PUC eases rules of energy-efficiency program California utilities can keep monetary incentives for reaching power savings goals -- even if an audit later reveals that they missed the mark By Elizabeth Douglass Los Angeles Times February 1, 2008 California regulators Thursday lowered the bar for an energy-efficiency program to allow utilities to earn about $89 million in customer-funded incentives for achieving as little as 65% of the power savings goals laid out for them. The California Public Utilities Commission also ruled that utilities could keep such incentives awarded to them even if a subsequent audit showed that the companies did not achieve the savings they reported. The provisions approved Thursday, based largely on requests from utilities, significantly alter the terms of the energy-efficiency risk-reward program that the PUC adopted four months ago. Under that plan, utilities that achieved 65% of energy- efficiency goals collectively would have been penalized $142 million. Incentives would accrue after the companies reached 85% of the goals. Several consumer advocacy groups objected to the changes, but commission President Michael Peevey lauded Thursday's decision. The energy-efficiency program "allows utilities to earn real money on an annual basis for their progress in meeting the state's energy-efficiency goals without having to worry that they'll have to give those monies back," he said. "This will significantly strengthen the motivation the utilities have to aggressively pursue energy efficiency." Under both the old and the new provisions, utilities could earn a combined maximum of $450 million in incentives by substantially exceeding goals. The three utilities most affected by the energy-efficiency program -- Pacific Gas & Electric Co., Southern California Edison and San Diego Gas & Electric Co. -- sought the changes from the commission. They argued that having the incentives subject to possible refund after the performance audit undermines the incentive process and leaves the utilities unable to book the rewards as income when they are paid. The PUC said it "recognized that this change increases the risk to ratepayers of overpayment," and added two provisions to help offset the added risk. Utilities would have 35% of their incentive payments withheld pending verification, an increase from 30% in the previous provision. In addition, the new rules require utilities to use updated energy-efficiency data to help make projections more accurate. Tom Roberts, an analyst at the PUC's Division of Ratepayer Advocates, said he strongly opposed shifting the incentive rules. "We had a big problem with a reward at the 85% level," he said. "Now [the utilities] would be rewarded for what we could call mediocre or D-plus performance, and that doesn't seem consistent with the goal of trying to reach 100% of goals." Roberts and other critics complained that the original program required that the bonuses would be paid for "real and verified" energy-efficiency savings. By removing the post-audit give-back requirement, ratepayers could end up overpaying and have no way to recoup the money. If utilities "don't produce some real results, I'd like to think the commission would take at least portions of these programs away from them," Roberts said. elizabeth.douglass@latimes.com Copyright 1999-2008, California Coastal Coalition Phone: (760) 944-3564