure pricing (without bonuses) requiring customer


                                       - 68 -
contribution for non-comprehensive treatment or in customer segments where
the first cost or split-incentive barriers are not significant.
                 After the workshop and evidentiary hearing, NAESCO still is
concerned with the lack of a structured periodic public process to provide the
opportunity for non-utility input on program design and proposed program
changes, a lack of statewide coordination, and the lack of an established
timeframe within which the utilities agree to evaluate proposals for measures
that are ―potentially eligible.‖ NAESCO recommends that we direct utilities to
select a statewide coordinator, publish a set of public guidelines on the RCP,
updated to reflect program changes, and establish an on-going working group of
industry participants to provide program feedback. It also recommends that all
measures be automatically eligible for inclusion in the program as opposed to the
utilities‘ position that all measures are ―potentially eligible‖ with the burden on
the contractor to show eligibility.45

             c) CEC
                 The CEC recommends that the selection of measures to be
included in the calculated savings approach for incentive payments be subject to
an advice letter filing to ensure appropriate review.

             d) Utilities’ Responses
                 The utilities contend that their new RCP design meets the criteria
established in D.99-08-021 and appropriately addresses the needs of their
customers and the market. They also point out their agreement to make certain

45In its prepared testimony, NAESCO witness Sperberg also recommends an increase in
RCP budgets to $34 million and the elimination of customer co-payments for the under-
served communities. NAESCO does not urge these changes in its briefs and they will
not be considered.




                                          - 69 -
program design changes to meet the concerns expressed in the workshop held on
December 2, 1999 and their proposal to do so by the end of the first quarter of
PY 2000. Thus, they do not believe that any action is required at this time. The
utilities have agreed to the use of calculated savings for some measures, to
streamline the application process, and to changes in incentive structure. The
utilities disagree with NAESCO that customer contributions should be
eliminated in under-served markets because customer co-payments are crucial to
developing a self-sustaining energy-efficiency market; i.e., ultimately, customers
must be willing to pay for these products and services in the absence of program
incentives.
                PG&E believes that, to effect market transformation, the program
must be expanded to include smaller, local contractors who have previously not
participated. PG&E states that it is committed to timely review of projects.
                SDG&E/SoCalGas agree with our direction in D.00-02-045 that
the Energy Division facilitate public input processes for energy efficiency
programs. Thus, they suggest that the Energy Division facilitate a public process
for input on program design and operation. Edison believes that the informal
process used to solicit input on the RCP for PY 2000/2001 is adequate and a
formalized workshop process is not necessary. PG&E states that it is committed
to soliciting broad public input on RCP.
                With respect to program budgets, SDG&E claims that it did not
increase its RCP budget for PY 2000 because it did not have enough information
available to judge its performance because of the program‘s late start. Edison
claims that it did not materially increase its RCP budget for PY 2000 because of its
―moderate response rate‖ and because it has developed other intervention




                                       - 70 -
strategies for the residential sector.46 SoCalGas states that carryover funds from
PY 1999 could be used to supplement PY 2000/2001 budgets if contractor and
customer responses are more robust than expected.

          5. Discussion
              In D.99-08-021 we direct the utilities to incorporate these program
design and implementation principles into the programs: 1) continue movement
toward uniform statewide program designs and implementation; 2) continue
transfer of program implementation away from administrators; 3) rely on
competitive processes when outsourcing activities; and 4) seek broad input from
customers on program design. We also direct the utilities to consider increases in
funding for the RCP intervention strategy if the program is performing well.
(D.99-08-021, Ordering Paragraph 12(e).)
              REECH and NAESCO have recommended budgetary changes for
the RCP, and REECH and ORA advocate major programmatic changes. Most
parties recommend minor tweaking of the multi-family program to reduce
barriers to full participation. We believe that it is premature to make substantial
changes to the budgets or design of the RCP for PY 2000 since the program got
off to a very late start. We see no justification for adopting ORA‘s
recommendation that we essentially eliminate the single family program. ORA
has provided us with no evaluations, studies, or other data to support its
witness‘s opinion that there are no longer reasonable opportunities for energy-
saving retrofit programs in the single family residential market. Accordingly, we
decline to modify the budgets at this time.

46Its unclear what programs Edison is referring to since its cited reference is only to the
RCP program and its residential program area overview indicates no significant
program design or funding changes except for the design of the RCP.




                                           - 71 -
             However, we are concerned about the low participation rate for PY
1999 and, in particular, the extremely low participation rate in the multi-family
program—across all utilities. We have expressed our desire that the RCP be
expanded and that additional funds be allocated to the program. Thus, we will
direct the utilities to increase their efforts to publicize and market both the single
family and multi-family program, and to develop new plans for reaching under-
served markets and to report in the PY 2001 applications the efforts undertaken
to do so. The report should also include baseline information regarding
participation by both customers and the third party implementers.
             To ensure that barriers to effective participation are eliminated to
further our goals of uniform statewide program design and of including broad
input from customers on program design, we also direct the utilities to: 1)
maintain, publish and update a statewide program procedures manual,
2) appoint and maintain a consistent statewide implementation team; and
3) establish a structured, periodic public process to receive input and feedback
from interested stakeholders, including third party providers and customers, to
be held a minimum of twice annually in each service territory.
             The utilities should publicize and distribute to interested
stakeholders proposed program changes prior to the informational programs,
distribute adopted program changes to meeting participants and other interested
stakeholders as they are made, and report on the process and results of the public
forums in the Quarterly Reports. The public input sessions should be widely
publicized. We agree that the program should meet needs of all potential service
providers, from small contractors to EESPs to large ESCOs.
             The program manual should include eligibility criteria, including
utility-specific differences, incentives, and administrative details, including
process, criteria, and timeline for reviewing proposals to determine whether they


                                        - 72 -
are eligible for the program. The manual should be available on the utilities‘
websites and the new master energy efficiency website and should be provided
to the Energy Division and Office of the Public Advisor. The utilities should also
update their procedures manual both on-line and with the Energy Division at a
minimum of once a year and as necessary.
             For the multi-family program, we approve in concept the utilities‘
proposed changes to utilize calculated savings for some measures, modify
incentives, and simplify the application process. We direct the utilities to jointly
file a report with the Energy Division identifying these and other proposed
changes to the program since the applications were filed and the basis for
changes. Use of calculated savings for specific measures, however, must be pre-
approved by advice letter. We will not eliminate customer contributions because
we believe that they are necessary to further our market transformation goals.
             To facilitate program evaluation, we direct the utilities to include
budget tables in the PY 2001 applications that segregate budgets and funds spent
or committed under the single family and multi-family programs.
             For PY 2001, the utilities should consider increasing the RCP budget
in conjunction with their new proposals to reach under-served markets.

      E. Other Residential Programs

         1. Statewide Lighting and Appliance Programs
             The Statewide Lighting Program and the Statewide Appliance
Program are primarily upstream programs promoting the manufacture,
distribution, and marketing of 1) energy-efficiency lighting products, and
2) ENERGY-STAR® qualified appliances such as refrigerators, dishwashers,
clothes washers, and room air conditioners and promoting customer awareness
of those products. Both programs are implemented by a third-party statewide
implementer under contract with the utilities. For the most part, implementation

                                        - 73 -
is consistent among the utilities. In the appliance program, the contractor
processes customer rebates for SDG&E and PG&E but has not, to date, done so
for Edison and SoCalGas apparently because it has not had the capacity and
infrastructure to do so.
              The CBEE notes that the statewide residential lighting and appliance
programs got off to slower than expected starts in 1999, due at least partly to
delayed approval of 1999 programs. (CBEE October 27, 1999 Comments.) The
CBEE also states that the PY 2000 proposals do not fully describe the specific
statewide activities to be implemented. We also note that neither the applications
nor the testimony describe the focus of the program, the strategies used, or the
marketing plan. Edison stated at the hearing that the focus of its efforts changed
this year to concentrate on retailer activities and that it decided to provide rebates
only for refrigerators that meet higher standards and clothes washers. It is
unclear whether the other utilities use the same strategies or whether they vary.
The utilities state that some of this information will be available by the end of the
first quarter of 2000 because they are negotiating with the implementer to detail
its job responsibilities.
              The CBEE also notes that the PY 2000 proposals do not describe in
sufficient detail the relationship between the statewide activities and utility-
specific activities. In the lighting program, the CBEE notes that PG&E and
Edison propose to retain nearly half (47%) of their PY 2000 residential lighting
program budgets for utility-specific activities, primarily for general information
and support activities that could be better coordinated on a statewide basis.47 In


47The CBEE advises that 25% of PG&E‘s lighting budget, however, goes to a program
for sub-CFLs, which is worthy of utility-specific funding.




                                        - 74 -
the appliance programs, the CBEE notes that all the utilities propose to retain
substantial portions (from 33% to 58%) in utility-specific program elements that
logically fit just as well under the statewide program.48 Despite extensive
questioning, PG&E was unable to explain why its utility-specific efforts were not
duplicative of the statewide effort or otherwise detracting from it.
             The CBEE recommends that we direct the utilities to take all steps
necessary to ensure the success of the statewide residential lighting and
appliance program activities. The utilities should implement the program
aggressively, especially given the delayed start in 1999, and conduct on-going
evaluation, monitoring, and fine-tuning of the programs, as needed. More
specifically, the CBEE recommends that we direct the utilities to ensure that
utility-specific activities in the residential lighting and appliance programs,
e.g., financial incentives, will not compete in a negative way with activities being
conducted through the statewide program. The CBEE contends this is necessary
to help avoid confusion in the marketplace and help assure that the statewide
program activity fulfills its role as a cornerstone effort in moving toward effective
statewide implementation. The CBEE also recommends that the utilities report
on the statewide lighting and appliance programs in each of the PY 2000
Quarterly Reports.
             We agree with the CBEE‘s recommendations. It is difficult to
evaluate the programs without detailed descriptions of the activities and
strategies used in the program. Further, since one of the main purposes of the
statewide program is to promote customer awareness of the energy efficiency


48The CBEE advises that 37% of PG&E‘s and 87% of Edison‘s appliance budget is for
appliance recycling programs and is not duplicative of the statewide program.




                                        - 75 -
lighting and ENERGY- STAR® appliances, we believe that the utilities should be
channeling all funds for ENERGY-STAR® and energy-efficiency lighting
awareness through the statewide program. This would be consistent with our
directive that the utilities continue movement toward uniform statewide
program designs and implementation and to continue transfer of program
implementation away from administrators. Further, we believe that it is
important to assure that utility-specific activities will not compete in a negative
way with statewide program activities.
             Thus, we direct the utilities to take all steps necessary to ensure the
success of the statewide residential lighting and appliance program activities and
to aggressively implement the program. They should conduct on-going
evaluation, monitoring, and fine-tuning of the programs, as needed.
             The utilities should submit a report to the Energy Division detailing
the strategies and focus of the statewide programs, as they have implemented
them, explaining why it is appropriate to maintain utility-specific funds to
promote the same products and develop the same customer awareness in
ENERGY- STAR® appliances and energy efficiency lighting as the statewide
programs, and demonstrating how their utility-specific programs do not compete
in a negative way with the statewide programs.
             For PY 2001, the utilities should generally channel funds for
ENERGY-STAR® and energy efficiency lighting awareness through the
statewide programs except that the utilities may elect to develop local pilot
programs that promote higher appliance and lighting standards. The utilities
should demonstrate how utility-specific activities in the residential lighting and
appliance programs will not compete in a negative way with activities being
conducted through the statewide program. The utilities should also be
supporting the statewide programs equally, in proportion to their share of the


                                        - 76 -
overall PGC funds, but taking into account SoCalGas‘ limited involvement in
many of the measures. For PY 2001, we direct the utilities to ensure that their
proposed budgets reflect this commitment to the statewide programs.
             We direct the utilities to report on the statewide lighting and
appliance programs in each of the PY 2000 Quarterly Reports. In addition, the
utilities should endeavor, if feasible, to have the third party contractor process
rebates for Edison and SoCalGas for PY 2001. We also direct the utilities to
prepare, publish, and update as needed and no less than annually, program
manuals for the Statewide Lighting and Appliance Programs and make them
available on the master and utility-specific websites and in the Energy Division
and Office of the Public Advisor.

         2. Refrigerator Recycling
             Use of old refrigerators constitutes a significant portion of residential
energy load. Edison has an extensive refrigerator recycling project budgeted at
$7.15 million for PY 2000. The program encourages multi-family building
owners to recycle old refrigerators instead of sending them to thrift stores for
resale. PG&E has budgeted $2 million to ―explore implementing‖ an early
retirement and recycling program for refrigerators—with no commitment to do
so. SDG&E currently has no program although it had a small third-party
initiative program that concluded in 1999.
             REECH contends that this is one of the most justified residential
programs and recommends that it should be expanded into a statewide effort for
PY 2000. However, REECH would like to see this effort coordinated with the
Environmental Protection Agency and Integrated Waste Management Board and
would like the utilities to identify other funding and administrative options.
             This is one area in which substantial energy savings can be
promoted in the residential sector. Thus, we direct the utilities to develop


                                        - 77 -
refrigerator recycling programs similar to Edison‘s program to be implemented
by September 1, 2000 or as soon as the program is approved. The program
should include a marketing and distribution plan. PG&E and SDG&E should
identify and allocate significant funds49 for this strategy for the duration of
PY 2000 and submit a report to the Energy Division showing their proposed
budgets and implementation plans and explaining the new program.50 Edison,
PG&E, and SDG&E should include funding for enhanced programs in their
PY 2001 applications.
             The utilities, in consultation with interested stakeholders, should
also consider developing an appropriate non-energy environmental adder for
this program, e.g., hazardous material disposal of refrigerants on a per unit basis.

          3. Residential Financing Strategies

             a) Background
                 The utilities support residential financing programs by working
with lenders and real estate and mortgage brokers to coordinate financing energy
efficiency-related improvements with the Energy Efficient Mortgages (EEMs) at
the time of sale and purchase. The objective is to increase the number of lenders
and brokers offering EEMs. The EEMs work with the Time of Sale Home Energy
Rating program (HERS), which provides energy efficiency evaluations of the
prospective home. Based on the amount of funds available, the homebuyer
decides which measures to install. The lender performs a cost-effectiveness

49Possible sources of funds include the funds allocated for CBEE for PY 2000, funds
allocated for shareholder incentives for PY 2000, and carry-over funds allocated to
PY 2001, as we discuss further, infra.
50We expect the budgets also to be reflected in the utilities‘ application amendments
submitting revised PY 2001 budgets, as discussed further, infra.




                                         - 78 -
analysis to determine whether the measures installed will reduce the projected
energy costs more than the additional mortgage payment. There is no formal
financing program operated by the utilities.

             b) CBEE’s Recommendations
                The CBEE finds PG&E‘s and SoCalGas‘ applications vague with
respect to financing, including neither program descriptions, strategies, budgets,
or financing, and SDG&E‘s and Edison‘s applications lacking mention of
residential financing mechanisms other than energy-efficiency mortgages. The
CBEE argues that some segments of the residential market could be better
reached through an attractive and user-friendly financing mechanism.
                The CBEE recommends that we direct each utility to increase
emphasis on financing as an intervention strategy in selected residential
programs. Financing should be attractive (low interest), user-friendly (easy, with
minimal paperwork, and without delays in processing), and strongly linked to
program and service offerings (e.g., by using a ―one-stop shopping‖ approach).
This recommendation should be implemented by either expanding and
modifying existing financing activities, or initiating new financing intervention
strategies, with either PGC funds or shareholder funds.
                The CBEE recommends that new or expanded financing
intervention strategies be developed under the RCP and possibly in one other
major residential program element where access to capital and availability of
financing is a significant market barrier (i.e., not in the residential appliance
program, since financing is already generally available in the appliance market).
The financing strategies should be developed in a manner to avoid any features
that unduly market or publicize the utility company or its affiliates. One option
would be for utilities to partner with one or more financing services providers in
the private market. The development process, implementation progress, and


                                         - 79 -
increase in emphasis should be described in the utilities' first quarter PY 2000
status reports and in subsequent quarterly status reports.

             c) Utilities’ Positions
                SoCalGas has a shareholder-funded financing program for
energy efficiency. Edison does not believe that a residential financing program
strategy will attract enough participants to warrant such an offering. Edison had
such a program in 1998, offered through a third party and it was not successful,
primarily, it thinks, because SoCalGas‘ shareholder-funded program offers
financing on both electric and gas measures whereas its program only offered
financing for electric measures.
                PG&E has a new program conducted in conjunction with the
ENERGY STAR® Financing program as a part of its residential renovation and
retrofit program. PG&E states that it supports the program by promoting it
through its bill inserts, with a budget of $1.8 million. It does not provide the
financing.

             d) Discussion
                We do not have enough information to rule on this issue for
PY 2000. However, the CBEE‘s recommendations are reasonable and should be
explored for PY 2001. For PY 2001, we direct the utilities to explore the feasibility
and demand for residential financing. The utilities should monitor PG&E‘s new
ENERGY-STAR® financing program and consider whether it may be appropriate
for statewide implementation. The PY 2001 applications should explain the
actions taken to explore the feasibility and demand for residential financing and
all actions taken to determine whether to implement new residential financing
programs on either a statewide or local basis.




                                        - 80 -
          4. School-Based Education and Information
             Strategies

             a) CBEE’s Recommendations
                 The CBEE notes that to transform the market, current and future
customers have to have the knowledge and information necessary to search out
and compare energy efficient products and services with standard efficiency
products and services. It believes that the utilities have missed one major
information strategy for consumers: educational strategies to motivate students
and their parents and guardians to consider energy efficiency opportunities.
                 The CBEE recommends that we direct the utilities to conduct
pilot tests of elementary and secondary school-based education and information
strategies that ultimately would be expanded and integrated into their overall
customer energy efficiency education efforts. It recommends that the strategies
be designed to influence the children and their parents or guardians, have a
practical focus, emphasize linkages to other related energy savings programs,
and avoid any features that might be interpreted as marketing or publicizing the
utility company or its affiliates.
                 The CBEE further recommends that the utilities be required to
track and monitor the effectiveness of the program strategies and the changes in
awareness and behavior attributable to the intervention strategies and to report
the results in their Quarterly Reports and through the submission of an
evaluation report.

             b) Utilities’ Responses
                 PG&E has an established school-based program called
Energenius, which provides curricula for teaching children in kindergarten
through eighth grade about energy and energy efficiency. This program is
designed to influence values and perceptions about energy efficiency. The


                                       - 81 -
program provides a packet of information about energy, energy efficiency, and
why it is important to save it, with stickers and coloring books, and is available to
the schools through PG&E‘s website.
                Edison states that it is working on a pilot with a third-party to
develop an in-school program to focus on school energy use and how the
students can go about identifying ways to make their school more energy
efficient. Part of the program enlists student participation in performing an
energy audit on their own homes.

             c) Discussion
                We agree that a school-based education approach may provide
additional opportunities for our market transformation effort. We direct PG&E
and Edison to continue with elementary and secondary school based education
and information strategies for PY 2001 and SDG&E and SoCalGas to conduct
pilot tests of these school-based programs in their service territories for PY 2001.
Further, we adopt CBEE‘s pilot-study recommendation only for PY 2001 and
direct the utilities to monitor the effectiveness of the program strategies and the
changes in awareness and behavior attributable to the intervention strategies and
to report the results in their Quarterly Reports and through the submission of an
evaluation report by December 31, 2001. The utilities should also explore the
feasibility of a future statewide strategy.

      F. Targeting of Under-served Communities

          1. Policy
             In D.99-08-021 we directed the utilities to consider program offerings
for PY 2000 and 2001 that are available to under-served communities and
customer groups (Ordering Paragraph 11) and to consider increased funding for
activities (programs, program elements, and intervention strategies) that benefit



                                         - 82 -
under-served communities and customer groups, such as renters. (Ordering
Paragraph 12(c).) One of our eight general design and implementation principles
also directs the utilities to ―ensure program offerings are available to under-
served communities and customer groups.‖ Under-served is not defined but is
discussed in the CBEE Advice Letter IG/IE filed on October 15, 1998, pursuant to
Commission direction, as including renters, low-income, rural, and small
businesses. (Attachment A-30.)

           2. CBEE’s Recommendations
             In its October 27, 1999 Comments, the CBEE notes that the
applications do not provide any means for assessing the extent to which the
needs of under-served communities, customer groups, market segments, and
markets are, in fact, being met. Specifically, with respect to residential programs,
the CBEE recommends that we direct the utilities to: 1) work together to develop
common working definitions for different communities and customer groups in
the residential sector; 2) assess the size and characteristics of these communities
and customer groups; and 3) begin monitoring the availability and delivery of
program services and participation in the programs according to these
definitions. It recommends that characteristics such as income, language,
ethnicity, homeownership versus renter, and rural versus urban or suburban be
considered for the residential sector. The CBEE recommends that the results of
the assessment and ongoing monitoring be included in the PY 2000 Quarterly
Reports.
             The CBEE also recommends that we direct the utilities to offer
targeted solicitations to increase provision of energy efficiency services to under-
served communities and customer groups already known or identified and
defined through the assessment described above and to begin the new targeted
efforts by September 1, 2000.


                                        - 83 -
               Latino Issues Forum/Greenlining Institute recommends that we
direct the utilities to perform needs assessments in the under-served
communities, to monitor participation rates, and to disseminate program
information.

         3. Utilities’ Programs and Positions
               The utilities are willing to do the needs assessment for under-served
communities, but believe this should be done under the auspices of the proposed
CALMAC. Edison agrees that Community Based Organizations (CBOs) should
be used in this effort. PG&E suggests that CALMAC also would be an
appropriate place to create a definition of under-served communities.
               Edison has interpreted under-served to be geographically under-
served, multi-family residential. PG&E has identified under-served communities
as including rural areas, non-English speaking population, moderate income, and
first time home buyers. SDG&E has targeted multi-family residential renters, the
non-English speaking population, and lower income customers that do not
qualify for low-income programs.
               The utilities point out that their current applications contain many
efforts to reach out to under-served communities, including the provision of the
statewide Energy Guide in three languages for PY 2000 and the availability of the
RCP program to renters and mobile home parks.
               Edison cites its ―continued outreach‖ of under-served customer
groups through program intervention strategies, including its intention in the
RCP program to give special attention to under-served residential segments,
particularly moderate-income owners and renters, and its support for the
Consortium For Energy Efficiency, Residential Electric End-Use Efficiency
(CEEREEE) program element to increase the acceptance and installation of
energy-efficient equipment by traditionally under-served residential customers


                                         - 84 -
through volume purchasing. It contends that the Residential New Construction
program will be directed to market players in the residential development
community, including lower income housing.

          4. Discussion
             We do not find sufficient evidence that the utilities have complied
with the spirit of our direction. We agree with the CBEE that the applications
neither give us sufficient information to determine how the utilities have
identified the needs of under-served communities, nor the extent to which the
needs of those communities and customer groups, are, in fact, being met. Our
evaluation efforts are also hampered by the fact that there is no agreed-upon
working definition of ―under-served‖ community or customer group.51
             For the most part, the utilities point to on-going comprehensive
programs that technically are available to under-served groups. However, they
do not set out the specific activities they are undertaking to either identify or
target those groups for receipt of services.
             We adopt the CBEE‘s recommendations and direct the utilities to: 1)
work together to develop common working definitions for different communities
and customer groups in the residential sector; 2) assess the size and
characteristics of these communities and customer groups; and 3) begin
monitoring the availability and delivery of program services and participation in
the programs according to these definitions. In so doing, the utilities are directed
to consider characteristics such as income, language, ethnicity, homeownership
versus renter, and rural versus urban or suburban. CBOs should be used to help


51We note that the utilities also administer specific low-income energy efficiency
programs. Those programs are not addressed in this decision.




                                          - 85 -
identify and solicit input from under-served residential customers. The results
should be reported in the PY 2001 applications and incorporated in PY 2001
offerings as appropriate, subject to our approval.
             We also direct the utilities to offer targeted solicitations to increase
provision of energy efficiency services to under-served communities and
customer groups already known or identified and defined through the
assessment described above and to include new targeted efforts in the PY 2001
applications. The PY 2001 application should fully describe the nature of the
targeted solicitations and its rationale for selecting these targeted solicitations
and determining that the groups targeted are under-served. The utilities should
report progress with these solicitations in the Quarterly Reports.

VI. Nonresidential Programs

      A. Background
          The nonresidential program area includes six program definitions or
markets: Large Comprehensive Retrofit, Small Comprehensive Retrofit, HVAC
Equipment Turnover, Motor Turnover, Process Overhaul, and Commercial
Remodeling and Renovation. Strategies used include, for example, the statewide
Large and Small SPC programs, financing, standard financial incentives,
technical assistance, upstream appliance and lighting programs, energy guides,
energy efficiency centers, education, training, demonstrations, and other energy
management services (EMS) for disseminating information.




                                         - 86 -
           The utilities‘ proposed PY 2000 budgets are as follows:
PY 2000 Nonresidential Budgets by Program ($ Millions)
                                     PG&E Edison SDG&E SoCalGas Total
Nonresidential Total                 $66.140 $39.713 $17.981 $14.383 $138.217
Large Comprehensive Retrofit          19.900  15.337   6.716           41.953
Small Comprehensive Retrofit          18.069   8.756   5.236   8.548   40.609
HVAC Equipment Turnover                2.600   7.027   2.731   1.051   13.409
Motor Turnover                         1.300   1.944   0.782            4.026
Process Overhaul                      17.200   3.861   1.457   4.784   27.302
Commercial                             7.070   2.787   1.058           10.915
Remodeling/Renovation
           The utilities‘ PY 1999 budgets and the estimated funds committed to
PY 1999 as set forth in their Fourth Quarter Reports are as follows:

Nonresidential PY 1999 Budgets and Q4 reported Expenditures/Commitments
($Millions)
                PG&E PG&E Edison           Edison SDG&E SDG&E SoCalGas SoCalGas Totals Totals
                Budget Spent     Budget Spent       Budget Spent    Budget Spent Budget. Spent

Nonresidential $58.520 $38.242   $37.142   $32.833     $17.650   $9.399   $13.331 $11.391   $126.64 $91.865
Total                                                                                             3
Large Comp.    $16.147 $13.753   $14.367   $12.734      $6.370   $1.439                     $36.884 $27.926
Retrofit
Small Comp.    $19.465 $6.833     $7.460    $6.263      $5.470   $3.785    $8.582 $6.914    $40.977 $23.795
Retrofit
HVAC Equip.     $8.219 $4.352     $5.713    $5.210      $2.620   $1.336    $0.162 $0.084    $16.714 $10.982
Turnover
Motor           $2.506 $1.596     $1.491    $1.501      $0.920   $0.230                      $4.917   $3.327
Turnover
Process         $4.798 $4.438     $3.829    $3.412      $1.370   $1.574    $4.587 $4.393    $14.584 $13.817
Overhaul
Comm. R&R       $7.385 $7.270     $4.282    $3.713      $0.900   $1.035                     $12.567 $12.018

           The primary issues that have been raised with respect to the
nonresidential programs center around the provision of services to and allocation
of program budgets between smaller and larger commercial and industrial
customers, and the design, implementation, and budgets for the two SPC
programs. Each of the issues has its roots in our policy rules and the directives
we established in D.99-08-021. Each party has a slightly different perspective on



                                              - 87 -
the rules and their application to the utilities‘ filings. The issues are inextricably
interrelated which makes consideration and discussion of the subject somewhat
complex. We will address the issues by focusing on: 1) aligning customer
contributions and program spending by large and small sub-classes; 2) program
offerings and budgets for small and large programs; 3) SPC program design
issues; and 4) design issues for other nonresidential programs.

       B. Aligning Revenues and Expenditures by
          Large/Small Customer Sub-Classes

           1. Policy
                Policy Rule II-6 (6) requires that PGC program benefits be aligned
with the customers providing the funds. Thus, in D.99-08-021, we order the
utilities to:
                submit an analysis of the sources of public goods charge energy
                efficiency and gas demand-side management funds by customer
                class and sub-class. The utilities shall conduct the available funds
                analysis, including prior year(s) unexpended and uncommitted
                funds, that the CBEE performed for PY 1999 programs. This analysis
                shall be conducted jointly, and the information should summarize
                statewide, utility-specific and electric and gas funds. (Ordering
                Paragraph 7, p. 37.) 52
           2. Utilities’ Alignment
                The utilities included in their PY 2000/2001 program applications
tables showing the projected PGC customer contributions by class and sub-class
and budget allocations based upon their forecasts of the likely level of program


52We discuss the issue here in the context of nonresidential programs because the crux
of the parties‘ disagreement is over the alignment of contributions and program
budgets by sub-class within the nonresidential area and not by class, e.g., residential,
commercial, and agricultural.




                                          - 88 -
participation by customer class and sub-class53. During the course of the hearing,
the utilities prepared a summary exhibit showing contributions and budgets by
class and sub-class and provided their workpapers. (Jt. Exh. 2) For the non-
residential programs, the utilities identify sub-classes as small/medium
commercial and industrial, large commercial and industrial, agricultural, and
miscellaneous. The utilities define small/medium commercial as electric
customers with annual electric usage of less than 500 kW and core gas customers
(SoCalGas) or customers with annual gas usage of less than 250,000 therms. As
we discuss later, the utilities use the same large and small/medium definitions to
define customers for purposes of the two components of the SPC program: the
Large SPC and the Small/medium SPC.
              The utilities‘ summary of projected PGC contributions and budget
allocations by customer class and sub-class shows the following:
                    PG&E          SDG&E          Edison54      SoCalGas           Total
               Revenue Budget Revenue Budget Revenue Budget Revenue Budget Revenue Budget
Residential    $ 68.8 $ 69.1   $ 16.4 $14.8 $ 34.7 $31.5 $ 12.0 $13.4 $ 127.7 $ 128.8
Nonresidential    77.0  76.8      21.1  20.6     55.4   47.7    15.0  16.4    161.8    161.5
 Sm/Med C&I       45.3  25.3      13.4  15.1     33.4   28.9    14.7  16.4    102.4     85.7
 Large C&I        24.8  41.5       6.8   5.4     18.3   15.2     0.2           47.7     62.1
 Agr               5.8  10.1       0.4            2.9     3.2               $   8.8     13.3
 Misc              1.3             0.3             .8     0.4    0.1            2.9      0.4

Total          $ 145.8   $145.9   $   37.5   $35.4   $   90.0   $79.2   $   27.0   $29.8   $ 289.5 $290.30




53See, PG&E Exh. 101, SDG&E Exh. 200, Attachment A, Tables 16-1, 16-2, and 16-3,
Edison Exh. 302, Attachment A, Tables 16.1-16.3, and SoCalGas Exh. 400, Attachment
A.)
54Edison‘s revenue forecasts were not updated from PY 1999 in its application. At the
hearing, Edison provided updated revenue forecasts. (Edison Exh. 306.) It did not,
however, update its budget numbers so there is a $10 million discrepancy between
revenues and budgets. Edison did not explain how its budgets would be matched to
the new revenue numbers.




                                               - 89 -
               On the revenue side of the table, the utilities determine whether a
customer falls into the small/medium sub-class or the large sub-class solely by
the customer‘s rate schedule. Thus, customers who have rate schedules for
electric usage of less than 500 kW/year or rate schedules for gas usage of less
than $250,000 therms/year are considered small/medium customers55 and
customers who have rate schedules for electric and gas usage of over those
thresholds are considered large customers.

               On the other side of the table are the budgets, which represent
program benefits or services to be rendered. Because these budgets are future
projections, the utilities must estimate the amount of funds which will be used by
customers in each class and sub-class during the upcoming program year.
               The utilities claim that the tables show that they have properly
aligned their projected budgets by customer class and sub-class. The one
exception shown on the tables is for PG&E.56 PG&E‘s tables show that
small/medium customers contribute $45 million but are projected to receive only
$25 million in services, while, conversely, large customers contribute $25 million
but are projected to receive $41.5 million in services. The tables also show that
PG&E‘s agricultural customers contribute $5.8 million but are projected to receive
services of $10.1 million.
               PG&E explains that the discrepancy occurs because of the way it
treats the revenues received from and budgets provided for corporate chain
accounts. PG&E states that the imbalance occurs because it included


55   For SoCalGas, the small/medium customers are ―core‖ customers.
56We can‘t determine from Edison‘s new exhibits whether there is a discrepancy
between revenues and budgets or not.




                                         - 90 -
contributions by corporate chain account customers in the small/medium
customer revenues but, for budget purposes, projected that those customers
would participate as large customers. PG&E points out that individual chain
stores are individually metered so have rate schedules classified as
small/medium usage. Thus, many of the corporate chain accounts have multiple
premises and the corporate parent has multiple meters within PG&E‘s service
territory. In the notes on Joint Exhibit 2, PG&E explains that it expects that a
substantial number of its corporate chain customers, which it estimates as
contributing 40% to 50% of total nonresidential revenues, will participate as large
customers, although they contribute to PGC revenues under small/medium
customer rate schedules.
             PG&E thus contends that there is, in reality, no discrepancy between
funding for large and small/medium commercial customers on its comparison
tables, but only an explainable mismatch of revenues and budgets. PG&E does
not provide calculations to support its position. However, the total PG&E
estimated revenue for the nonresidential class is $77 million. Applying PG&E‘s
―40% to 50%‖ estimate of anticipated chain customers to total nonresidential
revenues amounts to between $31 million to $33 million purportedly attributable
to chain customers.57
             Edison and SDG&E state that they treated these corporate chain
customers differently from PG&E in that they attempted to treat the large
corporate chain accounts consistently on both the revenue and budget sides of


57 This doesn‘t make sense, however, since PG&E‘s argument focuses on the inclusion of
corporate chain accounts in the small/medium customer revenue category. We wonder
whether PG&E may have intended to state that 40-50% of the small/medium category
is comprised of corporate chain account revenues, which would total $22 to $27 million.




                                        - 91 -
the equation. In testimony, they both state that they estimated the amounts
budgeted for use by large commercial and industrial corporate chain customers
and removed those amounts out of the Large C&I budgets and allocated them to
the Small C&I budgets.58

          3. CEC’s Proposed Realignment
              The CEC prepared its own estimates regarding the likely level of
program participation by customer class for each of the fourteen program areas.
(CEC Exhs. 701 and 702.) The CEC estimates revenues and budgets by customer
class and sub-class, for each of this 14 program elements, and concludes that the
program funds projected to be used by large customers exceed contributions by
between $22.6 and $31.2 million, as opposed to the utilities‘ projection of a $14.7
million discrepancy.59 The CEC‘s forecast differs from the utilities‘ forecast
primarily in the Large Comprehensive Retrofit program, where the utilities
project heavy participation of small/medium customers and the CEC does not.
The CEC questions the utilities‘ projections that as much as 55% (Edison) or 65%
(SDG&E) of the projected participation in the large comprehensive retrofit
program is by small/medium customers.
              In order to rectify this imbalance of contributions and budgets for
large commercial and industrial customers, the CEC recommends that the
utilities be required to reduce the ceiling on Large SPC funding from $68 to $48

58Edison‘s note 1 to Jt. Exh. 2 also reflects this treatment. However, in its brief, Edison
claims that its allocation tables treat corporate chain accounts and the program funds
they are eligible for as large customers. In any event, it claims to have treated them
consistently on both sides of the equation.
59The CEC made some errors in its calculations; however, these errors do not materially
affect its position since the CEC argues for the redirection of $20 million in funds and
not the $22.6 to $31.2 million it calculated as excess funding for large customers.




                                           - 92 -
million and to redirect approximately $20 million in funds from the Large SPC
(funded from five of the six nonresidential programs), to the small and medium
customer markets, such as HVAC Equipment Retrofit, Remodeling and
Renovation, and Small Comprehensive Retrofit program elements. The CEC
recommends this $20 million redirection of funds because it states that the
utilities‘ request $68 million in funding for the large SPC program while this class
only pays $48 million into the program.60
             The CEC also recommends that the utilities be allowed to request
future adjustments in program element budgets through a mid-year advice letter
filing if there is either a higher than expected demand in the first six months of
the Large SPC program, or lower than expected participation in the Small
Comprehensive Retrofit, HVAC Equipment Turnover, and Remodeling and
Renovation program elements. It recommends that we require the utilities to
include both a showing that customer commitments have exceeded the
authorized budget and a revised NTG analysis for this program for any future
proposed increases in the Large SPC budget.

          4. Discussion
             There is a critical lack of information from which to evaluate the
utilities‘ compliance or non-compliance with the requirement that program
benefits be aligned with the customers providing the funds. The contribution
projections by small/medium and large sub-classes, with the exception of the
treatment of corporate chain accounts, which we discuss infra, appear fairly
routine and non-controversial. However, we cannot say the same for the utilities‘


60The utilities actually budget $64.7 million for the Large SPC program, with a
proposed budget cap of $68 million.




                                         - 93 -
projections of funds ―available‖ for use by customer classes based upon size,
which, for the most part, are without basis or analysis.
             First we must address the requirements for the budget side of the
equation. The utilities, for the most part, use the term ―available‖ for use by
customer class as the measure. We do not believe that this measure is sufficient
to determine the proper alignment required by Policy Rule II-6(6). Because the
programs do not generally prohibit smaller customers from using any of the
funds that are targeted to larger customers, analyzing funds that are theoretically
―available‖ to smaller customers is a meaningless exercise that does not assist us
in meeting our goals. And, it is clear that the utilities have used something more
than mere ―availability‖ since they have made the small/medium customer sub-
class projections in all program areas that are less than 100%, although they do
not specify the basis for the specific projections. We believe that a more
reasonable approach would look at projected participation rates for each
customer sub-class. We will use this terminology henceforth.
             We recognize that the utilities‘ participation projections are
necessarily estimates; however, estimates still must have an explained basis in
verifiable and verified data. Here, PG&E says little more than that it used ―the
experience from 1999 project participation and program manager‘s estimates,‖
with the very large qualification that ―because of limited experience and data
with the 1999 programs, the allocations based on the 1999 programs may not be
indicative of customer participation in 2000 programs.‖ When pressed, the
PG&E representative admitted that the estimates were little more than a ―guess.‖
The other utilities do not explain the bases for their projections at all. The
projections vary by program and presumably by strategy within a program. We
would also anticipate that projections would vary by the utilities‘ plans to target
certain customer classes, markets, or segments. The projections presumably


                                        - 94 -
include some treatment for cross-cutting measures such as energy centers. The
bottom line is we don‘t know and can‘t determine how the utilities developed
their projections since neither the method nor the assumptions behind the
projections are indicated and no workpapers or analyses are provided.61
              To be able to evaluate the reasonableness of the utilities‘ projections,
we must have a detailed explanation of the assumptions and data upon which
the forecasts are based. We also believe that the projections should be based on
agreed-upon guidelines and protocols, including the use of accurate data on the
participation of customers by class and sub-class.
              Even if we assume, arguendo, that the budget and revenue
allocations are accurate with respect to participation and contribution by sub-
class, we must still review the utilities‘ individual allocation tables. We do not
believe that it is useful to look only to the statewide compilations for purposes of
determining compliance with our directives. Since the utilities are still
responsible for preparing their own budgets, allocating funds, and administering
the programs within a set of broad guidelines, compliance with our directives is
also within their individual purviews. In this case, we direct our attention to
PG&E since it, admittedly, has the only stated discrepancy in contributions and
budget allocations.
              To review PG&E‘s allocations, we must address the ―corporate chain
store‖ issue. While PG&E asserts that 40-50% of its nonresidential contributions
are attributable to corporate chain stores and that those customers typically
participate as large customers, it provides no analysis or workpapers to support

61We are fairly certain, however, that the estimates are not based upon clear
participation data since the utilities have not been required to collect or report on the
amount of funding that is actually provided to customers by customer class.




                                           - 95 -
its conclusions. It neither provides a basis for its estimate of the percentage of
corporate chain accounts that contribute to the small/medium PCG nor shows
how it determined the percentage that actually participate as large customers.
Clearly, some corporate chain stores participate as small/medium customers
since, as we discuss further infra, the utilities propose a corporate parent cap for
the Small SPC program. Without such information, we cannot determine
whether PG&E‘s allocations are reasonable.
             We are also skeptical about the reasonableness of the calculations
performed by Edison and SDG&E.62 None of the utilities define corporate chain
account, so we have no way of knowing whether a corporate chain account
consists, e.g., of two stores, or ten stores, or whether the utilities used a common
definition. Edison does not even identify the factors it used to adjust its table,
stating only in its brief that a ―significant portion‖ of customers classified as
small/medium by their rate are in fact considered large customers because of
their corporate parent relationship for both contribution and budget purposes.
Edison neither explains its adjustments nor provides a verifiable basis for them.
SDG&E provides a limited basis for selecting its percentage (18%) stating that it is
based on load research, but does not provide the calculations nor show any basis
for concluding that those same accounts participate as large customers. Further,
SDG&E‘s calculations in its sparse workpapers are incorrectly done.
             Thus, the utilities‘ revenue/budget allocation tables are not
sufficient to meet our directive in D.99-08-021 to provide an analysis of the


62SoCalGas does not provide any analysis or workpapers either. However, we are less
concerned with its calculations in this parity analysis since virtually all of SoCalGas‘
revenues and budgets are for small/medium customers. We do need the information,
however, to separate out corporate chain stores as we discuss further below.




                                         - 96 -
sources of public goods charge energy efficiency and gas demand-side
management funds by customer class and sub-class. Nor can the submitted
tables be considered ―joint‖ submissions as we directed since there is no way to
make any comparisons among utilities.
             Because of the utilities‘ inadequate filings, we are unable to
determine whether the utilities‘ proposed budgets comply with Policy Rule II-6.
Nor do we have sufficient evidence upon which to determine that PG&E or any
of the other utilities have allocated proportionately greater funds to large
customers than to small/medium customers. Accordingly, we decline to redirect
$20 million in Large SPC funds to programs targeted toward small/medium
customers as the CEC urges, on this basis. However, we direct the utilities to
submit additional information regarding the instant filings and to prepare
appropriate tables for PY 2001. We also will consider additional remedies when
we consider the milestones and shareholder incentives if we discover that proper
allocations were not made for PY 2001.
             We direct the utilities to submit a report to the Energy Division
containing, for PY 2000, revised revenue/budget allocation tables and
workpapers. The tables should treat corporate chain stores‘ revenues and
budgets consistently and should specifically break out all revenues and budgets
for corporate chain accounts. The workpapers should ensure that all terms are
defined, all assumptions and factors for allocating budgets are identified with the
supporting bases (including for generic programs like energy centers), and all
calculations are complete, accurate, and easily followed. The workpapers should
also include a complete analysis to support the assumptions made and factors
used.
             For corporate chain accounts, the utilities should fully explain the
basis upon which they determine how to treat such accounts in their analyses


                                        - 97 -
and provide supporting data and workpapers. The utilities should also provide
correct tables showing revenues and budgets broken out by 1) the number of
corporate chain accounts classified as small/medium and the number classified
as large; 2) for each corporate chain account, the number of accounts per chain;
and 3) the number of corporate chain accounts where the corporate parent pays
for energy efficiency services and the number of corporate chain accounts where
the corporate parent does not pay for such services.63 The utilities should also
show the PY 1999 participation of the foregoing and the expected PY 2000
participation of the foregoing. The utilities should fully explain the basis for the
data provided in Exhibits 2(a), 2(b), 2(c), and 2(d).
              The utilities‘ PY 2000 shareholder incentives will be reviewed in the
AEAP to be filed on May 1, 2001. At that time, we may consider revising or
rejecting the shareholder incentives associated with some of the specific large
customer programs if the utilities‘ allocations to customer sub-classes are not
consistent with contributions for PY 2000.
              For PY 2001, we direct the utilities to jointly convene a public
process, with interested stakeholders, to develop guidelines or protocols to
govern the allocation of budgets among customer sub-classes, taking into account
prior years‘ participation, programmatic changes, newly targeted customer
classes, markets, and market segments, treatment of chain accounts, and
treatment of cross-cutting strategies, such as energy centers, etc. The PY 2001
applications should report of the results of the public process, any agreements
reached, and any remaining disagreement. The PY 2001 applications should be


63Later we also direct the utilities to collect data and report on customer participation
by SIC code, class, and sub-class.




                                           - 98 -
based on the agreed-upon guidelines or protocols, if any were reached, and
should also include standardized tables showing the revenue/budget allocations
for each strategy, detailing the assumptions made, the basis for each assumption,
and the analysis. The tables should also break out chain stores as a separate
calculation for both revenues and budget, and should include the information
requested above for PY 2000. It is important to provide chain store information
separately both in order to ensure parity in customer class contributions and
budgets as well as to assist us in evaluating the utilities‘ compliance with our
directives to redirect program funds to small/medium customers, as we discuss,
infra. Finally, the tables set forth in the PY 2001 applications should be broken
out further, by small, medium, and large customers, and any other proposed
segmentation developed during the PY 2001 process.

      C. Programming and Funding For Large v.
         Small/Medium Customers

         1. Policy
             In D.99-08-021, we direct the utilities, in preparing their program
plans for PY 2000-2001, to consider:

             Increased targeting to smaller nonresidential customers
             that may face different combinations of market barriers to
             cost-effective energy efficiency investments and practices
             than those addressed by current SPC designs. (Ordering
             Paragraph 10(b).)

             We also direct them to consider an increased emphasis on:

             [O]ther program elements and intervention strategies that
             may be needed to capture market opportunities and
             segments for which the SPC strategy is not well-suited.
             Examples of these opportunities and segments include
             those targeted by the Commercial Remodeling and
             Renovation, Heating Ventilation and Air-Conditioning



                                       - 99 -
             Turnover, and Motor Turnover programs. (Id., Ordering
             Paragraph 10.)

             Similarly, with respect to funding, we direct the utilities to consider
revisions in programs, program elements, and intervention strategies that
address:
             • activities targeted to smaller nonresidential customers
             (increases in funding); and
             • the Commercial Remodeling and Renovation program
             (increases in funding). (Id., Ordering Paragraphs 12(b)
             and (f).)
             Conversely, we direct the utilities to consider limitations on
participation for market segments that are or have now been sufficiently
transformed (e.g. some large customer segments) (Id., Ordering Paragraph 10(a).)
And, with respect to funding, we direct the utilities to consider revisions in
programs, program elements, and intervention strategies that address SPC
intervention strategies targeted to large customers (decreases in funding or the
funding cap.) (Id., Ordering Paragraph 12(d).)

           2. Budgets
             An analysis of the utilities‘ nonresidential budgets for PY 2000 and
PY 1999, together with the amount of funds spent and committed for PY 1999, as
shown on the utilities‘ PY 1999 Fourth Quarter Reports shows the following:




                                       - 100 -
Nonresidential Budget Comparisons, PY 1999 and PY 2000
PACIFIC GAS AND ELECTRIC COMPANY
Budgets in Millions   PY 2000 PY 2000 PY ‘99     PY ‘99    PY 2000    PY 2000    PY '99      PY '99
                       Total      %       Total     %    Change % Change         Spent * % Spent *
HVAC                     2.600      4%      8.219    14%    -5.619  -68%            4.352     53%
Motor Turnover           1.300      2%      2.506     4%    -1.206  -48%            1.596     64%
Comm. Remodeling         7.070     11%      7.385    13%    -0.315   -4%            7.270     98%
& Renovation
           SubTotal     10.970     17%     18.110    31%     -7.140      -39%      13.218        73%
Small NR Comp.          18.069     27%     19.465    33%     -1.396       -7%       6.833        35%
 Retrofit
           SubTotal     29.039     44%     37.575    64%     -8.536      -23%      20.051        53%

Large NR Comp.           19.900   30%     16.147     28%     3.753        23%      13.753        85%
 Retrofit
Large Process            17.200   26%      4.798      8%    12.402       258%       4.438        92%
Overhaul
     Grand Total         66.139  100%     58.520    100%     7.619        13%      38.242        65%
     * Spent = Actual and Committed from Preliminary Reporting, 4th Q. Reports


Nonresidential Budget Comparisons, PY 1999 and PY 2000
SOUTHERN CALIFORNIA EDISON COMPANY
Budgets in Millions PY 2000 PY 2000 PY ‗99       PY ‗99 PY 2000 PY 2000          PY '99   PY '99
                      Total     %        Total     %    Change % Change          Spent * % Spent *
HVAC                    7.027     18%      6.017    15%    1.010     17%            5.210      87%
Motor Turnover          1.944       5%     1.573     4%    0.371     24%            1.501      95%
Comm. Remodeling        2.787       7%     4.510    12%   -1.723    -38%            3.713      82%
& Renovation
           SubTotal    11.758     30%     12.100    31%   -0.342     -3%            10.424            86%

Small NR Comp.          8.756      22%      7.856    20%      0.900        11%       6.263            80%
 Retrofit
          SubTotal     20.514      52%     19.956    51%      0.558         3%      16.687            84%

Large NR Comp.          15.337    39%    15.127     39%      0.210         1%       12.734            84%
Retrofit
Large Process            3.861    10%     4.034     10%     -0.173        -4%        3.412            85%
Overhaul
         Grand Total    39.712  100%     39.117    100%      0.595         2%       32.833            84%
General Support Activities                                                           1.867
     * Spent = Actual and Committed from Preliminary Reporting, 4th Q. Reports




                                              - 101 -
Nonresidential Budget Comparisons, PY 1999 and PY 2000
SAN DIEGO GAS & ELECTRIC COMPANY
Budgets in Millions PY 2000 PY 2000 PY ‗99 PY ‗99      PY 2000   PY 2000  PY '99  PY '99
                        Total   %        Total    %    Change % Change Spent * % Spent *
HVAC                    2.731    15%     2.620     15%     0.111       4%   1.336      51%
Motor Turnover          0.782      4%    0.920      5%    -0.138     -15%   0.230      25%
Comm. Remodeling        1.058      6%    0.900      5%     0.158      18%   1.035    115%
& Renovation
           SubTotal     4.571    25%     4.440     25%     0.131       3%   2.601      59%

Small NR Comp.          5.236     29%     5.470     31%      -0.234         -4%     3.785      69%
Retrofit
          SubTotal      9.807     55%     9.910     54%      -0.103         -1%     6.386      64%

Large NR Comp.          6.716     37%    6.370     36%        0.346         5%      1.440      23%
 Retrofit
Large Process           1.457      8%    1.370      8%        0.087         6%      1.574     115%
 Overhaul
          Grand Total  17.980    100% 17.650      100%        0.330         2%      9.400      53%
* Spent = Actual and Committed from Preliminary Reporting, 4th Q. Reports


Nonresidential Budget Comparisons, PY 1999 and PY 2000
SOUTHERN CALIFORNIA GAS COMPANY
Budgets in MillionsPY 2000 PY 2000 PY ‗99 PY ‗99 PY 2000   PY 2000                PY '99   PY '99
                     Total   %       Total  %    Change % Change                  Spent * % Spent *
HVAC                 1.051      7%   0.162    1%     0.889     549%                  0.084     52%
Motor Turnover                  0%
Comm. Remodeling                0%
& Renovation
          SubTotal   1.051      7%   0.162    1%     0.889     549%                  0.084     52%

Small NR Comp.         8.548      59%     8.583    64%      -0.035          0%       6.914     81%
Retrofit
          SubTotal     9.599      67%     8.745    66%       0.854          10%      6.998     80%

Large NR Comp.                     0%
Retrofit
Large Process           4.784    33%     4.587     34%       0.197          4%       4.393     96%
Overhaul
         Grand Total 14.383     100% 13.332       1005       1.051          8%      11.391     85%
      * Spent = Actual and Committed from Preliminary Reporting, 4th Q. Reports




                                              - 102 -
A.99-09-049 et al. ALJ/LRB/eap *


Nonresidential Statewide Budget Comparisons, PY 1999 and PY 2000

Budgets in Millions   PY 2000   PY 2000   PY ’99   PY ‘99   PY 2000   PY 2000   PY '99    PY '99     PGE    PGE    Edison   Edison    SDGE   SDGE   SoCalGas    SoCalGas
                                                                                                      ‘00    ‘99     ‘00      ‘99      ‘00    ‘99      ’00         ‘99
                       Total      %       Total      %      Change % Change     Spent    % Spent *

HVAC                   13.409      10% 17.018        13%     -3.609     -21% 10.898          64% 2.600 8.219 7.027            6.017   2.731 2.620       1.051      0.162
Motor Turnover          4.027       3% 4.999          4%     -0.972     -19% 3.327           67% 1.300 2.506 1.944            1.573   0.782 0.920
Comm. Remodeling       10.916       8% 12.795        10%     -1.879     -15% 12.018          94% 7.070 7.385 2.787            4.510   1.058 0.900
& Renovation
          SubTotal     28.352     21% 34.812         27%     -6.460     -19% 26.243          75% 10.970 18.110 11.758       12.100    4.571 4.440       1.051      0.162

Small NR               40.610      29% 41.374        32%     -0.764      -2% 16.881          41% 18.069 19.465 8.756          7.856   5.236 5.470       8.548      8.583
Comprehensive
Retrofit
         SubTotal      68.962     50% 76.186         59%     -7.224      -9% 43.124          57% 29.039 37.575 20.514       19.956    9.807 9.910       9.599      8.745

Large NR              41.953       30% 37.644        29%      4.309      11% 27.927          74% 19.900 16.147 15.337       15.127    6.716 6.370
Comprehensive
Retrofit
Large Process         27.302       20% 14.789        12%     12.513      85%     9.424       64% 17.200 4.798 3.861           4.034   1.457 1.370       4.784      4.587
Overhaul
         Grand Total 138.217     100% 128.619       100%      9.598       7% 80.475          63% 66.139 58.520 39.712       39.117 17.980 17.650       14.383     13.332




                                                                          - 103 -
A.99-09-049 et al. ALJ/LRB/eap


         3. CBEE’s Comments
             The CBEE is concerned that the utilities have not followed our
directives for the consideration of budget changes and, in fact, have proposed
budgets that are contrary to these considerations. The CBEE points out that the
utilities, on a statewide basis, propose budget increases for the Large
Comprehensive Retrofit and Process Overhaul programs and budget decreases
for the Small Comprehensive Retrofit and Commercial Remodeling and
Renovation programs.
             The CBEE thus recommends that the budgets for the Small
Nonresidential Comprehensive Retrofit program and the Commercial (Non-
residential) Remodeling and Renovation program each be increased by $5 million
statewide to enable these programs to better serve either under-served customer
groups and/or under-served market events. The CBEE does not recommend a
specific allocation of funding from among the three sources but recommends that
the utilities propose an appropriate allocation.
             The CBEE recommends reducing funding from the Large
Comprehensive Retrofit program because these programs benefit primarily large
customers who have been and are the beneficiaries of substantial, well-funded
programs. CBEE also recommends reducing funding from the PY 2000 Process
Overhaul program because the proposed statewide budget of $27.3 million
represents a $12.5 million or 85% increase over PY 99 funding, which may be too
great a one-year increase to be effectively managed by the utilities. The CBEE
recommends that the funding come from the proposed PY 2001 carry-over for the
nonresidential program area to ensure funding for activities that benefit the non-
residential sector are taken from funds that would otherwise be spent in this
program area.


                                       - 104 -
             The CBEE also finds that more effort needs to be given to increasing
and better meeting the needs of smaller nonresidential customers. Thus, the
CBEE recommends that we direct the utilities to continue efforts to design and
implement program elements and intervention strategies to better serve the
needs of smaller nonresidential customers and that they include a special
progress report on these efforts as part of their first quarter PY 2000 status
reports. The CBEE recommends that the utilities continue to focus on:
1) consistent definitions of small versus medium versus large nonresidential
customers; 2) the appropriate balance between financial incentives, financing,
SPC, and contractor-focused intervention strategies in view of the market barriers
and opportunities faced by different market segments within smaller,
nonresidential customers; and 3) the magnitude of contributions to PGC energy
efficiency and gas DSM funds made by these customers.

         4. The CEC’s Recommendations
             The CEC agrees with the CBEE, pointing out that the overall funds
devoted to certain program elements specifically targeted at small customers
(e.g. Small Comprehensive Retrofit, HVAC Equipment, and Commercial
Remodeling) are not increased as we directed, but are decreased from $71.1
million for PY 1999 to $63.23 million for PY 2000.64 The CEC also points out that
the utilities‘ budgets propose no reduction in what it considers to be the
disproportionate amount of funds targeted at large customers, despite the fact
that those funds were underspent in PY 1999. The CEC also argues that these


64The magnitude of this drop is even larger when viewed in terms of the percentage of
the total Energy Efficiency Program budget devoted to small customers because the
overall program budget for PY 2000 is now $290.4 million, whereas the authorized
budget for PY 1999 was only $254 million.




                                       - 105 -
budget allocations violate our requirement that the administrators must ensure
program offerings are available to under-served communities and customers.‖
(D. 99-08-021, Ordering Paragraph 12.) Thus, the CEC proposes that we direct
the utilities to reduce the large SPC program budget by $20 million and to
reallocate the funds to HVAC Equipment Retrofit, Commercial Remodeling and
Retrofit, and Small Comprehensive Retrofit program elements.

         5. Utilities’ Positions
             The utilities believe that they have complied with the directives of
D.99-08-021 and state that they have made programmatic and budget changes
where warranted.
             SDG&E states that it proposes to implement specific intervention
strategies that address customers‘ needs when it determines that their needs are
not met by statewide programs. It points to two new pilot programs for PY 2000
targeted toward smaller customers, a direct install program provided through
contractors and EESPs and a strategy focusing on the replacement market for
lighting technology.
             Edison states that it reduced its SPC strategy and budget within the
Commercial Renovation and Remodeling program, made significant
modifications to the Renovation and Remodeling program to reduce reliance on
the SPC, and refined the SPC strategy to encourage more EESP involvement. It
believes that its funding levels are appropriate given customer demand and in
light of the relatively new building stock in its service area. Edison also points to
two additional program elements in the Motor Turnover and HVAC programs
exclusively for small/medium customers, which represent a $1.212 million
increase in program funding for smaller customer groups.




                                       - 106 -
             PG&E states that it created a new commissioning program under the
Commercial Renovation and Remodeling program and funneled additional
money to the Savings by Design program.
             SoCalGas states that it has two new programs for small
nonresidential customers in PY 2000, the Lodging Education and Coin Laundry
and Dry Cleaning Education programs. It also points out that it budgets $1.2
million for the statewide Savings by Design strategy in the New Construction
area and states that it may consider funding a similar program in nonresidential
in the future if the New Construction program is successful.

         6. Discussion
             For PY 2000 and 2001, we wanted the utilities to review their
program offerings and consider revising them to both 1) increase program
elements, strategies, and funding for smaller nonresidential customers, along
with increased targeting to these customers; and 2) limit participation for larger
customer segments and decrease funding for those large customers in the Large
SPC program.
             In making our recommendations, we expected the utilities to
conduct a thorough analysis of the program offerings and the market and to act
accordingly. We see very little evidence that the utilities undertook to seriously
analyze their program offerings to determine whether they needed adjustments
as we directed. Nor have they provided us with sufficient information from
which to make a reasoned evaluation of their efforts. The only information we
have to guide our review are the PY 1999 and PY 2000 budgets, the preliminary,
unaudited, Fourth Quarter Reports estimating funds spent and committed for
PY 1999, and the utilities‘ statements regarding all the new programs and
strategies they propose to institute in PY 2000.



                                       - 107 -
               With respect to the new programs the utilities have rolled out for
PY 2000, we note that while they sound impressive in numbers, their budgets are
small and do not make a large dent in the utilities‘ overall budget allocations, as
shown on the budget tables. Further, the utilities‘ statements regarding increased
targeting of smaller customers is general in nature and virtually unsupported on
this record.
               The Fourth Quarter Reports are not particularly helpful in
evaluating the extent to which the utilities considered programmatic and budget
changes since this information was not available when the utilities filed their
applications. Thus, utility protestations that they took a particular action to
increase or decrease a particular budget because of their experience with the
commitment rate for PY 1999 are after-the-fact justifications. The PY 1999 reports
on funds committed and spent also have limited usefulness with respect to
evaluating the budgets now since, as we discuss, further, infra, we have
inadequate information with which to evaluate the extent of the utilities‘
marketing efforts.
               The budgets themselves are a little more telling but reliance on them
also has pitfalls. For example, while we identified the HVAC, Remodeling and
Renovation, and Motor Turnover programs for further emphasis and funding,
we did so with the anticipation that the funding would be spent on smaller
commercial customers and that it would be done outside the SPC program.
However, we only have limited and questionable data on the projected
participation of smaller customers in these programs in the form of the utilities‘
contribution/allocation tables discussed above for PY 2000. These tables show
varying projected participation rates for smaller customers and may include
corporate chain accounts. We have no data for PY 1999. Further, the SPC
program spans all of the nonresidential programs and we have insufficient


                                        - 108 -
information from which to determine the difference in budgets or spending
between PY 1999 and PY 2000 in these programs inside and outside the SPC
program.
             Thus, we approach the data provided with some caution. In
evaluating the limited data provided, once again, we note that it is appropriate to
look at each utility‘s allocations on an individual basis, and not, as the CBEE and
the CEC recommend, on a statewide basis. We have not previously directed the
utilities to budget specific amounts of funds to particular programs or attempted
to require the utilities to budget programs consistent with their portion of the
statewide totals. Each of the utilities has distinct budgets for each program,
based upon their own analyses, and a comparison of their PY 2000 and PY 2001
budgets disclose that they followed very different paths. Our analyses discloses
the following:
             PG&E: In the three elements we recommended emphasizing and
considering funding increases for in PY 2000, PG&E decreases the funding by
over $7 million or 39%, including a slight decrease in Commercial Remodeling
and Renovation, an element we singled out specifically for funding increases.
The budget for Small Comprehensive Retrofit also decreased by $1.4 million or
7%.65
             On the other hand, the budget for Large Process Overhaul increases
by over $12.4 million or 258% and Large Comprehensive Retrofit increases by
over $3.7 million or 23%. While Process Overhaul may reach some small
customers, PG&E‘s program description indicates that $14.8 million of the total


65In addition, PG&E‘s PY 2000 budget for the four elements targeted to smaller
customers decreases funding by 20% from PY 1999.




                                        - 109 -
$17.2 million budget represents financial incentives specifically for the Large SPC
program. Further, PG&E‘s contribution/budget comparison table projects only
20% participation by small/medium customers (and 80% by large customers).
Only $2.1 million is budgeted for an informational program in the food industry,
in which small and medium customers are targeted, which is only 12% of the
budget. PG&E was unable to explain this massive increase in funds for large
customers at the evidentiary hearing and there is no explanation in its Fourth
Quarter Report or application.
             This funding imbalance must be addressed. We direct PG&E to
submit a report to the Energy Division revising its budgets to redirect a
minimum of $8.5 million to the HVAC Equipment Retrofit, Commercial
Remodeling and Renovation, and Small Comprehensive Retrofit program
elements, with a substantial portion going into the Commercial Remodeling and
Renovation program element, which was almost fully subscribed for PY 1999.
PG&E should identify the accounts to which the redirected funds are made and
from which the redirected funds are taken, with a detailed explanation of the
rationale for its chosen action. A redirection of $8.5 million will make the PY
2000 budgets for these elements substantially the same as for PY 1999.66 Because
this action will not be taken until the program year is half over, we will not
require PG&E to redirect the funds to non-SPC strategies, although that is the
preferable action if PG&E is able to do so. We believe that PG&E can make this
adjustment without disrupting its Large SPC program, particularly insofar as it




 Additional funding is possible simply because of the PY 1998 and 1999 carry-over.
66

Our Order still does not increase the funding as we directed in D.99-08-021.




                                       - 110 -
projects that 11% of its smaller customers participate in the Large Comprehensive
Retrofit program and its Large Process Overhaul budget appears to be excessive.
             Edison: For the most part, Edison has followed our suggestions for
PY 2000. The one exception is Commercial Remodeling and Renovation where
Edison reduced the budget by over $1.7 million or 38%. Edison explains that the
there is insufficient customer demand, which it attributes to the relatively new
building stock in its service territory. However, we note that the Fourth Quarter
Report now shows that 82% of the PY 1999 budget was committed or spent so
there would seem to be some demand for this program. Since we specifically
targeted this program for a funding increase, we believe that Edison should
increase its efforts in this area. As we discuss, infra, part of the demand problem,
if there is one, may also be Edison‘s limitation of the program to a two-system
change-out, which we do not believe is appropriate. Thus, we direct Edison to to
submit a report to the Energy Division redirecting $1.7 million to this program
element, explaining where it has taken the funds from, and providing a detailed
explanation of its reasoning. Because of the late date of this program revision, we
will not direct Edison to redirect the funds to non-SPC strategies, although that is
the preferable action if Edison is able to do so. We do not believe that this minor
adjustment will disrupt Edison‘s Large SPC program.
             SDG&E: The budgets appear to roughly follow our guidelines as
well as SDG&E‘s spending trends for PY 1999, although SDG&E may wish to
consider redirecting some funds from Large Comprehensive Retrofit program
into the Large Process Overhaul program because of the success of its pilot third
party program.
             SoCalGas: The budgets appear to roughly follow our guidelines so
we will not direct SoCalGas to make any changes for PY 2000.




                                       - 111 -
             We agree with the CBEE that the utilities must design programs to
better meet the needs of smaller nonresidential customers. While the utilities
have introduced some new programs for PY 1999, the budgets reflect that they
still are not devoting much attention to this customer sub-class, contrary to our
direction. Thus, we direct the utilities to continue efforts to design and
implement program elements and intervention strategies to better serve the
needs of smaller nonresidential customers and to include a special progress
report on these efforts as part of the PY 2000 and PY 2001 Quarterly Reports.
             As the CBEE recommends, we direct the utilities to continue to focus
on: 1) consistent definitions of small versus medium versus large non-residential
customers; 2) the appropriate balance between financial incentives, financing,
SPC, and contractor-focused intervention strategies in view of the market barriers
and opportunities faced by different market segments within smaller,
nonresidential customers; and 3) the magnitude of contributions to PGC energy
efficiency and gas DSM funds made by these customers.
             As we discuss further with respect to the SPC program, infra, we
find it particularly important that the utilities specifically identify the customers
and the market segments that are and are not participating in energy efficiency
programs, that they decrease incentives for those repeat customers and that they
increase efforts to reach those who are not participating. Thus, we also direct the
utilities to convene a public process with interested stakeholders to: 1) develop
and propose further segmentation of the market into appropriate sub-classes,
and specific market segments, including a consideration of grouping small,
medium, and large customers by SIC code and market segment, and including
separate treatment for corporate chain accounts; 2) develop and propose
consistent definitions for such sub-classes and market segments; 3) identify
market barriers to participation in energy efficiency programs; 3) develop


                                        - 112 -
strategies that are more appropriate to reach those market segments; and
4) develop appropriate plans for disseminating information to the targeted
customers. The utilities should report on their efforts in the PY 2001 applications
and should incorporate new strategies into the PY 2001 budgets.
             We reaffirm the direction we set in D.99-09-021. Accordingly, in
their PY 2001 applications, the utilities are directed to give full consideration to
implementing the programmatic and budget changes we recommended in
D. 99-08-021, particularly Ordering Paragraphs 9-14, and to include a full
discussion of the input process and analyses undertaken prior to proposing the
PY 2001 programs and budgets, showing the justification for its actions.

      D. Standard Performance Contract

          1. Background
             This statewide program offers incentives to customers or EESPs,
including ESCOs, to install energy efficient equipment at customer facilities.
Incentives, which are paid over one or two years, are based on realized energy
savings. The SPC program has two components: the Large SPC and the
Small/Medium SPC. Large customers for electric purposes are customers who
have a demand greater than 500 kW/year; for natural gas purposes, they are
customers who have a demand greater than 250,000 therms/year or, for
SoCalGas, core customers. The programs operate similarly except that some
procedures are streamlined for the smaller businesses. Participation in the Small
Business SPC is restricted to businesses that have a yearly demand of less than




                                        - 113 -
500 KW/year (electric) or 250,000 therms/year (gas) but smaller customers are
not precluded from participating in the Large SPC program.67
               The program, for the most part, is standardized with respect to
procedures, contracts, and incentive levels, which are contained in a procedural
manual published by the utilities. After the December workshop, the utilities
agreed to further align program details, to be effective by the end of the First
Quarter of PY 2000. For the Large SPC program, the utilities propose a reduced
minimum project size of 100,000 kWh or 10,000 therms, a two-year period for
measurement and verification, a flexible contract term, and optional Basic
Program Application (BPA) submittal. For the Small SPC, the utilities propose a
minimum project size of 10,000 kWh or 2,000 therms, no incentive cap size but a
corporate parent cap of $200,000, a payment structure of 60% after installation
and 40% after measurement and verification, and optional BPA submittal. In
addition, the utilities now agree that there will be no application fee or security
deposit.
               Since the SPC programs cross-cut several different program
descriptions, the utilities‘ applications do not provide summary budget tables
showing the amounts budgeted for or spent specifically on SPC programs.
However, a summary table showing the budgeted amounts for PY 2000 was
provided at the ALJ‘s request. Joint Exhibit 6 shows the following:68




67SDG&E has structured its SPC program not just between small and large, but uses a
three-tiered approach, with rebates for customers under 250 kW, Small SPC for
customers between 250-500 kW, and the Large SPC for customers over 500 kW.
68   SoCalGas does not have a nonresidential SPC program.




                                         - 114 -
                          PG&E          Edison           SDG&E         Total
          Large SPC       $32.8 mil     $21.6 mil        $10.3 mil     $64.7 mil
          Small SPC       $ 5.7 mil     $ 3.5 mil        $ 1.6 mil     $10.8 mil

             We only have partially reconstructed information regarding the
utilities‘ PY 1999 budgets and funds, taken from the utilities‘ Fourth Quarter
Reports and data produced for the December 1, 1999 SPC workshop, to show
what the utilities spent and committed for PY 1999 programs, as follows:

SPC report ($ Millions)

         PG&E PG&E                Edison Edison SDG&E        SDG&E    Totals Totals
         Budg. Spent/             Budg.   Spent/ Budg.       Spent/   Budg. Spent/
                Com.                      Com.               Com.            Com.
Large SPC $33.2   $9.0             $24.8 $24.3   $10.3       $1.9     $68.3    $35.2
Small SPC $ 5.5   $0.8              $ 3.5 $ 1.1  $ 1.6       $0.3     $10.6    $ 2.1
             These numbers show that the utilities‘ expended the following
percentage of their budgets for the Large and Small SPC programs in 1999:

                          PG&E69       Edison          SDG&E         Total
        Large SPC         27%          98%             18%           51.5%
        Small SPC         14.5%        31%             19%           20%

          2. Positions of the Parties

             a) Overall
                Generally, the utilities, NAESCO, the CEC, and ORA believe that
the SPC program is consistent with the dual goals of market transformation and
energy savings in that it is both designed specifically to promote the

69There is some discrepancy in PG&E‘s estimates. In its Fourth Quarter Report, PG&E
contends that 33% of its large SPC program budget and 32% of its small SPC program
budget were ―subscribed.‖




                                             - 115 -
development of a third party energy efficiency services market and is directly
linked to energy savings because it requires extensive measurement and
verification (M&V) of energy savings. These same parties also believe that the
program has been successful in meeting its objectives. NAESCO, whose
members directly participate in and benefit from the program, supports the
continuation of the SPC programs essentially in the same form and with the same
budgets as proposed. NAESCO would like the programs to continue with
minimal disruption, both in terms of magnitude and frequency of changes, and to
have them actively marketed by the administrators.
                ORA and the CEC, however, both recommend budgetary
reductions; ORA proposes to eliminate funding for large customers and
industrial end-uses, and the CEC proposes to shift $20 million from the Large
SPC program to programs targeted toward small/medium customers. The CBEE
recommends program design changes, REECH seeks more market segmentation
and proposes budget shifting, and CALEP seeks the use of rebates instead of the
SPC. Their proposals are discussed in depth infra.

             b) CBEE’s Comments
                In its October 27, 1999 Comments, the CBEE notes that the
utilities‘ nonresidential SPC program elements and strategies are not fully
described, do not include consistent sets of program design criteria, and appear
to be undergoing revisions. Thus, it recommends that we require the utilities to
obtain stakeholder input and then file a complete set of program design criteria
that are consistent in all important areas, such as pricing, project sponsor limits,
project size, eligibility, contract and contract terms, and application process, for
both Large and Small SPC elements and strategies, for our approval. The CBEE
also recommends that the utilities improve the stated market objective and work



                                        - 116 -
together to develop and propose consistent definitions of small versus medium
versus large nonresidential customers.
                With respect to funding caps and floors, the CBEE recommends
keeping the $68 million funding cap for the large SPC but recommends no overall
SPC funding cap and no funding floor for the small SPC. The CBEE states that a
funding floor is not needed because the utilities have proposed other program
elements and strategies focused on small and medium customers.

            c) ORA’s Recommendations
                ORA suggests that it is time to scale back programs in areas
where 1) customers have participated extensively, and 2) the market is
sufficiently transformed. ORA recommends that large commercial and industrial
customers be excluded from all programs, including the SPC program, because
the utilities have provided a disproportionately large amount of assistance to this
market over the past 15 years, despite the fact that these customers are the most
sophisticated and least in need of assistance. ORA believes that since these large
customers would likely have invested in the energy efficiency products and
services on their own (e.g., that they are free-riders), providing them with
continued energy efficiency services is a giveaway that merely promotes the
utilities‘ self interest and ―good will.‖ ORA also believes that the market has
been transformed, that is, that the private energy efficiency market (primarily the
ESCOs) will continue to service the energy efficiency needs of these customers in
the absence of incentives. ORA recognizes that, under its proposal, large
customers will contribute to the PGC but will be unable to participate in the
program, noting that the Policy Rules specifically provide for the cessation of
PGC-funded programs when they can no longer transform the market in a cost-
effective manner. (Policy Rule II-7.) ORA recommends that the budgeted funds
be redirected to the under-served markets of small and medium customers.


                                       - 117 -
                ORA also recommends that financial assistance and support of
the SPC industry be limited to lighting and HVAC measures in commercial
buildings that are subject to CEC-adopted Title 24 Building Standards, which
effectively eliminates eligibility for industrial facilities. ORA argues that cost-
effectiveness cannot be effectively measured in the case of complex,
individualized customized industrial processes.
                In its reply brief, ORA indicates that, given the delays in the
proceeding, it is amenable to only eliminating large customer participation in
PY 2001 and instead adopts the CEC recommendation that the PY 2000 large SPC
budget be reduced.

             d) The CEC’s Recommendations
                The CEC recommends that the utilities be required to reduce the
ceiling on large customer SPC funding from $68 to $48 million and to redirect
approximately $20 million in funds from the large nonresidential SPC (funded
from five of the six residential programs), to the small and medium customer
markets, such as HVAC Equipment Retrofit, Remodeling and Retrofit, and Small
Comprehensive Retrofit program elements. It also recommends that the utilities
be allowed to request future adjustments in program element budgets through a
mid-year advice letter filing if there is either a higher than expected demand in
the first six months of the Large SPC program, or a lower than expected
participation in the elements targeted toward the small/medium markets. The
CEC recommends that we require that any proposed increases in the large
nonresidential SPC budget in the future include both a showing that customer
commitments have exceeded the authorized budget and a revised NTG analysis
for this program.
                In addition to the inequity it finds between large customer
contributions and budgets, and the utilities‘ failure to follow our direction by


                                        - 118 -
decreasing SPC funds for large industrial and commercial customers and
increasing program funds for small and medium customers, the CEC contends
that the funds should be redirected because 1) the large SPC program accounts
for nearly 25% of all energy efficiency program funds and over 50% of funds
budgeted in the nonresidential sector, 2) the utilities failed to spend the vast
majority of the funds budgeted in PY 1999, and 3) these budget allocations violate
our requirement that the administrators ensure program offerings are available
to under-served communities and customers.
                 The CEC contends that the utilities have not performed the
required objective analyses nor modified the program in any significant way.
The CEC believes that it is unreasonable for the utilities to rely upon responses
they received from market participants—both customers and EESPs—during
utility-sponsored workshops to support continuation of programs that are in
their financial interest.
                 The CEC also raises a concern with the lack of limitations on
technologies with high existing saturations in the large customer market
segment, such as T-8 lighting, and the lack of limitations on the cumulative
number of times customers can participate in a program over multiple years.
                 The CEC recommends that we order to utilities to file objective
analyses regarding the potential need to limit participation by customer type or
measure in the large industrial SPC program so that they can be used to modify
the programs for the second half of PY 2000 or PY 2001. It proposes that the
analyses include assessment of the types of efficiency measures that have high
(above 60%) market saturations in the discrete nonresidential market segments
and an updated NTG analysis for the 1999 program, to shed light on whether any
market areas are sufficiently close to being transformed so that subsidies may no
longer be necessary.


                                       - 119 -
             e) CALEP’s Recommendations
                CALEP seeks to return to the previous program strategy of
rebates for large nonresidential customers instead of SPC performance
contracting, particularly for lighting projects. It contends that there is no
evidence to show that SPCs are doing anything to transform the market, that
many of the projects done by ESCOs using the SPC would have been done in the
absence of incentives, and that its use has hampered what used to be a viable
EESP industry. CALEP would like to see increased rebate and account caps.
                CALEP agrees with ORA and the CEC that the large SPC budget
should be reduced for PY 2000 and it recommends that it be eliminated in PY
2001. CALEP would like to see specific actions by the utilities to streamline the
SPCs and to make them easier to use. CALEP also agrees with REECH that there
should be additional market segmentation.

             f) REECH’s Recommendations
                REECH recommends that the utilities be required to reorganize
their programs and reporting into the following categories: information services,
large, corporate chain accounts, medium commercial, small-commercial-tenant,
and small commercial-owner occupied. REECH also makes several budget
shifting recommendations.

             g) Responses

                (1) ORA’s Recommendations

                     The utilities and NAESCO oppose ORA‘s proposal to
exclude large customers from the large SPC, stating that it would be
discriminatory since large customers pay the PGC. They also argue that doing so
would be disruptive to the success of the PY 2000 programs and would threaten
program stability and acceptance. PG&E and SDG&E/SoCalGas point out that



                                        - 120 -
that it would be unwise and premature to exclude large customers from
participation because large customers are the leaders in energy efficiency
activities, they promote emerging technologies, and there are still significant
barriers facing large customers with respect to implementing energy efficiency
programs. Edison and NAESCO also posit that ORA‘s proposal does not comply
with our directive to only make selective changes in the programs for PY 2000
and 2001.

                     SDG&E argues that we should not exclude large customers
from the programs because we have not yet developed criteria to determine
when a customer segment has been transformed. PG&E and Edison, on the other
hand, argue that there is no evidence that the large customer market has been
transformed, that these customers have participated extensively previously or
have benefited disproportionately in past years, or that they would have
participated without the program. PG&E cautions that we should treat the
preliminary results of the Xenergy Study carefully. (See, Jt. Exh. 9.)
                     The utilities and NAESCO also point out that ORA‘s
recommendation to seek legislative authorization to eliminate this customer
group‘s funding responsibility is outside the scope of this proceeding and does
not comply with Commission policy.
                     The utilities, NAESCO, and the CEC also urge rejection of
ORA‘s proposal to limit the SPC program to lighting and HVAC technologies.
They contend that the proposal is contrary to our market transformation goal, is
factually unsupported, and would result in lost opportunities for energy savings
in industrial and agricultural buildings not subject to Title 24. SDG&E/SoCalGas
also argue that such a policy would be contrary to our goal of providing
comprehensive energy efficiency services to all customers in all markets and to
our direction in promoting emerging technologies.

                                       - 121 -
                        The utilities and NAESCO contend that there are effective
ways to measure savings in areas other than HVAC and lighting, and that
process efficiency and motor improvements are not inherently difficult to
measure but need site-specific measurement plans. Edison points out that the
minimum efficiency standard is often the efficiency of the base model equipment
commercially available at the time. The CEC opposes the proposal because it
limits customer participation instead of expanding it.

                   (2) CEC’s and Other Parties’ Recommendations
                       to Reduce Large SPC Budgets and Budget
                       Caps
                        With respect to decreasing the large SPC budgets, the
utilities contend that they considered changes but concluded that they were not
necessary. Edison maintains that it determined that the demand for the program
still exists and points out that our direction in D.99-08-021 was not to make major
changes. Edison states that its PY 1999 programs were fully subscribed and notes
that it reduced its Large SPC budget by 12% and shifted those funds into new
intervention strategies targeting the small/medium customer market in the
HVAC and Motor Turnover program elements.
                        PG&E states that held a workshop with market participants
from the 1998 program in July of 1999, and, based upon that input, concluded
that it was reasonable to leave funding at current levels. PG&E also argues that it
does not make sense to shift funds because only 35% of the small SPC funds as
opposed to 85% of the large SPC funds were spent/committed in PY 1999.70 It
maintains that many small/medium nonresidential accounts participate in large
SPC since that program is open to any nonresidential customer. PG&E also states

70   This statement contradicts the data submitted in its PY 1999 Fourth Quarter Report.




                                           - 122 -
that if it discovers new cost-effective opportunities it will consider shifting funds
in the future.
                     SDG&E states that, because of the time it takes to market the
program, it did not attempt to change the funding for the PY 2000 program.
SDG&E maintains that if there is no activity in this program, it will revisit the
issue. SoCalGas states that it will revisit the funding allocation during PY 2000
and, if necessary, shift funds to programs more responsive to customers‘ needs.
                     The utilities believe that market barriers still exist in the
Large SPC, primarily the lack of awareness of the benefits of energy efficiency
measures by corporate decisionmakers. SDG&E/SoCalGas believe that it is
premature to substantially reduce budgets for this year because there has been
insufficient time to develop the market, achieve Commission goals, and assure
self-sufficiency for vendors.
                     NAESCO opposes the CEC‘s recommendation that the SPC
budget be reduced by $20 million, positing that PY 1999 funds were not fully
committed because of the peculiar circumstances encountered in 1999, e.g., that
the program did not roll out until the second quarter and, since the sales cycle for
SPC projects is 12-18 months, projects initiated in 1999 may not yet have funds
committed. NAESCO also points out that Edison‘s program was fully committed
while PG&E‘s was not, suggesting that the two companies engaged in very
different marketing efforts. Thus, NAESCO believes that the likelihood of
PY 2000 funds being fully committed is much greater than in 1999. NAESCO
points out that D. 99-08-021 only requires that the utilities consider budget
modifications and that the utilities testified that they considered such changes.
                     The utilities contend that there is no evidence of a need to
limit participation. Edison believes that the program was well received by
customers and that removing funds might jeopardize our market transformation


                                        - 123 -
goals. SDG&E argues that limiting participation of customers that have
participated previously would send out ―mixed signals‖ regarding the desire to
have energy efficiency projects implemented.
                     SDG&E recommends that no budget floor be imposed for
the Small SPC Program as was adopted for PY 1999 because it needs the
flexibility to adjust budgets to reflect customer and market response. SDG&E
would like to use the funds on other efforts for small and medium customers.

                (3) Program Design
                     Edison recommends that we allow the interested parties to
work together to refine the SPC as necessary and that either Commission or
utility-sponsored workshops be held during the year to solicit input. Edison
states that many improvements were made during the planning process,
including sampling requirements, making the basic project application optional,
eliminating the application fee, eliminating security deposits for all but the
largest projects, allowing fast track construction after completion of baseline site
inspection, and revamping the lighting M&V methodology to accommodate
industry standard audit format. Edison requests approval of the statewide
consistent changes identified in Joint Exhibit 1.
                     SDG&E recommends that we refrain from specifically
adopting program design elements such as incentives, customer limits, and M&V
requirements to give the utilities the flexibility to make program changes as
necessary to respond to market conditions. SDG&E states that it will continue to
work with the other utilities and stakeholders to obtain input on proposed
changes and will consider design changes to address customer needs. SDG&E
opposes pricing decreases because of the low program participation and
recommends that some prices be increased based upon new baseline building
standards.


                                       - 124 -
                     PG&E opposes relaxation of M&V standards until the parties
are convinced that there are savings and that the savings will continue without
intensive M&V.

                (4) CEC’s Analyses and Report
                    Recommendations
                     The utilities object to the CEC‘s recommendations regarding
further study of the SPC program. They point out that a review could not be
undertaken until completion of the PY 1999 program and that a statewide study
of the SPC program and large nonresidential customer sector by Xenergy has
been started and is planned for completion by June 30, 2000, in time for PY 2001
program planning. (Jt. Exh. 7.)
                     Edison also objects to the CEC‘s recommendation that the
utilities file ―objective analyses of the program by July 1, 2000‖ as an attempt to
bypass the parties‘ Joint Recommendation filed as an Exhibit in the AEAP, which
sets forth a procedure for consultation by all parties in deciding what studies
need to be done and what the content should be.

                (5) REECH’s Recommendations
                     Edison and PG&E disagree with REECH‘s new organization
of the nonresidential program areas. Edison points out that any attempt to
modify Commission-adopted program categories would require a major
overhaul of the current program offerings, which is inconsistent with
Commission direction to make a limited number of program changes. PG&E
points out that there is a new Reporting Requirements Manual which was
developed, after a long process, to accommodate the new market definitions that
issued in May of 1999 and that to adopt REECH‘s proposal now would require
retooling. It also points out that REECH‘s budget allocations are not supported
by testimony or rationale.


                                       - 125 -
         3. Discussion

             a) Overview
                As we discussed, supra, in D. 99-08-021, we direct the utilities to
consider increased strategies and program elements targeted for small/medium
customers, together with increased funding, and limitations on participation for
market segments that are or have been sufficiently transformed, together with
decreased funding or funding cap for the Large SPC program. We also direct the
utilities to consider limitations on participation for customers that have
participated extensively previously, and changes in pricing or other design
features in response to the diminishing (or increasing) need for ratepayer
funding to support market transformation for specific technologies. (Id.,
Ordering Paragraph 10.) Ordering Paragraph 9 requires the utilities to monitor,
modify, and supplement, as appropriate, the SPC intervention strategy. Since the
SPC program is a statewide program, we also expect it to be moving toward
uniform statewide design and implementation, with broad input from customers
on program design.
                It is clear from all the comments from parties with diverse
interests as CALEP, NAESCO, ORA and the CEC that there are problems and
challenges with the SPC program. However, it is sometimes difficult to
determine whether the concerns are driven by the belief that the programs are
not serving our stated market transformation goal or whether they are driven by
the desire to curb perceived abuses or the potential for abuse.
                We believe that we can begin to address the identified problems
by directing the utilities to gather and provide data about program participation
by customer size, class, SIC code, market, corporate chain account, and measure
implemented, by using this information to identify and limit free-riders and
repeat customers, and to target under-served customer groups, as our policy


                                       - 126 -
rules direct and the Xenergy Report recommends. We adopt this approach rather
than radically shifting funding between program areas or eliminating
participation by large customers at this time, as the CBEE, ORA, the CEC, and
REECH have recommended.
                Once we have this data we should be in a position to determine
whether intervention strategies should be further segmented, e.g., as the CBEE
has recommended, into small, medium, and large, or as CALEP has
recommended, into large, and medium-large, or as REECH has recommended,
into more specific customer types and sizes, and whether budgets should be
changed accordingly. On the other hand, we may discover that size limitations
are not the guiding characteristic and that other interventions, such as limits on
repeat customers, different corporate parent caps, or multi-year customer caps,
may be more appropriate. With the proper data, we can more appropriately
focus on and distinguish between the two concerns: 1) the strategies that best
reach particular customers and meet our market transformation goals, and 2) the
limits or restrictions necessary to curb program abuses. While the two frequently
overlap, our program planning will be enhanced if we clearly identify the nature
of our concerns.

             b) Large SPC Budgets and Customer and
                Measure Limits
                For PY 2000, PG&E slightly decreased its large SPC budget,
Edison decreased it by 12%, and SDG&E kept it the same. While the data is
sketchy, it appears that PG&E and SDG&E have not come close to spending
either the Large or Small SPC budgets for PY 1999. Edison, on the other hand,
spent almost all its Large SPC budget for PY 1999 and less than one-third of its
Small SPC budget. The utilities‘ projections leave an unexpended statewide total




                                       - 127 -
of $33 million from the Large SPC budgets and of $8 million from the Small SPC
budgets.
                We agree with the CEC that we want the program funds used for
energy efficiency purposes and do not want to see the funds sitting in a balancing
account and transferred forward each year. This is an issue that we are going to
need to address for PY 2001 if the utilities continue to carry-over large amounts
of program funds. However, since the preliminary data does not show that any
of the programs are particularly well-subscribed, except for Edison‘s Large SPC
program, it doesn‘t make sense to arbitrarily transfer funds from one program to
another. Thus, we do not support the CEC‘s proposal to eliminate $20 million of
budgeted funds from the SPC program at this time.
                ORA‘s recommendation to eliminate large commercial customers
and all industrial customers from program participation and the CEC‘s,
REECH‘s, and CALEP‘s recommendations to reduce Large SPC program budgets
appear to be grounded primarily in their belief that the programs have been
abused by large customers. They argue that the market has been transformed,
that large customers have benefited from these programs in a disproportionately
high manner in the past, that large customers are free-riders, that the utilities
favor large customers because of the goodwill they receive for providing the
energy efficiency incentives, and that the utilities do not target programs to other
customer classes. However, there is no hard data to support their conclusions.
The only data we have on this record is data showing that the utilities did not
appreciably reduce the Large SPC budgets for PY 2000 and that they did not
spend all the money allocated for PY 1999.
                The utilities‘ failure to reduce the PY 2000 SPC budgets, together
with their failure to spend all the PY 1999 funds budgeted to the SPC, is not a
sufficient basis upon which to conclude that the budgets should be shifted at this


                                       - 128 -
time. We agree with the utilities and NAESCO that it is too early to draw any
kind of conclusions about the Large SPC program or its funding. We also agree
that there is insufficient evidence at this time that the energy efficiency market for
large customers has been transformed.71 While we do not place as much
importance on the development of standards for determining when a market has
been transformed as SDG&E/SoCalGas does, we do believe that we need
additional studies of the SPC program, the targeted markets, customer
participation, and measure saturation, before we can derive such conclusions.
                 We will keep the funding cap for the Large SPC at $68 million
and, given the abysmal funding rate for the Small SPC for PY 1999, will
reinstitute the funding floor for the Small SPC at $12 million for PY 2000.
Contrary to the CBEE‘s recommendation, we do not believe that the additional
programs targeted to small/medium customer are sufficient to eliminate the
small customer funding floor. We will also allow fund-shifting but only within
the three administrative areas (residential, nonresidential, and new construction)
and to the extent that it does not violate approved budget ranges or conflict with
the contribution/allocation parity rule.
                 We also do not find sufficient evidence to support ORA‘s position
that cost-effectiveness cannot be effectively measured in industrial facilities and
thus reject ORA‘s proposal to limit energy efficiency services to lighting and
HVAC measures in commercial buildings that are subject to CEC-adopted Title


71However, we do not find any evidence to support the utilities‘ off-stated position that
the large customer is leading the way for the smaller customer. The utilities neither
explain how exactly this is supposed to happen, nor submit evidence that they are using
the larger company‘s energy efficiency achievements to promote the adoption by
others, e.g., through promotion, demonstrations, training, or other means. We also note
that this conclusion appears to be contradicted by the findings in the Xenergy Report.




                                         - 129 -
24 building standards. This is an issue that can be further explored in future
public meetings conducted on the SPC program design for PY 2001.
                This does not mean, however, that we do not share ORA‘s, the
CEC‘s, and others‘ concerns that at least certain large customers may have
benefited from the energy efficiency programs more than the smaller customers
and that their continued participation may not meet our market transformation
and energy savings goals.
                We are particularly influenced by the preliminary findings in the
Xenergy Report, which concludes that there are few, if any, near-term market
effects caused by the program. (Jt. Exh. 8, p. 10-5.) While the results are
preliminary, the Xenergy Report expresses concerns with the ability of the SPC
program as designed and implemented to meet its market transformation goals,
i.e., to change participants attitudes and practices with respect to energy
efficiency procurement, because program participants already have the desired
procurement practices that support rational energy-efficiency decision-making.
We share these concerns and cite them in some detail to provide guidance for
PY 2001 program planning.
                The Xenergy Report shows that participants in the 1998 SPC
Program tended to be the largest, most sophisticated end-users. The Xenergy
Report commented on the negative consequences of this fact:
                1) a moderately low percentage of program-induced energy
                savings; 2) a reduced likelihood of observing changes in
                proximate indicators of market effects (because a high percentage
                of participants already possess the characteristics the program
                seeks to induce); and 3) a lack of participation among the under-
                served market segments (i.e. those customers with low historic
                participation in California energy-efficiency programs). (Jt. Exh.
                8, p. 11-2.)




                                       - 130 -
               Thus, the Xenergy Report concluded that:
               [I]f an intent of the program is to initiate market
               changes that can lead to market effects then the
               Program must reach much broader and representative
               segments of the market than it did in 1998. (Id.)
               The Report commented favorably on the proposed 1999 program
changes that 1) bifurcated the SPC into small business and large, 2) established
new funding caps; and 3) created sub-funds for Large Comprehensive Retrofit,
HVAC Equipment Turnover, Motor Turnover, Process Overhaul, and
Commercial Renovation and Remodeling. It also suggested additional
modifications to change the composition of end-user participants in order to
address the participation bias identified for the 1998 program:
                Consider multi-year customer caps. As documented in this
                 evaluation, many large customers are very recent repeat
                 participants in incentive programs. Set appropriately, a multi-
                 year cap would offer another way of spreading scarce
                 incentive funding among a broader array of end users.

                Consider limitations on the number of identical “repeat” measures
                 for which incentives are paid. If an objective of the program is to
                 demonstrate general or measure-specific energy-efficiency
                 benefits, which then stimulate further investments, then it
                 might be reasonable to limit funding to a subset of
                 demonstration measures for those organizations with either
                 many identical sites or many identical applications for a given
                 measure. (Id. at p. 11-3.)
               The Xenergy Report also expresses concerns with the high
estimated level of free-riders in the customer market served by the SPC program
in 1998.

               Thus, we are convinced that there are substantial issues with the
implementation of the SPC programs, particularly with respect to the
participation of repeat customers and large, sophisticated customers. We are


                                      - 131 -
very concerned with the manner in which the programs are being marketed to
reach participants other than the repeat sophisticated large customers, e.g., to
reach smaller customers and customers who have not participated in programs
in the past. Our concern is magnified by the abysmal spending rates for PY 1999
in the smaller programs.
                In view of the above, we cannot conclude that the issue we must
address with respect to budgets and program limitations simply concerns
funding for small versus large customers. On the contrary, it appears more likely
that we may wish to look toward more specific limitations, such as limitations for
repeat customers, number or variety of measures, and/or customer funding caps.
However, we do not have sufficient information on this record to determine
whether or how the SPC program should be limited. The preliminary Xenergy
Report is the first and only study of the SPC program, to date, and there has been
neither been a complete collection of data identifying the customers that
historically have used the SPC program in particular or PGC/DSM funds in
general, nor an analysis of historical customer use by customer sub-classes,
markets, market segments, or by energy efficiency measure.
                We need better information about customers and their historical
participation rates, by SIC codes, markets, and market segments. We need better
information about the markets and market segments that have been targeted by
the utilities and the ESCOs and the manner in which it has been done. We also
need further information about the amount of free-riders in these programs. The
preliminary finding in the Xenergy Report that between 46-64% of industrial
customers participating in the Large SPC program in PY 1998 were free-riders is
alarming.




                                       - 132 -
                We need to see better defined strategies and goals targeting
specific markets and market segments that have not historically participated to
any great extent in these programs as well as better methods to reach-out to those
markets and market segments. We need to see that the utilities have taken
specific, identifiable action to ensure that all customers who would benefit from
the energy efficiency services are aware of the programs and participate in them.
                We are troubled, as is the CEC, with the lack of limitations on
technologies with high existing saturations in the large customer market
segment. For example, there is undisputed evidence in the record that the
market for T-8 lights and electronic ballasts is 95% saturated, yet cash incentives
are still being offered. In D.99-08-021 we specifically require the utilities to
consider changes to pricing ―in response to the diminishing . . . need for
ratepayer funding to support market transformation for specific technologies.‖
(Ordering Paragraph 10.) They do not appear to have done so with respect to T-8
lighting, although it is unclear precisely which market has been saturated. We
also must know whether any other products or services have saturated any
particular markets, which requires appropriate studies and evaluations of
program results.
                We will not order budget changes, program modifications, or
customer limitations for PY 2000; however, we expect the utilities to provide the
necessary information and make program decisions for PY 2001 using this data.
Thus, we direct the utilities to take the following action:
                1. In the PY 2001 applications, provide customer
                   participation data by name, customer SIC code, tariff
                   schedule, corporate parent, year(s) participated,
                   measure(s) installed, incentive amount, and
                   program, for the past 5 years, coding the customer
                   name and corporate parent to preserve
                   confidentiality, e.g. customer A-1, where A


                                        - 133 -
   represents the corporate parent and 1 represents the
   customer. An unredacted copy should be submitted
   confidentially to the Energy Division, to be held in
   accordance with Pub. Util. Code §583. The data
   should be derived from and reference all
   nonresidential programs and should be segregated
   into discernable market segments, by grouped SIC
   codes. Prior to providing the data, the utilities
   should convene a public process with interested
   stakeholders to develop appropriate protocols for the
   manner in which the information will be provided.
   The utilities should also consult with the Energy
   Division. The PY 2001 applications should contain a
   report on the public process, the agreements
   reached, and the remaining areas of disagreement.
   The data should be updated yearly.
2. Continue to report funds spent and committed in the
   Quarterly Reports. The reports should break out
   spent and committed funds and should be provided
   by the fourteen program elements as well as by
   strategy. The annual reports and PY 2001 program
   applications should show three years of comparison
   data.
3. In the PY 2001 applications, provide data regarding
   the extent of free-riders and market saturation by
   product and customer markets and market segments
   for all nonresidential programs. The utilities should
   convene a public process with interested
   stakeholders to determine how best to obtain and
   report the information.
4. Immediately take all necessary action to correct the
   abysmal expenditure rate for the small SPC and
   other programs targeted to small and medium-sized
   customers, including program redesign, targeted
   outreach, and public input forums. The utilities
   should provide a report with the PY 2001
   applications showing the actions taken.
5. Immediately convene a public process with
   interested stakeholders to describe marketing

                      - 134 -
   techniques used and to receive input on ways to
   design marketing strategies to reach other customers,
   markets, and market segments. In the PY 2001
   program applications, the utilities should describe
   the public process, agreements reached, and
   remaining areas of disagreement, and explain the
   different strategies proposed for PY 2001.
6. For PY 2001, consider ceasing incentive programs for
   the installation of T-8 lights and electronic ballasts in
   any market that has been saturated.
7. Immediately and jointly with interested
   stakeholders, conduct an investigation of saturation
   rates for T-8 lighting and other measures, by market
   and market segment. The utilities, together with
   interested stakeholders, should also develop
   protocols for determining when a measure has
   reached saturation so that incentives should be
   phased out or eliminated. In the PY 2001
   applications, the utilities should report on any
   agreed upon saturation rates for specified measures,
   the proposed saturation protocols, and proposed
   budgetary actions incorporating such agreements
   and protocols.
8. For PY 2001, consider budget adjustments and
   programmatic changes as we directed in Ordering
   Paragraphs 9-14 in D. 99-08-021, with a detailed
   report of all factors that went into the consideration
   and the public process used prior to making
   program proposals. The utilities should monitor the
   SPC program results and modify the program
   accordingly for PY 2001.
9. For PY 2001, consider multi-year customer caps
   based on prior participation, caps on measures used,
   and total funding cap per participant and per
   corporate parent, taking into consideration the data
   provided. The utilities should convene a public
   process jointly with interested stakeholders to
   discuss these issues. and in the PY 2001 applications,
   explain the process, agreements reached, and

                       - 135 -
                   remaining areas of disagreement. If the utilities do
                   not propose caps or limitations, they should explain,
                   in detail, the reasons such action is not proposed. It
                   is our intention to impose some limitations for PY
                   2001.
               10. Consider filing advice letters in PY 2000 seeking to
                   use carry-over funds originally proposed for carry-
                   over to PY 2001 to use for additional marketing to
                   small/medium markets if necessary.

            c) CEC’s Monitoring Recommendations
               We agree with the CEC that the utilities have not adequately
responded to direction in D.99-08-021, Ordering Paragraph 10, to provide an
objective analysis of market data and to modify their program designs
accordingly. However, we believe that appropriate action has already been taken
to provide the information we need. The utilities have contracted with Xenergy
for an evaluation and analysis of the PY 1999 SPC program, as a follow-up to the
Xenergy Report of the PY 1998 SPC program. It is scheduled to be completed
June 30, 2000, in sufficient time to provide input into the program planning
process. We fully expect that the utilities will use the new Xenergy study
findings to make appropriate modifications to the SPC program for PY 2001.
               We have also directed the utilities, together with interested
stakeholders, to gather additional data and revise the NTG ratio for this program
and others. We have directed the utilities herein to monitor the SPC program
results and modify the program accordingly and to assess efficiency measures
that have high market saturations. Thus, we do not need to further consider the
CEC‘s recommendations.

            d) Program Design
               We agree with the CBEE‘s observation that the utilities‘ SPC
program elements and strategies are not fully described and do not include


                                      - 136 -
consistent sets of program design criteria. We also note that the utilities have
proposed program revisions after our December workshop, which are set forth
on Joint Exhibit 1. In the absence of any objections to this proposal, and noting
that the changes address several of the concerns raised by the parties, we adopt
the proposed changes to standardize the program for PY 2000, as set forth on
Joint Exhibit 1 and direct the utilities to immediately incorporate such changes
into the procedural manual. We also direct the utilities to ensure that both the
Large and Small SPC programs are consistent across utilities with respect to
incentives, project sponsor limits, project size, eligibility, contract and contract
terms, and application process and to continue the statewide standardization of
these programs. We direct the utilities to immediately appoint a statewide team
and, for PY 2001, consider contracting with a third- party statewide implementer.
We do not adopt CALEP‘s recommendation that we use rebates instead of SPC
performance contracting at this time because the use of rebates was rejected in
Resolution E-3592 in favor of performance contracting for the PY 1999 programs.
                    We direct the utilities to convene a public process to obtain input
into program structure, design, and implementation of both the Large and Small
SPC programs, and proposed revisions to the programs, a minimum of twice a
year in each service territory. We direct the utilities to conduct at least one such
session prior to filing their PY 2001 applications, focusing on the issues raised by
interested stakeholders to date, including the application process, paperwork,
and M&V requirements, and considering the modification of corporate parent
caps in accordance with our prior direction.72 The utilities should report on these
sessions, including the process used, the agreements reached, and the remaining

72   See, e.g., the Xenergy Report. (Chpt. 7.)




                                             - 137 -
areas of disagreement, in the Quarterly Reports and in each year‘s program
applications.
                   We direct the utilities to prepare and submit to the Energy
Division and the Public Advisor‘s Office a program manual setting forth
eligibility criteria, incentives, and administration, including the process, criteria,
and timeline for reviewing and processing applications. The utilities should
update the manual as needed and at a minimum, annually.
                   We direct the utilities to clarify the program‘s objective, as
recommended by the CBEE and the Xenergy Report. The Xenergy Report points
out that that there is little evidence that the program has increased the role of
performance contracting in the end user market and that many EESPs prefer
simpler approaches such as fee-for-service and suggest that performance
contracting target certain segments, a position forcefully made by CALEP in our
proceedings.73 Thus, the Xenergy Report recommends that we clarify whether
the performance contract is merely a means to provide accountability for the use
of ratepayer funds or whether the purpose is to increase performance contracting
between end users and third-party EESPs. It suggests that if the goal is
accountability, there are other simpler ways to achieve it, including stipulated
savings for some measures. If the goal is to increase third-party performance
contracting, the EESP resistance to inflexible contracting approaches must be
resolved. (Jt. Exh. 8, pp. 11-3, 4.) We believe that these are reasonable
recommendations that will further our goals and direct the Energy Division to
conduct a workshop prior to the filing date for PY 2001 applications to explore
this issue.

73   CALEP also prefers the use of rebates to performance contracting.




                                           - 138 -
      E. Commercial Remodeling and Renovation—
         Program Design

         1. CBEE’s Recommendation
            The CBEE also makes recommendations specific to the definition
and implementation of the Commercial Remodeling and Renovation program.
The CBEE recommends that we direct the utilities to: 1) rename the program
from ―Commercial‖ to ―Nonresidential‖ Remodeling and Renovation to clarify
that the program is not limited solely to commercial buildings; 2) jointly develop,
and use in their Quarterly Reports beginning first quarter 2000, a common
definition for Nonresidential Remodeling and Renovation activities—including,
at a minimum, remodeling, renovation, rehabilitation, and tenant change—
assess the magnitude of these activities, and monitor them; 3) monitor the
effectiveness of the programs, in a coordinated fashion with other nonresidential
new construction and retrofit activities, and modify program elements and
intervention strategies, as needed, to ensure gaps do not emerge as a result of
program eligibility criteria that do not allow projects which are neither new
construction nor retrofit to participate. The CBEE recommends that the program
should ensure that remodeling and renovation includes all time-dependent
remodeling and renovation activities, not solely those that trigger compliance
with the State‘s Title 24 building codes, or that consist of a two-system change
out as Edison proposes.

         2. Parties’ Positions
            Edison agrees with CBEE‘s recommendations and agrees to monitor
the program. PG&E believes the name should simply be changed to
―Remodeling and Renovation‖ to avoid confusion.




                                      - 139 -
         3. Discussion
             There has been no substantive opposition to CBEE‘s proposals,
which appear reasonable. We direct the utilities to 1) rename the program from
Commercial to Nonresidential Remodeling and Renovation to clarify that the
program is not limited solely to commercial buildings; 2) jointly develop, and use
in their quarterly status reports beginning third quarter 2000, a common
definition for Nonresidential Remodeling and Renovation activities—including,
at a minimum, remodeling, renovation, rehabilitation, and tenant change—
assess the magnitude of these activities, and monitor them; 3) monitor the
effectiveness of the programs, in a coordinated fashion with other nonresidential
new construction and retrofit activities, and modify program elements and
intervention strategies, as needed, to ensure gaps do not emerge as a result of
program eligibility criteria that do not allow projects which are neither new
construction nor retrofit to participate. The program should ensure that
remodeling and renovation includes all time-dependent remodeling and
renovation activities, not solely those that trigger compliance with the State‘s
Title 24 building codes, or that consist of a two-system change out as Edison
proposes.

      F. Express Efficiency Program
         This is a statewide program, implemented by the utilities, that provides
standard rebates to customers, contractors, and EESPs for installation of energy
efficient equipment. It is marketed primarily to electric customers with annual
loads under 250 kW and to gas customers under a core procurement tariff.
         The utilities operate this program in different ways particularly with
respect to incentives and customer eligibility. Edison and SDG&E limit
incentives to $25,000 per account and PG&E maintains a $20,000 account
maximum for large customers. SoCalGas allows up to a $50,000 incentive per


                                       - 140 -
account assertedly because of the weak customer response to gas measures. All
utilities maintain a $50,000 cap per parent corporation.
         PG&E‘s PY 2000 proposal allows the participation of all customers
regardless of size; that is, large customers are permitted to participate in the
program. PG&E claims that it made this change to close a perceived service gap
by allowing large customers to do small energy projects. SDG&E‘s program, on
the other hand, limits rebates to the very small customers, that is, to customers
under 250kW annual load instead of 500 kW annual load. Edison limits
participation to customers with no more than three facilities.
         We are concerned about the lack of standardization of this statewide
program, which runs contrary to our directive to continue standardization for PY
2000. We are also concerned about PG&E‘s proposal to allow larger customers to
participate and receive rebates under this program. We recognize that we
previously adopted the CBEE‘s recommendation that all customized rebates be
prohibited for large nonresidential customers and that standardized rebates be
prohibited in the Large Nonresidential Comprehensive Retrofit program. (Res.
E-3592, pp. 74-75.) However, we question why, if large customers are the ―early
adopters‖ and are expected to lead the market transformation effort, they need
incentives to do small projects. Accordingly, we direct the utilities to convene a
public process with interested stakeholders to explore standardization of the
Express Efficiency Program, including the elimination of rebates for large
customers. The utilities should report on the results of the process, including
agreements reached and remaining areas of disagreement, in the PY 2001
applications, and propose the agreed upon modifications in the PY 2001
applications. If the utilities elect to propose rebates for large customers, they
should fully explain all factors that support their proposal, together with PY 1999
and PY 2000 participation data.


                                       - 141 -
      G. Targeting Under-served Communities

          1. Policy
               The same policies with respect to targeting under-served
communities apply in the nonresidential sector as in the residential area. Thus,
in D. 99-08-021, we direct the utilities to consider program offerings for PY 2000
and 2001 that are available to under-served communities and customer groups
and to consider increased funding for activities (programs, program elements,
and intervention strategies) that benefit under-served communities and customer
groups, such as renters. (Id., Ordering Paragraphs 11 and 12(c), respectively.)
Further, we direct the utilities to ―ensure program offerings are available to
under-served communities and customer groups.‖ (Id.) The CBEE Advice Letter
IG/IE filed on October 15, 1998, pursuant to Commission direction, defines
under-served in the nonresidential area as including rural and small businesses.
(Attachment A-30.)

          2. CBEE’s Recommendations
               In its October 27, 1999 Comments, the CBEE finds that the
applications do not provide any means for assessing the extent to which the
needs of under-served market segments and markets are, in fact, being met.
With respect to non-residential programs, the CBEE recommends that we direct
the utilities to: 1) work together to develop common working definitions for
selected markets and market segments (especially those segments consisting of
smaller nonresidential customers and under-served market events such as
remodeling and renovation); 2) assess the size and characteristics of these market
segments and markets; and 3) begin monitoring the availability and delivery of
program services and participation in the programs according to these
definitions.



                                       - 142 -
             The CBEE recommends that the utilities consider characteristics such
as energy consumption and selected market characteristics, including ownership,
such as owner-occupied versus leased space; and building type, such as retail
versus office. In addition, it recommends that the nonresidential remodeling,
renovation, rehabilitation, and tenant change markets be assessed and that the
results of the assessment and ongoing monitoring be included in the PY 2000
quarterly status reports.
             The CBEE also recommends that we direct the utilities to offer
targeted solicitations to increase provision of energy efficiency services to under-
served market segments and markets already known or identified and defined
through the assessment described above and to have the new targeted efforts
begun by September 1, 2000.
             Latino Issues Forum/Greenlining Institute, in their protest, also
recommend that we direct the utilities to perform needs assessments in the
under-served communities, to monitor participation rates, and to use CBOs to
disseminate program information.

         3. Utilities’ Programs and Responses
             Similar to the residential side, the utilities are generally willing to do
the needs assessments, and to use the CBOs, but contend that the studies should
be done under the auspices of the CALMAC.
             The utilities point to several programs they propose for PY 2000 that
they contend constitute new programs or strategies to meet the needs of under-
served market segments or markets, including the new statewide Savings by
Design program.
             On an individual utility basis, SoCalGas identifies its new lodging
education and coin laundry and dry cleaning programs as addressed to the need
to under-served markets.


                                        - 143 -
            Edison states that it has increased its concentration on
small/medium nonresidential customers in the SPC, air conditioning motor
turnover, and the nonresidential Renovation and Retrofit market. It claims to
have made changes in the nonresidential SPC application process to simplify it
and to have changed its marketing plan to target smaller customers. In its brief,
it contends that it has ―continued its outreach of under-served customer groups‖
through various program intervention strategies, including the Small/Medium
Nonresidential Standard Incentive program element which will encourage
vendors and contractors to increase their marketing activity to these smaller
businesses through financial incentives to customers.
            PG&E identifies its TPI to address small businesses, the distribution
of the energy guide in Chinese and English and changes made to the Express
Efficiency program to emphasize smaller customers.
            SDG&E identifies changes to the small business SPC to include
direct install services with customers, and the availability of the Energy Guide in
more languages.

         4. Discussion
            As we did with the residential programs, we do not find sufficient
evidence that the utilities have complied with the spirit of our direction. We
agree with the CBEE that the applications neither give us sufficient information
to determine how the utilities have identified the needs of under-served markets
or market segments, nor the extent to which the needs of those markets and
market segments are, in fact, being met. Our evaluation efforts are also
hampered by the fact that there is no agreed-upon working definition of ―under-
served‖ market or market segment.
            For the most part, the utilities point to on-going comprehensive
programs that technically are available to under-served customers and make


                                      - 144 -
sweeping generalizations about how their programs have been improved to
focus more on smaller customers or in some cases, small market segments.
However, they do not set out the specific activities they are undertaking to either
identify or target specific under-served groups for receipt of services.
             We will adopt CBEE‘s recommendations and direct the utilities to:
1) work together to develop common working definitions for different selected
markets and market segments in the nonresidential sectors (especially those
segments consisting of smaller nonresidential customers and under-served
markets such as remodeling and renovation); 2) assess the size and characteristics
of these market segments and markets, including the non-residential remodeling,
renovation, rehabilitation, and tenant change markets; and 3) begin monitoring
the availability and delivery of program services and participation in the
programs according to these definitions. We direct the utilities to consider
characteristics such as energy consumption and selected market characteristics,
including ownership, such as owner-occupied versus leased space; and building
type, such as retail versus office, and to use CBOs to help identify and solicit
input from under-served business customers. We direct the utilities to convene a
public process with interested stakeholders, report the results, and incorporate
the changes in the PY 2001 applications as appropriate.
             We also direct the utilities to offer targeted solicitations to increase
provision of energy efficiency services to under-served markets and market
segments already known or identified and defined through the assessment
described above and to include new targeted efforts in the PY 2001 applications.
The PY 2001 application should fully describe the nature of the targeted
solicitations and the utilities‘ rationales for selecting these targeted solicitations
and determining that the groups targeted are under-served. The utilities should
report progress with these solicitations in the Quarterly Reports.


                                         - 145 -
VII.   New Construction
       There was very little controversy surrounding the New Construction
programs and budgets. The CEC raised an issue with respect to SoCalGas‘ new
Energy Advantage Home Program (EAHP) and REECH raised an issue with
respect to Codes and Standards efforts.

       A. EAHP
          The EAHP emphasizes providing homeowners with information about
equipment using less energy. It provides duct testing and installation training to
contractors and advertisements identifying builders participating in the training,
and works with sales personnel to provide information in model homes about
the energy efficient equipment installed.
          SoCalGas proposes to redesign this program for PY 2000 to incorporate
improved duct design and duct sealing, higher than the Title 24 standards, to
promote ENERGY STAR® homes to homebuilders, trade allies and home buyers,
and to require participating contractors to install higher efficiency water heaters
and space heaters. SoCalGas also proposes to provide builder training and
assistance, and will train and certify CHEERS (home auditors) raters to learn the
newly introduced Alternative Calculation Method of the updated Title 24
standards.
          During these proceedings, the CEC suggested redesigning certain
features of this program and SoCalGas agreed to a process to incorporate some of
the CEC‘s suggestions. (SDG&E Exh. 404.). SoCalGas proposes to submit an
advice letter on or before June 1, 2000 detailing the specific changes to be made.
SoCalGas is implementing the program as filed in its application, including
signing up new builders, but does not intend to make any substantive changes
until we approve the advice letter. SoCalGas proposes to include new cost-
effectiveness calculations on the revised program in its advice letter filing.


                                       - 146 -
         The suggested approach appears reasonable and should be adopted.
SoCalGas should include the new cost-effectiveness calculations in this filing.

      B. Codes and Standards
         For PY 2000 and PY 2001, in D.99-08-021, we direct the utilities to:

         [A]ddress intervention strategies and other activities
         (including budgets) to improve the implementation of the
         new standards and the development of the next round of
         standards. In addition, the utilities shall describe ways to
         coordinate these intervention strategies and activities with
         the California Energy Commission (CEC) and other utilities.
         (Ordering Paragraph 13.)

In this statewide program, the utilities propose to promote the development of
new standards by working closely with governmental agencies responsible for
setting building codes and standards and the CEC.
         REECH recommends that we order the utilities to jointly determine
how they can minimize their involvement in favor of CEC and local jurisdictions.
         We do not adopt REECH‘s recommendation since it is contrary to our
direction in D.99-08-021.

VIII. Cross-Cutting Programs

      A. Statewide Energy Guides

         1. Background
            The utilities have prepared two Energy Guides – a Residential
Energy Guide and a Business Energy Guide. The Energy Guides educate
customers on the benefits of energy efficiency measures. The utilities have plans
to provide the Guides in English, Spanish, and Chinese-speaking in service
territories where they deem it appropriate.
            The Business Energy Guide provides information about energy
usage and energy efficiency opportunities, identifying energy efficient measures,


                                      - 147 -
practices, and resources available. The Guide is targeted toward small/medium
nonresidential customers with an electric demand under 500 kW demand. The
utilities plan to target distribution of the Guide to small business associations,
including Chambers of Commerce, business schools, library reference sections,
school districts, and equipment suppliers.
             The Guides are distributed by the utilities using their own internal
delivery mechanisms. They are available currently in English and Spanish and
will be available in Chinese by April of 2000. While the Guides have been
translated into Spanish and will be translated into Chinese by April, and are thus,
available, each utility determines whether to print and distribute the guide in the
various languages, assertedly based upon the population mix in its service area.
Thus, it does not appear that SDG&E and SoCalGas plan to print and distribute
Guides in Chinese. It is unclear whether PG&E and Edison have plans to
distribute both Guides in all three languages.

         2. Discussion
             The distribution of the Energy Guides should be better coordinated
to ensure that they are available to all residential and commercial customers
throughout the state. This would be consistent with our program design and
implementation principle that requires movement toward uniform statewide
program design and implementation. In addition, all Spanish-speaking and
Chinese-Speaking persons residing in this state should have equal access to the
Spanish and Chinese language Energy Guides regardless of the service territory
in which they live. To further our energy efficiency goals, the utilities should also
be working on the translation of these Energy Guides into more languages.
There does not appear to be a plan to do so.
             We direct the utilities to jointly submit a report to the Energy
Division setting forth a coordinated plan for 1) notice of availability; and


                                       - 148 -
2) distribution of the Residential and Business Energy Guides. The plan should
include both a statewide component for publicizing the availability of the Energy
Guides, in English, Spanish, and Chinese, and local components for publicizing
the availability of the Guides in all three languages and for distributing the
Guides. The local component should include plans for working with CBOs in
publicizing and distributing the Guides and for distributing the Guides through
home improvement stores and other appropriate distribution points. The
utilities‘ plan should provide for implementation as soon as the program is
approved. The utilities should include both descriptions of actions taken to
publicize and distribute the Guides and the results of their actions in its
Quarterly Reports.
             We also direct the utilities to include in its PY 2001 program
applications an enhanced plan and budgets for publicizing and distributing the
Guides and a joint plan for translation of the Energy Guide into other languages,
with distribution to begin no later than July 1, 2001.

      B. Energy Centers

          1. Background
             PG&E, Edison, and SoCalGas all operate Energy Efficiency Centers
in their service territories where they offer demonstrations, educational seminars,
information, and consulting assistance to help customers seeking to improve
their facilities‘ efficiencies, construction professionals (including building
contractors, designers, and engineers), manufacturers, and retailers.
             PG&E (PY 2000 Budget - $5.31 million) maintains a primary center,
Pacific Energy Center (PEC) in San Francisco, and a contractor‘s training facility
in Stockton. PG&E has also just opened another center in Tuolumne County,
called the Sierra Energy Center, to provide a central location for residents and



                                        - 149 -
local contractors to learn about energy efficient products and services and to
receive training on installing energy efficient technologies.
             Edison (PY 2000 Budget - $2.573 million) maintains two energy
centers, the Customer Technology Application Center (CTAC), accessible to the
greater metropolitan Los Angeles area, and the Agricultural Technology
Application Center (AgTAC), located in Tulare. The CTAC houses 5 technology
centers devoted to lighting, commercial, and residential products, and industrial
and food service technologies. The CTAC offers services to all customers,
designers, contractors, manufacturers, retailers, and engineers through displays,
training, demonstrations and fact sheets. The AgTAC facility contains displays
and exhibits, and provides tours, events, and seminars to all customers. Its
primary focus is to serve the technology needs of the agricultural community.
             SoCalGas has one energy center called the Energy Resource Center
(ERC) based in Downey. The ERC has a primary focus on the nonresidential
market, but also serves the residential market, including programs for builders,
contractors, and developers. The facility provides classroom space for seminars,
and for equipment manufacturers to showcase and demonstrate state-of-the-art
high-efficiency technologies.
             The utilities are in the process of coordinating the functions of the
energy centers. Joint Exhibit 5 sets forth the plans and budgets for PY 2000.
While it does not have an energy center, SDG&E offers many of the same
programs, seminars, and other activities and states that it has been involved in
the coordination effort.

         2. Parties’ Positions
             The CBEE recognizes the utilities have undertaken a process for
improved coordination of the Energy Centers but believes that much greater
coordination and integration should be an ongoing objective. The CBEE


                                       - 150 -
recommends that we direct the utilities to: 1) revise and improve a statewide plan
for increased coordination and integration among energy centers that reflects
additional efforts to eliminate duplication, and which also proposes additional
efforts to ensure fuel-and-administrator-neutrality in the messages conveyed by
the centers; 2) study and prepare a plan for treatment of intellectual property
issues74; and 3) prepare a plan for accelerated commercialization of all products
(especially software and design tools) developed at or through the centers and
distribute these products in a timely manner. The CBEE recommends that these
plans be completed and reported in the second quarterly status report for PY
2000.
               REECH believes that these centers should not be fully funded with
PGC funds because they serve the utilities‘ public relations purposes in addition
to being training centers for energy efficiency. REECH recommends a maximum
of 50% funding come from PGC funds. It also recommends that we direct the
utilities to develop a plan for piloting facilitation centers for time-of-sale energy
efficiency contractor services and model kiosks for placement at home
improvement centers and hardware stores.
               REECH also wants the utilities to maintain and report separate cost
accounting for Energy Centers, Information Services, TPI, and Emerging
Technologies.
               PG&E opposes REECH‘s recommendations, arguing that there is no
basis for suggesting shareholders pick up 50% of their costs.




74   This recommendation is the same as that recommended under Third Party Initiatives.




                                          - 151 -
          3. Discussion
             The utilities have embarked on an effort to coordinate their Energy
Centers and training activities. Joint Exhibit 5 demonstrates the utilities‘
coordination plans for PY 2000, including timelines and budgets. The three areas
for coordination in PY 2000 are training programs, a web-based energy efficiency
library, and partnerships with third parties or state agencies. Specific seminars
are scheduled for PY 2000, including one joint seminar with a third party. A goal
is set for the end of the second quarter to recommend alternatives for a web-
based efficiency library. No goals are set for further third party trainings.
             We direct that this coordination continue for PY 2000 and PY 2001,
with particular emphasis on eliminating duplication. The utilities have not
objected to the CBEE‘s recommendation that they prepare a plan for the
accelerated commercialization of all products (especially software and design
tools) developed at or through the centers and to distribute these products in a
timely manner. We find this recommendation reasonable and direct the utilities
to include such a plan in the PY 2001 applications. We also adopt the CBEE‘s
recommendation and direct Edison and SoCalGas to take all reasonable efforts to
ensure fuel-and-administrator-neutrality in the messages conveyed by the
centers because it furthers our goal of cooperation and not competition between
these single fuel utilities. For PY 2001, Edison and SoCalGas should explore joint
operation of their energy centers or conducting activities jointly at all centers.
Edison and SoCalGas should report on their efforts in the PY 2001 applications.
             The utilities are directed to report on the activities undertaken to
coordinate the energy centers in the Quarterly Reports, specifically identifying
actions taken to implement the directions set forth herein. The CBEE‘s
recommendation regarding the treatment of intellectual property issues is
discussed with respect to TPI, infra.


                                        - 152 -
              With respect to REECH‘s cost accounting proposals, we have no
information on this record regarding the utilities‘ cost accounting methods
although we believe that the utilities should be maintaining these types of
records as a matter of course. Nor is there information from which to conclude at
this time that the utilities should be precluded from funding these centers with
energy efficiency funds. Further, these issues are not within the scope of this
proceeding.
              We believe that REECH‘s proposals for placing model kiosks at
home improvement centers and hardware stores is an idea worth pursuing for
PY 2001. REECH should raise the proposal during the PY 2001 planning process.
We direct the utilities to consider the proposal for PY 2001 and in the PY 2001
applications report on the reasons such activities have or have not been proposed
for implementation.

      C. Third Party Initiatives (TPI)

         1. Background
              TPI cross-cut through all the program definitions. The CBEE
promoted this program as a way to tap the ―creativity of the market participants
in the design and implementation of energy efficiency programs.‖ (CBEE Advice
Filing 1G/1E October 15, 1998.) In D.99-08-021, we direct the utilities to consider
in these compliance filings an increase in funding for general and targeted third
party initiatives and program offerings that take advantage of the ―unique
expertise, relationships with customers, and ability to coordinate among related
activities offered by individual or groups of local governments.‖ (Id., Ordering
Paragraphs 12(a); 11.)




                                      - 153 -
                The utilities have budgeted the following for TPI in PY 2000:75
PY 2000 Third Party Initiatives – ($Millions)
                           PG&E             Edison          SDG&E      SoCalGas    Total
Residential                                   $1.000          $0.308      $2.350   $3.658
Nonresidential              $1.978            $1.150                      $0.626   $3.754
New                                                           $0.112      $0.200   $0.312
Construction
Totals                      $1.978            $2.150          $0.420      $3.176   $7.724

                PG&E‘s proposed PY 2000 TPI budget is approximately 1.5% of its
energy efficiency budget, Edison‘s is approximately 2%, SDG&E‘s is
approximately 1%, and SoCalGas‘ is approximately 13%. In the Fourth Quarter
Reports, Edison reports that it increased its proposed TPI budget from $.1 million
in PY 1999 to $2.15 million in PY 2000 and SoCalGas reports that it increased its
TPI budget from $3.2 million in PY 1999 to $3.8 million in PY 2000. PG&E and
SDG&E do not report this information.

            2. Positions of the Parties

                a) CBEE
                    In its October 27, 1999 Comments, the CBEE recommends that the
Commission direct PG&E, Edison, and SDG&E to increase funding for and
reliance on third parties either as sources of new, innovative approaches, or as
new agents for implementation of programs (as part of the transfer of program
implementation away from administrators) consistent with the flexibility
provided by the proposed budget ranges.

75PG&E‘s budget was derived from its application and PG&E Exh. 117 (ORA DR-009).
Edison‘s budget was derived from its application and ORA Exh. 502 (ORA DR-011).
SDG&E‘s and Edison‘s budgets were taken from their applications. There may be
confusion regarding PG&E‘s budgeted funds because, as CBEE notes, PG&E does not
fully identify either planned TPI solicitations or budgets in its application. For example,
PG&E alleges that it has one targeted TPI in the residential area and one for Residential
New Construction training but this information is not documented in its filings.




                                                  - 154 -
                 The CBEE also recommends that the Commission direct the
utilities to clearly define and identify, for each solicitation 1) whether the utility is
requesting third party initiatives that include proposals for program ideas to be
developed and implemented, or simply a utility contractor to implement already-
developed program designs, and 2) for third party initiatives, whether the utility
is requesting proposers to develop on-going efforts that are separate and distinct
from the utility (e.g., a ―parallel organization‖ model), or to identify promising
approaches as an incubator of ideas and concepts that can be ―rolled in‖ to
overall utility administrator program efforts. 76
                 The CBEE also expressed its concern that little progress has been
made toward resolution of intellectual property issues associated with third
party initiatives and that failure to resolve these issues will limit the bidder pool
because of bidders‘ concerns over safeguarding their interest in not losing
ownership of intellectual property they own prior to participating in the TPI.
CBEE recommends that we direct the utilities to work jointly to study and
propose consistent treatment for intellectual property issues arising out of TPIs,
the commercialization of software developed with PGC funds, and emerging
technologies.

             b) ORA
                 ORA contends that TPI solicitations should be limited to
solicitations by local government entities in the New Construction Area. As
discussed above, ORA argues there is no accountability with these programs
because there is currently no way to determine whether they are cost-effective.

76The CBEE acknowledges that Edison has reported that its solicitations will
complement (not duplicate existing) efforts in residential, small commercial, and new
construction programs.




                                         - 155 -
Further, ORA argues that there are problems associated with establishing
meaningful criteria for selecting winners as well as uncertainties regarding the
expectations and requirements for reporting costs and benefits associated with
these efforts. ORA believes that most of these accountability issues can be
minimized or avoided by adopting its recommendation. It also points out that
limiting TPI efforts to governmental entities addresses the Commission‘s concern
that local agencies have been underutilized. REECH agrees with ORA.

             c) The CEC
                The CEC recommends that the utilities be directed to increase
funding for TPI from $8.8 million to $12 million and authorized to shift additional
funds if there are more high quality proposals than budgeted funds. The CEC
also recommends that the utilities be ordered to provide an evaluation of TPI
projects by April 1, 2001, including an evaluation of program barriers such as
intellectual property issues. The CEC believes that these initiatives encourage
program innovation and increase the effectiveness of utility efforts.

             d) Utilities’ Responses
                The utilities disagree with both ORA‘s and the CBEE‘s/CEC‘s
recommendations, which pull in opposite directions. SDG&E/SoCalGas believe
that their budgets present a balanced approach that is consistent with our
directives and that ORA‘s recommendation is contrary to our desire to promote a
vibrant TPI effort. The utilities also contend that the CBEE and CEC do not give
a rationale for increasing funding and that there is an insufficient basis for
increasing the budgets further. PG&E argues that arbitrarily increasing the
budget will not accomplish our goals. Edison also points out that the fund-
shifting rules will accommodate larger budgets if necessary.
                SDG&E argues that if ORA‘s real concern is lack of credible IMC
values in the cost-effectiveness calculations, its recommendation should be to

                                       - 156 -
direct utilities to gather data and calculate the IMC, or to require TPI proposals to
meet a threshold cost-effectiveness test of 1.0, as SoCalGas does, and not to limit
the program to local government agencies. The utilities also argue that there is
no evidence local governments could provide more cost-effective TPI programs
than others and that relying exclusively on local government initiatives is at odds
with our goal to privatize energy efficiency markets.
                Edison and SDG&E/SoCalGas object to the CEC proposal for
studies evaluating the factors that may contribute to a lack of projects and
evaluating the TPI projects by April 1, 2001. They contend that these
recommendations are appropriately taken up with the CALMAC, as the parties
proposed in the Joint Recommendation submitted in the AEAP, so that the
parties can first address issues such as the development of study goals,
formulation of scope of work, and identification of achievable study completion
dates.
                In their initial responses regarding the intellectual property
issues, PG&E proposed to work with other utilities to identify intellectual
property issues and identify ways to protect, manage, and disseminate
intellectual property, Edison stated its plans to make intellectual property
developed through TPIs publicly available without charge, SDG&E did not
address the issues, and SoCalGas reported that it is exploring the issues further.
                During the course of the hearing, Edison, SDG&E, and SoCalGas
all indicated that they have not had any problems with third parties over
intellectual property issues. Edison stated that they routinely advise third parties
of the Commission‘s rule regarding ownership of intellectual property developed
with energy efficiency funds and has not had anyone raise this as an issue. These
utilities also argue that there is no evidence that suggests that intellectual
property issues are impacting the content, scope, or quality of third party


                                        - 157 -
proposals received to date and recommend that we take no action on this issue.
PG&E remains interested in resolving the issue but has no plan to do so.

             e) Discussion
                 Third party initiatives comprise a very small part of the overall
budget for PG&E, Edison, and SDG&E and there is little evidence that they have
undertaken many new initiatives for PY 2000. Their actions do not comply with
our directives for increasing TPI efforts and budgets. However, the utilities are
understandably hesitant to put money into the TPI budgets unless they have
programs identified. We agree with PG&E that arbitrarily increasing the TPI
budget will not further our goals. Moreover, there is sufficient room within the
budgets, under the fund-shifting rules, which we discuss infra, to fund additional
TPIs, if appropriate. Thus, we reject the CEC‘s and CBEE‘s direction to shift
more funds into TPI for PY 2000.
                 However, what is not clear in the applications or on this record is
the extent to which the utilities are actively developing solicitations and seeking
TPIs in accordance with our directive. Thus, we direct PG&E, Edison, and
SDG&E to take action to develop general and targeted solicitations for the
remainder of PY 2000, and, if appropriate, pursue additional solicitations. We
also direct the utilities to specifically report on the actions taken in their Fourth
Quarter Reports. For PY 2001, we direct the utilities to propose increased
budgets, identifying proposed solicitations and budgets, and an implementation
plan and timeline. The applications should also demonstrate a plan for
publicizing targeted and general solicitations for PY 2001 start. We will not order
the utilities to further evaluate the TPI projects at this time.
                 In these compliance applications, the utilities have followed our
prior direction in promoting TPI programs and we see no basis to limit their
solicitations at this time. Nor do we find a basis for limiting the programs to local


                                         - 158 -
government initiatives in the New Construction area as ORA has suggested.
However, we believe that the utilities must address the problem with estimating
and measuring incremental measure costs for TPI programs so that we can
ensure that the utilities‘ portfolios are cost-effective, and so we can evaluate the
utilities‘ program offerings. Thus, the utilities must modify the TPI program and
their solicitations for PY 2001.
                As we discussed above, we find troubling the lack of a credible
IMC input value estimate in the cost-effectiveness analysis conducted before
program approval as well as the lack of a requirement and methodology to
measure cost-effectiveness after program completion. We recognize that not
every program needs to be cost-effective within the administrator‘s program
portfolio so that some measures that are not cost-effective are appropriately
pursued and that the pre-solicitation problem with estimating IMC for purposes
of performing the portfolio cost-effectiveness analysis is inherent in the very
nature of the TPI. However, we must ensure the credibility of the cost-
effectiveness calculations to guide future programming design and choices.
                Thus, we direct the utilities to jointly, with interested
stakeholders, develop a standard to use for IMC in the cost-effectiveness
calculations, such as a default ratio or a requirement that all TPI meet a minimum
threshold of cost-effectiveness (such as SoCalGas‘ convention of requiring each
TPI to show a cost/benefit ratio of 1 or greater and using 1 in the analysis). We
also direct the utilities to jointly, with interested stakeholders, develop protocols
to govern the cost-effectiveness analyses conducted by TPI bidders. The utilities
should convene a public process and report the results of any agreement reached
and any remaining areas of disagreement in the PY 2001 applications. The
utilities should also propose use of jointly developed IMC standards in the
PY 2001 applications.


                                        - 159 -
                We can also improve the credibility of a program‘s cost-
effectiveness by adopting reporting requirements, procedures, and standards for
the collection of data for program evaluation after program completion. These
requirements and data may also assist us in establishing appropriate cost
effectiveness values for these programs on an ex ante basis. Thus, we direct the
utilities, for PY 2001 programs, to convene a public process for purposes of
developing, with interested stakeholders, reporting requirements, procedures,
and standards for collection of IMC and other cost data for TPI programs after
program completion.77
                We believe that identifying the utilities‘ objectives in seeking the
TPIs and the manner in which the TPIs interact with the rest of the utilities‘
program portfolio is important to evaluation of the utilities‘ portfolios.
Accordingly, we adopt CBEE‘s recommendations and direct the utilities to
clearly define and identify, for each solicitation 1) whether the utility is
requesting third party initiatives that include proposals for program ideas to be
developed and implemented, or simply a utility contractor to implement already-
developed program designs, and 2) for third party initiatives, whether the utility
is requesting proposers to develop on-going efforts that are separate and distinct
from the utility (e.g., a ―parallel organization‖ model), or to identify promising
approaches as an incubator of ideas and concepts that can be ―rolled in‖ to
overall utility administrator program efforts.




77If the utilities, ORA, and CEC follow through with their recommended plan to use the
CALMAC as a forum for discussion and review of market assessment and evaluation
studies, we will not prohibit the utilities from using this forum to develop reporting
requirements, procedures, and standards.




                                        - 160 -
                With respect to the intellectual property issue, in D. 97-12-103, we
held that ―[a]ny materials or programs (e.g., websites, training materials, etc.)
developed by the interim administrators with PGC funds should become the
property of the CBEE and this Commission.‖ (Ordering Paragraph 5.) The CEC
and the CBEE posit that this ruling has caused problems with third parties over
ownership of software developed through TPIs or has made third parties
reluctant to participate in the TPI process. However, SoCalGas, Edison, and
SDG&E indicate that it has not been an issue for them, although SoCalGas and
SDG&E do not have contracts for software development.
                As we discuss above, the utilities‘ TPI budgets are very low
(except for SoCalGas) and the actual solicitations pursued to date are very few.
Accordingly, we cannot yet determine whether our treatment of intellectual
property is causing or will cause a problem for third parties. We do not believe
that further requirements are needed at this time. However, we will direct the
utilities for the rest of PY 2000 and for PY 2001 to monitor their TPI solicitations
and report in the Quarterly Reports any experience they have with this issue.

      D. Emerging Technologies
         For PY 2000 and PY 2001, in D.99-08-021, we direct the utilities to:

         Address the role of emerging technologies in their program,
         including the coordination of these activities with other
         utilities and the CEC. The utilities may also consider a more
         formal role for the California Institute for Energy Efficiency,
         as long as it is consistent with our determination that the
         utilities, not other entities, continue as program
         administrators for energy efficiency through December 31,
         2001. (Ordering Paragraph 14.)

         One of our adopted program design and implementation proposals also
directs the utilities to support commercialization of emerging technologies.



                                        - 161 -
          The utilities have proposed to coordinate their efforts through an
Emerging Technologies Coordinating Council (ETCC) consisting of
representatives from each of the utilities and the CEC and to include groups from
the research community including the California Institute for Energy Efficiency
(CIEE).
          The only issue with respect to emerging technologies was raised by
REECH, which recommends that we defer authorization of the proposal for the
ETCC to PY 2001 because the administrators are spread too thin and because of a
fear that utility participation would somehow ―compromise their regulatory
relationship‖ with the CEC.
          We reject REECH‘s arguments because we specifically provided for
such coordination and we do not see any conflict. If any conflict arises, we can
take appropriate action at that time.

      E. Co-Mingled Activities

          1. ORA’s Recommendation
             ORA recommends that we prohibit SoCalGas and Edison from
promoting the same measures in the same customer markets, contending that
they are pursuing their core market share interests for their respective products,
gas and electricity, rather than energy efficiency. As an example, ORA points to
SoCalGas‘s emerging technology program for gas air conditioning, which it
claims is a gas load building or gas fuel substitution program, since it reduces
electric consumption by increasing gas consumption, showing negative gas




                                        - 162 -
savings. ORA believes that if we prohibit the promotion of the same measures in
the same market segments we will avoid this type of ―incentive war.‖78
             ORA also argues that we should limit the use of energy efficiency
revenues to the promotion of electric and natural gas products and services for
customers that actually take service from the regulated utilities, in other words,
to prohibit the regulated utilities from providing energy efficiency services in the
territories of MUDs since we do not have jurisdiction over the MUDs.

         2. Utilities’ Responses
             SDG&E/SoCalGas contend that ORA has provided no factual
substantiation for its assertions and note that its‘ recommendation is contrary to
our adopted overarching design principle that they continue movement toward
statewide program design and implementation. SDG&E/SoCalGas and Edison
point out that Edison provides electric energy efficiency services and SoCalGas
provides gas energy efficiency services so they are not promoting the same
measures and, in fact are coordinating their efforts as we have directed.
SoCalGas also argues that its high efficiency gas air conditioning program
facilitates an emerging technology pursuant to our direction.
             Similarly, SDG&E/SoCalGas and PG&E recommend the rejection of
ORA‘s proposal to exclude SoCalGas customers who are customers of municipal
electric utilities from receiving energy efficiency services because it would be
discriminatory to require those residential and small business customers to
contribute to energy efficiency programs and not receive benefits. They also
argue that such a policy would result in significant lost opportunities, which is

78As a corollary to this argument, ORA contends that SoCalGas should not be able to
count electric savings in its cost-effectiveness calculations which we discussed
previously.




                                       - 163 -
inconsistent with Policy Rule II-6. PG&E further contends that this issue is more
properly pursued in the Rulemaking proceeding.

           3. Discussion
              First, we note that there is no evidence of an ―incentive war‖
between Edison and SoCalGas; on the contrary, the utilities are cooperating and
coordinating their energy efficiency efforts, including the many new statewide
programs, pursuant to our direction. Thus, Edison and SoCalGas are forging the
close working relationship we have been urging them to implement for many
years.
              ORA‘s complaint appears to be more with the fact that there are two
separate single-fuel utilities in this service territory than with any possible
overlap in services. This is not an issue for this compliance proceeding and is
more appropriately taken up in the Rulemaking. Further, ORA‘s concern with
the utilities‘ possible conflict of interest in pursuing market share rather than
energy efficiency in this deregulated competitive market raises the issue of the
desirability of independent program administration—another issue that is not
before us today. We decline to adopt ORA‘s recommendations.

IX. Market Assessment and Evaluation
    (MA&E) Studies

         A. Background
           In the Interim Opinion (D.99-12-053), we allowed the utilities to
implement their PY 2000 MA&E studies and budgets, effective January 1, 2000,
because MA&E activities support the underlying programs, designs, and policies
by developing baseline and market data, crucial to monitoring and improving the
programs.
           As the CBEE has aptly summarized:




                                        - 164 -
          Both the policy rules and previous Commission decisions
          have established that MA&E activities are intended to play a
          central role in informing program planning, implementation,
          and policy-making. For example, policy rule VI-1 discusses
          the intended application of MA&E activities to these
          functions in broad terms, while as early as February 1998
          (D.98-02-040, page 9), the Commission noted the importance
          of timely MA&E results for policy-making, stating that ―our
          evaluation of market transformation programs will rely on
          the establishment of a reasonable baseline for the market,‖
          and commending the CBEE for ―planning early to ensure
          that we have the necessary analytic support and activities
          well underway in 1998.‖ (CBEE October 27, 1999 Comments,
          pp. 26-27.)

          MA&E activities are comprised of data collection, analysis, and
dissemination of reports. MA&E activities are undertaken to provide
information about the status and functioning of markets in relationship to energy
efficiency program planning and energy demand forecasting. Evaluation of
energy efficiency programs is performed to measure success in increasing energy
efficiency, improving customer welfare and economic efficiency, and moving
specific markets to a higher, sustainable level of energy efficiency.
          The MA&E plans submitted by the utilities consist of three primary
types of MA&E activities: 1) utility-level, performed by a utility and intended to
produce results to be used primarily by the sponsoring utility; 2) state-level,
performed by both the utilities and the CEC, and intended to be applied
statewide; and 3) CEC data collection activities, performed by the CEC using
MA&E funds transferred by the utilities, intended to support both energy
efficiency programming and the CEC‘s Title 20-related forecasting
responsibilities.




                                       - 165 -
            The statewide total budget for state-level MA&E for PY 2000 is $9.611
million.79 The CEC Administered budget total is $2.9 million. 80

         B. CBEE’s Comments
            The CBEE believes the proposed state-level MA&E activities and
budgets, which were developed through a coordinated state-wide planning
process that involved substantial input from the CBEE and the public, are
generally appropriate and reasonable. It believes that the utility-level plans,
which were developed by each utility, with limited input from the CBEE and the
public, lack detail and consist primarily of placeholders for unspecified
performance verification activities, making it difficult to assess whether the
utility-level plans are appropriate and reasonable.
            The CBEE has two key concerns concerning the statewide MA&E
studies: that they be performed in a timely manner; and that the utilities timely
track and monitor the performance indicators (as distinct from performance
award milestones) they have specified for their programs. The CBEE fears that
the statewide studies may be slowed because the utilities have limited resources
for MA&E activities and because competing utility-specific MA&E activities
dedicated to supporting their own performance award mechanisms are likely to
be given a higher priority. It is also concerned that there is little immediate
financial incentive for the utilities to complete the work in a timely manner,
which would leave the programs without crucial baseline and market
information.



79   PG&E $4.155; Edison $3.672; SDGE $1.166; SoCalGas $0.618 million.
80   PG&E $1.301; Edison $0.934; SDG&E $0.461; SoCalGas $0.204.




                                         - 166 -
          Thus, the CBEE recommends that we consider one of three options for
ensuring the timely commencement and completion of statewide MA&E studies:
1) a penalty for non-completion, 2) a move to either partial or full independent
administration of MA&E activities, should the utilities fail to initiate and/or
complete current and/or future state-level MA&E projects in a timely manner, or
3) selective suspension of funding authorization for programs for which the
utilities are unable to provide adequate intelligence on either market conditions
(such as baseline data) or past program effectiveness (such as the results of an
evaluation).
          The CBEE is also concerned that the utilities will not timely track and
monitor the performance indicators set out for the specific programs which is
problematic since the performance indicators are there to help evaluate the
program‘s success. The CBEE notes that several of the utilities have proposed
MA&E funding targeted specifically at tracking and monitoring of performance
indicators but provide few details on these activities. Thus, the CBEE
recommends that the utilities be required to: 1) submit plans for tracking and
monitoring proposed performance indicators, and 2) incorporate the results of
these activities into the Quarterly Reports.
          The CBEE believes that, ultimately, it may be necessary to institute one
of the same three options recommended above for state-level MA&E to ensure
that performance indicators are tracked and monitored in a timely manner.
However, since 2000 is the first year for which a detailed system of performance
indicators will be in place, the CBEE does not recommend that we resort to any of
these measures. If the utilities fail to make adequate progress in tracking and
monitoring performance indicators in PY 2000, the CBEE recommends that, for
PY 2001, we implement one of the options listed above for state-level MA&E
activities.


                                       - 167 -
      C. CADMAC/CALMAC
         In the Phase I AEAP proceeding filed on May 1, 1999 for the review of
PY 1998 and prior years‘ earnings (A.99-05-002 et al.), the utilities, CEC, and ORA
submitted a Joint Recommendation for MA&E activities that would govern post-
1998 activities. The Joint Recommendation also provides for the establishment of
a new body, the CALMAC, to provide a forum for presentations, discussion, and
review of MA&E studies for energy efficiency and low-income programs and to
coordinate the development of these studies.
         The parties to the Joint Recommendation envision that the CALMAC
will be the forum for the coordination of an annual statewide MA&E study
portfolio, the coordination of activities related to the performance and
presentation and dissemination of the studies, and the consideration of MA&E
policy rules and protocols. The CALMAC was adopted, in concept, in
D.00-05-019.
         Another advisory group, the California DSM Measurement Advisory
Committee (CADMAC), currently addresses the measurement and assessment of
energy efficiency programs and develops protocols and procedures for
verification of program costs and benefits. These results are primarily used to
validate shareholder earnings claims in the AEAP. After the commencement of
the CALMAC, CADMAC would focus primarily on pre-1998 policy rules and
protocols.

      D. Joint Stipulation Regarding Baseline and
         Market Data Collection
         In this proceeding, the utilities submitted a stipulation (Jt. Exh.3),
agreed to in principle by the CEC, to move ahead on MA&E studies for
evaluation of the milestones and performance indicators pending Commission
approval of the CALMAC.



                                       - 168 -
          Paragraph 1 requires the utilities to file a schedule by June 30, 2000,
indicating when the data will be collected for the performance indicators for the
PY 2000 and PY 2001 programs. The schedule is required to include the
proposed performance indicators, the proposed method of collecting data for the
indicators and a schedule of when the data will be made publicly available. The
stipulation does not require the utilities to collect data for all performance
indicators or to report the results on all indicators in 2000.
          Paragraph 2 requires the utilities to ―make a good faith effort to collect
or estimate‖ basic market facts and baseline data, such as the size of the market
and number of eligible customers, for use in PY 2001 forward. The utilities
agreed to this recommendation despite the fact that they believe that they have
provided the appropriate baseline information.

      E. Utilities’ Responses
          PG&E and Edison agree to the development of a plan to track selective
proposed indicators that will effectively use the limited MA&E budgets. PG&E
recommends that, in the meantime, we accept the MA&E plans for PY 2000
without penalties and work with participants here and in other forums to resolve
program development process issues for next year. The utilities also state their
intention to address MA&E obligations and reporting conventions within the
CALMAC framework, if its is adopted.

      F. Discussion
          We find that collection of baseline and other market data is critical to
program evaluation and to evaluation of the reasonableness of the proposed
performance indicators and milestones for measuring shareholder incentives and
thus must be collected expeditiously. We are concerned that not only was this
data not collected prior to establishing the programs and proposing performance
indicators and milestones, but that it is only recently that the parties have even

                                        - 169 -
agreed to propose a non-binding ―schedule‖ for collection of some data and
―make a good faith effort‖ to collect others. We share the CBEE‘s concern that
sufficient progress has not been made to obtain this basic data to date and with
the CEC that we should not adopt performance milestones until we know that
the necessary data will be collected.
         Accordingly, we adopt the data collection procedures set forth in Joint
Exhibit 3, except that we require the utilities to collect and provide the necessary
data and set dates for compliance, as follows:
         The utilities are directed to submit to the Energy Division a joint
schedule indicating when data will be collected for each of the program
performance indicators set forth in the PY 2000 applications. The schedule
should include, at a minimum, the proposed performance indicators, the
proposed method of collecting data for the indicators, and a schedule of when
the data will be made publicly available. Prior to filing the schedule, the utilities
should convene a public process and attempt to reach agreement with
stakeholders on the timing and content of the schedule and proposed method for
collecting the data. The utilities may coordinate this process through the
proposed CALMAC if they wish. The utilities are directed to submit a report to
Energy Division setting forth the collected data for all PY 2000 performance
indicators. The utilities should include the collected data for all PY 2001
performance indicators in the PY 2001 applications.
         The utilities are also directed to collect or estimate basic market data for
each of the 14 programs and for each proposed milestone for PY 2001 and to
include the data in the PY 2001 applications, together with the proposed PY 2001
milestones. Prior to collecting the data and conducting the studies, the utilities
shall convene a public process and attempt to reach agreement with stakeholders
on the parameters and content of the proposed data collection and studies. Basic


                                        - 170 -
market data includes estimates of the following: 1) size of physical market, using
relevant descriptors such a square footage, unit sales of a targeted appliance or
energy using system, number of firms, etc.; 2) targeted market actors, estimated
number of market actors targeted by the program, previous participation levels
among those same target actors; and 3) previous program results and other
available market data, any information on the effectiveness, program savings or
number of participating market actors in similar programs over the last five
years. This should also include citations to any relevant baseline studies or
program evaluations performed over the last five years and any information
available about the penetration or saturation of the efficient goods or services
targeted by the program. The utilities may coordinate this process through the
CALMAC if they wish.
         At this time, we do not adopt the CBEE‘s recommendation that we
adopt one of the options it sets forth for ensuring the timely commencement and
completion of statewide MA&E studies (penalties, transfer to independent
administration, or deauthorization of programs for which appropriate studies
have not been done or data collected.) However, we will consider these options
and others, as appropriate, if the studies are not done and data collected as we
direct herein.

X.   Priority and Funding MA&E Studies
      Throughout this decision, we have directed the utilities to gather data and
to perform studies. We summarize our directives for gathering data and
performing studies here and establish the following general priorities:
      1. Baseline studies and market data collection for all programs;
      2. Baseline and market data collection for evaluation of PY 2000 and
         PY 2001 performance indicators;
      3. Net-to-gross (NTG) ratio: data collection monthly on free-riders, review
         of MA&E studies, completion of Xenergy Study, and spillover;

                                       - 171 -
      4. Proposed useful life for energy efficiency measures;
      5. Completion of RER study and review of non-energy adders and market
         effects multipliers;
      6. Other cost-effectiveness calculation standards for net benefits;
      7. Define under-served customers, communities, markets, and market
         segments, conduct needs assessment, and develop marketing strategies
         to meet needs;
      8. Measurable and verifiable standards to measure market transformation;
      9. Market saturation by product, measure, and customer sub-classes;
     10. Business and Residential Energy Guide marketing plans;
     11. Standards for MA&E studies;
     12. SPC marketing techniques and strategies; and
     13. Awareness studies for school-based programs.
      Prior to engaging in any data collection or MA&E studies, the utilities
should convene a public process and obtain the input and preferably agreement
of interested stakeholders regarding the scope of the study, selection of
contractor, data collection methods, timing, and other protocols.
      If the utilities, ORA, and the CEC follow through with their recommended
plan to use the CALMAC as a forum for discussion and review of market
assessment and evaluation studies, the utilities may use this forum to develop
reporting requirements, procedures, and standards. The CALMAC may also be
used to prioritize the studies and to propose timetables for their completion.
      The filings required, which are based upon any such studies or data
collection, should summarize the process used to obtain the data, state whether
the protocols have been agreed upon, and identify any remaining disagreements.
      Performance of some of these studies were not budgeted PY 2000.
Accordingly, the Proposed Decision directs the utilities, and any other interested
parties to provide estimates of the cost of completing the listed studies and data
collection activities, identifying the bases and sources for such estimates, and


                                       - 172 -
showing appropriate calculations. In their comments on the Proposed Decision,
Edison estimated that an additional $1.2 million will be necessary to fund the
new study; PG&E estimated an additional $1-2 million; and Sempra estimated an
additional $4 million. We propose to allow the utilities to redirect the necessary
funds from either 1) funds budgeted to support the CBEE; 2) funds budgeted for
shareholder incentives; or 3) carry-over funds allocated to PY 2001, as reasonably
necessary to support the expeditious completion of these studies.

XI.   Milestones

      A. Procedural Background
          In the Interim Opinion (D.99-12-053), we declined to adopt the utilities‘
proposed PY 2000 program-specific performance award milestones and
associated incentive levels, deferring review and decision until the conclusion of
this proceeding. In so doing, we noted that Phase I of the AEAP, which was yet
undecided, would set the performance incentive cap for energy efficiency
programs for PY 2000 and PY 2001. We advised the utilities that, while no
program-specific performance award milestones would be in effect during the
interim period, we expected them to implement the authorized programs and
expend the authorized funds, as directed. (D.99-12-053, mimeo. at p. 16.) We also
stated:

          ―The use of program-specific performance milestones and
          awards has been previously approved; accordingly, we
          proceed upon the assumption that some milestones and
          awards will be ultimately approved although they may vary
          in form and amount.‖ (Id.)

          On May 4, 2000, we issued a decision in the AEAP reducing the overall
shareholder cap from the 11% authorized for PY 1999 to 7% for PY 2000 and
PY 2001. (D.00-05-019.) The Proposed Decision (PD) on the PY 2000 and PY 2001



                                       - 173 -
energy efficiency programs, issued five days later, deferred consideration of the
appropriateness of the proposed PY 2000 milestones to further proceedings.
(D.99-12-053., mimeo at p. 167.)
         In the comments on the PD, the utilities, the CEC, and NRDC urge that
we issue a decision on the milestones now, arguing that the milestones were
reviewed by the CBEE and fully litigated in the evidentiary hearing, and that
deferring the review to another process could inappropriately delay a decision to
the end of the year. TURN supports the PD‘s proposal to conduct further
proceedings.
         Having reviewed the comments, we agree that issuing a decision on
PY 2000 milestones is appropriate at this time. We proceed to dispose of this
issue, relying upon the evidence in the record, the parties‘ briefs, and the
comments filed on the PD.

      B. Milestone Background

             1. Standard
                We adopted a structural framework for PY 1999 performance
award mechanisms in Resolution E-3578. The four-part mechanism consists of
base (including new program roll-out), program administration or activity,
market effects, and aggressive implementation (spending) milestones. The
PY 1999 performance incentives emphasized two of the four categories: 1) rapid
and effective roll-out of new programs (base); and 2) effective program
administration (activity), for the new programs.
                In D. 99-08-021, we extended the performance award structural
framework to PY 2000 and PY 2001 programs, but directed the utilities to adjust
the weighting among the four milestone categories as follows:




                                       - 174 -
                 [D]evelop program-specific adjustments in award mechanisms
                 that shift the priority or weights among program incentive design
                 elements to:
                 a. Emphasize effective and efficient program
                    administration , as reflected in achievement of
                    program activity-based milestones, and
                 b. Place greater emphasis on market transformation,
                    as reflected in achievement of market changes and
                    effects, and
                 c. Reduce the degree of reliance on milestones
                    associated with new program roll-out, without
                    eliminating roll-out milestones entirely. (Id.,
                    Ordering Paragraph 8, at p. 34.)83
                 Section VII of the adopted policy rules also sets forth the basic
structure for the performance incentives as well as guiding principles for
development of the incentives. Section VII-8 provides for the following
components of the overall base compensation:
                 (1) base compensation based on competent management and
                 implementation of planned tasks; (2) minimum performance
                 standards, based on readily observable measures (such as the
                 completion of identified tasks), that an Administrator would need
                 to exceed in order to be eligible for any performance incentive
                 and penalties for not exceeding them; (3) performance incentives
                 for individual programs based on indicators of market effects and
                 reductions in market barriers (especially for indicators of lasting
                 effects); (4) a bonus incentive for exceptional overall performance
                 (e.g., if the Administrator met or exceeded individual program
                 goals for more than 75% of the programs under its management);
                 and (5) penalties for failing to implement specific programs or
                 other shortcomings in administration.



83D.99-08-021 also required the utilities to address the problems with the milestones
described by CBEE in its May 12, 1999 and June 14, 1999 filings. (Id.)




                                         - 175 -
               The Policy Rules also explain the purpose of performance
incentives and sets forth the broad standard for review as follows:

               Effective performance incentives encourage an Administrator to
               work enthusiastically and aggressively to achieve the
               Commission‘s objectives because they are rewarded when they
               are successful and penalized when they are not. To be effective
               in encouraging an Administrator to perform as desired, a
               targeted performance incentive mechanism should be, first and
               foremost, carefully and thoughtfully aligned with the policy
               objectives. Once this threshold is satisfied, mechanisms should
               also strive to be: (1) clear in their intended message; (2)
               understandable and accessible; (3) composed of rewards and/or
               penalties tied to outcomes the Administrator can affect; (4)
               reasonably balanced between risks and rewards for the
               Administrator and society as a whole; (5) large enough to attract
               and retain the attention of the Administrator; (6) timely; and (7)
               relatively easy to monitor with respect to evaluating the
               performance of the Administrator. (Policy Rule VII-2.)
               Shareholder incentive mechanisms should reward utilities for
some risk they bear associated with achieving program success and to
appropriately balance risks and rewards. (D.94-10-059; 57 CPUC 2d 1, 51-58.)
We strive to apply these principles in reviewing the utilities‘ proposed milestones
and incentive awards.

            2. Utilities’ Proposed Milestones
               Before the applications were filed, the CBEE worked with the
utilities on the proposed milestones and incentive awards. However, in its
October 27, 1999 Comments, the CBEE indicated that it could not support all of
the proposed milestones because they are not adequately aligned with the
Commission's policy objectives and decisions. Subsequently, after the
applications were filed, the CBEE held another meeting to review the proposed
milestones and filed supplemental comments. The utilities agreed to make some



                                      - 176 -
changes to milestones in response to the CBEE‘s comments but did not adopt all
of the CBEE‘s proposed revisions.
                During the course of this proceeding, each of the utilities entered
into separate agreements with the CEC to make certain other selected changes to
performance milestones. (See, e.g., SDG&E Exh. 203; SCG Exh. 403; PG&E Exh.
126; Edison Exh. 308.) The utilities‘ application amendments filed on February 4,
2000 reflect the revised milestones. Edison and SoCalGas also incorporated other
changes in the application amendments to reflect typographical errors or to add
clarifying language.
                The utilities‘ proposed incentives structure provides milestones
in each of the CBEE‘s fourteen programs although SDG&E combines the
Commercial New Construction and Industrial/Agricultural New Construction
programs. The utilities contend that the proposed incentives structure and
specific milestones appropriately address the CBEE‘s concerns and respond to
our directives by: 1) significantly reducing the number of milestones and
incentives associated with the roll-out of new programs and decreasing the
weighting for the base award category; 2) continuing to emphasize effective
program administration through activity-based milestones, maintaining or
increasing the weighting for the program activity category (previously the
administration category); and 3) increasing the weighting of milestones for
market changes/market effects to assume a greater amount of risk associated
with attainment of the milestones and ultimately the incentives cap, because the
results associated with these milestones are not entirely within their control.
                The utilities all propose awards that add up to 110% of the total
shareholder incentive cap, contending that the extra potential award that they are
allowed to earn but not necessarily to collect is justified by the level of risk
associated with these milestones and will provide them with a fair and


                                        - 177 -
reasonable opportunity to reach the incentives cap. The utilities point out that,
regardless of the total amount of incentives achieved through the milestones, the
total award cannot exceed the amount of the cap.
                  A summary of the utilities‘ milestone proposals follows.

                     a) SDG&E
                        SDG&E‘s performance award weighting for PY 2000, as
compared with that adopted for PY 1999, is as follows:
                     Component              2000 Proposal      1999 Proposal
          Base                                    12.7%           32.2%
          Activity                                36.7%           32.2%
          Market Effects                          40.9%            16%
          Aggressive Implementation               20.0%            25%
          Total                                   110.3%          105.2%

                        SDG&E‘s incentives are scaled to provide different levels of
achievement for each milestone. SDG&E includes two (2) two-year milestones,
which it proposes to be part of the total award for PY 2001.

                        SDG&E changes the manner in which it calculates the
aggressive implementation milestones for PY 2000, calculating the award using
the total authorized program budget instead of calculating the award by program
area. It proposes to collect 35% of the award if it commits 50% of total program
funds, with the percentage of the award increasing linearly to a 90% fund
commitment for a 100% award. SDG&E contends that since the aggressive
implementation element of the incentives structure requires it to achieve a
minimum threshold level of spending for all programs, it has significant
motivation to aggressively pursue each program.




                                        - 178 -
                     b) SoCalGas
                       SoCalGas‘ proposed performance award weighting for
PY 2000, as compared with that adopted for PY 1999, is as follows:
                     Component            2000 Proposal     1999 Proposal
          Base                                  10%              32%
          Activity                              32%              32%
          Market Effects                        45%              16%
          Aggressive Implementation             23%              25%
          Total                                 110%            105%

                       SoCalGas explains that it has included milestones
(particularly market effects milestones) that can be easily and directly extended
through PY 2001. Many of SoCalGas‘ milestones are scaled to reflect different
performance rates. Aggressive implementation awards are achieved after
committing 70% of the budget within each of the three program administrative
areas and increase linearly to a maximum 90% commitment target for the 100%
award level. SoCalGas proposes to drop the PY 1999 requirement that program
awards be reduced by 10% for each program where spending falls below 50% of
the authorized budget.




                                      - 179 -
                     c) Edison
                       Edison‘s performance award weighting for PY 2000, as
compared to that adopted for PY 1999, is as follows:
                     Component             2000 Proposal     1999 Proposal
          Base                                   10%              32%
          Activity                               32%              32%
          Market Effects                         43%              16%
          Aggressive Implementation              25%              25%
          Total                                  110%             105%

                       Edison‘s base, activity, and market effects milestones have
two tiers, a 100% award for ―superior performance‖ and a reduced 70% award
for ―adequate performance.‖ Edison bases the aggressive implementation
component on the three administrative program areas. The aggressive
implementation award is achieved only after spending or committing 70% of the
budget within the program area and then is increased linearly to 90%. Program
area awards are reduced by 10% for each program within the program area that
spends or commits less than 50% of the authorized program budget.

                       Edison allocates the 10% ―performance factor‖ (the amount
over 100%) 8% to market effects and 2% to activity.

                       Edison contends that its milestone descriptions contain
baseline information whenever it is available and if not available, set forth the
source of the data. Edison also points out that baseline information is not
applicable for certain milestones, such as program roll-out activities and program
activities unique to a program. In those cases, Edison states that it relied upon
adopted 1999 performance levels (e.g. number of days to roll-out a program) as
well as input received during the planning process. Edison also contends that its


                                       - 180 -
milestones are clearly linked to program performance indicators and market
objectives.

                    d) PG&E
                       PG&E‘s proposed performance award weighting for
PY 2000, as compared to that adopted for PY 1999, is as follows:
                    Component              2000 Proposal     1999 Proposal
         Base                                   12%                32%
         Activity                               27%                32%
         Market Effects                         51%                16%
         Aggressive Implementation              20%                25%
         Total                                  110%               105%

                       PG&E scales its awards from 60% to 100% for various
levels of performance. PG&E applies the aggressive implementation awards to
the six programs identified by the CBEE as most appropriate for this type of
award because they have significant implementation activities and funding
focused on customers and customer actions: Residential Renovation and Retrofit;
Large Nonresidential Comprehensive Retrofit, Small Nonresidential
Comprehensive Retrofit, Nonresidential Process Overhaul, Commercial
Remodeling and Renovation, and Commercial New Construction. The
milestones for four of the six programs are based on spending while the other
two milestones are based on increasing the number of projects.
                       PG&E proposes aggressive implementation award levels
for 70-90% of funds committed in the Large Comprehensive Retrofit Program
and Process Overhaul and 40-70% of program funds committed for the Small
Comprehensive Retrofit Program. In the residential program area, aggressive
implementation awards are tiered 100% for 90% commitments and 60% for 50%


                                      - 181 -
of commitments. Aggressive implementation awards for Commercial
Remodeling and Renovation and for Commercial New Construction are based on
increased projects and not spending.

       C. Positions of the Parties

             1. Utilities
                The utilities contend that the proposed milestones should be
adopted because there were created after substantial public input both prior to
and after the applications were filed, before through the CBEE process, and after,
by further meetings with the CBEE and the parties. Further, SDG&E/SoCalGas
note that they will be filing verification plans that will provide us with the
opportunity for further review through the advice letter process. PG&E states
that it recognizes that the incentive mechanism is not perfect, but given the
perspective of Commission, the time and information available, the CBEE‘s
input, and the need to provide strong progress towards the Commission‘s policy
goals, the milestones are effective and should be adopted.
                In their briefs, the utilities note that the milestones were
developed on the assumption that we would adopt an 11% shareholder incentive
cap and contend that they would need to review the milestones again if we
adopted a lower cap. In their comments on the PD, the utilities changed course.
Because of the late date, the utilities now urge us to adopt the milestones as
proposed and without modification despite the lower 7% shareholder incentive
cap.

             2. The CBEE
                In its November 24, 1999 Supplemental Report, the CBEE makes
further recommendations for changes to the proposed milestones, some
comprehensive, relating to statewide activities, program priorities, and



                                       - 182 -
aggressive implementation, and others relating to utility-specific programs and
activities.
                The CBEE notes that it does not agree with the way the utilities
assigned all the milestones, particularly those assigned to ―market effects,‖ which
are often really program activity milestones. (CBEE November 24, 1999
Supplemental Report, p. 19.) Because the utilities have made progress, however,
the CBEE does not reclassify the milestones but simply notes that the movement
to market effects milestones is less than the utilities claim and the weights
assigned to market effects are overestimates. Some of the CBEE‘s key
recommendations are as follows: 1) milestones for statewide residential programs
(Appliances, Lighting, and RCP) should be consistent across utilities; 2) the
proposed milestones for the overall implementation and scope of services
contract with the statewide implementer for the Appliance and Lighting
Programs should not be allowed; and 3) the statewide Savings by Design (new
construction) program should use a consistent format for milestones. The CBEE
does not make recommendations in the nonresidential area because it could not
complete the review in time due to illness of technical staff.
                The CBEE also reviewed the aggressive implementation
milestones to determine whether they were more effective and more aggressive
than for PY 1999. Using these principles, the CBEE recommends the following:

                1) All utilities: increase the upper end of the range for earning
                   100% of the incentive, from the 90% used in 1999 to 95% or
                   100%;

                2) PG&E: adjust ranges/thresholds for award recovery upwards
                   to a 60% minimum spending level, specified proportionately
                   (60% award for 60% performance), and improved specification
                   for Commercial Remodeling and Renovation and Commercial
                   New Construction;



                                       - 183 -
                3) SDG&E: apply the aggressive implementation milestone at
                   the program area or program level and not the portfolio level,
                   subject to a 10% reduction of the program area award
                   allocation (cap) for each program in the program area with
                   spending less than 50% of the authorized budget, because
                   SDG&E‘s proposal does not provide adequate incentives to
                   focus efforts across all 14 programs; adjust threshold for
                   award recovery to a 70% minimum spending level;

                4) Edison: approve if it corrects the error in the application to
                   show that it proposes to calculate the aggressive
                   implementation milestone by program area and to maintain
                   the PY 1999 specification requiring a 50% spending threshold
                   for individual programs, subject to a 10% reduction for
                   spending less; and

                5) SoCalGas: no recommendation.84 (Id. at pp. 32-34.)
                CBEE‘s recommendations are intended to 1) better align the
milestones with Commission policy objectives and rules; 2) emphasize effective
and efficient program administration and place greater emphasis on market
transformation; 3) ensure the milestones are a stretch consistent with the concept
of an appropriate balance of risk and reward; and 4) clarify the utility-proposed
milestones where necessary or useful. (Id. at p. 16)

            3. TURN
                TURN is critical of the utilities‘ proposed shareholder incentive
mechanism and milestones because they are often vague, unconnected to
program outcomes, and provide no assurance that the program outcomes will be
successful. TURN suggests that the financial disincentives for utilities to reduce
energy demand are great and that the milestone mechanism does not provide a


84CBEE voted on a recommendation to continue the PY 1999 specification with the 50%
spending threshold for each program/10% penalty but it failed.




                                      - 184 -
balance to those disincentives. Conceding that the milestone mechanisms follow
our prior direction to reduce the emphasis on resource savings and focus on
market transformation activities, TURN points out that this incentive structure
was intended only to be an interim and not permanent measure. (D.97-12-103,
mimeo., at pp. 27-28.) TURN rues the limited review that we have given to
individual milestones since we adopted this shareholder incentive structure.
TURN further maintains that the awards are basically a giveaway since there are
no measurement protocols for market effects or an accepted standard for
successful market transformation, the milestones are unrelated to energy savings,
and the utilities have great disincentives to increase energy sales.85
                   With respect to individual milestones, TURN points out that: 1)
many of the milestones have little relationship to the associated performance
indicators, and instead of being a proxy for performance grant the utilities
inordinate flexibility, essentially providing the utility shareholders with a ―blank
check‖; 2) many milestones are vague, do not detail quantifiable goals, are not
connected to valid baseline data, and do not entail any element measuring
performance or program success in accomplishing actual behavior change; 3)
some milestones compensate the utilities for performing tasks for which there is
no risk involved; and 4) some milestones are duplicative and require no separate
program activity to qualify for incentives. TURN recommends: 1) a minimum

85   TURN states that it is:
         particularly concerned that the Commission has allowed a major policy
         goal – market transformation – to become the basis for actual performance
         measurement. This is extremely unfortunate, since there appears to be a
         general consensus that no accepted standards for measuring successful
         market transformation yet exist, either in theory or practice. (p. 18.)




                                          - 185 -
savings target based on ex-post verification as a condition for recovery;
2 amendment of individual milestones to provide more quantifiable and
verifiable goals; 3) necessary baseline data provided as a condition of recovery;
and 4) an independent third party process for verifying utility measurement and
evaluation studies.
                In its comments on the PD, TURN supports the decision‘s orders
compelling additional baseline data collection and delaying a decision on
milestones and incentives until the data is collected. TURN is concerned that the
current milestones will be adopted by default simply because of the passage of
time. TURN recommends that we prorate all the current milestone awards down
by 36% to account for the decreased 7% cap. TURN also seeks clarification of the
manner in which the proposed performance indicators will be evaluated and
adopted.

            4. The CEC
                The CEC is concerned that there is not sufficient background data
from which to judge the reasonableness of certain specific performance indicators
or milestones it has identified, which must be done prior to program approval.
The CEC supports Jt. Exh. 3 which requires the development of an MA&E
schedule and the production of basic market data to provide context for all future
milestone decisions.
                In its brief, the CEC recommends that we conditionally approve
the proposed milestones, subject to receipt of a verification plan with additional
basic market data (baseline data) for specified milestones, by July 1, 2000. Except
for the milestones it has identified, the CEC contends that basic market data
already exists. The CEC also recommends that we require basic market data in all
future applications.



                                      - 186 -
                In its comments on the PD, the CEC opposes any further delay in
rendering a decision on the milestones and recommends that we modify the
decision to either: 1) tentatively adopt the milestones and allow comments; or 2)
direct the utilities to file revised milestones with awards equivalent to 7 or 8% of
program budget levels and allow comments.

             5. REECH
                REECH does not believe that shareholder incentives are an
appropriate allocation of PCG, but, if we approve incentives, recommends that
we authorize a schedule for incentive payments for ―base‖ activities, which
should not exceed 25% of total incentives, and defer all other incentives to review
by a group designated by the AEAP, subject to review by Energy Division
contractual consultants. It proposes that the base incentive be pro-rated over the
four calendar quarters and be measured solely by the expenditure of the budgets.
Attachment C to REECH‘s brief delineates examples of PG&E‘s and Edison‘s
milestones that it views as unreasonable because the award is too high, not a
market event, difficult to verify, or lacks a numerical reference basis. REECH
also identifies cases where it believes milestones should be provided.

             6. ORA
                In its brief, ORA opines that a decision in the AEAP lowering the
cap would require a complete reexamination of the milestones and incentive
awards and recommends that the utilities submit reduced milestone showings
reflecting the reduced cap via an advice letter. ORA does not take a position on
milestones in its comments to the PD.

             7. Utility Responses
                SDG&E and SoCalGas object to TURN‘s arguments as outside the
scope of these proceedings, pointing out that these issues should have been



                                        - 187 -
raised before issuance of D.99-08-021. They also contend that TURN‘s arguments
regarding market transformation milestones and minimum savings targets are
inconsistent with D.99-08-021.
                With respect to TURN‘s claims that the milestones are vague or
lack measurable standards, SDG&E and SoCalGas point out that they will be
submitting verification plans that will clarify any remaining vagueness issues.
Further, SDG&E and SoCalGas contend that the milestones involve utility risk
because for PY 2000 they significantly increase the number of milestones for
market effects, where the results are not within the utilities‘ control.
                SDG&E and SoCalGas also note that TURN‘s conclusion
regarding the alleged disincentive for the utilities to conserve energy is based
upon arguments that we have previously rejected (ERAM and PBR) or
arguments that are inapplicable to SDG&E and SCG (rate freeze). SDG&E is
amenable to adopting the CEC‘s recommendations.
                Edison recommends that we reject TURN‘s comments because it
essentially challenges our adopted market transformation policy. Edison also
argues that we should reject TURN‘s recommendation that there be a minimum
savings target as a condition to performance incentive recovery as outside scope
since we approved the mechanism to be used through PY 2000 in Resolution
E-3592. Edison also points out that some of the milestones are particularly
challenging because they require coordination among the utilities to meet
aggressive roll-out dates and that no additional verification of MA&E studies is
required because this job will be done by ORA or the Energy Division in the
AEAP proceeding.
                Edison disagrees with the CEC‘s additional recommendations on
milestones and with REECH‘s recommendations to alter the incentive
mechanism as outside the scope of the hearing.


                                        - 188 -
              PG&E disagrees with TURN‘s characterization of the utilities‘
motivations with respect to energy efficiency although it agrees that the incentive
mechanism is neither optimal nor as good as the prior incentive mechanism
which motivated utilities to acquire resources. However, PG&E points out that
this mechanism is the best that can be developed given the time constraint of
developing the milestones in a public process with the CBEE and proposing them
to the Commission, and the need to stay consistent with the milestones approved
for 1998 in Decision 97-12-103, for 1999 in Resolution E-3592, and with the
framework set out in Decision 99-08-021 for 2000 and 2001.
              PG&E contends that the problem with the mechanism is that it
incents the utilities for short-term actions in furtherance of a market
transformation goal that won‘t be realized until sometime well out into the future
but, because of the Commission‘s initial goal of independent administration, the
focus has been on developing short-term milestones and incentives and not on a
longer-term shareholder incentive mechanism for rewarding market
transformation. PG&E also maintains that the incentive structure allows the
utilities to run the programs and earn incentives within the time frame of the AB
1890 public purpose program funding.
              PG&E argues that we should not spend the rest of 2000 revisiting
and reviewing the milestones for the PY 2000 program because the biggest
benefit of the milestone mechanism is that it provides clear direction to the
program managers from the regulators, which is eroded with each day of delay.
PG&E recommends that if we want to undertake a comprehensive review of the
milestones and incentive mechanism, we begin working now on the PY 2001
milestones.
              In their comments on the PD, the utilities also oppose TURN‘s
proposal for a proportional decrease in the award associated with each milestone


                                       - 189 -
to reflect the reduced shareholder incentive cap. PG&E states that to do so would
―be inconsistent with the design of the milestones. The milestones were designed
as stretch goals that would challenge the utilities to superior performance
through the course of the program year. The dollar amounts assigned to each
milestone reflect the difficulty and scope of the activities associated with that
milestone. To change the dollar amounts arbitrarily upset (stet) the carefully
negotiated balance between difficulty, risk and reward.‖ (PG&E Reply
Comments at p. 2.)

      D. Discussion
          We are faced with a difficult quandary as we attempt to address the
utilities‘ proposed milestones for PY 2000. We are troubled by the fact that we
have not yet had the opportunity to comprehensively review the proposed
milestones since we embarked on the market transformation road. The proposed
milestones are very complex and multi-faceted and a comprehensive review
would require substantial time and resources, including expert consultation. A
comprehensive review would require that each and every proposed milestone,
the basis upon which it is predicated, and its relationship to the programs and to
other milestones, be examined individually. For each milestone, we would need
to look at many different factors, including whether: (1) the milestones chosen
for incentive awards are appropriate, particularly given that the utilities do not
propose milestones for all programs; (2) the milestones are appropriately related
to the programs and program outcomes; (3) the milestones have appropriate
goals, that are attainable but require effort to reach; (4) the milestones are
measurable and verifiable; (5) the milestones reasonably relate to the
performance indicators and market objectives; and (6) the incentive award levels




                                        - 190 -
are reasonable in relationship to the effort required, to the program budget, and
to the award levels for other milestones.86
         It is neither feasible nor practical to perform such an extensive inquiry
at this late date for PY 2000 programs. We agree with PG&E that while the
milestone and incentive structure is far from optimal, it is appropriate for
PY 2000 given the time constraints and uncertainty about continued utility
administration.
         Thus, our review of PY 2000 milestones and performance awards is
necessarily limited. Nevertheless, we must, at a minimum, ensure that the
milestones are an appropriate challenge, reflecting the balance between risk and
reward established in the policy rules, and are quantifiable, measurable, and
verifiable. Appropriate baseline data is essential to ensure that the appropriate
balance between risk and reward is maintained for PY 2000 and to better align
the PY 2001 milestones with our objectives and policy rules. Thus, in this
decision, we strive to make the milestones the best we can with our limited
resources for PY 2000 and express our intent to further scrutinize the milestones
and incentive structure for PY 2001.
         For PY 2000, we must rely upon the review conducted by the CBEE and
the other parties. The CBEE is the only entity that has the requisite background
and contextual understanding of the milestones and performance awards as well
as the expertise to perform a review of the utilities‘ proposals. However, we note


86 We agree with TURN that the milestones should also be related to changed
behavior and to energy savings; however, since these objectives were neither
included in our directives for the PY 2000 programs nor imposed as a part of the
planning process conducted by the CBEE, we do not change the nature of the
milestones for PY 2000.




                                       - 191 -
that even the CBEE‘s review was not complete. The CBEE states that because of
limited time, it only focused on the highest priorities, including statewide
programs, programs with significant funding, and identified program priorities,
and, because of illness, did not complete a review of the milestones proposed in
the nonresidential program area. For similar reasons, TURN and REECH made
cursory reviews, and ORA did none.
          As described below, we adopt most of the utilities‘ proposed
milestones, making some of the revisions recommended by the CBEE, the CEC,
and TURN. We also modify the incentives to reflect the lowered shareholder
incentive cap and the aggressive implementation incentives to better align with
our adopted policies.

             1. Incentive Award Modification to Reflect 7%
                Shareholder Incentive Cap
                 The utilities designed the shareholder incentives based on an 11%
shareholder incentive cap, that is, the total possible award, reached by totaling
up the incentives associated with individual milestones, equal 11% of the
program budget. To this amount, the utilities added a 10% margin or
―performance factor,‖ e.g., the incentive awards for the milestones total up to
110% instead of 100% of the 11% shareholder cap. Thus, the utilities built in the
opportunity to earn the total potential award without meeting each and every
milestone.
                 Now that the shareholder incentive cap has been reduced to 7%,
the utilities‘ proposed incentives greatly exceed the permitted total award, not
just by 10% but by 72%. We are not persuaded that there is any valid reason to
leave the individual incentives at a level that is so far in excess of the total




                                         - 192 -
permissible recovery.87 On the contrary, maintaining the individual awards at
such a high level while reducing the overall cap defeats the purpose of the
awards: to reward the utilities for risk and for superior performance. The fairest
and most rational way to address the performance awards to reflect the 7%
incentive cap is to reduce each award proportionately.
                 The utilities make the same objections to a proportional decrease
in incentives that they did when we ordered that the program applications be
filed before we even set the shareholder incentive cap. As we stated in D.99-08-
021 when rejecting these arguments:

                 We believe that the utilities should be able to develop
                 meaningful program designs, program-specific
                 incentives and budgets without knowing the
                 Commission‘s final determination on overall incentive
                 levels. Moreover, the mechanics of doing this is
                 relatively simple: the utilities can develop a table of
                 milestones and indicate the percentage of total
                 incentive that each milestone represents. When the
                 total level is determined, that number can be used to
                 finalize the milestone-specific performance incentive
                 levels with minimal extra effect. While it may be
                 preferable for the utilities to know the total incentive
                 level up front, we do not consider it to be necessary.‖
                 (Id., mimeo at p. 27.)

                 The same principles apply here. In addition, the utilities‘
argument is not credible and is not in the public interest. Adopting the milestone
awards as proposed, without modification to reflect the reduced 7% overall
incentive cap, in effect, virtually ensures that the utilities will earn the incentives

87Nor do we believe that the structure of the proposed milestones and
performance incentives need to be revised simply because we adopted a 7%
instead of an 11% shareholder incentive cap, as the utilities originally argued.




                                         - 193 -
but without the required corresponding effort to provide superior programs.
The utilities‘ proposal further would allow the utilities to pick and choose among
the programs to emphasize, and, correspondingly, the programs to ignore, based
on the potential for earning the incentive. It is likely that those programs for
which the earnings potential now appears remote will be de-emphasized in favor
of those that will maximize earnings. It is also possible that the utilities may have
already reached their milestones and earned the awards in one or more programs
or program areas, so that adoption of this incentive award structure would not
provide them with any incentive to promote programs for the remainder of the
year. Finally, the utilities‘ proposal substantially alters the balance struck
between the fair opportunity to earn incentives through superior work and the
―stretch‖ goal by both reducing risk and increasing the opportunity for reward
and is contrary to our policy objectives.
                 On the other hand, a proportional reduction of each milestone
award maintains the milestone design crafted by the utilities in conjunction with
the CBEE. The dollar amounts assigned to each milestone, in relationship to the
dollar amounts assigned to the other milestones, maintains the ―carefully
negotiated balance between difficulty, risk and reward,‖ albeit at a lower total
amount. We direct the utilities to proportionately reduce the incentive awards
for each milestone across the board to reflect the adopted 7% shareholder
incentive cap.
                 We will, however, allow the utilities to maintain the 10% margin
over the total shareholder incentive cap, thus giving them an additional
opportunity to earn the total potential award without meeting each and every
milestone. We do so even though such a margin seems contrary to our objectives
given the fact that we only recently reduced the incentive cap from 11% to 7%




                                        - 194 -
and that the utilities have been operating on this assumption from the beginning
of the year. We will revisit this issue for PY 2001.

              2. Aggressive Implementation
                 The aggressive implementation element of the shareholder
incentive mechanism is intended to be a bonus incentive for exceptional
performance. (Policy Rule VIII-8(4).) The aggressive implementation incentives
are intended to encourage the utilities to spend the budgeted funds and to get the
money into the marketplace.88 These milestones are intended to be challenging
and have a threshold that must be met before the utilities can earn the incentives.
                 If these milestones are truly intended to reflect superior
performance in implementing all programs, it is essential that the thresholds be
attainable but require a stretch. The ability to earn awards must not be diluted
by pooling all programs together but must be linked preferably to individual
programs, or at a minimum to program areas. Thus, we agree with the CBEE‘s
recommendations that both the lower and upper levels of the threshold spending
range for earnings be raised for all utilities. We also agree with the CBEE‘s
recommended revision to SDG&E‘s aggressive implementation award
mechanism. While the CBEE was not able to come to a recommendation with
respect to SoCalGas‘ proposed aggressive implementation milestones, we believe
that it is important for SoCalGas‘ incentive package to include both the carrot and
the stick (incentives and penalties) as provided in our policy rules, in a manner



88The characterization of these milestones as ―aggressive‖ seems to be somewhat
overstated. It is not inherently aggressive to expect the utility administrators to spend
the money allocated for these programs—that is precisely what a program
administrator is supposed to do.




                                          - 195 -
similar to SDG&E and Edison. We thus adopt revisions to SoCalGas‘ incentive
structure.
                 We provide identical threshold spending ranges for Edison,
SDG&E and SoCalGas; however, we provide an alternative threshold spending
range for PG&E. We do so because PG&E, unlike the other utilities, attempts to
modify its incentive mechanism in the manner suggested by the CBEE.89 By
focusing its incentive mechanism on the six programs suggested by the CBEE,
PG&E‘s opportunity to earn incentives may be more difficult than the
opportunity provided the other utilities. Accordingly, PG&E‘s thresholds are set
at a lower level, though not as low as PG&E proposes. PG&E‘s aggressive
implementation incentives still must satisfy our criteria that they reflect superior
performance. We do not believe spending less than 60% of authorized program
funds for a program reflects superior performance.
                 We also direct PG&E to revise two of its aggressive
implementation milestones, as recommended by the CBEE, which will result in a
decrease in the percentage of incentives dedicated to the aggressive
implementation category. However, since the change should be minimal and the
incentive structure still roughly complies with the directives of D.99-08-021, at
this late date, it would serve no purpose to require further modifications. We
will revisit this issue in PY 2001.
                 We direct the utilities to revise their aggressive implementation
incentive structure as follows:



89The other utilities either maintained the incentive structure approved for PY 1999
programs (Edison) or revised the PY 1999 structures to make them easier to meet.
(SoCalGas and SDG&E.)




                                         - 196 -
                1) Edison, SDG&E, and SoCalGas: increase the threshold for
                   100% of award to require the expenditure of 95% of program
                   area funds.

                2) PG&E: adjust ranges/thresholds upwards to a 60% minimum,
                   to be increased proportionately to 90% (e.g., 60% award for
                   60% performance to 100% award for 90% performance). The
                   milestones for Commercial Remodeling and Renovation and
                   Commercial New Construction, which are activity milestones
                   and not aggressive implementation milestones, each should be
                   split into two milestones: 1) an activity milestone, with a
                   reduced award; and 2) an aggressive implementation
                   milestone, based on spending and not projects, which should
                   have the greater award.

                3) SDG&E: apply the aggressive implementation milestone at
                   the program area or program level and not the portfolio level;
                   awards to be subject to a 10% reduction for each program in
                   the program area where less than 50% of the authorized
                   budget is expended, the same as in 1999, because SDG&E‘s
                   proposal does not provide adequate incentives to focus efforts
                   across all 14 programs. Awards are not earned until 70% of
                   funding is achieved, the same as Edison and SoCalGas.

                4) SoCalGas: reinstitute the 10% penalty, that is, awards are
                   subject to a 10% reduction for each program in the program
                   area where less than 50% of the authorized budget is
                   expended, the same as in 1999.

                5) Edison: no change since Edison has amended its application
                   to correct the errors.

             3. Specific Milestone Changes and
                Corrections for PY2000
                We approve most of the proposed milestones with changes or
clarifications in several areas to ensure that the milestones and incentives are
appropriate within the parameters previously established, and that they are
measurable and verifiable to facilitate an expeditious and structured review in
the AEAP to be filed in 2002. We reject two milestones on CBEE‘s


                                       - 197 -
recommendation and direct the substitution of two other milestones. Our
changes and modifications are summarized below and are set forth in more
detail on the tables attached as Appendix D. Appendix D consists of the utilities‘
proposed milestones with two additional columns reflecting the additional
information and changes we require: (1) Verification Requirements; and
(2) CPUC Change. Where agreement was reached between parties, we
incorporate the changes.
               The primary changes to the milestones and incentives we adopt
are summarized as follows:

               All: We require the utilities to coordinate the web-
               based emerging technology database being developed
               by Edison for all awards associated with development
               of the Emerging Technology Coordination Council,
               including formation, meetings, and associated reports.

               All: Where an award for Energy Guides development
               and distribution is identified, we require publicizing
               the guides‘ availability and working CBOs for
               distribution.

               All: Generally for training and seminars, we require
               an exit survey addressing learning assessment.

               PG&E and Edison: We reject the awards for
               negotiating the statewide appliance and lighting
               vendor contracts, which were substantially completed
               by January of 2000. In their place, for Edison, we have
               developed a two-part milestone for residential
               lighting, identified as SCER-16, and provided the same
               award. For PG&E, we have developed two milestones
               relating to the residential refrigerator recycling
               program, identified as RAPP-7 and RAPP-8, and
               provided the same award.




                                      - 198 -
                PG&E: We have increased the numeric goals for the
                number of contractors trained and certified for all
                programs. This change applies to PG&E throughout
                all the milestones per program area.

                PG&E: For aggressive implementation milestones
                (RR&R6, NR1, NR9, NR21) we have adjusted the
                sliding award scale to meet a minimum spending level
                of 60%. We have split the aggressive implementation
                milestones NR24 and NC3, developed two additional
                spending milestones for Commercial Remodeling and
                Renovation (NR27) and Commercial New
                Construction (NC9), and transferred to them part of
                the incentives for NR24 and NC3. The award values
                reflect the 11% performance cap, requiring additional
                adjustment to meet the 7% performance cap.

                SDG&E: For Commercial New Construction (NC3)
                we have corrected the milestone to reflect the Case
                Management Agreement submitted. The corrected
                milestone reads: ―Achieve an increase in the absolute
                market share of new building designs that exceed the
                1998 T24 standard by at least 10%.‖

                SoCalGas: We have identified the verification
                requirements needed, but have not addressed the
                impact of changes needed in the milestones to address
                the newly submitted Energy Advantage Home
                Program and Savings By Design Program redesigns.

                Individual milestones that refer to a specified number
                of days for implementation after Commission decision
                are modified to refer to the specified number of days
                after January 1, 2000, the date the programs were
                authorized to begin.
                We reject REECH‘s proposals as outside the scope of this hearing.
We also note that there is no evidence in the record regarding the
appropriateness of REECH‘s proposal because it was not developed at the
evidentiary hearing but proposed for the first time in its post-hearing brief.


                                       - 199 -
                 Within 30 days from the effective date of this decision, the
utilities are directed to file amendments to the PY 2000/2001 applications
reflecting the revised milestones and performance incentives. The utilities
should also append the amendments to the applications on file in the
Commission‘s Central Files.

      E. PY 2001 Milestones
           We agree with the utilities that the milestones should ideally be
finalized before the program year begins so that they will serve the intended
purpose of motivating them to fully implement the programs. We also agree
with PG&E that we should begin soon to work on the PY 2001 milestones and
incentive structure, particularly since the CBEE is not here to help with the
process.
           For PY 2001, we direct the Energy Division to conduct public
workshops to assist in the development of appropriate milestones and incentive
awards for PY 2001.
           For PY 2001, we propose to explore ways to simplify the shareholder
incentive structure, possibly using a template or prescribed format to facilitate an
expeditious review, and to subject the individual milestones to a more rigorous
scrutiny. We will strive to ensure that: (1) milestones and associated rewards
align with the policy goals; (2) milestones appropriately align with the program
objectives and performance indicators; (3) milestones are set at the appropriate
levels, e.g., that they are reasonably related to a verified baseline and that goals
increase in successive years; (4) milestones have identified verifiable targets and
verification plans; (5) milestones are more consistent for statewide programs;
(6) milestones to the extent practicable measure changes in behavior; and (7) the
milestones constitute an appropriate balance of risk and reward. We may also



                                        - 200 -
consider the appropriateness of tying awards to energy savings or cost
effectiveness.

XII.    Fund-shifting and Other Redirection of Funds

        A. Fund-shifting
            The utilities have proposed to alter the fund-shifting rules from PY 1999
as follows:
Program                                                  1999           2000
Residential Program Area:                               100%           105%
Heating & Cooling                                      85-115%        85-120%
Lighting                                               85-115%        85-120%
Appliances                                             85-115%        85-120%
Retrofit & Renovation                                  85-110%        85-120%
Nonresidential Program Area:                            100%           100%
Large Comprehensive Retrofit                           85-105%        85-115%
Small Comprehensive Retrofit                           85-105%        85-115%
HVAC Turnover                                          85-115%        85-115%
Motor Turnover                                         85-115%        85-115%
Process                                                85-115%        85-115%
Remodeling/Renovation                                  85-115%        85-115%
New Construction Program Area:                          100%           110%
Residential                                            85-115%        80-120%
Commercial                                             85-115%        80-120%
Industrial/Agricultural                                85-115%        80-120%
Codes & Stds. And Local Gov‘t. Initiatives             85-115%        80-120%

            The proposed modifications raise the upper bands for all residential
program elements and for the Large and Small Nonresidential Comprehensive
Retrofit elements, and the upper and lower bands for the new construction
elements. These proposals appear reasonable for PY 2000. We will approve
them for use in PY 2000, but direct the utilities to provide further justification for
allowing such fund-shifting in PY 2001. Further, the utilities must ensure that the
budgets, after funds are shifted, are still consistent with customer contributions
by class and sub-class.

            As we have noted throughout this decision, there is inadequate
information, at this point, to allow us to appropriately review what the utilities
are doing programmatically, or how they are expending the funds within the


                                             - 201 -
current imposed limitations. Without better information showing the actions
taken to target customers and studies undertaken to determine customers‘ needs,
we cannot conclude that funds budgeted for one program or strategy is
unnecessary and should be moved to another program or strategy. Instead, we
direct the utilities to explore ways to better promote the programs. Thus, for
PY 2001, we direct the utilities to explain why they should be able to shift funds
in this manner, without seeking our prior approval via an advice letter or other
filing. The explanation shall be correlated with a showing of the additional
efforts undertaken in PY 2000 and proposed to be taken in PY 2001 to assess
customers‘ needs and to promote the strategy or program to the targeted
customer classes.
         In its application, SoCalGas also proposes to allow fund-shifting
between program areas, e.g., from nonresidential to residential, to give it
maximum flexibility to meet demand and respond to market changes. During
the evidentiary hearing, the other utilities announced that they concurred in
SoCalGas‘ recommendation. The utilities have not shown a need for this
additional ―flexibility‖ and, given our misgivings about the utilities‘ outreach
efforts as discussed above, we do not believe that such additional ―flexibility‖ is
warranted.

      B. Redirection of Funds
         The additional carryover funds for PY 2000, the excess funds budgeted
for the CBEE, and the funds budgeted for shareholder incentives results in the
following estimated amounts:90


 The projected carryover amounts are estimates and may change as actual costs for
90

PY 1998 and PY 1999 are finalized.




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                         PG&E             Edison          SDG&E           SoCalGas
Excess PY 2000       $      .059 M    $   .745 M      $ 2.191 M       $    .211 M
Carryover
CBEE Funds           $      .761 M    $   .646 M      $   .230 M      $     -
Shareholder          $   14.198 M     $ 8.712 M       $ 3.289 M       $     -
Incentive Funds
Total                $   15.018 M     $10.103 M       $ 5.710 M       $ .211 M

         These funds should be redirected first, to meet the additional MA&E
requirements we impose on the utilities in this decision. Any remaining funds
should be redirected as follows:

         PG&E and SDG&E: As much as needed to fund the new refrigerator
         recycling programs, with the remainder targeted toward under-served
         communities and markets in the statewide Express Efficiency, Small
         SPC, and Multi-family RCP programs, in roughly similar proportions.

         Edison and SoCalGas: To under-served communities and markets in
         the statewide Express Efficiency, Small SPC, and Multi-family RCP
         programs, in roughly similar proportions.
         The utilities should file revised budgets redirecting the funds as set
forth above. The revised budgets should be filed as an amendment to the PY
2000 application and attached to the applications maintained in the
Commission‘s Central Files.

XIII. Summer 2000 Energy Efficiency Initiative

      A. The Issue
         The Commission, along with the rest of California state government,
has been challenged recently by the possibility that energy supply and demand
in our state may be chronically out of balance in the course of the next few years.
This is due to a combination of steady growth and electric load and lagging
additions of new supply. As long ago as August 1999, the Commission on

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Energy Conservation and Development (CEC) published an analysis91 that
indicated that a repetition in Summer 2000 of the weather patterns of Summer
1998 could result in temporary electric energy shortages in California, and that by
Summer 2004 – in the absence of significant new supply -- peak loads in
California would be approaching the physical limits of the system, assuming
average weather.92 Further analysis by the CEC suggests that new supply
additions currently in the permitting and construction stages may be barely
timely to avoid a potential supply crunch in the 2002 timeframe, given continuing
trends of demand growth.93
             On May 22 of this year the California Independent System Operator
(CAISO) was forced to call for curtailments of customers on interruptible tariffs
throughout its control area (PG&E, SCE and SDG&E service territories). On June
14 through 16 it both called for curtailments of interruptible customers in
portions of the former PG&E control area (the Bay Area and the service territory
of the Sacramento Municipal Utility District (SMUD)) and – on June 13 and 15 – it
instituted rotating outages (rolling blackouts) in the Bay Area. These actions,
although undertaken at least in part due to localized transmission instability,
underscore the need to aggressively pursue demand side measures that can
moderate load growth and energy usage on a permanent basis.

91 The CEC documents referred to hereafter are published at the CEC website,
www.energy.ca.gov/reports/index/html. The Commission hereby takes official notice
of these studies, as representing a solid basis of predictive, judgmental fact for the
policy initiative described in this Section. C.f., FCC v. National Citizens Committee for
Broadcasting, 436 U.S. 775, 813-14 (1978); 2 Davis, Administrative Law Treatise 159.

 High Temperatures and Electricity Demand, An Assessment of Supply Adequacy in
92

California, CEC Document 300-99-004, p. 3-4
93   Id. at p. 73ff.




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         These events and analyses suggest that a program focused on
immediate delivery of demand and energy usage reductions is appropriate for
inclusion in a decision approving PY 2000 energy efficiency programs funded
through the public goods charge. We intend to identify an amount of program
funding that is not currently allocated among program categories and initiate a
rapid response procedure to give us measurable demand and energy usage
reductions beginning in Summer 2000. We will generically call this program
category the Summer 2000 Energy Efficiency Initiative or the Initiative.
         The Initiative will be implemented alongside of and parallel to PY 2000
programs. It represents a limited, but nevertheless substantial, commitment to
the ―resource acquisition‖ strategy for design of energy efficiency programs. It is
intended to provide maximum impact of demand and energy usage reductions
during the next few years of potential supply shortage.

      B. Sources of Funds
         The Proposed Decision in this case identified funds in three categories
that were outside the proposed program categories for PY 2000: funds
unexpended in 1999 carried over into PY 2000 and 2001; funds budgeted for
CBEE; and funds included in PY 2000 program budgets for shareholder
incentives there were freed up by the Commission‘s decision last year directing
that shareholder incentives come from headroom rather than program funds [D.
99-06-052]. The Commission intent that incentives come from headroom was
reiterated this Spring in the Annual Earnings Assessment Proceeding [AEAP, D.
00-05-019]. These funds will be utilized for the initiative, including
administration of Initiative measures. There is a total of $67.718 million available
for the Initiative from these sources.




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          1. Carry-over Funds
             In D.99-08-021, we require the utilities to carry-over to PY 2000 and
PY 2001 all unallocated program funds in PY 1999 and all unexpended and
uncommitted funds from PY 1998. (Ordering Paragraph 3.)
             At the time the application was filed, SDG&E estimated its carry-
over to be $6.280 million. It proposes to equally divide the carry-over funding
between PY 2000 and PY 2001 to maintain the balance and consistency of
available funding levels for each program year. SDG&E‘s Fourth Quarter Report
shows that its estimated PY 1999 carry-over increased by $5.821 million over
what it estimated in its PY 2000 application and included in the PY 2000 budgets.
The funds proposed for carryover into PY 2000 are spoken for in the PY 2000
programs approved in the rest of this decision. Capturing the funds proposed
for carryover into 2001 and the Fourth Quarter Report increment, provides $8.961
million for the Initiative.
             At the time the application was filed, PG&E estimated its total carry-
over from PY 1998 and PY 1999 to be $63.663 million. It proposes to allocate 75%
of the carry-over funding to PY 2000 and 25% of the carry-over funding to
PY 2001. PG&E‘s Fourth Quarter Report shows that its estimated PY 1999 carry-
over increased by $78,000. Capturing the proposed carryover into PY 2001 and
the Fourth Quarter Report increment provides $15.994 million for the Initiative.
             At the time the application was filed, Edison estimated its carry-over
to be $15.497 million. It proposes to allocate one-third of the carry-over to PY
2000 and two-thirds to PY 2001. Edison‘s Fourth Quarter Report shows that its
estimated PY 1999 carry-over increased by $2.235 million. Capturing the
proposed carryover into PY 2001 and the Fourth Quarter Report increment
provides $12.567 million for the Initiative.




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             At the time the application was filed, SoCalGas estimated its carry-
over to be $7.152 million. It proposes to equally divide the carry-over funding
between PY 2000 and PY 2001 and to file an advice letter to adjust funding levels
for PY 2001 to reflect the appropriate amount of carry-over. Its Fourth Quarter
Report shows that its estimated PY 1999 carry-over increased by $421,000.
Capturing the proposed carryover into PY 2001 and the Fourth Quarter Report
increment provides $3.997 million for the Initiative.
             We direct the utilities to account for any remaining public purpose
program funds for the period prior to 1998. The utilities should account for such
funds in the July 21 filing ordered by this decision.

          2. Use of Funds Allocated to CBEE94
             In D.00-02-045, we disbanded the CBEE. The utilities budgeted
$1.636 million to support the work of CBEE in PY 2000.95 We authorize the
utilities to redirect these funds as needed to meet the additional requirements we
impose on the utilities in this decision, including additional funds that may be
needed for the additional MA&E studies and program support for the Initiative.
We direct the utilities to file and serve on the service list, within 30 days after the
effective date of this decision, revised budgets proposing the redirection of funds
budgeted for CBEE support. The utilities are also directed to reallocate these
funds for PY 2001.



94 ORA also recommends that the Policy Rules be revised to reflect our decision to
eliminate CBEE‘s advisory role. This issue is appropriately taken up in the Rulemaking
proceeding, R.98-07-037, and we so defer it.
95The budget is broken down as follows: PG&E: $.761 million; Edison: $.646 million;
SDG&E: $.230 million; and SOCALGAS: $0.




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          3. Shareholder Incentive Budgets
              The utilities budgeted a total of $28.654 million for shareholder
incentives out of program funds for PY 2000.96 In D.99-06-052, we held that
shareholder earnings could not be paid out of electric DSM funds and had to be
paid out of headroom. (Id., Finding 17; mimeo., pp. 29, 31, Conclusion 9.) We also
held that SDG&E‘s earnings should be recovered through its Rewards and
Penalties Balancing Account and that rate increases related to collection of the
gas portion of DSM earnings should be deferred to the next gas rate adjustment
for the gas utilities. Thus, the utilities should not have budgeted funds for
shareholder incentives from program funds for PY 2000 and should not do so for
PY 2001. We direct the utilities to utilize these funds for the Initiative.

          4. Summary of Funds Available for the Initiative
              Based on the foregoing, the funding for the Initiative is as follows:
                      PY 2001 Carryover 4th Quarter                 Shareholder
                                        Increment                   Incentive97
     PG&E                15.915 million             0.078 million    14.198 million
     Edison              10.332 million             2.235 million     8.712 million
     SDG&E                3.14 million              5.821 million     3.289 million
     SoCalGas             3.576 million             0.421 million        Zero
     Totals              32.964 million             8.555 million    26.199 million
              Grand Total                 67.718 million



96PG&E budgeted $16.046 million, Edison budgeted $8.712 million, SDG&E budgeted
$3.896 million, and SoCalGas budgeted $3.271million.
97Shareholder Incentives are exclusive of gas programs and account solely for electric
shareholders incentives.




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        C. Initiative Programs
          Although the policy basis for the Initiative can be established by the use
of official notice to establish legislative facts of predictive or judgmental value,
the specific programs to be pursued through the Initiative require supplementing
the record in this proceeding. We therefore direct the Applicants, and any other
party who wishes to do so, to provide us with program options that will bring
about the largest reductions in electric demand and/or electric usage reductions
in the shortest period of time, along with concrete plans for program
administration, implementation, verification of demand and energy reductions,
and program budgets. A description of a cost effectiveness assessment
methodology should accompany each program proposal. We intend to approve
and implement programs by September 1, 2000. This will enable us to have the
programs in place with attendant demand reductions in time for the Summer of
2001.
          Applicants and parties are directed to file their program proposals no
later than July 21, and to file comments on proposals submitted by July 31, 2000.
Comments should include requests for hearings, if any, accompanied by a
detailed statement of the need for and utility of hearings. The Assigned
Administrative Law Judge and Assigned Commissioner are authorized to
approve program suggestions for implementation on or before August 21, 2000.

XIV. On-Going Planning Process

        A. Issue
          D.99-08-021 requires the utilities to facilitate ―an ongoing public
planning process in order to refine and develop proposals to implement specific
CBEE recommendations, as well as others, that continue progress toward the
Commission‘s energy efficiency and market transformation policy objectives.‖
(Id., Ordering Paragraph No. 6.)


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         In its October 27, 1999 Comments, the CBEE found that the applications
do not provide any formal mechanism for institutionalizing on-going input from
customers on the design of programs. The CBEE recommends that we direct the
utilities to establish regular forums and other means by which representatives
from all customers, in general, and currently under-served communities,
customer groups, and market segments (as it identified), in particular, can
provide on-going feedback on the types of services being provided. It also
recommends that the utilities report this feedback and the actions they plan
based on this feedback to the Commission every six months as part of their
Quarterly Reports.
         The utilities contend that they complied with this requirement because
they ―participated‖ in numerous ―Commission-sponsored, Energy Division-
sponsored, CBEE-sponsored and utility-sponsored‖ workshops, meetings and
focus groups, beginning in March of 1998. SDG&E/SoCalGas also contend that
the Energy Division should facilitate this process from this point forward.

      B. Discussion
         A review of the utilities‘ public process schedule submitted in the
applications indicates a fair number of focus groups conducted in July and
August prior to filing the instant applications. However, as we have stated
throughout this decision, the utilities need to institutionalize their public input
processes and to do so in a manner that ensures timely input before decisions are
made and feedback after decisions are finalized. We believe that much of this
input can be achieved through utility-led workshops, meetings, and focus
groups, and reported to the Energy Division via report or advice letter.
         We direct the utilities to jointly, with interested stakeholders, develop a
schedule for regular forums to provide on-going feedback on the types of


                                        - 210 -
A.99-09-049 et al. ALJ/LRB/eap **

services being provided. The utilities should report on the process and the
feedback received in the Quarterly Reports.
            For the past few years, the utilities have used the CBEE as a sounding
board for proposed programmatic changes and to forge consensus among the
parties. Now that the CBEE is no longer in place, we need to explore more
informal methods of bringing consensus positions to the Commission for
expeditious resolutions. Thus, we direct the Energy Division to work with the
utilities and interested stakeholders to develop a process for coordinating utility-
sponsored sessions with Commission-sponsored workshops and for quickly
reviewing and approving program revisions agreed upon in utility-sponsored
sessions.

XV.   Program Changes
      The utilities periodically make programmatic changes, adopt new program
strategies, and institute new programs. They may decide to eliminate a program
based upon poor utilization or faulty design. As discussed above, they also may
decide to shift funds between programs mid-year, within the parameters of the
fund-shifting guidelines we adopt.
      At the evidentiary hearing, it became clear that there is no common
understanding of the nature of the changes the utility administrators, may make
unilaterally and those that require Commission action. For example, some
administrators believe they have the authority to change pricing incentives, while
others do not. In these proceedings, SDG&E recommends that we give the
utilities the flexibility to make design changes in the SPC program that they were
not given in PY 1998 and 1999, e.g., with respect to incentives, customer limits,
and M&V requirements. On the other hand, the CEC recommends that we retain
the approval authority for SPC/RCP measures for which ―deemed savings‖
protocols are adopted.


                                        - 211 -
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      While program administrators should be afforded sufficient management
discretion to run energy efficiency programs effectively, we observe that the lack
of consistent and clear delineation of utility administrator discretion can also be
problematic. As we recognized in D.99-03-056, continuing to place the utility in
the administrative role for energy efficiency programs creates certain structural
conflicts in a restructured electric utility industry. In particular, electric
restructuring has increased the utility‘s motivation to promote energy sales
volumes and their own relationships with customers, rather than promote energy
efficiency and the provision of those services by others in the market. (See, e.g.,
D.99-03-056, mimeo. pp. 11-13.) In light of these concerns, and to avoid creating
distrust among stakeholders, it seems timely and appropriate to establish clear
and consistent guidelines governing utility administrator discretion. Moreover,
as demonstrated in this case, the lack of clarity on this issue results in the
expenditure of much time in evidentiary hearing on the utilities‘ program
applications, which is not a very effective way to manage the programs.
      Accordingly, we order the utilities, in their PY 2001 applications, to jointly
propose a set of guidelines governing utility administrator discretion and
delineating the types of activities that should require Commission approval. The
guidelines should also contain a procedure for obtaining Commission approval
in appropriate cases and a review and appeal process for actions taken by the
utility administrators that do not require Commission action. Prior to filing the
guidelines, the utilities should convene workshops in their service territories with
interested stakeholders to obtain input into the proposal.
      For PY 2000 purposes, we direct the utilities to use the advice letter process
for instituting changes in incentives, M&V requirements, and customer limits in
the SPC as was the case in PY 1999 and in the RCP-multi-family elements. For




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PY 2000, we also expect the utilities to make other programmatic changes in the
same manner as they have previously.

XVI. PY 2001 Applications, Reports, and
     Other Filings

      A. Quarterly Program and Expenditure
         Reports
            The Quarterly Reports are useful for monitoring the programs during
the program year. The utilities should submit Quarterly Program and
Expenditure Reports to the Energy Division and should serve the Reports on the
service list for this proceeding. The Reports should be submitted as soon as
possible but no later than six (6) weeks after the close of each quarter and shall
contain the information and data provided for PY 1999. In addition, they should
include participation activity, budgets, and expenditures, including
commitments, for 1) the 14 program areas and all strategies and elements
thereunder; 2) all statewide programs, broken down by the 14 program areas and
all strategies and elements thereunder; and 3) all cross-cutting measures broken
down by the 14 program areas and all strategies and elements thereunder.
Expenditures should also be itemized, at minimum, to show what the money was
spent on, e.g., vouchers redeemed, workshops and training, promotional
activities. Tables should also be provided showing expenditures by customer
class, as described earlier.
            The Quarterly Reports should also include a status update on all
programs, program activities, program elements, and statewide MA&E studies,
an update on statewide coordination activities, an update on market progress,
and an update on all actions the utilities have been directed to take in this
decision.




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         The utilities should meet and confer prior to filing the Quarterly
Updates and shall adopt a common format. Each Quarterly Report should also
include joint summary tables showing the requested data for the statewide
programs.
         After receipt of the Quarterly Reports, the Energy Division will conduct
a public process for review of the Reports. Energy Division is directed to
develop an appropriate public review process.

      B. Administrator Program Portfolio Manual
         We need current information on the design and implementation of
energy efficiency programs on an on-going basis. In order to facilitate a
reasonable review of the programs offered by the utility administrators, we direct
the utilities to provide us with two copies of a program portfolio manual. One
manual will be maintained in the Public Advisor‘s Office and the other will be
maintained in the Energy Division. The manual should be organized by the 3
program administrative area and 14 program descriptions with the following
additions: 1) all statewide programs, and 2) cross-cutting initiatives. The
manuals should include the following information for each program:

         1. Program description;

         2. Program goals and objectives;

         3. Program elements or sub-markets;

         4. Programs within each sub-market;

         5. Strategies used in each sub-market;

         6. Program implementer and how to contact him or her;

         7. Eligibility requirements and program operation details;

         8. Current year‘s budget broken down by individual programs and by
            strategy; and


                                      - 214 -
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         9. Prior year‘s budget and amounts spent.
         The manuals should be updated as changes are adopted by the utility
with replacement pages identified by date and program year, and an index of
replacement pages to be kept with the manuals.

      C. PY 2001 Applications
         Given the issues that we have identified above, it will be necessary for
the utilities to file new applications for PY 2001 programs. These applications
should be coordinated among the utilities, follow the same format, and use the
same inputs. With respect to structure, the applications must, at a minimum:
         1. Contain the same section regarding statewide programs, which
            should be developed jointly by the utilities and submitted as a joint
            offering. The program description should include a full description
            of each program, the goals of the program, the marketing plan, the
            activities, strategies, and proposed budgets. It should highlight
            differences from the prior year. Further, the description should
            include a statement of the differences in operation and strategies
            adopted, if any, by each utility, together with the justification for
            maintaining those differences. Each utility should also state what
            activities it is utilizing under the statewide program, e.g., limiting
            rebates for refrigerators.
         2. Include in the overview and in each affected program description a
            description of all program and budgetary changes made since the
            approval of the prior PY application, identify the means by which
            the change was made, e.g., via advice letter, internal programmatic
            decision, statewide implementation decision, cite the approval
            obtained, and the date the change was implemented.
         3. Budget Tables: In addition to summary tables showing budgets by
            administrative area and the 14 program areas, summary tables
            showing the budgeted amounts and percentages projected for each
            program element and strategy, including all cross-cutting and
            statewide programs, as allocated across the 14 program areas, e.g.,
            the budget and percentage projected for the nonresidential SPC
            program from the various nonresidential program areas, the budget
            and percentage for the energy centers, the budget and percentage for
            the statewide appliance program . All tables should be in the same


                                      - 215 -
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             format, should contain the same agreed upon input conventions,
             should have any necessary assumptions clearly identified, and
             should contain comparison data for three years. In addition to
             budget tables by individual utility, budget tables should be prepared
             showing comparative statewide allocations, by utility and total, for
             each program element and strategy, including all statewide and
             cross-cutting programs. Separate budget tables should show the
             amounts budgeted and spent (including committed) for each
             strategy and element for the two prior years.
         4. Tables showing projected contributions and budget allocations by
            customer class and sub-class, broken down by each program
            element and strategy and in accordance with other directions set
            forth herein.
         5. Contain a verification plan for independent confirmation of the
            achievement of milestones.
         6. Demonstrate in an overview section how the proposal complies with
            Commission directive. If Commission directive is to ―consider‖
            taking an action, identify the reasons why an action was taken or not
            taken, including a description of all efforts taken to solicit public
            input prior to reaching your decision and the content of such input.
         7. Have a table of contents showing each program strategy and
            element under each program area.
         8. Each separate section for each program area shall describe the
            budget, the activity, the program, and the previous year‘s budget,
            accomplishments, PPT, and data used for each PPT calculation, with
            cites to the data used by each Utility.
         9. Contain those items set forth in prior ordering paragraphs.
         10. Contain workpapers supporting cost-effectiveness calculations.
         The PY 2001 applications, like the PY 2000 applications, are compliance
applications. Review will be limited to consistency with the requirements set
forth herein, the requirements set forth in D.99-08-021, and the policy rules for
energy efficiency programs. We will not at this time undertake a broader view of
the merit and efficacy of the utilities‘ energy efficiency programs or relitigate
issues that were previously raised. However, we expect the utilities to make



                                       - 216 -
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funding and programmatic changes consistent with this decision, after having
collected and reviewed the pertinent data, and engaged in a full, open, public
process. Interested stakeholders are expected to raise all programmatic and
funding issues during the public planning process. We also expect that the
parties will address the cost-effectiveness issues raised in this proceeding.
          We do not set a date certain for filing the PY 2001 applications. We
recognize that we have required a fair amount of information, data, and studies
to be obtained, reviewed, evaluated, and discussed in a public process before the
PY 2001 applications can be filed. We also recognize that there is a limited
amount of time remaining in 2000 to accomplish these tasks. Further, there is
somewhat of a void in the public planning and review process now that the
CBEE is no longer operational. Accordingly, we believe that the most expedient
and equitable way to structure the program planning process, to obtain the
required information, and to provide for the filing of PY 2001 applications, is to
delegate this responsibility to the Assigned Commissioner and Assigned ALJ.
The Assigned Commissioner and Assigned ALJ may also determine whether,
because of unavoidable time constraints, certain compliance items should be
deferred to PY 2002.
          We anticipate that the Assigned Commissioner and Assigned ALJ will
convene a public workshop, as soon as practicable, to explore with all interested
parties an expeditious process, schedule, and timetable for compliance with this
order, and that they will determine the date by which PY 2001 applications
should be filed. We anticipate that the PY 2001 planning process will be
undertaken in this docket and that at the conclusion of the planning process, this
docket will be closed out and the utilities will file their PY 2001 applications,
opening up new dockets. Because we will be facilitating the planning process for




                                        - 217 -
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PY 2001, we expect all interested parties to fully participate at this time. We hope
to surface and resolve most of the parties‘ issues during the planning process.

XVII. Comments on Proposed Decision
      The proposed decision of the ALJ in this matter was mailed to the parties
in accordance with Pub. Util. Code §311(g) and Rule 77.1 of the Rules of Practice
and Procedure. Timely comments were filed by Edison, PG&E, Sempra on behalf
of SoCalGas and SDG&E, the CEC, ORA, TURN, REECH, and NAESCO and late-
filed comments were filed by NRDC. Timely reply comments were filed by
Edison and Sempra, on behalf of SDG&E and SoCalGas, and late-filed reply
comments were filed by PG&E. All were accepted for filing. Letters were also
submitted by the Appliance Recycling Centers of America, Inc. and LivingWise.
      In response to the comments received, the ALJ made substantive revisions
to the PD and mailed them to the parties for comment. Timely comments were
filed by Edison, PG&E, Sempra on behalf of SoCalGas and SDG&E, the CEC,
ORA, TURN, NRDC, and NAESCO.
      Most of the parties‘ comments on the PD and on the substantive revisions
to the PD do not identify factual, legal, or technical errors in the decision but
either reargue positions raised at the hearing and carefully considered and
rejected in rendering the decision or express disagreement with the direction
taken in the decision. Thus, pursuant to Rule 77.3, they do not require a
response. Nevertheless, a few comments raise issues that merit attention and are
addressed below.
      The utilities and the NRDC object to the scope of the review conducted and
the decision‘s requirement that the utility administrators gather and provide
information regarding the programs and their cost-effectiveness, conduct studies,
and modify the PY 2001 programs to incorporate the result of those efforts, with
consultation by interested stakeholders and the Commission‘s staff. The utilities


                                        - 218 -
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and the NRDC argue that the decision goes beyond the scope of our Interim
Opinion (D.99-12-053), makes program and budget modifications beyond the
direction provided in D.99-08-021, and makes comprehensive policy changes for
PY 2000 and PY 2001, contrary to our directive in D.99-08-021 that the program
applications for PY 2000 and 2001 be ―compliance applications.‖ The utilities,
NRDC, and NAESCO thus all urge that we relieve the utility administrators of all
data gathering, studies, and program modifications for PY 2001 and defer further
review of the energy efficiency programs to 2002.
      The utilities‘, NRDC‘s, and NAESCO‘s comments demonstrate a
fundamental misunderstanding of the nature of a ―compliance‖ review and
misconstrue the holdings of D.99-08-021 and this decision. In this proceeding, we
have conducted a compliance review; that is, we have reviewed the utilities‘ PY
2000/2001 program applications to determine whether the utility administrators
have developed and revised the energy efficiency programs in compliance with
the directives of D.99-08-021. That decision sets forth numerous guidelines and
principles to govern PY 2000 and 2001 program revisions. To determine
compliance with those directions and principles we must necessarily review, in
some detail, the operation of the programs and the revisions proposed for PY
2000 and 2001. We would be derelict in our duty were we to simply adopt the
programs based upon the utilities‘ representations that they have complied with
our direction.
      Similarly, it is our statutory duty to ensure that the energy efficiency
programs are cost-effective. Thus, the cost-effectiveness of the programs and
program portfolios is always at issue in any proceeding reviewing energy
efficiency programs.
      Based on the review conducted, we determine that some of the PY 2000
proposals do not follow our directives in D.99-08-021 and that, for others, the


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applications are deficient because they do not provide sufficient information to
determine compliance. We also find that there are problems with the
methodologies used to calculate cost-effectiveness and that the utilities use
inconsistent input values for similar programs, calling into question the validity
of the cost effectiveness showings. Accordingly, the PD requires that the
information be gathered and provided for PY 2001 to enable us to determine
whether the utility administrators are complying with our directives in
D.99-08-021. If the utility administrators had provided this information in the
PY 2000/2001 applications, it may not have been necessary to revisit the
programs in PY 2001.98 Because it wasn‘t provided, proper program oversight
requires that the utilities provide the information and that we review the
programs again in PY 2001.
      Nor does the decision require substantial program or budget modifications
or make policy changes for PY 2000 or PY 2001. For PY 2000, limited budgetary
changes are made for PG&E and Edison and limited programmatic changes are
made for PG&E and SDG&E (refrigerator recycling), consistent with the
directives in D.99-08-021. On the contrary, despite the deficiency of the utilities‘
program portfolios, they have been adopted with few revisions for PY 2000.
      We give the utilities a second chance for compliance in PY 2001. For PY
2001, the decision requires the utilities to provide information so that we can
effectively evaluate whether the programs comply with our directives and


98Indeed, in response to questioning by the parties and the ALJ, the utilities repeatedly
maintained that they did not have sufficient information for PY 2000 upon which to
make some of the modifications we recommended in D.99-08-021. Their argument now
that they should not be required to provide this information to enable us to
meaningfully evaluate compliance in PY 2001 must be rejected.




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requires the consideration of limited program and budgetary modifications to
comply with those directives. The decision makes it clear that program
modifications for PY 2001 will only be necessary if the utility administrators have
not followed the directives set forth in D.99-08-021.
      While we determine that the required information is necessary and that
further applications must be filed for PY 2001, after reviewing the comments, we
are persuaded that the time frame set forth for gathering the required
information and filing the PY 2001 applications may be problematic. We also
recognize that there is a void in the public planning and review process now that
the CBEE has been disbanded. Thus, we modify the decision to eliminate the
filing date for PY 2001 applications and delegate to the Assigned Commissioner
and Assigned ALJ the responsibility for conducting the pre-PY 2001 planning
process, including the timing for filing the PY 2001 applications. The comments
on the revised PD generally reargue positions considered and rejected in the
revised PD.
      We make one other substantive change to the decision in response to the
comments received. The comments almost universally recommended that we
finalize a decision on the milestones and performance incentives. We adopt the
proposed milestones with limited revisions. We make several nonsubstantive
changes and clarifications to the milestones as recommended by the utilities and
the CEC in their comments on the revised PD and delegate to the Assigned
Commissioner and Assigned ALJ, with the assistance of the Energy Division, the
responsibility to work with the parties to finalize the milestones. ORA‘s
suggestion that we return to a recorded net benefits mechanism for PY 2000 is
beyond the scope of this proceeding and unsupportable by evidence in the record
and, thus, rejected.




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      We also make several clarifications in the decision as recommended by the
parties as well as other minor and nonsubstantive changes. We clarify that the
utilities may use the CALMAC to conduct many of the data-gathering and study
requirements set forth in the decision as well as to meet public review process
obligations. We do not, however, direct the CALMAC to undertake this
responsibility. In D.00-05-019 we stated that ―the concept of using CALMAC is
useful,‖ but we decline to officially recognize it. (Id., mimeo at p. 21.) Thus, our
directions are appropriately directed to the utilities, and not to CALMAC.
      The utilities commented that some of the information requested might be
confidential customer data. We revise the decision to preserve confidentiality of
customer data. The decision requires the provision of some information for PY
2000 programs by advice letter. We have reviewed the requirements and have
modified the decision to require that much of the required information for PY
2000 be provided by report to the Energy Division instead of by advice letter. We
also provide more specifically for the redirection of excess PY 1999 carry-over
funds, funds budgeted for the CBEE, and funds budgeted for shareholder
incentives.
      Several comments by SDG&E, SoCalGas, and PG&E are disturbing and
require further response. SDG&E and SoCalGas, in their opening comments,
oppose the reinstitution of a funding floor for the Small SPC program for 2000,
stating that ―[w]ith the late implementation of program changes this year, it may
be difficult to use all of the budget for this program.‖ (Sempra Opening
Comments at p. 10.) Similarly, PG&E, in its Reply Comments, opposes
NAESCO‘s recommendations, stating that ―[t]he multi-family RCP has already
lost momentum with the delay in program rollout and is losing credibility each
additional day the PY 2000 program remains on hold. . . ― (PG&E Reply
Comments at p. 4.) PG&E further opines that the PY 2001 programs should not


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be ―subjected to the same unwelcome levels of delay and uncertainty that the PY
2000 programs are now suffering.‖ (Id. at p. 5.)
        In D.99-12-053 we specifically adopted all the utilities‘ proposed programs
for PY 2000 for implementation on January 1, 2000. In that decision we ordered
that:
        1. The Compliance Applications . . . are preliminarily approved
           as to PY 2000. . . (Ordering Paragraph No. 1.)
        2. The utilities are authorized to implement their Program Year
           2000 programs as designed on an interim basis, subject to mid-
           year modifications. . . Any program design modifications will
           be effective on a prospective basis. (Ordering Paragraph No.
           22.)(emphasis added.)
        3. The utilities‘ budgets for PY 2000 programs . . . are authorized,
           on an interim basis, subject to mid-year modifications . . . Any
           budget modifications will be effective on a prospective basis.
           (Ordering Paragraph No. 3.)(emphasis added.)
        Further, in the text of the decision, we specifically noted that we ―expect
the utilities to proceed to implement the authorized programs, and expend the
authorized funds, as directed.‖ (D.99-12-053, mimeo, at p. 16.)
        There is no excuse for failure to implement the PY 2000 programs on
January 1, 2000. If the programs were not implemented on that date, the fault
can only be lain at the feet of the utility administrators themselves. Further, this
decision continues what D.99-12-053 began—it adopts the utilities‘ proposed
programs for PY 2000 with only extremely limited exceptions to budgets; changes
to program design for PY 2000 merely incorporate agreements reached with
stakeholders during the workshop and hearing process. D.99-12-053 and this
decision do not create uncertainty in PY 2000 programs, they eliminate it. The
utilities‘ comments are misdirected and rejected.

Findings of Fact
   1. The utilities‘ PY 2000 and 2001 applications are compliance applications.


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   2. Proper program oversight and the inadequacy of the information filed with
the PY 2000 applications require that the utilities file new applications for
PY 2001.
   3. The public interest requires that we conduct an in-depth review of the
utilities‘ PY 2000 programs to determine whether the applications comply with
our directions set forth in D. 98-08-021 and our policy rules.
   4. Cost-effectiveness of the utilities‘ program portfolio is a threshold
condition for program approval and an on-going requirement for continuing
receipt of PGC funds.
   5. The PPT test is the appropriate measure to evaluate cost-effectiveness of
the energy efficiency programs and portfolios. Market effects multi-year
multipliers and non-energy benefits and costs are permissible under the PPT.
   6. The reasonableness of the input values in the cost-effectiveness calculations
is within the scope of this proceeding.
   7. The NTG ratio is a component of the cost-effectiveness calculation that
attempts to isolate costs and benefits associated with a program that are solely
attributable to the activity and not to other sources.
   8. The appropriateness of continuing to use a NTG ratio of 1.0 in the cost-
effectiveness calculations, which assumes that there are no free-riders or that
spillover offsets the effects of free-riders, is doubtful. However, it is reasonable
to use a NTG ratio of 1.0 for PY 2000, but not for future years.
   9. There is insufficient information upon which to determine appropriate
NTG ratios for use in the cost-benefit analysis at this time.
  10. Development of appropriate NTG ratios requires data collection, a
comprehensive review of pertinent studies, and full discussion among interested
stakeholders.
  11. Use of measure lives longer than 20 years is reasonable.


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  12. We cannot evaluate and compare the cost-effectiveness of the utilities‘
programs because the utilities do not use standardized, agreed-upon measure
lives in the cost-benefit analyses.
  13. Market effects multi-year multipliers and non-energy benefit and cost
factors are permissible under the PPT.
  14. There is insufficient evidence to validate the use of market effects
multipliers in the cost-benefit analysis for PY 2000 programs.
  15. It is important to gather and study information on market effects
multipliers and non-energy benefit and cost factors for use in future years.
  16. Use of a non-energy environmental adder for water savings is appropriate
but SoCalGas did not provide the basis for the water savings associated with
horizontal washing machines.
  17. IMC is the cost associated with energy efficiency savings greater than
minimum baseline standards.
  18. Accurate reporting of IMC is important to the credibility of the cost-
effectiveness analysis but we do not have sufficient information to determine the
appropriate treatment of IMC.
  19. It is important to have uniformity in use and reporting of IMC values.
  20. The reasons presented to preclude SoCalGas from including electric
energy savings in its cost-benefit analysis are not persuasive.
  21. SoCalGas‘ program portfolio for PY 2000 is marginally cost-effective
although we have some remaining concerns because of SoCalGas‘ need to
perform new analyses for the EAHP and our skepticism regarding the proper
NTG ratio and IMC inputs.
  22. There is no evidence of overlap, duplication, or double-counting with the
low-income program or customers.




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  23. We have insufficient evidence to limit product support to refrigerators,
freezers, lighting, and HVAC products for single family residences.
  24. Use of the Internet for EMS services is a cost-effective method to reach a
substantial group of residential and small business customers and is particularly
appropriate for statewide programs.
  25. We have insufficient evidence upon which to evaluate the extent of use
and cost-effectiveness of mail and in-home audits.
  26. REECH‘s proposals for a redesigned, three program element residential
program, major RCP revisions, and a joint system for residential customers to
access their energy use are not within the scope of these compliance proceedings.
  27. There is no evidence in this record regarding the feasibility or desirability
of adopting a gas heater replacement program as proposed by REECH nor a
basis for adopting REECH‘s specific recommendations for redirecting program
budgets.
  28. It is premature to make substantial changes to the budgets or design of the
RCP for PY 2000.
  29. There is no justification for eliminating the single family RCP.
  30. The utilities did not greatly increase the RCP budget for PY 2000.
  31. The RCP, particularly in the multi-family program, was underutilized in
PY 1999.
  32. We need to ensure that barriers to effective participation in the RCP are
eliminated and that the RCP meets our goals of uniform statewide program
design, with broad input from customers.
  33. The utilities, with input from interested stakeholders, have agreed to make
some changes in the RCP, by using calculated savings for some measures,
modifying incentives, and simplifying the application process.




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  34. There is no justification for eliminating customer contributions for energy
efficiency services under the RCP at this time.
  35. The statewide lighting and appliance programs are implemented under a
statewide, third-party contract and follow, for the most part, a uniform design.
The statewide implementer processes PG&E‘s and SDG&E‘s rebates. Edison and
SoCalGas process their own rebates.
  36. It is difficult to evaluate the statewide lighting and appliance programs
without detailed descriptions of the activities and strategies used.
  37. Use of utility-specific funds to promote ENERGY STAR® appliances and
energy efficiency lighting has the potential to compete in a negative way with
statewide program activities.
  38. Use of old refrigerators constitutes a significant portion of residential
energy load and is an area in which substantial energy savings can be promoted
in the residential sector.
  39. Non-energy environmental adders may be appropriate in the cost-benefit
analysis of the refrigerator recycling program.
  40. We do not have enough information to determine whether the utilities
should increase funding of financing as an intervention strategy for residential
programs for PY 2000. However, financing mechanisms may be appropriate for
reaching some segments of the residential market.
  41. School-based education programs may provide additional opportunities
for our market transformation effort.
  42. In the residential area, the utilities have not complied with the spirit of our
direction to consider program offerings and funding increases for activities that
benefit under-served communities and customer groups.
  43. In the residential area, the applications do not give us sufficient
information to determine how the utilities have identified the needs of the under-


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served communities and customer groups, the manner in which those groups
have been targeted for services, or the extent to which their needs are, in fact,
being met.
  44. In the residential area, there is no agreed-upon definition of under-served
community or customer group.
  45. We cannot determine from the utilities‘ filings whether they have
complied with our directive to align program benefits with the customers
providing the funds on a class and sub-class basis.
  46. We cannot determine how the utilities developed the projected
participation rates for each customer class and sub-class on the revenue/budget
allocation tables since neither the method nor the assumptions used are
provided; thus, we cannot find that the utilities‘ participation projections by
customer class and sub-class are based on verifiable and verified data.
  47. The utilities treat corporate chain accounts differently in their PGC
contribution/budget allocation tables and do not provide an adequate
explanation or the basis for their treatment.
  48. There is insufficient information upon which to determine whether the
utilities‘ proposed budgets comply with Policy Rule II-6.
  49. There is insufficient evidence upon which to determine whether PG&E or
the other utilities have allocated disproportionately greater funds to large
customers than to small customers.
  50. Review and evaluation of the utilities‘ budget allocations requires a
comprehensive review of pertinent studies, additional data collection and
studies, and a full discussion among interested stakeholders.
  51. There is very little evidence that the utilities seriously undertook to
analyze their program offerings to determine whether they should be adjusted to
increase program elements, strategies, and funding for smaller nonresidential


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customers and to limit participation and decrease funding for larger
nonresidential customers, particularly in the Large SPC program.
  52. The new programs rolled out for PY 2000 to target smaller nonresidential
customers have limited funding and do not appreciably change the utilities‘
overall budget allocations.
  53. The data provided by the utilities for PY 1999 programs and budgets
proposed for PY 2000 programs should be viewed with caution. It must be
reviewed on an individual utility basis.
  54. In D. 99-08-021, we recommended emphasizing the HVAC Equipment
Turnover, Motor Turnover, and Commercial Remodeling and Renovation
program elements, with increased funding for the latter. PG&E did not comply
with our decision and proposes decreased funding in these areas.
  55. Edison did not comply with our decision and proposes decreased funding
for Commercial Remodeling and Renovation.
  56. SDG&E‘s and SoCalGas‘ PY 2000 budgets roughly follow our guidelines.
  57. The utilities do not give sufficient attention to meeting the needs of smaller
nonresidential customers.
  58. The SPC program, for the most part, is standardized with respect to
procedures, contracts, and incentive levels, which are contained in a procedural
manual published by the utilities. The utilities have agreed to further align
program details, to be effective by the end of the first quarter of 2000.
  59. PG&E and SDG&E maintain the same approximate budgets for the Large
and Small SPC programs for PY 2000 while Edison decreases the budget for the
Large SPC program for PY 2000.
  60. PG&E and SDG&E experienced low participation rates and expended only
small amounts of both the Large and Small SPC program budgets in PY 1999.
Edison expended almost its entire Large SPC program budget in PY 1999 but


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experienced low participation rates and expended only small amounts of the
Small SPC program budget in PY 1999.
  61. We have insufficient evidence that the market for energy efficiency
services and products in the large customer market, including the Large SPC
program, have been transformed to justify limitations for PY 2000 on the
participation of large customers or on customers who have participated
extensively previously.
  62. We have insufficient data about participation in energy efficiency
programs by customer, size, class, SIC code, market, corporate parent, and
implemented measures, about the markets that have been targeted or not
targeted, and about measure saturation, to determine whether participation
limits or further funding caps should be imposed or budgets redirected at this
time. We need additional data and studies to perform our review.
  63. Uniform statewide design and implementation with broad input from
customers on program design is important for the SPC programs.
  64. We have insufficient evidence that large nonresidential customers have
participated in a disproportionately high number in the energy efficiency
programs in the past or that they are free-riders.
  65. We have insufficient evidence that cost-effectiveness of energy efficiency
measures cannot be effectively determined in industrial facilities.
  66. Based upon preliminary studies, we are concerned that certain large
customers may have benefited from energy efficiency programs more than
smaller customers, that there may be a high level of free-riders in the Large SPC
program, that the continued participation of certain sophisticated large
customers in particular markets may not meet our market transformation and
energy savings goals, and that smaller customers and customers in other markets
may not have been appropriately targeted for energy efficiency services.


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  67. There is evidence that 95% of market participants in some markets have
installed T-8 lights and electronic ballasts, yet cash incentives are still being
offered.
  68. The utilities have not adequately responded to our direction to provide an
objective analysis of market data and modify the SPC program designs
accordingly.
  69. The results of the new Xenergy Report on the PY 1999 SPC program
should be used to modify the SPC program and budgets for PY 2001.
  70. The SPC program elements and strategies are not fully described and do
not include consistent sets of program design criteria.
  71. Using rebates instead of SPC performance contracting was rejected in
Resolution E-3592 for the PY 1999 programs.
  72. The objective of using performance contracting is not clear and must be
clarified in order to adopt appropriate programmatic changes and strategies.
  73. It is important to ensure that the nonresidential Remodeling and
Renovation program has the broadest possible reach and that the eligibility
criteria do not limit projects that may not be new construction or retrofit.
  74. The statewide Express Efficiency Program is not standardized with respect
to incentives and customer eligibility.
  75. We question the appropriateness of providing rebates to large customers
under the Express Efficiency Program to do small projects.
  76. In the nonresidential area, the utilities have not complied with the spirit of
our direction to consider program offerings and funding increases for activities
that benefit under-served markets and market-segments.
  77. In the nonresidential area, the applications do not give us sufficient
information to determine how the utilities have identified the needs of the under-
served markets and market segments, the manner in which those groups have


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been targeted for services, or the extent to which their needs are, in fact, being
met.
  78. In the nonresidential area, there is no agreed-upon definition of under-
served market or market segment.
  79. SoCalGas‘ EAHP Program has been changed but new cost-effectiveness
calculations have not been submitted.
  80. REECH‘s recommendation that the utilities minimize their involvement in
the development of new codes and standards in favor of the CEC and local
jurisdictions is contrary to our direction in D. 99-08-021.
  81. The utilities determine individually whether to print and distribute the
jointly developed Residential and Business Energy Guides in English, Spanish,
and Chinese in their service territories. There does not appear to be any plan to
translate the Guides into any other languages.
  82. The utilities have embarked on an effort to coordinate their Energy Centers
and education and training programs and assistance, but more direction is
needed. The utilities do not have a plan for the accelerated commercialization
products or for the distribution of these products.
  83. SoCalGas and Edison operate their own energy centers.
  84. We have no information on the record regarding the utilities‘ cost
accounting methods for the energy centers.
  85. We have no information on the record from which to conclude that the
utilities should be precluded from funding energy centers with PGC funds.
  86. REECH‘s proposal for placing model kiosks at home improvement centers
and hardware stores is an idea worth exploring in PY 2001.
  87. TPIs comprise a very small part of the overall budgets for PG&E, Edison,
and SDG&E and there is little evidence that they have undertaken many new
initiatives for PY 2000.


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  88. Arbitrarily increasing TPI budgets will not further our goals and there is
sufficient room within the budgets to fund additional TPI, if appropriate.
  89. We cannot determine on this record the extent to which the utilities are
actively developing solicitations and seeking TPIs in accordance with our
directive.
  90. The utilities have followed our prior direction in promoting TPI programs.
We see no basis to limit their solicitations in any manner at this time.
  91. For TPI programs, the lack of a credible IMC input value estimate in the
cost-effectiveness analysis conducted before program approval as well as the lack
of a requirement and methodology to measure cost-effectiveness after program
completion brings into question the credibility of the cost-effectiveness
calculations.
  92. Identifying the utilities‘ objectives in seeking the TPIs and the manner in
which the TPIs interact with the rest of the utilities‘ portfolio is important to
evaluation of the utilities‘ portfolios.
  93. The utilities‘ TPI budgets are very low (except for SoCalGas) and the actual
solicitations pursued to date are very few so we cannot yet determine whether
our treatment of intellectual property in D. 97-12-103 will cause a problem for
third parties over ownership of software developed through TPIs or whether it
has made third parties reluctant to participate in the TPI process.
  94. In D.99-08-021 we direct the utilities to address the role of emerging
technologies in their program, including the coordination of these activities with
other utilities and the CEC. We do not see any conflict of interest with the
utilities participating in this project with the CEC and coordinating with the
ETCC.




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  95. Edison and SoCalGas are cooperating and coordinating their energy
efficiency efforts pursuant to our direction and there is no evidence of an
incentive war between them.
  96. MA&E activities support the underlying programs, designs, and policies
by developing baseline and market data for monitoring and improving the
programs. Collection of baseline and other market data is critical to program
evaluation and to evaluation of the reasonableness of the proposed performance
indicators and milestones for measuring shareholder incentives and thus must be
collected expeditiously.
  97. The utilities did not collect all the MA&E baseline and market data to
support their programs prior to establishing the programs and proposing
performance indicators and milestones. Sufficient progress has not been made to
obtain this basic data.
  98. In D.00-05-019, we found that the CALMAC, a non-advisory body, is a
reasonable concept as a forum for the coordination of an annual statewide MA&E
study portfolio and activities related to the performance, presentation and
dissemination of the studies and the consideration of MA&E policy rules and
protocols.
  99. The California DSM Measurement Advisory Committee (CADMAC),
currently addresses the measurement and assessment of energy efficiency
programs and develops protocols and procedures for verification of program
costs and benefits which are used to validate shareholder earnings claims in the
AEAP. After the commencement of the CALMAC, the parties envision that the
CADMAC will focus primarily on pre-1998 policy rules and protocols.
  100. In this proceeding, the utilities submitted a stipulation, agreed to in
principle by the CEC, to move ahead on MA&E studies for evaluation of the




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milestones and performance indicators pending Commission approval of the
CALMAC.
  101. The performance of some of the studies and data gathering projects we
direct herein were not budgeted by the utilities in the PY 2000 or PY 2001
budgets.
  102. The utilities‘ proposed milestones generally follow the four-part
framework established in R. E-3578 with adjusted weighting among categories as
required by D.99-08-021.
  103. The CBEE worked with the utilities to shape the proposed milestones
both prior to and after filing the PY 2000 applications, but the utilities did not
adopt all of the revisions suggested by the CBEE.
  104. The utilities‘ proposed milestones have been revised to reflect agreements
with the CEC.
  105. The proposed milestones are very complex and a comprehensive review
would require substantial time and resources. It is neither feasible nor practical
to perform such an extensive inquiry of the milestones and incentive award
structure at this time for PY 2000 programs. We will further scrutinize the
milestones and incentive structure for PY 2001.
  106. The utilities based the incentives for individual milestones at a 110% of an
anticipated total shareholder incentive cap of 11%.
  107. In D.00-05-019 we adopted a reduced 7% shareholder incentive cap.
  108. Maintaining the individual milestone incentives at 110% of the 11% cap
would increase the individual milestone incentives to 172% of the 7% cap.
  109. Maintaining the individual milestone incentives at 110% of the 11% cap
would allow the utilities to pick and choose the programs to implement solely to
maximize their earnings. Furthermore, maintaining the individual milestone




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incentives at 110% of the 11% cap despite the reduction of the cap to 7% would
alter the negotiated balance between risk and award.
  110. A proportional reduction of each milestone award maintains the
milestone design constructed by the CBEE and the utilities and maintains the
carefully negotiated balance between difficulty, risk, and award.
  111. The aggressive implementation element of the shareholder incentive
mechanism is intended to be a bonus incentive for exceptional performance and
is based on spending budgeted funds.
  112. The utilities‘ aggressive implementation milestones should be more
effective and more aggressive than those adopted in PY 1999.
  113. The ability to earn awards should not be diluted by pooling all programs
but linked preferably to individual programs or, at a minimum, to program
areas.
  114. The lower and upper levels of the threshold spending range for earnings
should be raised for all utilities.
  115. The incentive mechanism should include both incentives and penalties.
  116. The earnings thresholds and incentive/penalty structures should be the
same for Edison, SDG&E, and SoCalGas.
  117. PG&E‘s proposed aggressive implementation milestones are related to
particular programs and may be more difficult to attain than the other utilities‘
programs which are related to the larger administrative program areas.
  118. PG&E‘s proposed minimum thresholds for achieving earnings do not
reflect superior performance.
  119. Additional verification requirements are needed to ensure that the
utilities‘ milestones and incentives are measurable and verifiable.




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  120. Limited changes to the proposed milestones and awards are needed to
ensure that they reflect an appropriate balance between risk and award and that
they meet our policy objectives.
  121. REECH‘s proposals are outside the scope of this hearing and are
unsupported by evidence or rationale.
  122. For PY 2001, we should consider ways to simplify the shareholder
incentive structure, possibly using a template or prescribed format, and
individual milestones should be subject to greater scrutiny.
  123. We allow the utilities to increase the fund-shifting bands for some
program areas in PY 2000 as we have approved in prior years.
  124. However, for PY 2001, without better information showing the actions
taken to target customers and studies undertaken to determine customers‘ needs,
we cannot conclude that funds budgeted for one program or strategy is
unnecessary and should be moved to another program or strategy.
  125. The utilities have not shown the need to have the flexibility to shift funds
between program areas, e.g., from nonresidential to residential.
  126. Electric supplies in California will be relatively tight during the Summers
of 2000 and 2001.
  127. Implementing programs to reduce demand and energy usage during the
Summers of 2000 and 2001 is in the public interest.
  128. The utilities‘ estimates of carry-over funds from PY 1998 and PY 1999 set
forth in their applications have changed as funds were expended in PY 1999. The
utilities‘ budgets will need to be changed to reflect the actual amount of funds
available for PY 2000 and PY 2001 programs.
  129. The utilities budgeted funds to support the CBEE in PY 2000, some of
which will not be necessary because of the dissolution of the CBEE.



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  130. The utilities budgeted funds for shareholder incentives from PY 2000
program funds contrary to our direction in D.99-06-052 for electric utilities.
  131. The utilities do not provide for a formal mechanism for institutionalizing
on–going input from customers on the design of programs and timely feedback
after decisions are finalized.
  132. Customer feedback on programs can be achieved through utility-led
workshops, meetings, and focus groups, and reported to the Energy Division via
report.
  133. While program administrators should be afforded sufficient management
discretion to run energy efficiency programs effectively, the lack of clear and
consistent delineation of utility administrator discretion can also be problematic,
causing distrust among stakeholders and resulting in the expenditure of much
time in evidentiary hearings.
  134. The Quarterly Reports perform a useful function for monitoring
programs during the program year.
  135. The Commission needs current information on the design and
implementation of energy efficiency programs on an on-going basis.
  136. The Commission needs further information and program modifications
for PY 2001 programs.

Conclusions of Law
   1. It is our statutory and fiduciary duty to review the utilities‘ program
applications and to ensure that the PGC collected from ratepayers and expended
on their behalf through the energy efficiency programs is expended in the public
interest.
   2. Review of the PY 2000 applications is limited to consistency with the
requirements set forth in D.99-08-021 and with the adopted policy rules for
energy efficiency programs.
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   3. The programs and funding levels we approve today are authorized
through December 31, 2001, unless and until modified by further Commission
order.
   4. While it is appropriate to give some degree of deference to the CBEE, we
cannot delegate our authority to the CBEE.
   5. Cost-effectiveness of the utilities‘ program portfolio is and should be a
threshold condition for program approval and an on-going requirement for
continuing receipt of PGC funds.
   6. Additional data is needed to develop NTG ratios to be used in PY 2001.
   7. Standardized, agreed-upon measure lives are needed for PY 2001 cost-
effectiveness calculations.
   8. The utilities should use the most updated costs available in their cost-
benefit analyses for PY 2001, such as the CEC updated avoided costs forecast
report.
   9. For PY 2000, PG&E‘s and Edison‘s use of market effects multipliers
developed by RER is disallowed. SDG&E‘s use of market effects multipliers is
also disallowed.
  10. Cost-benefit calculations both with and without market effects multipliers
are necessary for PY 2001.
  11. SoCalGas‘ use of a non-energy environmental adder for water savings
associated with horizontal washers may be reasonable if properly documented.
  12. Non-energy factors and market effects multipliers should be developed for
PY 2001.
  13. For PY 2001, the utilities should provide cost/benefit calculations with and
without non-energy factors and market effects multipliers.
  14. It is reasonable to allow the utilities‘ IMC calculations as submitted for PY
2000.


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  15. Accurate reporting of IMC is important to the credibility of the forecasted
cost-effectiveness analysis. Protocols for the collection and use of IMC data,
guidelines or standards for estimating IMC costs associated with the various
program strategies and elements, including possible default assumptions, and
other mitigations to ensure reasonable cost-effectiveness calculations where
credible IMC data is not available, are necessary for reviewing PY 2001 programs.
  16. SoCalGas should be permitted to include electric energy savings in its cost-
benefit analyses.
  17. SoCalGas should modify its PY 2000 program portfolio to make it more
cost-effective and provide new cost-effectiveness calculations.
  18. Because we have found that SoCalGas‘ program portfolio is marginally
cost-effective, we do not need to address ORA‘s deauthorization
recommendation.
  19. It is not necessary to revise the programs to eliminate participation by low-
income customers but the utilities should design the programs in such a way as
to minimize overlap.
  20. A master energy efficiency website with links to the utilities‘ own websites
should be created for PY 2001.
  21. Mail and in-home audits should be permitted for PY 2000 but the utilities
should consider phasing out or limiting them for PY 2001.
  22. We should not limit product support to higher-than-standards
refrigerators and freezers, lighting, and HVAC products for PY 2000 for single
family residences.
  23. We do not adopt REECH‘s proposals for programmatic and budget
changes in the residential area because they are out of scope or are not supported
by evidence.




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  24. It is reasonable to continue with the RCP as proposed by the utilities
without substantial changes to the budgets or design for PY 2000.
  25. The utilities should continue moving the RCP toward uniform statewide
program design and implementation.
  26. The utilities should provide for broad input into the design and
implementation of the RCP from interested stakeholders, including customers.
  27. We do not adopt ORA‘s proposal for eliminating the single family RCP.
  28. The utilities should ensure that the RCPs have greater participation for
PY 2000.
  29. An updated statewide RCP program procedures manual should be
maintained and available to the Commission, customers, and interested
stakeholders.
  30. A statewide implementation team for the RCP is required.
  31. The utilities should establish a structured, periodic public input process,
including workshops, meetings, and focus groups, for the RCP.
  32. The RCP program should strive to meet the needs of all potential
providers.
  33. The utilities‘ proposed changes to the multi-family RCP to utilize
calculated savings for some measures, modify incentives, and simplify the
application process should be adopted, subject to submitting a joint report to the
Energy Division. Calculated savings should only be implemented after approval
by advice letter and customer contributions should not be eliminated.
  34. The utilities should consider expanding the RCP and allocating additional
funds to it for PY 2001 in conjunction with their new proposals to reach under-
served markets.




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  35. The statewide lighting and appliance programs should continue moving
toward uniform statewide implementation and implementation should continue
to move away from utility administrators.
  36. For PY 2001, the utilities generally should channel funds for promoting
ENERGY STAR® appliances and energy efficiency lighting through the
statewide program, except for funds dedicated to local pilot programs that
promote higher appliance and lighting standards.
  37. The utilities should ensure that utility-specific activities will not compete in
a negative way with statewide program activities and, in their PY 2001
applications, should demonstrate how they do not do so.
  38. The utilities should take all steps necessary to ensure the success of the
statewide residential lighting and appliance program activities and to
aggressively implement the program, including conducting on-going evaluation,
monitoring, and fine-tuning of the programs, as needed.
  39. For PY 2000, for proper program review, we need additional information
about the strategies and focus of the statewide lighting and appliance programs,
as implemented. For PY 2001, the utilities should support the programs roughly
proportionate to the utilities‘ shares of overall PGC funds, taking into account
SoCalGas‘ limited involvement in many of the measures.
  40. Updated program manuals for the statewide lighting and appliance
programs should be maintained and available to the Commission, customers,
and interested stakeholders.
  41. For PY 2000 the utilities should develop a statewide refrigerator recycling
program, including marketing and distribution plans and should consider
developing an appropriate non-energy environmental factor for this program.




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  42. The utilities should monitor PG&E‘s new ENERGY STAR® financing
program and consider whether it might be appropriate for statewide
implementation in PY 2001.
  43. For PY 2001, the utilities should all have school-based education programs.
The utilities should monitor and report on the effectiveness of the programs and
the changes in awareness and behaviors attributable to the programs. The
utilities should explore the feasibility of a future statewide strategy using PG&E‘s
and Edison‘s programs as models.
  44. The utilities should continue to consider program offerings and increased
funding for activities that benefit under-served communities and customer
groups and should offer targeted solicitations to them.
  45. For PY 2001, the utilities should work together to develop common
working definitions for different communities and customer groups in the
residential sector, perform needs assessments, and monitor services and
participation.
  46. PGC benefits should be aligned with the customers providing the
revenues, by class and by sub-class.
  47. On the program benefit or budget side of the equation, it is reasonable to
look at the projected participation rates for each customer class and sub-class.
  48. We will not order the utilities to redirect $20 million in program funds
from the large nonresidential customer class to the small/medium nonresidential
customer class for PY 2000.
  49. It is reasonable to look at individual utilities‘ revenue and budget
allocation tables to determine compliance with our directives.
  50. The utilities have not followed our directive to provide an analysis of the
sources of public goods charge energy efficiency and gas demand-side
management funds by customer class and sub-class and to submit joint tables.


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  51. The Commission should consider whether to revise the proposed
shareholder incentives associated with some of the specific large customers
programs if the utilities‘ allocations to customer sub-classes are not consistent
with contributions for PY 2000.
  52. The utilities‘ budget allocations among customer classes and sub-classes
should be done consistently, following established guidelines or protocols,
should be further segmented, and should report corporate chain accounts
separately.
  53. PG&E should redirect PY 2000 budgets for the benefit of small/medium
customers. PG&E is not required to redirect the funds to non-SPC strategies
although this is the preferred action.
  54. Edison should redirect PY 2000 budgets for the benefit of small/medium
customers. Edison is not required to redirect the funds to non-SPC strategies
although this is the preferred action.
  55. SDG&E and SoCalGas do not need to adjust their nonresidential program
budgets for PY 2000.
  56. The utilities should continue efforts to design and implement program
elements and intervention strategies to better serve the needs of small/medium
nonresidential customers.
  57. The utilities should continue to focus on consistent definitions of small
versus medium versus large nonresidential customers, the appropriate balance
between financial incentives, financing, SPC, and contractor-focused intervention
strategies, and the magnitude of contributions to PGC energy efficiency and gas
DSM funds made by these customers.
  58. For PY 2001, the utilities should propose further segmentation of the
nonresidential market into appropriate sub-classes and specific market segments




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including separate treatment for corporate chain accounts, and propose
consistent definitions for such sub-classes and market segments.
  59. The utilities should explore ways to design marketing strategies to reach
other customers, markets, and market segments, identify market barriers to
participation in energy efficiency programs, and develop strategies that are more
appropriate to reach those customer sub-classes and market segments.
  60. For PY 2001, the utilities should give full consideration to implementing
the programmatic changes and budget adjustments we recommended in
D. 99-08-021, Ordering Paragraphs 9-14.
  61. The SPC program should continue moving toward uniform statewide
design and implementation with broad input from customers on program design.
  62. In making program and budget decisions for the SPC program in
particular and for nonresidential programs in general, the Commission must
focus on and distinguish between the strategies that best reach particular
customers to meet our market transformation goals and limitations or restrictions
that may be necessary to curb program abuse.
  63. Funds should be used each year for energy efficiency purposes rather than
sitting in a balancing account that is rolled-over to future years.
  64. For PY 2000, the utilities should not be required to redirect funds from the
Large SPC program except as directed previously for PG&E and Edison.
  65. The utilities should not be directed to eliminate large commercial
customers and all industrial customers from participation in the Large SPC
program or other nonresidential programs at this time.
  66. For PY 2000, the funding cap for the Large SPC should be maintained at
$68 million and a funding floor should be maintained at $20 million for the Small
SPC. For PY 2001, the utilities should continue to consider budget floors for the




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Small SPC and explain the process undertaken and rationale for the action
proposed.
  67. To appropriately review nonresidential programs, we need more specific
customer participation data for 5 years.
  68. The utilities should report funds spent and committed in the Quarterly
Reports, by the fourteen program areas and by strategy. The PY 2001 program
applications should show three years of comparison data.
  69. To appropriately review the nonresidential programs, we need more data
regarding the extent of free-riders and market saturation by product and
customer markets and market segments.
  70. The utilities should take all necessary action to substantially increase the
amount expended for the Small SPC and other programs targeted to small and
medium sized customers, including program redesign, targeted outreach, and
public input forums.
  71. For PY 2001, the utilities should consider ceasing incentive programs for
the installation of T-8 lights and electronic ballasts, in any market that has been
saturated.
  72. To appropriately review the nonresidential programs, we need data on
saturation rates for T-8 lighting and other measures, by market and market
segment, and protocols for determining when a measure has reached saturation
so that incentives should be phased out or eliminated.
  73. For PY 2001, the utilities should consider multi-year customer caps based
on prior participation, caps on measures used, and total funding cap per
participant and per corporate parent. It is our intention to impose some
limitations for PY 2001.
  74. The utilities should monitor the SPC program results and modify the
program accordingly for PY 2001.


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  75. The utilities‘ proposed SPC program revisions, as set forth on Joint
Exhibit 1, should be approved for PY 2000. The utilities should immediately
incorporate the changes into the statewide procedure manual.
  76. The utilities should ensure that both the Large and Small SPC programs
are consistent across utilities with respect to incentives, project sponsor limits,
project size, eligibility, contract and contract terms, and application process and
continue the statewide standardization of these programs. The utilities should
immediately appoint a statewide team and, for PY 2001, consider contracting
with a third-party statewide implementer.
  77. CALEP‘s recommendation to use rebates instead of SPC performance
contracting should not be adopted at this time.
  78. The utilities should regularly obtain public input into program structure,
design, and implementation of both the Large and Small SPC programs.
  79. Updated comprehensive program manuals for the Small and Large SPC
programs should be maintained and available to the Commission, customers,
and interested stakeholders.
  80. We should determine whether performance contracting is merely a means
to provide accountability for the use of ratepayer funds or whether the purpose is
to increase performance contracting between end users and third-party EESPs
and explore appropriate means to meet the objective.
  81. The utilities should ensure that all nonresidential remodeling and
renovation activities may participate in the program and not only those that
trigger compliance with the states Title 24 building codes or that consist of a two-
system charge out.
  82. The statewide Express Efficiency program should continue moving to
statewide standardization and should be designed with customer input. The
elimination of customer rebates should be explored for PY 2001.


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  83. For nonresidential programs, the utilities should continue to consider
program offerings and increased funding for activities that benefit under-served
markets and market segments, should work together to develop common
working definitions for market segments consisting of smaller nonresidential
customers and under-served market events such as remodeling and renovation,
to perform needs assessments, monitor services and participation, and to offer
new targeted solicitations to the identified under-served market system.
  84. SoCalGas‘ proposal to submit an advice letter detailing changes made to
the EAHP, including new cost-effectiveness calculations, is reasonable.
  85. REECH‘s recommendation that the utilities jointly determine how to
minimize their involvement in efforts to improve the implementation and
development of new standards and defer to the CEC and local jurisdictions
should not be adopted.
  86. The distribution of the Energy Guides should be better coordinated to
ensure that they are available to all residential and commercial customers
throughout the state. All Spanish-speaking and Chinese-Speaking persons
residing in this state should have equal access to the Spanish and Chinese
language Energy Guides regardless of the service territory in which they live.
  87. For PY 2001, the utilities should plan for translation of the Energy Guide
into other languages.
  88. The utilities should continue the coordination of the energy centers for
PY 2000 and PY 2001, with particular emphasis on eliminating duplication.
Edison and SoCalGas should take all reasonable efforts to ensure fuel-and-
administrator-neutrality in the messages conveyed by the centers, and for
PY 2001, should explore jointly operating their energy centers or conducting
activities jointly at all centers.




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  89. We should not adopt REECH‘s recommendations that the energy centers
not be fully funded with PGC funds and that the utilities be required to maintain
and report separate cost accounting for the energy centers, information services,
TPI, and emerging technologies because there is no evidence on the record to
support the recommendations and because they are outside the scope of this
proceeding.
  90. For PY 2001, the utilities should consider REECH‘s proposal for placing
model kiosks at home improvement centers and hardware stores.
  91. PG&E, Edison, and SDG&E should take action to develop general and
targeted TPI solicitations for the remainder of PY 2000, and, if appropriate,
pursue additional solicitations. For PY 2001, the utilities should pursue
additional solicitations and budgets. We will not order the utilities to further
evaluate the TPI projects at this time.
  92. It is important that the cost-effectiveness of a program, including a TPI, be
measured reasonably accurately to guide future programming design and
choices.
  93. We can improve the credibility of the cost-effectiveness calculations for
new TPI programs in the pre-program estimates by adopting reporting
requirements, procedures, and standards for the collection of data for program
evaluation after program completion.
  94. For PY 2001 programs, the utilities should develop standards to use for
IMC in the pre-program approval cost-effectiveness calculations, such as a
default ratio or a requirement that all TPI meet a minimum threshold of cost
effectiveness and reporting requirements, procedures, and standards for
collection of IMC and other cost data for TPI programs after program completion.




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  95. The utilities should monitor their TPI solicitations to determine if third-
parties are reluctant to participate in the TPI program because of our treatment of
intellectual property.
  96. We do not adopt REECH‘s recommendation that the proposal to
coordinate efforts on emerging technologies through the ETCC be deferred to PY
2001.
  97. ORA‘s concern over Edison‘s and SoCalGas‘ provision of energy efficiency
services in the same service territory raises the issue of the desirability of
independent administration which is outside the scope of this proceeding.
  98. We should not adopt performance milestones until we know for certain
that the necessary baseline and other market data critical to program evaluation
and to evaluation of the reasonableness of the proposed performance indicators
and milestones for measuring shareholder incentives will be collected
expeditiously.
  99. We should adopt the data collection procedures set forth in Joint Exhibit 3,
except that the utilities should collect and provide the necessary data as we detail
in the Order.
  100. We should not adopt CBEE‘s recommendation that we adopt one of the
options it sets forth for ensuring the timely commencement and completion of
statewide MA&E studies (penalties; transfer to independent administration, or
deauthorization of programs for which appropriate studies have not been done
or data collected) at this time. However, we will consider these options and
others, as appropriate, if the studies are not done and data collected as we direct
herein.
  101. We should establish general priorities for the data collection and studies
ordered herein, as set forth in the Order.




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  102. Prior to engaging in any data collection or MA&E studies, the utilities
should obtain the input and preferably agreement of interested stakeholders
regarding the scope of the study, selection of contractor, data collection methods,
timing, and other protocols. The utilities may coordinate this process through
the CALMAC if they wish.
  103. For filings required by this decision which are based upon any such
studies or data collection, the utilities should summarize the process used to
obtain the data, state whether the protocols have been agreed upon, and identify
any remaining disagreements.
  104. The utilities, and any other interested parties, in their comments on this
Proposed Decision, should provide estimates of the cost of completing the listed
studies and data collection activities, identifying the bases and sources for such
estimates and showing appropriate calculations. We should allow the utilities to
redirect funds from either 1) funds budgeted to support the CBEE; 2) funds
budgeted for shareholder incentives; or 3) carry-over funds allocated to PY 2001,
via an advice letter filing, as reasonably necessary to support the expeditious
completion of these studies.
  105. It is reasonable to perform a limited review of the milestones for PY 2000,
relying on the review conducted by the CBEE and other parties.
  106. Our limited review should include consideration of whether the
milestones are quantifiable, measurable, and verifiable, and whether they reflect
an appropriate balance between risk and reward as provided in the policy rules.
  107. Maintaining the incentives for individual milestones as proposed, based
on 110% of the anticipated 11% shareholder incentive cap, despite the adoption
of a reduced 7% shareholder incentive cap, defeats the purpose of the awards
and is not in the public interest.




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  108. The fairest and most rationale way to address the performance awards to
reflect the reduced 7% shareholder incentive cap is to reduce each award
proportionately.
  109. It is reasonable to allow the utilities to maintain the 10% margin over the
total shareholder incentive cap for PY 2000 because we only recently adopted the
reduced 7% shareholder incentive cap.
  110. It is reasonable to adopt the revisions to the aggressive implementation
milestones, which have been recommended by the CBEE, as described in the
Findings of Fact and as set forth more fully in the Ordering Paragraphs, to better
align them with our policy rules and objectives.
  111. It is reasonable to adopt the revisions to the individual milestones as
described in the Ordering Paragraphs and Appendix D, to ensure that they are
measurable and verifiable, reflect an appropriate balance between risk and
award, and meet our policy rules and objectives.
  112. We should delegate to the Assigned Commissioner and Assigned ALJ the
responsibility for the PY 2001 planning process, to determine compliance with
the requirements set forth in this decision, to defer compliance with specified
items because of unavoidable time constraints, if necessary, and to determine the
date by which PY 2001 applications shall be filed.
  113. All interested parties should participate in the planning process and raise
all issues regarding PY 2001 applications at that time.
  114. The utilities‘ proposals for fund-shifting rules within the three program
administrative areas should be adopted for PY 2000 as along as the budgets, after
the funds are shifted, are still consistent with customer contributions by class and
sub-class.

  115. For PY 2001, the utilities should provide further justification for allowing
fund-shifting within program administrative areas, without our prior approval.

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  116. The utilities should not be permitted to shift funds between the three
program administrative areas.
  117. The Commission may take official notice of the publications of the
California Energy Conservation and Development Commission for the limited
purpose of establishing predictive or judgmental facts, a sub-category of
legislative fact.
  118. Shareholder incentives should not be paid out of program funds.
  119. The utilities should develop, jointly with interested stakeholders, a
schedule for a regular public input process for all energy efficiency programs to
ensure timely input before decisions are made and feedback after decisions are
finalized.
  120. The Energy Division should work with the utilities and interested
stakeholders to develop a process for coordinating utility-sponsored sessions
with Commission-sponsored workshops and for reviewing and approving
program revisions agreed upon in utility-sponsored sessions.
  121. It is appropriate to establish clear and consistent guidelines in the PY 2001
applications governing utility discretion and delineating the types of activities
that require Commission approval. The guidelines should contain a procedure
for obtaining Commission approval in appropriate cases and a review and
appeal process for actions taken by the administrators that do not require
Commission action.
  122. For PY 2000, the utilities should use the advice letter process for
instituting changes in incentives, M&E requirements, and customer limits in the
SPC as was the case in PY 1999 and the RCP multi-family contracting element.
The utilities may make other programmatic changes in the same manner as they
have previously.



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  123. The utilities should file Quarterly Program and Expenditure Reports with
the Energy Division and serve the Reports on the service list for this proceeding,
providing the information set forth in the Order.
  124. The utilities should provide two copies of a program portfolio manual,
one manual to be maintained in the Public Advisor‘s Office and the other to be
maintained in the Energy Division. The manual should be organized as
described in the Order.
  125. The utilities should file new applications for PY 2001 programs. The
applications should be coordinated among utilities, follow the same format, and
use the same inputs, as detailed in the Order.
  126. The PY 2001 applications, like the PY 2000 applications, are compliance
applications. Review should be limited to consistency with the requirements set
forth herein, the requirements set forth in D.99-08-021, and the policy rules for
energy efficiency programs. We should not at this time undertake a broader
view of the merit and efficacy of the utilities' energy efficiency programs or
relitigate issues that were previously raised. However, the utilities should make
funding and programmatic changes consistent with this decision, after having
collected and reviewed the pertinent data, and engaged in a full, open, public
process. Interested stakeholders should raise all programmatic and funding
issues during the public planning process. The cost-effectiveness issues should
be raised in this proceeding.
  127. The utilities‘ PY 2000 program applications should be approved as
modified herein.




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                                   O R D E R

         IT IS ORDERED that:
   1. The programs and funding levels we approve today are authorized
through December 31, 2001, unless and until modified by further Commission
order.
   2. The utilities shall file new applications for PY 2001.
   3. The Assigned Commissioner and Assigned Administrative Law Judge
(ALJ) are delegated the responsibility to determine compliance with the
preceding Ordering Paragraphs, to defer compliance with specified items
because of unavoidable time constraints, if necessary, and to determine the date
by which PY 2001 applications shall be filed.
   4. The Assigned Commissioner and Assigned ALJ shall convene a public
workshop, as soon as practicable, to explore with all interested parties an
expeditious process, schedule, and timetable for compliance with this order.
   5. The PY 2001 planning process shall be undertaken in this docket, which
shall be closed out when it is completed. The utilities shall file their PY 2001
applications in new dockets.
   6. All interested parties shall fully participate in the planning process and are
advised that we hope to surface and resolve most of the parties‘ issues during the
planning process.
   7. Pacific Gas and Electric Company (PG&E), Southern California Edison
Company (Edison), San Diego Gas & Electric Company (SDG&E), and Southern
California Gas Company (SoCalGas) shall jointly collect data on free-riders,
review field studies and gathered information, including the final Xenergy Study
on the nonresidential SPC program scheduled to be completed this year, and,
jointly with interested stakeholders, after conducting a public process, develop



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net-to-gross (NTG) ratios to be used for Program Year (PY) 2001 programs. If
there is credible evaluative measurement of the NTG ratio for individual
programs, the utilities shall use that data for PY 2001. If there is only more
generalized data, the utilities shall use a default ratio for PY 2001.
   8. The utilities shall, jointly with interested stakeholders, after engaging in a
public process, devise a table showing the proposed measure life for each energy
efficiency measure included in their programs. The table shall be included in the
PY 2001 applications and include a description of any remaining areas of
disagreement. The utilities shall use the agreed upon values in their PY 2001
applications subject to our approval. As a general rule, the utilities shall use the
same measure life in the cost-benefit calculations, particularly for statewide
programs. Where there is a reason for varied measurement lives, the table should
include agreed-upon variations, and, in the PY 2001 application, the utilities shall
explain the basis for the variations.
   9. The utilities shall use the most updated costs available in their cost-benefit
analyses for PY 2001, such as the avoided costs forecast report prepared by the
California Energy Commission (CEC).
   10. Within 30 days after the effective date of this decision, PG&E, Edison, and
SDG&E shall submit a report to the Energy Division for PY 2000 showing
cost/benefit calculations, updated with end-of-the-year information, both using
and omitting market effects multipliers. The calculations shall explicitly identify
1) the non-energy costs and benefit factors and market effects multipliers used;
2) the programs or measures affected; and 3) the calculation.
   11. Within 30 days after the effective date of this decision, SoCalGas shall file
an advice letter providing the basis for its calculations of water-savings, with an
explanation of the reasonableness of the estimate. SoCalGas shall also provide
cost/benefit calculations, updated with end-of-the-year information, both using


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and omitting non-energy factors. The calculations shall explicitly identify 1) the
non-energy environmental adders used; 2) the programs or measures affected;
and 3) the calculation.
  12. For PY 2001, the utilities, jointly with interested stakeholders, shall engage
in a public process to discuss and review the basis for the development of any
non-energy factors and market effects multipliers they seek to include in their
PY 2001 applications. The review shall include a follow-up on the Regional
Economics Research, Inc. (RER) study and shall consider the mitigations
proposed in Policy Rule V-4. The utilities shall report on that process, including
agreements reached and areas of remaining disagreement, in the PY 2001
applications.
  13. For PY 2001, the utilities shall submit two sets of cost/benefit calculations,
one including and one omitting, non-energy factors and market effects
multipliers. The utilities shall use the same factors and multipliers for like
measures. The calculations shall also explicitly identify 1) the non-energy factors
and market effects multipliers used; 2) the programs or measures affected; 3) the
calculation; and 4) the justification for using them.
  14. The utilities shall develop, with interested stakeholders, in a public
process, 1) protocols, including mechanism and standards, for the collection and
use of Incremental Measure Cost (IMC) data, including the use of a statewide
database such as Database for Energy Efficiency Resources (DEER); 2) guidelines
or standards for estimating IMC costs associated with the various program
strategies and elements, including possible default assumptions; 3) other
mitigations, or avenues to ensure that the cost-effectiveness calculations are
reasonable where credible IMC data is not available, such as those set forth in
Policy Rule V-4. The utilities shall attempt to have at least a preliminary
agreement in place prior to filing PY 2001 applications. The utilities‘ PY 2001


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applications shall report on the development of IMC standards and protocols,
use uniform, agreed upon IMC for like measures, and explain the basis for any
deviations.
  15. Within 30 days after the effective date of this decision, SoCalGas shall file
an advice letter advising of the manner in which it intends to modify its PY 2000
program portfolio to ensure that it is cost-effective. The advice letter filing shall
include a thorough description of the proposed program and budget changes
and be supported by workpapers showing the cost-effectiveness calculations,
including the basis for all assumptions and input values. SoCalGas shall consider
the modification or elimination of third-party initiatives (TPI) or upstream
marketing programs, information programs that may be duplicative of Edison‘s
programs, design changes to the residential new construction program, and other
methods. SoCalGas shall include the revised calculations for its modified Energy
Advantage Home program. SoCalGas shall submit calculations using NTC ratios
of 1.0 and .75 and including and excluding water savings associated with high
efficiency washing machines.
  16. The utilities shall create a master energy efficiency website that describes
all the statewide energy efficiency programs in detail and has appropriate links
to the utilities‘ own website for specific programs.
  17. For PY 2001, the utilities shall gather appropriate data on in-home and
mail-in audits, review the data in a public process, include a report on the audit
programs, including their use and cost-effectiveness, and consider phasing out or
appropriately limiting in-home and mail audits, explaining the rationale for its
actions.
  18. The utilities shall increase their efforts to publicize and market both the
single family and multi-family RCP programs, develop new plans for reaching
under-served markets, and report in the PY 2001 applications the efforts it has


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undertaken to do so. The report shall also include baseline information
regarding participation both by customers and the third party implementers.
  19. The utilities shall maintain, publish, and update a statewide RCP
procedures manual. The program manual shall set forth eligibility criteria,
including utility-specific differences, incentives, and administrative details,
including process, criteria, and timeline for reviewing proposals to determine
whether they are eligible for the program. The manual shall be available on the
utilities‘ websites and the new master energy efficiency website and shall be
provided to the Energy Division and the Office of the Public Advisor. The
utilities shall also update their procedures manual both on-line and with the
Energy Division at a minimum of once a year and as necessary.
  20. The utilities shall immediately appoint and maintain a consistent statewide
Residential Contractor Program (RCP) implementation team.
  21. For the RCP, the utilities shall establish a structured, periodic public
process, such as workshops, meetings, and focus groups, to receive input and
feedback from interested stakeholders, including third party providers and
customers, a minimum of twice annually in each service territory. At least one
public workshop shall be held in each service territory prior to filing the PY 2001
applications. They shall publicize and distribute proposed program changes
prior to the information meetings, distribute adopted program changes to
meeting participants and other interested stakeholders as they are made, and
report on the process and results of the public forums in the Quarterly Reports.
The public input sessions should be widely publicized.
  22. For the multi-family RCP, the utilities shall jointly submit a report to the
Energy Division identifying precisely the proposed programmatic changes,
including to utilize calculated savings for some measures, modify incentives, and
simplify the application process, and explaining the basis for the changes. The


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utilities shall file an advice letter for use of calculated savings for specific
measures, which shall not go into effect until approved.
  23. The utilities shall include budget tables in the PY 2001 applications that
segregate budgets and funds spent or committed under the single family and
multi-family RCP programs.
  24. For PY 2001, the utilities shall consider increasing the RCP budget in
conjunction with their new proposals to reach under-served markets.
  25. The utilities shall take all steps necessary to ensure the success of the
statewide residential lighting and appliance program activities and to
aggressively implement the program. They shall conduct on-going evaluation,
monitoring, and fine-tuning of the programs, as needed.
  26. The utilities shall ensure that utility-specific activities in the residential
lighting and appliance programs will not compete in a negative way with
activities being conducted through the statewide program.
  27. Within 30 days after the effective date of this decision, the utilities shall
submit a report to the Energy Division detailing the strategies and focus of the
statewide lighting and appliance programs, as they have implemented them,
explaining why it is appropriate to maintain utility-specific funds to promote the
same products and develop the same customer awareness as the statewide
programs, and demonstrating how their utility-specific programs in ENERGY
STAR® appliances and energy efficiency lighting do not compete in a negative
way with the statewide programs. PY 2001 applications shall contain the same
information. PY 2001 applications shall also propose budgets to support the
statewide appliance and lighting programs roughly proportionate to the utility‘s
share of overall PGC funds, taking into account SoCalGas‘ limited involvement in
many of the measures.




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  28. For PY 2001, the utilities shall generally channel funds promoting
ENERGY STAR® appliances and energy efficiency lighting through the
statewide programs, except that the utilities may elect to develop local pilot
programs that promote higher appliance and lighting standards.
  29. The utilities shall report on the statewide lighting and appliance programs
in each of the Quarterly Reports and, beginning in PY 2001, shall endeavor, if
feasible, to have the third party statewide contractor process rebates for Edison
and SoCalGas.
  30. The utilities shall prepare, publish, and update as needed and no less than
annually, program manuals for the Statewide Lighting and Appliance Programs
and make them available on the master and utility-specific websites and in the
Energy Division and the Office of Public Advisor.
  31. The utilities shall develop refrigerator recycling programs, including
marketing and distribution plans, to be implemented by September 1, 2000 or as
soon as the programs are approved. Within 30 days after the effective date of
this decision, PG&E and SDG&E shall identify and allocate significant funds for
this strategy for the duration of PY 2000 and submit a report to the Energy
Division showing their proposed budgets and implementation plans and
explaining the new program. Edison, PG&E, and SDG&E shall include funding
for enhanced programs in their PY 2001 applications. The utilities shall consider
developing an appropriate non-energy environmental factor for this program.
  32. The utilities shall monitor PG&E‘s new ENERGY STAR® financing
program and consider whether it might be appropriate for statewide
implementation in PY 2001. The utilities shall report on their efforts in the PY
2001 application, explaining the actions taken.
  33. PG&E and Edison shall continue their school-based education programs
for PY 2001 and SDG&E and SoCalGas shall conduct pilot tests of these school-


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based programs in their service territories for PY 2001. The utilities shall monitor
the effectiveness of the programs and the changes in awareness and behaviors
attributable to the programs and report the results in the Quarterly Reports and
in an evaluation report to be submitted to the Energy Division by December 1,
  33. 2001. The utilities shall explore the feasibility of a future statewide school-
based education strategy using PG&E‘s and Edison‘s programs as models.
  34. In the residential area, the utilities shall consider program offerings and
increased funding for activities that benefit under-served communities and
customer groups.
  35. In the residential area, for PY 2001, the utilities shall jointly develop
common working definitions for different communities and customer groups,
considering characteristics such as language, ethnicity, homeownership versus
renter, and rural versus urban or suburban. The utilities shall use these
definitions, subject to our approval, in the PY 2001 applications.
  36. In the residential area, for PY 2001, the utilities shall, in consultation with
interested stakeholders, assess the size and characteristics of the identified
communities and customer groups, begin monitoring the availability and
delivery of program services and participation using these definitions. The
utilities shall report the results of the needs assessment and monitoring in the
PY 2001 applications.
  37. In the residential area, the utilities shall offer targeted solicitations to
increase provision of energy efficiency services to under-served communities and
customer groups already known or identified and include new targeted efforts in
the PY 2001 applications, fully explaining the nature of the solicitations and
rationale for choosing these efforts. Progress should be reported in the Quarterly
Reports.




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  38. Within 30 days after the effective date of this decision, the utilities shall
submit a report to the Energy Division containing, for PY 2000, revised
revenue/budget allocation tables and workpapers. The tables shall treat
corporate chain stores‘ revenues and budgets consistently and shall specifically
break out all revenues and budgets for corporate chain accounts. The
workpapers shall ensure that all terms are defined, all assumptions and factors
for allocating budgets are identified with the supporting bases (including for
generic programs such as energy centers), and all calculations are complete,
accurate, and easily followed. The workpapers shall also include a complete
analysis to support the assumptions made and factors used.
      For corporate chain accounts, the utilities shall fully explain the basis upon
which they determine how to treat such accounts in their analyses and provide
supporting data and workpapers. The utilities shall also provide correct tables
showing revenues and budgets broken out by 1) the number of corporate chain
accounts classified as small/medium and the number classified as large; 2) for
each corporate chain account, the number of accounts per chain; and 3) the
number of corporate chain accounts where the corporate parent pays for energy
efficiency services and the number of corporate chain accounts where the
corporate parent does not pay for such services. The utilities shall also show the
PY 1999 participation of the foregoing and the expected PY 2000 participation of
the foregoing. The utilities shall fully explain the basis for the data provided in
Exhibits 2(a), 2(b), 2(c), and 2(d).
  39. For PY 2001, the utilities shall jointly convene a public process, with
interested stakeholders, to develop guidelines or protocols to govern the
allocation of budgets among customer sub-classes, taking into account prior
years‘ participation, programmatic changes, newly targeted customer classes,
markets, and market segments, treatment of chain accounts, and treatment of


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cross-cutting strategies, such as energy centers, etc. The PY 2001 applications
shall report the results of the public process, any agreements reached, and any
remaining disagreement. The PY 2001 applications shall be based on the agreed-
upon guidelines or protocols, if any were reached, and shall also include
standardized tables showing the revenue/budget allocations for each strategy,
detailing the assumptions made, the basis for each assumption, and the analysis.
The tables shall also break out chain stores as a separate calculation for both
revenues and budget, and shall include the information requested above for
PY 2000. The utilities shall further break out the information in the PY 2001
applications by small, medium, and large customers, and other proposed further
segmentation developed during the course of the PY 2001 planning process.
  40. Within 30 days after the effective date of this decision, PG&E shall submit
a report to the Energy Division redirecting a minimum of $8.5 million to the
HVAC Equipment Retrofit, Commercial Remodeling and Renovation and Small
Comprehensive Retrofit program elements, with a substantial portion going into
the Commercial Remodeling and Renovation program element, for the benefit of
small/medium customers, identifying the area(s) to which the funds are being
redirected and from which the funds were redirected, and providing a detailed
explanation of its chosen action. Revised budgets shall also be filed as a
amendment to the applications and attached to the applications maintained in
the Commission‘s Central Files.
  41. Within 30 days of the effective date of this decision, Edison shall submit a
report to the Energy Division redirecting $1.7 million to the Commercial
Renovation and Remodeling program element, identifying the area(s) from
which the funds were redirected, and providing a detailed explanation of its
reasoning. Revised budgets shall also be filed as an amendment to the




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applications and attached to the applications maintained in the Commission‘s
Central Files.
  42. The utilities shall continue efforts to design and implement program
elements and intervention strategies to better serve the needs of smaller (small
and medium) nonresidential customers and include a special progress report on
these efforts as part of their PY 2000 and PY 2001 Quarterly Reports.
  43. The utilities shall continue to focus on consistent definitions of small
versus medium versus large nonresidential customers and on the magnitude of
contributions to Public Goods Charge (PGC) energy efficiency and gas Demand
Side Management (DSM) funds made by customers.
  44. The utilities shall continue to focus on the appropriate balance between
financial incentives, financing, Standard Performance Contract (SPC), and
contractor-focused intervention strategies in view of the market barriers and
opportunities faced by different market segments within smaller, nonresidential
customers.
  45. The utilities shall convene a public process with interested stakeholders,
and in consultation with the Energy Division, to develop and propose further
segmentation of the nonresidential market into appropriate sub-classes and
specific market segments, including a consideration of grouping small, medium,
and large customers by SIC code and market segment, and including separate
treatment for corporate chain accounts, and develop and propose consistent
definitions for such sub-classes and market segments. The utilities shall propose
the use of more specific market segmentation for program offerings in PY 2001,
and, in the PY 2001 applications, explain the process used to develop the
proposal and the positions of any parties that disagree with it.
  46. The utilities shall convene a public process with interested stakeholders to
describe marketing techniques current used to reach small and medium customer


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classes and large customers that have not previously participated in energy
efficiency programs and to explore ways to design marketing strategies to reach
other customers, markets, and market segments. The utilities, together with
interested stakeholders, shall also identify market barriers to participation in
energy efficiency programs by the various customer sub-classes and market
segments and develop strategies that are more appropriate to reach those
customer sub-classes and market segments, including plans for disseminating
information to them. In the PY 2001 program applications, the utilities shall
report on the public process, identify the market barriers to participating for the
various customer sub-classes and market segments, and fully describe the new
and different strategies proposed for PY 2001.
  47. For PY 2001, the utilities shall give full consideration to implementing the
programmatic and budget changes we recommended in D. 99-08-021, Ordering
Paragraphs 9-14. The PY 2001 applications shall include a detailed discussion of
the input process and analysis undertaken prior to proposing the PY 2001
programs and budgets and the rationale for their actions.
  48. For PY 2000, the funding cap for the large SPC shall remain at $68 million
and the funding floor for the Small SPC shall be $12 million.
  49. For nonresidential programs, in the PY 2001 applications, the utilities shall
provide customer participation data for the nonresidential programs by name,
customer SIC code, tariff schedule, corporate parent, year(s) participated,
measure(s) installed, incentive amount, and program, for the past 5 years, coding
the customer name and corporate parent to preserve confidentiality, e.g.,
customer A-1, where A represents the corporate parent and 1 represents the
customer. An unredacted copy shall be submitted confidentially to the Energy
Division and the Assigned ALJ to be held in accordance with Pub. Util. Code
§ 583. The data shall be derived from and reference all nonresidential programs


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and shall be segregated into discernable market segments, by grouped SIC codes.
Prior to providing the data, the utilities shall convene a public process with
interested stakeholders to develop appropriate protocols for the manner in which
the information will be provided. The utilities shall also consult with the Energy
Division. The PY 2001 applications shall contain a report on the process, the
agreements reached, and the remaining areas of disagreement. The data shall be
updated yearly.
  50. The utilities shall report funds spent and committed in the Quarterly
Reports. The reports shall break out spent and committed funds and shall be
provided by the fourteen programs as well as by strategy. The PY 2001 program
applications shall show three years of comparison data.
  51. For nonresidential programs, in the PY 2001 applications, the utilities shall
gather and provide data regarding the extent of free-riders and market saturation
by product and customer markets and market segments. The utilities shall
convene a public process with interested stakeholders to determine how best to
obtain and report the information.
  52. The utilities shall immediately take all necessary action to substantially
increase the amount expended for the small SPC and other programs targeted to
small and medium sized customers, including program redesign, targeted
outreach, and public input forums. The utilities shall provide a report with
PY 2001 applications showing the actions taken.
  53. For PY 2001, the utilities shall consider ceasing incentive programs for the
installation of T-8 lights and electronic ballasts in any market that has been
saturated.
  54. The utilities shall immediately, and jointly with interested stakeholders,
conduct an investigation of saturation rates for T-8 lighting and other measures,
by market and market segment. The utilities, together with interested


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stakeholders shall also develop protocols for determining when a measure has
reached saturation so that incentives should be phased out or eliminated. In the
PY 2001 applications, the utilities shall report on the proposed saturation rates of
specified measures, the proposed saturation protocols, and how they intend to
incorporate such agreements and protocols in the programs.
  55. For PY 2001 the utilities shall continue to consider budget floors for the
small SPC and explain the process undertaken and rationale for the action
proposed.
  56. For PY 2001, in the nonresidential programs, the utilities shall consider
multi-year customer caps based on prior participation, caps on measures used,
and total funding cap per participant and per corporate parent, taking into
account the data provided. The utilities shall convene a public process with
interested stakeholders to discuss these issues and, in the PY 2001 applications,
explain the process, agreements reached, and remaining areas of disagreement.
If the utilities do not propose caps or limitations, they shall explain, in detail, the
reasons such action is not proposed.
  57. The utilities shall consider filing advice letters seeking to carry-over funds
originally proposed for carry-over to PY 2001 to use for additional marketing to
small/medium nonresidential markets if necessary.
  58. The utilities shall monitor the SPC program results and modify the
program accordingly for PY 2001.
  59. The utilities shall immediately incorporate the proposed changes to the
Large and Small SPC programs, reflected on Joint Exhibit 1, into the statewide
program procedural manual.
  60. The utilities shall ensure that both the large and small programs are
consistent across utilities with respect to incentives, project sponsor limits, project
size, eligibility, contract and contract terms, and application process and continue


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the statewide standardization of these programs. The utilities shall immediately
appoint a statewide team to coordinate the programs and, for PY 2001, consider a
third party statewide implementer.
  61. The utilities shall convene a public process to obtain input into program
structure, design, and implementation of both the Large and Small SPC
programs, and proposed revisions to the programs, a minimum of twice a year in
each service territory. The utilities shall conduct at least one such session prior to
filing the PY 2001 applications, focusing on the issues raised by interested
stakeholders to date, including the application process, paperwork, and M&V
requirements, and considering the modification of corporate parent caps in
accordance with our prior direction. The utilities shall report on these sessions,
including the process used, the agreements reached, and the remaining areas of
disagreement in the Quarterly Reports and in the PY 2001 program application.
  62. Within 30 days after the effective date of this decision, the utilities shall
prepare and submit to the Energy Division and the Public Advisor‘s Office Small
SPC and Large SPC program manuals, setting forth eligibility criteria, incentives,
and administration, including the process, criteria, and timeline for reviewing
and processing applications. The utilities shall update the manual as needed and
at a minimum, annually.
  63. The Energy Division shall facilitate a workshop before the PY 2001
program applications are filed to explore the objective of using performance
contracting, e.g., whether it is merely a means to provide accountability for the
use of ratepayer funds or whether the purpose is to increase performance
contracting between end users and third-party EESPs, and to explore appropriate
means to meet the objective.
  64. The utilities shall 1) rename the program from Commercial Remodeling
and Renovation to Nonresidential Remodeling and Renovation to clarify that the


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program is not limited solely to commercial buildings; 2) jointly develop, and use
in their Quarterly Reports, a common definition for Nonresidential Remodeling
and Renovation activities—including, at a minimum, remodeling, renovation,
rehabilitation, and tenant change, assess the magnitude of these activities, and
monitor them; 3) monitor the effectiveness of the programs, in a coordinated
fashion with other nonresidential new construction and retrofit activities, and
modify program elements and intervention strategies, as needed, to ensure gaps
do not emerge as a result of program eligibility criteria that do not allow projects
to participate, which are neither new construction nor retrofit. The program shall
ensure that remodeling and renovation includes all time-dependent remodeling
and renovation activities, not solely those that trigger compliance with the State‘s
Title 24 building codes, or that consist of a two-system change out as Edison
proposes.
  65. The utilities shall convene a public process with interested stakeholders to
explore standardization of the Express Efficiency Program, including the
elimination of rebates for large customers, and to report on the results of the
process, including agreements reached and remaining areas of disagreement, in
the PY 2001 applications. The utilities shall propose the agreed-upon
modifications in the PY 2001 applications and, if they propose rebates for large
customers, fully explain all factors that support their proposal, together with
PY 1999 and PY 2000 participation data.
  66. For nonresidential programs, the utilities shall continue to consider
program offerings and increased funding for activities that benefit under-served
markets and market segments. For PY 2001, the utilities, together with interested
stakeholders, shall 1) develop common working definitions specifically for
market segments consisting of smaller nonresidential customers and under-
served market events such as remodeling and renovation; 2) assess the size and


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characteristics of those market segments, including remodeling, renovation,
rehabilitation, and tenant change markets; 3) begin monitoring the availability
and delivery of program services and participation using these definitions and
report the results in the PY 2001 applications; and 4) offer new targeted
solicitations to increase provision of energy efficiency services to under-served
markets and market segments already known or identified and include new
targeted efforts, fully explaining the nature of the solicitations and rationale for
choosing these efforts, and reporting progress in the Quarterly Reports. The
results of the needs assessment and monitoring shall be reported in the PY 2001
applications.
  67. Within 30 days after the effective date of this decision, SoCalGas shall file
an advice letter reflecting its redesigned Energy Advantage Home Program,
including updated cost-effectiveness calculations.
  68. Within 30 days after the effective date of this decision, the utilities shall
jointly submit a report to the Energy Division setting forth a coordinated plan for
1) notice of availability; and 2) distribution of the Residential and Business
Energy Guides. The plan shall include both a statewide component for
publicizing the availability of the Energy Guides, in English, Spanish, and
Chinese, and local components for publicizing the availability of the Guides in all
three languages and for distributing the Guides. The local component shall
include plans for working with Community Based Organizations (CBOs) in
publicizing and distributing the Guides and for distributing the Guides through
home improvement stores and other appropriate distribution points. The
utilities‘ plan shall provide for implementation as soon as the program is
approved. The utilities shall include both descriptions of actions taken to
publicize and distribute the Guides and the results of its actions in the Quarterly
Reports.


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  69. The utilities shall include in its PY 2001 program applications an enhanced
plan and budgets for publicizing and distributing the Guides and a joint plan for
translation of the Energy Guide into other languages, with distribution to begin
no later than July 1, 2001.
  70. The utilities shall continue coordination of the energy centers for PY 2000
and PY 2001, with particular emphasis on eliminating duplication. For PY 2001,
the utilities shall prepare a plan for the accelerated commercialization of all
products (especially software and design tools) developed at or through the
centers and to distribute these products in a timely manner. Edison and
SoCalGas shall take all reasonable efforts to ensure fuel-and-administrator-
neutrality in the messages conveyed by the centers, and, for PY 2001, shall
explore joint operation of their energy centers or conducting activities jointly at
all centers. Edison and SoCalGas shall report on their efforts in the PY 2001
applications. The utilities shall report on the activities undertaken to coordinate
the Energy Centers in the Quarterly Reports, specifically identifying actions
taken to implement the directions set forth herein. For PY 2001, the utilities shall
consider REECH‘s proposal for placing kiosks in home improvement centers and
hardware stores, and in the PY 2001 applications, report the reasons such
activities have or have not been implemented.
  71. PG&E, Edison, and SDG&E shall take action to develop general and
targeted TPI solicitations for the remainder of PY 2000, and, if appropriate,
pursue additional solicitations. The utilities shall report on the actions taken in
their Fourth Quarter Reports. For PY 2001, the utilities shall propose increased
budgets, identifying proposed solicitations and budgets, an implementation plan,
and timeline. The applications shall also demonstrate a plan for publicizing
targeted and general solicitations for PY 2001 start.




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  72. For PY 2001, the utilities shall jointly, with interested stakeholders, develop
a standard to use for IMC in the cost-effectiveness calculations, such as a default
ratio or a requirement that all TPI meet a minimum threshold of cost-
effectiveness (e.g., SoCalGas‘ convention of requiring each TPI to show a
cost/benefit ratio of 1 or greater and using 1 in the analysis). The utilities shall
jointly, with interested stakeholders, develop protocols to govern the cost-
effectiveness analyses conducted by TPI bidders. The utilities shall convene a
public process and report the results of any agreement reached and any
remaining areas of disagreement in the PY 2001 applications. The utilities shall
also propose use of the jointly developed IMC standards in the PY 2001
applications.
  73. The utilities, for PY 2001 programs, shall convene a public process for
purposes of developing, with interested stakeholders, reporting requirements,
procedures, and standards for post-program collection of IMC and other cost
data for TPI programs.
  74. The utilities shall clearly define and identify, for each solicitation:
1) whether the utility is requesting third party initiatives that include proposals
for program ideas to be developed and implemented, or simply a utility
contractor to implement already-developed program designs, and 2) for third
party initiatives, whether the utility is requesting proposers to develop on-going
efforts that are separate and distinct from the utility, or to identify promising
approaches that can be included in to overall utility administrator program
efforts.
  75. For the rest of PY 2000 and for PY 2001, the utilities shall monitor their TPI
solicitations and report in the Quarterly Reports any experience they have with
the reluctance of third parties to participate in the TPI program because of our
treatment of intellectual property.


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  76. We adopt the data collection procedures set forth in Joint Exhibit 3, except
that the utilities shall collect and provide the necessary data as follows: Within
30 days after the effective date of this decision, the utilities shall submit to the
Energy Division a joint schedule indicating when data will be collected for each
of the program performance indicators set forth in the PY 2000 applications. The
schedule shall include, at a minimum, the proposed performance indicators, the
proposed method of collecting data for the indicators, and a schedule of when
the data will be made publicly available. Prior to filing the schedule, the utilities
shall convene a public process and attempt to reach agreement with stakeholders
on the timing and content of the schedule and proposed method for collecting the
data. On a date to be established by Assigned Commissioner Ruling, the utilities
shall submit a report to the Energy Division setting forth the collected data for all
PY 2000 and PY 2001 performance indicators. The utilities may coordinate this
process through the CALMAC if they wish. The utilities shall include collected
data for all PY 2001 performance indicators in the PY 2001 applications.
      The utilities shall also collect or estimate basic market data for each of the
fourteen programs and for each proposed milestone for PY 2001 and shall
include the data in the PY 2001 applications, together with proposed PY 2001
milestones. Prior to collecting the data and conducting the studies, the utilities
shall convene a public process and attempt to reach agreement with stakeholders
on the parameters and content of the proposed data collection and studies. Basic
market data includes estimates of the following: 1) size of physical market, using
relevant descriptors such a square footage, unit sales of a targeted appliance or
energy using system, number of firms, etc.; 2) targeted market actors, estimated
number of market actors targeted by the program, previous participation levels
among those same target actors; and 3) previous program results and other
available market data, any information on the effectiveness, program savings or


                                         - 274 -
A.99-09-049 et al. ALJ/LRB/eap **

number of participating market actors in similar programs over the last five
years. This shall also include citations to any relevant baseline studies or
program evaluations performed over the last five years and any information
available about the penetration or saturation of the efficient goods or services
targeted by the program. The utilities may coordinate this process through
CALMAC if they wish.
  77. The utilities shall gather data and perform studies in accordance with the
following general priorities:
      a. Baseline studies and market data collection for all programs;
      b. Baseline and market data collection for evaluation of PY 2000 and PY
         2001 performance indicators;
      c. Net-to-gross (NTG) ratio: data collection monthly on free-riders, review
         of MA&E studies, completion of Xenergy Study, and spillover;
      d. Proposed useful life for energy efficiency measures;
      e. Completion of RER study and review of non-energy adders and market
         effects multipliers;
      f. Other cost-effectiveness calculation standards for net benefits;
      g. Define under-served customers and communities, conduct needs
         assessment, and develop marketing strategies to meet needs;
      h. Measurable and verifiable standards to measure market transformation;
      i. Market saturation by product, measure, and customer sub-classes;
      j. Business and Residential Energy Guide marketing plan;
      k. Standards for MA&E studies;
      l. SPC marketing techniques and strategies; and
      m. Awareness studies for school-based programs.

      Prior to engaging in any data collection or MA&E studies, the utilities shall
convene a public process and obtain the input and preferably agreement of
interested stakeholders regarding the scope of the study, selection of contractor,
data collection methods, timing, and other protocols. The filings required by this

                                       - 275 -
A.99-09-049 et al. ALJ/LRB/eap **

decision which are based upon any such studies or data collection shall
summarize the process used to obtain the data, state whether the protocols have
been agreed upon, and identify any remaining disagreements. The utilities may
use CALMAC to develop reporting requirements, procedures, and standards, if
appropriate. The CALMAC may also be used to propose prioritization of the
studies and to propose timetables for their completion.
  78. The utilities, and any other interested parties, in their comments on this
Proposed Decision, shall provide estimates of the cost of completing the listed
studies and data collection activities, identifying the bases and sources for such
estimates and showing appropriate calculations. We shall allow the utilities to
redirect funds from either 1) funds budgeted to support CBEE; 2) funds budgeted
for shareholder incentives; or 3) carry-over funds allocated to PY 2001, via an
advice letter filing, as reasonably necessary to support the expeditious
completion of these studies.
  79. The utilities shall proportionately reduce the incentive awards for each
milestone across the board to reflect the adopted 7% shareholder incentive cap.
The utilities are authorized to maintain a 10% margin over the adopted 7% cap.
  80. The utilities shall revise their aggressive implementation incentive
structure as follows:

      1) Edison, SDG&E, and SoCalGas shall increase the threshold for 100% of
         award to require the expenditure of 95% of program area funds;

      2) PG&E shall adjust all ranges/thresholds upwards to a 60% minimum,
         to be increased proportionately to 90% (e.g., 60% award for 60%
         performance to 100% award for 90% performance). The milestones for
         Commercial Remodeling and Renovation and Commercial New
         Construction each shall be split into two milestones: 1) an activity
         milestone, with a reduced award; and 2) an aggressive implementation
         milestone, based on spending and not projects, which should have the
         greater award.


                                       - 276 -
A.99-09-049 et al. ALJ/LRB/eap **

         3) SDG&E shall apply the aggressive implementation milestone at the
            program area or program level and not the portfolio level, and shall
            provide that awards are subject to a 10% reduction for each program in
            the program area where less than 50% of the authorized budget is
            expended, the same as in 1999 and that awards are not earned until 70%
            of funding is achieved.
         4) For PY 2000, fund-shifting shall be allowed but only within the three
            administrative areas (residential, nonresidential, and new construction)
            and to the extent that it does not violate approved budget ranges or
            conflict with the contribution/ allocation parity rule.
   81. The utilities shall make the changes and corrections to milestones as set
forth herein and on Appendix D to this decision.

   82. The utilities shall file amendments to the PY 2000/2001 applications
reflecting the revised milestones and incentive awards. The utilities shall also
append the amendments to the applications on file in the Commission‘s Central
files.

   83. The Energy Division shall conduct public workshops to assist in the
development of appropriate milestones and incentive awards for PY 2001.

   84. For PY 2000, fund-shifting shall be allowed but only within the three
administrative areas (residential, nonresidential, and new construction) and to
the extent that it does not violate approved budget ranges or conflict with the
contribution/allocation parity rule.
   85. For PY 2001, the utilities shall explain why they should be able to continue
to shift funds within the three program administrative areas, without seeking our
prior approval via an advice letter or other filing. The explanation shall be
correlated with a showing of the additional efforts undertaken in PY 2000 and
proposed to be taken in PY 2001 to assess customers‘ needs and to promote the
strategy or program to targeted customer classes.




                                        - 277 -
A.99-09-049 et al. COM/LYN/eap

  86. Not later than July 21, 2000 Applicants and parties are directed to file
program proposals describing new efficiency programs which are designed to
achieve the greatest possible reduction in electric demand and electric energy
usage, and to file comments on proposals submitted not later than July 31, 2000,
in accordance with the discussion in Section XIII. Comments shall include
requests for hearings, if any, accompanied by a detailed statement of the need for
and utility of hearings. The Assigned Administrative Law Judge and Assigned
Commissioner are authorized to approve program suggestions for
implementation on or before August 21, 2000. The proposals and comments shall
be designed to use carryover funds, funds redirected from CBEE support and
funds budgeted for shareholder incentives. The program proposals should
account for any public purpose program funds that remain from the period prior
to 1998.

  87. The revised budgets shall be filed as an amendment to the PY 2000
application and attached to the applications maintained in the Commission‘s
Central Files.
  88. The utilities shall jointly with interested stakeholders develop a schedule
for a regular public input process, including workshops, meetings, and focus
groups, and to do so in a manner that ensures timely input before decisions are
made and feedback after decisions are finalized. The utilities shall report on the
process and the results of the workshops, meetings, and focus groups in the
Quarterly Reports. The Energy Division shall work with the utilities and
interested stakeholders to develop a process for coordinating utility-sponsored
sessions with Commission-sponsored workshops and for quickly reviewing and
approving program revisions agreed upon in utility-sponsored sessions.
  89. In the PY 2001 applications, the utilities shall jointly propose a set of
guidelines governing utility administrator discretion and delineating the types of
                                       - 278 -
A.99-09-049 et al. ALJ/LRB/eap

activities that require Commission approval. The guidelines shall also contain a
procedure for obtaining Commission approval in appropriate cases and a review
and appeal process for actions taken by the utility administrators that do not
require Commission action. Prior to proposing the guidelines, the utilities shall
convene workshops in their service territories with interested stakeholders to
obtain input into the proposal.
  90. For PY 2000 purposes, the utilities shall use the advice letter process for
instituting changes in incentives, measurement and verification (M&V)
requirements, and customer limits in the SPC as was the case in PY 1999 and the
RCP multi-family contracting element. For PY 2000, the utilities may make other
programmatic changes in the same manner as they have previously.
  91. The utilities shall file Quarterly Program and Expenditure Reports with the
Energy Division and serve the Reports on the service list for this proceeding. The
Reports shall be filed as soon as possible but no later than six (6) weeks after the
close of each quarter and shall contain:
             a. The information and data provided for PY 1999;
             b. Participation activity, budgets, and expenditures, including
                commitments, for 1) the 14 programs and all elements and
                strategies thereunder; 2) all statewide programs, broken down by
                the 14 programs and all elements and strategies thereunder; and
                3) all cross-cutting measures broken down by the 14 programs
                and all elements and strategies thereunder;
             c. Expenditures shall be itemized, at minimum, to show what the
                money was spent on, e.g., vouchers redeemed, workshops and
                training, promotional activities;
             d. Tables shall be provided showing expenditures by customer class
                code, as described earlier;
             e. A status update on all programs, program activities, program
                elements, and statewide MA&E studies, an update on statewide
                coordination activities, an update on market progress, and an


                                       - 279 -
A.99-09-049 et al. ALJ/LRB/eap **

                update on all actions the utilities have been directed to take in
                this decision; and
            f. Joint summary tables showing the requested data for the
               statewide programs.
      The utilities shall meet and confer prior to filing the Quarterly Reports and
shall adopt a common format. After receipt of the Quarterly Reports, the Energy
Division shall develop and conduct a public process for review of the Reports.
  92. The utilities shall provide two copies of a program portfolio manual, one to
be maintained in the Public Advisor‘s Office and the other to be maintained in
the Energy Division. The manual shall be organized by the 3 program
administrative area and 14 program descriptions with the following additions:
1) all statewide programs, and 2) cross-cutting initiatives. The manuals shall
include for each program, the following:
      a. Program description;
      b. Program goals and objectives;
      c. Program elements or sub-markets;
      d. Programs within each sub-market;
      e. Strategies used in each sub-market;
      f. Program implementer and how to contact him or her;
      g. Eligibility requirements and program operation details;
      h. Current year‘s budget broken down by individual programs
         and by strategy; and
      i. Prior year‘s budget and amounts spent.
      The manuals shall be updated as changes are adopted by the utility with
replacement pages identified by date and program year, and an index of
replacement pages to be kept with the manuals.
  93. The utilities shall file new applications for PY 2001. The applications shall
be coordinated among the utilities, follow the same format, and use the same
inputs. With respect to structure, the applications shall, at a minimum:


                                       - 280 -
A.99-09-049 et al. ALJ/LRB/eap **

     a. Contain the same section regarding statewide programs,
        which shall be developed jointly by the utilities and
        submitted as a joint offering. The program description shall
        include a full description of each program, the goals of the
        program, the marketing plan, the activities, strategies, and
        proposed budgets. It shall highlight differences from the
        prior year. Further, the description shall include a statement
        of the differences in operation and strategies adopted, if any,
        by each utility, together with the justification for maintaining
        those differences. Each utility shall also state what activities
        it is utilizing under the statewide program, e.g., limiting
        rebates for refrigerators.
     b. Include in the overview and in each affected program
        description a description of all program and budgetary
        changes made since the approval of the prior PY application,
        identify the means by which the change was made, e.g., via
        advice letter, internal programmatic decision, statewide
        implementation decision, and the date the change was
        implemented.
     c. Budget Tables: In addition to summary tables showing
        budgets by administrative area and the 14 program areas,
        summary tables showing the budgeted amounts and
        percentages projected for each program element and
        strategy, including all cross-cutting and statewide programs,
        as allocated across the 14 program areas, e.g., the budget and
        percentage projected for the nonresidential SPC program
        from the various nonresidential program areas, the budget
        and percentage for the energy centers, the budget and
        percentage for the statewide appliance program . All tables
        shall be in the same format, shall contain the same agreed
        upon input conventions, shall have any necessary
        assumptions clearly identified, and shall contain comparison
        data for three years. In addition to budget tables by
        individual utility, budget tables shall be prepared showing
        comparative statewide allocations, by utility and total, for
        each program element and strategy, including all statewide
        and cross-cutting programs. Separate budget tables shall
        show the amounts budgeted and spent (including




                                     - 281 -
A.99-09-049 et al. ALJ/LRB/eap **

         committed) for each strategy and element for the two prior
         years.
      d. Tables showing projected contributions and budget
         allocations by customer class and sub-class, broken down by
         each program element and strategy and in accordance with
         other directions set forth herein.
      e. Contain a verification plan for independent confirmation of
         the achievement of milestones.
      f. Demonstrate in an overview section how the proposal
         complies with Commission directive. If Commission
         directive is to ―consider‖ taking an action, identify the
         reasons why an action was taken or not taken, including a
         description of all efforts taken to solicit public input prior to
         reaching your decision and the content of such input.
      g. Have a table of contents showing each program strategy and
         element under each program area.
      h. Each separate section for each program area shall describe
         the budget, the activity, the program, and the previous
         year‘s budget, accomplishments, PPT, and data used for each
         PPT calculation, with cites to the data used by each utility.
      i. Contain those items set forth in prior ordering paragraphs.
      j. Provide all workpapers supporting the cost-effectiveness
         calculations.
  94. All reports submitted to the Energy Division, all advice letters, and all
amendments to the applications or other filings shall be served on the service list
established for these proceedings.
  95. Upon completion of all reports, advice letters, and application
amendments ordered herein, the utilities shall submit two (2) binders to the
Energy Division containing the applications, all such amendments, reports,
advice letters, and other filings related to PY 2000 programs. The binders shall be
updated to include any future reports or filings relating to PY 2000 programs.




                                        - 282 -
A.99-09-049 et al. ALJ/LRB/eap **

  96. The utilities‘ PY 2000 program applications are approved as modified
herein.
      This order is effective today.
      Dated July 6, 2000, at San Francisco, California.


                                                     LORETTA M. LYNCH
                                                               President
                                                     HENRY M. DUQUE
                                                     JOSIAH L. NEEPER
                                                     RICHARD A. BILAS
                                                     CARL W. WOOD
                                                         Commissioners




                                       - 283 -
    A.99-09-049 et al. ALJ/LRB/eap

                                                      APPENDIX A
                                                (LIST OF APPEARANCES)
                                                         (Page 1)

************ APPEARANCES ************                              Robert B. Mclennan
                                                                   CHRISTOPHER J WARNER, ANDREW L. NIVEN
Stan Walerczyk`                                                    Attorney At Law
ALAMO LIGHTING                                                     PACIFIC GAS AND ELECTRIC COMPANY
149 CAMINO POSADA                                                  POST OFFICE BOX 7442
WALNUT CREEK CA 94595                                              SAN FRANCISCO CA 94120
(925) 944-9481                                                     (415) 973-2069
Swalerczyk@aol.com                                                 rbm4@pge.com
For: California Association of Lighting Efficiency Professionals   For: PACIFIC GAS AND ELECTRIC COMPANY


Beth Dunlop                                                        William L. Nelson
DIAN GRUENEICH                                                     REECH, INC.
GRUENEICH RESOURCE ADVOCATES                                       PUBLIC POLICY DIVISION
582 MARKET STREET, SUITE 1020                                      PO BOX 7530
SAN FRANCISCO CA 94104-5305                                        STOCKTON CA 95267-7530
(415) 834-2300                                                     (209) 477-7274
bdunlop@gralegal.com                                               reechpubpol@mail.com
For: NATIONAL ASSOCIATION OF ENERGY SERVICE                        For: REECH, INC.
COMPANIES


Patrick L. Gileau                                                  Daniel W. Meek
Legal Division                                                     Attorney At Law
RM. 5000                                                           RESIDENTIAL ENERGY SVCS COMPANIES....
505 VAN NESS AVE                                                   10949 S.W. 4TH AVENUE
San Francisco CA 94102                                             PORTLAND OR 97219
(415) 703-3080                                                     (503) 293-9021
plg@cpuc.ca.gov                                                    danmeek@teleport.com
For: OFFICE OF RATEPAYER ADVOCATES                                 For: Residential Energy Svcs Companies' United Effort
                                                                   (RESCUE)


Susan E. Brown                                                     Steven C. Nelson
JOSE ATILIO HERNANDEZ, ROXANNE FIGUEROA                            Attorney At Law
Attorney At Law                                                    SEMPRA ENERGY
LATINO ISSUES FORUM                                                101 ASH STREET
785 MARKET STREET, 3RD FLOOR                                       SAN DIEGO CA 92101-3017
SAN FRANCISCO CA 94103-2003                                        (619) 699-5136
(415) 284-7224                                                     snelson@sempra.com
For: LATINO ISSUES FORUM & GREENLINING INSTITUTE                   For: SAN DIEGO GAS AND ELECTRIC & SOUTHERN
                                                                   CALIFORNIA GAS


Steven C. Nelson                                                   Bruce Foster
Attorney At Law                                                    Regulatory Affairs
SEMPRA ENERGY                                                      SOUTHERN CALIFORNIA EDISON COMPANY
101 ASH STREET                                                     601 VAN NESS AVENUE, SUITE 2040
SAN DIEGO CA 92101-3017                                            SAN FRANCISCO CA 94102
(619) 699-5136                                                     (415) 775-1856
snelson@sempra.com                                                 fosterbc@sce.com
For: SAN DIEGO GAS AND ELECTRIC & SOUTHERN                         For: SOUTHERN CALIFORNIA EDISON
CALIFORNIA GAS
   A.99-09-049 et al. ALJ/LRB/eap **

                                             APPENDIX A
                                       (LIST OF APPEARANCES)
                                                (Page 2)

Julia Curtis                                     Laura A. Larks
NATURAL RESOURCES DEFENSE COUNCIL                ANN P. COHN, MEGAN SCOTT-KAKURES
71 STEVENSON STREET, STE 1825                    Attorney At Law
SAN FRANCISCO CA 94105                           SOUTHERN CALIFORNIA EDISON COMPANY
(415) 777-0220                                   2244 WALNUT GROVE AVE. RM 353
jcurtis@nrdc.org                                 ROSEMEAD CA 91770
For: NATURAL RESOURCES DEFENSE COUNCIL           (626) 302-2908
                                                 larksla@sce.com
                                                 For: SOUTHERN CALIFORNIA EDISON


Richard Sperberg                                 Don Schultz
DIAN GRUENEICH                                   CALIFORNIA PUBLIC UTILITIES COMMISSION
President                                        OFFICE OF RATEPAYER ADVOCATES
ONSITE/SYCOM                                     770 L STREET SUITE 1050
701 PALOMAR AIRPORT ROAD RM 200                  SACRAMENTO CA 95814
CARLSBAD CA 92009                                (916) 327-2409
(760) 931-2400                                   dks@cpuc.ca.gov
Rsperberg@onsitesycom.com
For: ONSITE/SYCOM


Marcel Hawiger
Attorney At Law
THE UTILITY REFORM NETWORK
711 VAN NESS AVENUE, SUITE 350
SAN FRANCISCO CA 94102
(415) 929-8876
marcel@turn.org

********* STATE EMPLOYEE ***********

Zaida Amaya-Pineda                               Jonathan M. Teague
Energy Division                                  DEPARTMENT OF GENERAL SERVICES
AREA 4-A                                         OFFICE OF ENERGY ASSESSMENTS
505 VAN NESS AVE                                 717 K STREET, SUITE 409
San Francisco CA 94102                           SACRAMENTO CA 95814-3406
(415) 703-1109                                   (916) 322-8808
zca@cpuc.ca.gov                                  jonathan.teague@dgs.ca.gov


Billie C Blanchard                               Julie A Fitch
Energy Division                                  Energy Division
AREA 4-A                                         AREA 4-A
505 VAN NESS AVE                                 505 VAN NESS AVE
San Francisco CA 94102                           San Francisco CA 94102
(415) 703-2068                                   (415) 703-2776
bcb@cpuc.ca.gov                                  jf2@cpuc.ca.gov
    A.99-09-049 et al. ALJ/LRB/eap **

                                          APPENDIX A
                                    (LIST OF APPEARANCES)
                                             (Page 3)


Linda R Bytof                                 Ortensia Lopez
Administrative Law Judge Division             GREENLINING INSTITUTE
RM. 5007                                      2542 BELMONT CANYON ROAD
505 VAN NESS AVE                              BELMONT CA 94002
San Francisco CA 94102                        (415) 373-1087
(415) 703-1279                                OR10SIA@AOL.COM
lrb@cpuc.ca.gov


Mark Thayer                                   Scott Logan
C/O Alison Saunders, Cbee Coordinator         Office of Ratepayer Advocates
CALIFORNIA BOARD OF ENERGY EFFICIENCY         RM. 4102
DEPT. OF ECONOMICS-SAN DIEGO STATE UNIV.      505 VAN NESS AVE
SAN DIEGO CA 92182                            San Francisco CA 94102
(619) 594-5510                                (415) 703-1418
mthayer@mail.sdsu.edu                         sjl@cpuc.ca.gov
                                              For: OFFICE OF RATEPAYER ADVOCATES



Mike Messenger                                Barbara Ortega
CALIFORNIA ENERGY COMMISSION                  Executive Division
1516 9TH STREET                               RM. 500
SACRAMENTO CA 95814                           320 WEST 4TH STREET SUITE 500
(916) 654-4774                                Los Angeles CA 90013
mmesseng@energy.state.ca.us                   (213) 576-7070
For: CALIFORNIA ENERGY COMMISSION             bho@cpuc.ca.gov



Ourania M. Vlahos                             Anne W. Premo
Legal Division                                Energy Division
RM. 5125                                      AREA 4-A
505 VAN NESS AVE                              505 VAN NESS AVE
San Francisco CA 94102                        San Francisco CA 94102
(415) 703-2387                                (415) 703-1247
omv@cpuc.ca.gov                               awp@cpuc.ca.gov


Rosalina White
Public Advisor Office
RM. 5303
505 VAN NESS AVE
San Francisco CA 94102
(415) 703-2074
raw@cpuc.ca.gov
For: Public Advisor's Office
   A.99-09-049 et al. ALJ/LRB/eap **

                                              APPENDIX A
                                        (LIST OF APPEARANCES)
                                                 (Page 4)


********* INFORMATION ONLY **********
Arthur V. O'Donnell                               Dian M. Grueneich
CALIFORNIA ENERGY MARKETS                         Attorney At Law
9 ROSCOE STREET                                   GRUENEICH RESOURCE ADVOCATES
SAN FRANCISCO CA 94110-5921                       582 MARKET STREET, SUITE 1020
(415) 824-3222                                    SAN FRANCISCO CA 94104
aod@newsdata.com                                  (415) 834-2300
For: Self                                         dgrueneich@gralegal.com
                                                  For: National Association of Energy Service Companies


Jason Mihos                                       Charles Goldman
CALIFORNIA ENERGY MARKETS                         LAWRENCE BERKELEY NATIONAL LABORATORY
9 ROSCOE STREET                                   MS 90-4000
SAN FRANCISCO CA 94110-5921                       ONE CYCLOTRON ROAD
(415) 824-3222                                    BERKELEY CA 94720
jasonm@newsdata.com                               (510) 486-4637
For: CALIFORNIA ENERGY MARKETS (NEWSLETTER)       CAGoldman@lbl.gov
                                                  For: CBEE



Andy Brown                                        Sara Steck Myers
LYNN HAUG                                         Attorney At Law
ELLISON & SCHNEIDER                               122 - 28TH AVENUE
2015 H STREET                                     SAN FRANCISCO CA 94121
SACRAMENTO CA 95814                               (415) 387-1904
(916) 447-2166                                    ssmyers@hooked.net
abb@eslawfirm.com                                 For: CENTER FOR ENERGY EFFICIENCY AND RENEWABLE
For: DEPARTMENT OF GENERAL SERVICES               TECHNOLOGIES


Lynn M. Haug                                      Pete Price
Attorney At Law                                   PRICE CONSULTING
ELLISON, SCHNEIDER & HARRIS, LLP                  1029 K STREET, SUITE 38
2015 H STREET                                     SACRAMENTO CA 95814
SACRAMENTO CA 95814-3109                          (916) 448-1015
(916) 447-2166                                    pprice@quiknet.com
lmh@eslawfirm.com


Lisa Hubbard                                      Greg Berlin
SEMPRA ENERGY                                     SOUTHERN CALIFORNIA EDISON
601 VAN NESS AVE. STE 2060                        2131 WALNUT GROVE AVE.
SAN FRANCISCO CA 94102                            ROSEMEAD CA 91770
(415) 202-9986                                    (626) 302-8271
ljhubbard@sempra.com                              berlingf@sce.com
For: SAN DIEGO GAS AND ELECTRIC & SOUTHERN        For: SOUTHERN CALIFORNIA EDISON
CALIFORNIA GAS
A.99-09-049 et al. ALJ/LRB/eap **

                                 APPENDIX A
                           (LIST OF APPEARANCES)
                                    (Page 5)


                                     Anthony V. Archer
                                     SOUTHERN CALIFORNIA EDISON COMPANY
                                     2244 WALNUT GROVE AVENUE, SUITE 315
                                     ROSEMEAD CA 91770
                                     (626) 302-3104
                                     archerav@sce.com




                             END OF APPENDIX A
                                 APPENDIX B
                            (LIST OF ACRONYMS)
                                   (Page 1)
AB       Assembly Bill
AC       Assigned Commissioner
ACR      Assigned Commissioner‘s Ruling
AEAP     Annual Earnings Assessment Proceeding
AgTAC    Agricultural Technology Application Center
ALJ      Administrative Law Judge
BPA      Basic Project Application
BSPC     Business SPC
C&I      Commercial and Industrial
CADMAC   California DSM Advisory Committee
CALEP    California Association of Lighting Efficiency Professionals
CALMAC   California Measurement Advisory Council
CAS      Combustion Appliance Safety
CBEE     California Board for Energy Efficiency
CBO      Community Based Organizations
CEC      California Energy Commission
CFL      Compact Fluorescent Lamps
CHEERS   California Home Energy Efficiency Rating System
CIEE     California Institute for Energy Efficiency
CPUC     California Public Utilities Commission
CTAC     Customer Technology Applications Center
D.       Decision
DEER     Database for Energy Efficiency Resources
DSM      Demand-Side Management
EAHP     Energy Advantage Home Program
Edison   Southern California Edison Company
EEM      Energy Efficient Mortgage
EESP     Energy Efficiency Service Provider
EMS      Energy Management Services
ERC      Energy Resource Center
ESCO     Energy Service Company
ETCC     Emerging Technologies Coordinating Council
HVAC     Heating, Ventilation and Air Conditioning
IMC      Incremental Measure Cost
KW       Kilowatt
kWh      Kilowatt hour
LIAB     Low-Income Advisory Board
LIEE       Low-Income Energy Efficiency
                             APPENDIX B
                                 (Page 2)

LIGB       Low-Income Governing Board
M&V        Measurement and Verification
MA&E       Market Assessment and Evaluation
MF         Multi-Family
MUD        Municipal Utility Districts
NAESCO     National Association of Energy Service Companies
NR         Nonresidential
NRDC       National Resources Defense Council
NRSPC      Nonresidential Standard Performance Contract
NSPC       Nonresidential SPC
NTG        Net-to-Gross
ORA        Office of Ratepayer Advocates
PEC        Pacific Energy Center
PG&E       Pacific Gas and Electric Company
PGC        Public Goods Charge
PHC        Prehearing Conference
PPT        Public Purpose Test
PY         Program Year
RCP        Residential Contractor Program
REECH      Residential Energy Efficiency Clearing House
RER        Regional Economics Research, Inc.
RESCUE     Residential Energy Service Companies‘ United Effort
RNC        Residential New Construction
SDG&E      San Diego Gas & Electric Company
SF         Single Family
SIC        Standard Industrial Classification Code
SoCalGas   Southern California Gas Company
SPC        Standard Performance Contract
SPM        Standard Practices Manual
T&D        Transmission and Distribution
TPI        Third Party Initiative
TC         Transcript
TRC        Total Resource Cost
TURN       The Utility Reform Network
(END OF APPENDIX B)
A.99-09-049 et al. ALJ/LRB/eap
                               APPENDIX C
                          COMPLIANCE SCHEDULE*
                                 (Page 1)


PY 2000 Compliance Advice Letters, including:
          SoCalGas: Cost effectiveness calculations, one with and one without
           non-energy benefits/costs and market effects multipliers and
           updated for end-of-year information, but consider redoing portfolio
           to ensure cost effectiveness; add new EAHP program with redo of
           updated cost effectiveness. (30 days after effective date of decision.)

          All: Use of calculated savings for specific measures in the Multi-
           Family RCP.

          All: Changes in incentives, measurement and verification (M&V)
           requirements, and customer limits in the SPC and Multi-Family RCP
           programs.
PY 2000 Reports to Energy Division – 30 days after effective date of decision,
including:
          Cost effectiveness calculations, one with and one without non-
           energy benefits/costs and market effects multipliers and updated for
           end-of-year information.

          Proposed programmatic changes to the RCP.

          Statewide Refrigerator Recycling (redirected budgets also require
           amendment to applications).

          Statewide Appliance and Lighting strategies and focus.

          Revised revenue/budget allocation tables and workpapers; add
           chain stores.

          PG&E and Edison to redirect PY 2000 funds 9redirected budgets also
           require amendment to applications).

          All: Coordinated plan for notice and distribution of Statewide
           Energy Guides.

*This schedule is a checklist to use as a reference and does not include all details
   of all orders in this decision.
A.99-09-049 et al. ALJ/LRB/eap
                             APPENDIX C
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                               (Page 2)



         All: Submit joint schedule for data collection procedures for
          milestones and performance indicators from Joint Exhibit 3.

         All: Revised budgets redirecting funds, compliance with PY 2000
          orders (redirected budgets also require amendment to applications.
PY 2000 Amendments to Application
         All: Revised milestones and shareholder incentives.

         All: Revised budgets redirecting funds, compliance with PY 2000
          orders.

PY 2001 Applications, including:

         Cost effectiveness NTG: agreement and/or defaults

         Avoided cost updates

         Standardized measure lives

         Master Website with utility-specific links for programs

         Report baseline participation information on SF and MF RCP

         Budgets – separate SF and MF RCP funds, including
          spent/committed funds

         Statewide Appliance and Lighting: strategies and focus, budgets

         Refrigerator Recycling program and budgets

         Consider adding PG&E‘s Energy Star financing program as a
          statewide strategy.

         Use definitions of the residential under-served customers and
          communities, subject to approval

         Targeted solicitations for residential under-served
A.99-09-049 et al. ALJ/LRB/eap
                             APPENDIX C
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                               (Page 3)

         Nonresidential programs: market segmentation revisions

         Revised marketing techniques for small nonresidential customers

         Consider and explain program and budget changes per D.99-08-021

         Nonresidential participation data; report on agreements reached

         Nonresidential programs: report on free-riders, market saturation
          and actions taken with data information

         Increase nonresidential small spending and program redesigns.

         Consider ceasing T-8 incentives. Report saturation rates for T-8
          lighting and for other measures.

         Consider small SPC budget floors; explain action taken and why

         Consider SPC budget caps, including multi-year; explain workshop
          and agreements; rationale for application‘s SPC caps

         Monitor SPC and change here if warranted. Consider a statewide
          implementer.

         Change Commercial R&R to Nonresidential R&R and coordinate
          with New Construction to ensure no gaps.

         Express Efficiency standardization on incentives, rebates and
          participation. Report.

         Nonresidential definitions, segmentations, markets, under-served.
          Report

         All: coordinated plan for notice and distribution of Statewide
          Energy Guides. Enhance from PY2000 advice letter.

         All: plan for accelerated commercialization of all products
          developed at or through the Energy Centers; continue Energy Center
          coordination efforts; add kiosks and informational displays.
A.99-09-049 et al. ALJ/LRB/eap
                              APPENDIX C
                         COMPLIANCE SCHEDULE*
                                (Page 4)

         Edison and SoCalGas – consider combining Energy Centers as well
          as efforts

         PG&E, Edison & SDG&E: develop targeted TPIs, and report

         All: increase TPI budgets, implementation plan and targeted and
          general solicitations; clearly identify and report each solicitation; by
          July 1, publicize TPI implementation plan and targeted and general
          solicitations for PY2001.

         Cost effectiveness, IMC standard for TPI: develop a standard usage
          and report

         Collect and use market baseline data for performance milestones

         Identify fund shifting and provide rationale

         Redirect funds budgeted for CBEE and shareholder incentives

         Propose guidelines governing utility discretion and delineating
          activities requiring Commission approval. Include a procedure for a
          review and appeal process

         See order for Application filing content

Program Workshops

         RCP – workshops twice annually, at least one per service territory
          before PY2001 filings. Publicize with agendas and proposals in
          advance. Report.

         SPCs – consider budget caps, multi-year, prior participation,
          corporate parent limits, etc.

         SPC – workshops twice annually, at least one per service territory
          before PY2001 for program design input and changes. Report.

         Express Efficiency standardization on incentives, rebates and
          participation. Report.
A.99-09-049 et al. ALJ/LRB/eap
                             APPENDIX C
                        COMPLIANCE SCHEDULE*
                               (Page 5)

         Develop process for regular public input and ensure timeliness and
          responsiveness.

         Develop guidelines governing utility discretion and delineating
          activities requiring Commission approval. Include a procedure for a
          review and appeal process.

Program Changes, Joint Advice Letters, General Directions

         RCP – changes in program offerings, as needed by AL.

         Statewide Appliance and Lighting – funds go to Energy Star efforts,
          by AL

         PG&E, SDG&E add refrigerator recycling program by July 1, 2000
          AL

         SDG&E and SoCalGas – school-based pilots, statewide strategy, by
          AL

         Consider redirecting carry-over funds from PY2001 to PY2000 for
          marketing to small nonresidential; use AL process

         All: coordinated plan for notice and distribution of Statewide
          Energy Guides. (Not an advice letter.)

         All: File joint schedule for data collection procedures for milestones
          and performance indicators from Jt. Ex. 3: Serve on all parties by
          July 1, or other date as ordered by ACR.

         Program changes for incentives, M&V requirements, and customer
          limits in the SPC and RCP – MF contracting programs. File ALs.

Public Meetings for Data

         Cost effectiveness - NTG: agreement and/or defaults

         Standardize measure lives

         Non-energy measures, market effects multipliers
A.99-09-049 et al. ALJ/LRB/eap
                             APPENDIX C
                        COMPLIANCE SCHEDULE*
                               (Page 6)

         Study on residential EMS programs

         Gather and report baseline participation information on SF and MF
          RCP

         Consider adding a non-energy factor for refrigerator recycling

         Monitor school-based program effectiveness and report

         Residential definitions of the under-served by August 1

         Residential needs assessment by August 1

         Nonresidential definitions, segmentations, markets, under-served

         Guidelines for allocation of budgets among classes and sub-classes
          and other segmentation

         Marketing techniques for smaller nonresidential customers

         Protocols for reporting customer participation data; update annually

         Gather data on free-riders and spillover and market saturation

         Investigate T-8 saturation and other measures by market and market
          segment; develop saturation protocols; incorporate into programs.

         Plan for accelerated commercialization of all products developed at
          or through the Energy Centers. Continue Energy Center
          coordination efforts.

         Cost effectiveness, IMC standard for TPI: develop a standard usage
          and report. Also, develop standards after TPI completion.

         All: File joint schedule for data collection procedures for milestones
          and performance indicators from Jt. Ex. 3: Serve on all parties by
          July 1, or other date as ordered by ACR.

         Agreement with stakeholders on milestone performance indicators
          data and studies. See list.
A.99-09-049 et al. ALJ/LRB/eap
                             APPENDIX C
                        COMPLIANCE SCHEDULE*
                               (Page 7)

         Agreement on data collection and MA&E study scope, methods,
          timing, contractor selection and other protocols. Identify protocols,
          process, disagreements.

Energy Division Workshops

         Market segmentation consultation

         Workshop on performance contracting purpose and goal

         Develop and conduct a public process for Quarterly Report Review

Manuals for Programs

         RCP

         Statewide Appliance and Lighting

         Incorporate SPC changes from Joint Exhibit 1 into manuals and
          practice

         Small and Large SPC Manuals

         Program Portfolio Manual. See Order for format.

Milestones and Performance Awards
         Another venue TBD

         All: File joint schedule for data collection procedures for milestones
          and performance indicators from Jt. Ex. 3: Serve on all parties by
          July 1.
A.99-09-049 et al. ALJ/LRB/eap
                             APPENDIX C
                        COMPLIANCE SCHEDULE*
                               (Page 8)

Quarterly Reports

         Report on RCP workshops

         Report on Statewide Lighting and Appliance Programs

         Monitor school-based program effectiveness and report

         Targeted solicitations for residential under-served: report progress

         Report on efforts to target small/med. nonresidential customers

         Report on funds spent/committed by programs and strategies

         Rename Commercial R&R to Nonresidential R&R and report on
          common definitions

         Nonresidential definitions, segmentations, markets, under-served.
          Report

         All: coordinated plan for notice and distribution of Statewide
          Energy Guides. Report.

         Plan for accelerated commercialization of all products developed at
          or through the Energy Centers. Continue Energy Center
          coordination efforts.

         PG&E, Edison & SDG&E: develop targeted TPIs and report.

         Monitor Intellectual property issue for TPIs and report.

         Report on process for regular public input and ensure timeliness and
          responsiveness.

         Quarterly Reports are filed with the Energy Division and the service
          list, within 6 weeks after the close of each quarter. See order list for
          contents.
A.99-09-049 et al. ALJ/LRB/eap
                            APPENDIX C
                       COMPLIANCE SCHEDULE*
                              (Page 9)

Annual Reports
         Report on funds spent/committed by programs and strategies and
          put in three years of data.




                          (END OF APPENDIX C)
A.99-09-049 et al. ALJ/LRB/eap

Note: See CPUC Formal Files.




                                 APPENDIX D

				
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