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## PWI3 ARKANSAS PUBUCSERVICE COMMISSION

IN THEMATTER OFTHE CONTINUATION, ) EXPANSION, AND ENHANCEMENT OF ) PUBLIC UTILITYENERGY EFFICIENCY ) PROGRAMS IN ARKANSAS )

ORDER 

# FILED

DOCKETN0.13-002-U ORDERNO. 7

On January 4, 2013, by Order No. 1inthis docket ("Order"), theArkansas Public Service Commission ("Commission") established a process and a timeline to resolve issues related to the development and implementation ofthe secondthree-year cycle of comprehensive utility energy efficiency ("EE") programs in Arkansas. The following investor-owned public utilities ("IOUs" or "utilities") are parties to the proceeding: Entergy Arkansas, Inc. ("EAI"), Southwestern Electric Power Company ("SWEPCO"), Oklahoma Gas and Electric Company ("OG&E"), The Empire District Electric Company ("Empire"), CenterPoint Energy Arkansas Gas ("CenterPoint"), SourceGas Arkansas, Inc. ("SourceGas") and Arkansas Oklahoma Gas Corporation ("AOG"). The Arkansas Attorney General (the "AG") and the General Staffofthe Commission ("Staff') are also parties. Thefollowing intervenors are parties: Arkansas Advanced Energy Association, Inc. ("AAEA"), Arkansas CommunityAction Agencies Association ("ACAAA"), Arkansas Electric Energy Consumers and Arkansas Gas Consumers ("AEEC/ AGC"), National Audubon Society ("Audubon"), Sierra Club, andWal-Mart Stores Arkansas, LLC ("WalMart"). On January 17, 2013, the Parties Working Collaboratively (the "PWC") submitted

a Joint Motion to delay the procedural schedule and to delay implementation of theDocket Nos. 13-002-U OrderNo.7 Page2 of91 secondthree-yearprogram cycle byoneyear, in orderto allowtime for the Commission andthe PWCto resolvetheissuesthatwere raisedin OrderNo.1. The PWC includes all parties except Wal-Mart, who did not object to the Motion. The Commission granted this motion by Order No. 2, on January 30, 2013, and accordingly, parties filed initial comments onMay 15, 2013, and Reply Comments onJune 3, 2013. The delay in the procedural schedule was granted in part because the first evaluation ofa full year ofEE program data, conducted by the Independent Evaluation Monitor ("!EM"), Dr. Katherine Johnson, would not be filed until June 1, 2013. Dr. Johnson submitted her testimony and 

### Annual Summmy Report on Evaluation, Measurement and Verifications Findings ("EM&V Report") for Program Year ("PY") 2012 onJune3, 2013. On April19, 2013, the PWC submitted a 

### JointMotion to RequestPotential Study ("Joint Motion," or "JM"). On April 30, 2013, by Order No. 4, the Commission broadened the scope of testimony in this docket to include consideration of lessons learned and proposed program improvements that can reasonably be implemented during 2013 andbeyond to address under-performance for particular programs during 2012 andto more effectivelytargethard-to-reach customer segments. Issue 1: EE Program Procedural Issues A subset ofthe PWC-theJoint Commenting Parties ("JCP")'-commentthatthe significant evolution oftheframework surrounding EE programs during thetime since the Conservation and Energy Efficiency ("C&EE") Rules were adopted in 2007 merits changes to the current schedule for reviewing EE program performance and tariff

1 The JCP are comprised of the IOUs, ACAAA, AAEA, and Staff. While EAI is included in the JCP. it comments separately regarding avoided costs, non-energybenefits, and the incorporation ofavoided costs into the utility performance incentive.Docket Nos. 13-002-U Order No.7 Pageg of91 adjustment. JCP at 3-4. The JCP propose that the date for utilities and otherprogram administrators to file EE Program Annual Reports and EECR rider updates be changed from April1 to May 1 ofeach year, with any approved EECR rider updates taking effect

on January 1 of the subsequent year. Id. at 5- The JCP recommend that the Commission approve EECR adjustments by September 1following the May 1filing. Id. at 6. The JCP state that this schedule will place program year expenditures, program budgets, and EECR rates on the same calendar year basis. Id. at 5-6. The JCP recommendthatthis schedulebeimplementedin 2015, with a one-time exceptiontothe schedulein 2014to enable a transitionbetweenschedules. Id. at 6-7. TheJCP includethefollowing tableindicatingtheirrecommendedtimeline for schedulechanges: JCPP dFT D t EE Filing/Event Current Recommended Schedule Sciicdulc 2013 Annual Report & EECR (2014 Budget/2013truc-up) April!, 2014 Effective date of2014EECR Rate June I, 2014 2015-2017 Program Filing June I, 2014 2015-2017 Program Approval November 27,2014 2015 EECR Rate Transition Filing (2015 Budget/no true- April!, 2015 up) 2014 Annual Report & EECR (2016 Budgct/2014truc-up) May I, 2015 Order Approving Transition Filing May28, 2015 Effective date o£2015 EECR Rate Adjustment June I, 2015 Order approving May 2015 filings September I, 2015 Effective date of2016 EECR Rate January I, 2016 2015 Annual Report & EECR (2017 Budgct/2015true-up) May I, 2016 Order approving May 2016 filings September I, 2016 Effective date of2017 EECR Rate January I, 2017 2016 Annual Report & EECR (2018 Budgct/2016true-up) May I, 2017 Order approving May 2017 filings September I, 2017 Effective date of2018 EECR Rate Jaouary I, 2018DocketNos. 13Moo2MU Order No.7 Page4 ofg1 The JCP indicate thatthe Jannary 1 implementation date for EECR adjnstments to go into effect will provide concurrent recovery of Commission-approved budgeted program costs, thereby eliminating the regulatory lag that has existed in the current mechanism. Id. at 5. By way of example, the JCP recommend that the May 1, 2015 EECR filing would include the PY 2014 true-up and the projected costs for the 2016 program year. The 2016 EECRfiling will includethe PY 2015 true-up and theprojected costs for the 2017 program year. Id. The JCP state that the proposed schedule represents a balanced approach, in that recovery of incentives for the prior program year is delayed from the current June 1 until January 1, or a full year following the programyearupon whichthe incentivewas earned. I

### d. Regarding thetransitional year, theJCP recommend that, during 2015, thetrueup ofthe 2014 program costs would be addressed in the May 1 filing. This one-time EECR update would be effective through December 2015 and would be superseded by the2016 Program Year EECRupdate, which would become effective January 1, 2016. In subsequent years the recommended schedule would continue without the need for an additional adjustment Id. The JCP oppose consolidation ofEE program approvals within a single docket. Id. at 8. TheJCP statethat such consolidation will resultin a massive, confusingrecord that complicates the required finding that each utility's EE programs are beneficial to the utility and ratepayers alike. Id. at 8-9. The JCP provide the example that it would be administratively inefficient and perhaps violate the requirement that intervenors must have a direct interest at stake to involve a party interested only in a single utility's

case in a docket addressing all utility's EE programs. Id. at 9-20. Further, theJCP stateDocket Nos. 13-002-U Order No.7 Pages of91 that, with multiple utilities andparties, it may be unclearwhether a party is addressing all ofthe utilities' EE program portfolios, the portfolio of a single utility, or a single program. 

### Id. at 10. The JCP recommend instead that the Commission should retain separate utility EE tariff dockets for approval of each utility's EE program and EECR adjustment, and pursue administrative efficiencies hyallowing pre-filedtestimonyto be introducedintothehearingrecordbystipulation. 

### Id. at8. Further supporting the JCP's opposition to a consolidated EE docket, EAI states that, ifanything, itmaybemore practiealtohave utilitiesbegin to implementtheir own cycles for portfolio submission, with staggered filings, as in the integrated resource planning ("IRP") process. EAI at 8. EAI notes that the PWC's own efforts to gain administrative efficiencies by consolidating utility EE reporting and making it more consistentwas tabled dueto the needto respondto Order No. 1. 

### Id. EAI recommends thatthe PWC be directed to focus onthis further integration ofEE reporting. Id. Also, EAI generally commentsthatitis betterfor the Commission to propose policy issues for resolution by the PWC, rather than proposing solutions for litigated comment, as in Order No. 1. Id. at4-5. The AG agrees with the JCP regarding scheduling changes, except that the AG views ahardSeptember 1 deadlinefor Commission EECR approval asunnecessary given that complex issues may arise and that the new EECR would not go into effect until January 1, and the AG sees no reason to delay thetransition year to 2015, rather than 2014. AG at 10. Other than these two exceptions, the AG states that the scheduling changes will significantlyimprove the annual process, allowing timefor moreevaluation and review ofEE program savings and EECRfilings. 

### Id. at 10-11. The AG statesthattheDocketNos. 13Roo2RU Order No.7 Page6 of91 merits ofconsolidating EE program reviewin a single docket areunclear: while a single docket might streamline consideration of core programs and cross-cutting issues1 utilily-specific issues will always arise as long as utilities separately administer their programs. Id. at 11-12. AEEC/ AGC supports the JCP's proposed May 1 filing date for Annual Reports and EECR rider adjustments, with 60 days provided for review ofthefilings by parties. AEEC/AGC at 2. AEEC/AGC favors a schedule under which the Commission would approvetariffadjustmentswithin 120 days. Id. AEEC/ AGC statesthatthese extensions to the current timelines for review are needed in light ofthe higher level ofcosts being requested for full program implementation. Id. at 2-3. While AEEC/AGC opposes creation of a single EE docket for review of individual utilily programs, it supports consideration ofpolicy issues common to all utilily EE programs within a single docket in order to ensure consistency and reduce administrative and participation costs. I d. at 

### 3· Sierra Club supports a combined EE docket in furtherance of standardized statewide programs, but in the alternative would favor handliug cross-cuttiug issues within a single docket. Sierra Club at 2. Audubon similarly states that a more unified procedural approach would be congruent with collaborative EE program planning, but recommends thatthe Commission consider alternative approaches that may accomplish the sameobjectives, ifnecessaryto address objectionsto consolidation. Audubon at 1. Ruling Regarding Consolidated Docket and ProposedAlternative Schedule The Commission accepts the JCP's recommendation that individual utilily tariff dockets be retained for utilily EE program and tariff adjustment approval, in order toDocket Nos. 13-002-U OrderNo.7 Page70f91 preserve a distinctbasisin substantial evidence for each decision. The Commission also accepts the recommendation by parties that cross-cutting or common issues should be addressedthrough a separate, single docket or dockets. The Commission accepts the JCP's recommended schedule for transition in 2.015 to a May 1 annual filing date, as indicated in the table above, with a transitional-year filing in 2.014, with the exception that the Commission will strive to approve programs and tariffadjustments by September 1, butreserves the right in cases ofcontroversy, if necessary, to investigate solutions for a longer period oftime. The Commission agrees with the JCP that the recommended schedule will enhance the opportunity for performance review and that it will better align program implementation and cost recovery. Also, it is reasonable to schedule the transitional year filing for 2015 because thenewthree-yearprogramcyclewillbeimplemented duringthatyear. Accordingly, the Commission approves the revised filing deadlines and procedural schedules for immediate use in the preparation and approval of the next three-year EE planning and program cycle for PY 2.015-2.017. Also, the Commission directs Staff to file a draft of any C&EE rule amendments necessary for the implementation of this scheduling change on or before noon of January 10, 2014, in Docket No. 06-004-R. Issue 2: Proposed CommissionTargets andMotionforPotentialShldy In support of the Joint Motion, the PWC state that Order No. 1 contemplates substantial changes tothe Commission's C&EE Rules andthe associated EEframework, and that the PWC has met several times to discuss the issues associated with thoseDocket Nos. 13-002-U OrderNo.7 Page 8 of91 changes.' JM at**~~** 1 & 3. In that context, the PWC has determined a need for a Potential Stndy on the Performance Targets for 2015-2017. Id. at**~** 3. The PWC recommend thatthe Commission consider Arkansas-specific market conditionsthrough

a Potential Stndybefore establishing theproposed EE goals and targets for years 2015- 2017. Id. at**~** 4· The PWC state that, absent a Potential Stndy, the EE goals ortargets proposed in Order No. 1 will not reflect market conditions and other factors specific to Arkansas, such as changes in residential and commercial energy codes, availability of savings, avoided costs, and the amount of program expenditure needed to achieve energy savings. Id. at**~** 4. The PWC seek approval to expeditiously issue a Request for Proposal ("RFP") for theperformance ofa Potential Stndythat would bejointlyfunded bythe IOUs, with costs recovered through eachutility's Energy Efficiency Cost Recovery ("EECR") rider. Id. at**~** 5· The PWC statethattime is ofthe essence, since it will take six to nine months after issuance ofthe RFP to complete the stndy, and then parties would need to submit comments to the Commission on how to interpret the results to set EE goals. Id. The PWC indicate that they "anticipate working collaboratively to address the scope and other issues in connection with the proposed Potential Stndy." Id.an3. EAI comments in support of the Potential Stndy that having the results ofthe first full year ofexisting program performance-which were not available until after the targets proposed in Order No. l-is critical to evaluating the reasonableness of the targets. EAI at 6. EAI statesthatthe Commission's proposedtargets appeartobebased upon results in other states, andthus to assumethat a significant proportion ofsavings

2 The Commission notes that, at this time, it has not proposed amendments to the Conservation and Energy Efficiency Rules ("C&EE Ru1es").Docket Nos.13-002-U OrderNo.7 Pageg of91 will be achieved through lighting programs. Id. EAI notes that other issues addressed in Order No. 1, such as the AG's recommendations to quantify avoided capacity using a Real Economic Carrying Charge ("RECC") andto adjust EE program savings downward for leakage ofinstalled measuresto otherjurisdictions, would significantlyinfluencethe reasonableness oftheproposedframework.' Id. AEECf AGC supports the Potential Studyto ensure that goals and funding levels

are set at realistic levels which reflect recent reductions in market energy prices and relatively low economic growth. AEEC/ AGC Reply at 11. AEEC/ AGC also recommends that any expansion ofEE programsbe deferred. Id. AEEC/ ACG asserts that the cost of most EE programs far exceeds the current market price for energy and capacity, providingthe example thatthe average cost ofEAI's EEprogram expenditures per MWh saved over thelastfour years was $334/MWh-morethan 13 times the average SPP and MISO market prices of approximately $25/MWh last year. AEEC/AGC Reply at 2. AEEC/ AGC states that EAI, SWEPCO and OG&E's more recent IRPs indicate a surplus of low cost baseload energy, rendering EE programs not cost effective currently, nor until market prices increase significantly. 

### Id. at 2-3. AEEC/AGC presents a table that

sums EAI's EE annual program savings in eachyear from 2009through 2012: dividing those savingsbyEAI's total sales, AEEC/ ACG concludesthatEAI's programs have saved only 0.28% ofretail kWh sales. AEEC/ AGC argnes that it makes no sense to approve

s Leakage is the cross-territory energy savings that occurwhen EEprogram-incentivizedefficient products are installed outside of the funding utility's service territory. Subsequent to this comment by EAI, the Commission, by Orders No. 63 and 85, respectively, of Dockets No. 07-082-TF and 07-oSs-TF, established a policy on leakage. On August 30, 2013, the parties actively participating in the co11aborative process in Docket No. 10-100-R ("the Moving Parties", comprising the utilities, Staff, the AG, ACAAA, and Audubon) submitted a Joint Motion to Approve Technical Reference Manual3.0 and Waiver ofHearing, including a new Protocol K addressing leakage and incorporating the Commission's directives in Order Nos. 63 and 85 above.Docket Nos. 13-002-U Order No.7 Page 10 of91 EAI's 2013 EE program budget exceeding $70 million when alternative supply sources

are available atmuchlowercost. Id. at 6. Audubon supports the Joint Motion and views the Potential Study's results as indicating an approximateupperlimitonreasonably achievable savings. Audubon at 2. Audubon cautions that potential studies are not program implementation plans and cannot account for various factors such as program portfolio design, differences among program administrator portfolios and resources, and the time required to ''ramp up" programs. Id. at 2-3. Audubon statesthatsavings goals mustbe scaledto an achievable level given availabletimeandresources. 

### Id. atg. Sierra Club states that it supports the targets proposed by the Commission. Sierra Club at 2. Sierra Club, however, also supports a Potential Studyonthebasisthat it will increase confidence that the proposed targets are achievable, it may show that highertargets are achievable, anditwill enable a more informed conversation regarding thetargets, including whether perceived barriers are technical, economic, practical, or a matterofprogramdesign. Id. at 2. Dr. Johnson's EM&V Report states that, despite mixed results, most programs achieved their savings goals and it is clearthat the EE programs are gaining traction in the market. IEM Report at 72. She statesthatthe progress made inthe past 12 months has been remarkable. 

### Id. She urges the utilities to "Staythe Course-CollaborativelywithAdditional JointImplementation." 

### I d. Her "first, critical recommendation" going forward is for the performance of a market potential study. Dr. Johnson adds that she made this same recommendation aDocketNos. 13w002-U Order No.7 Fagen ofg1 year ago inherPY 2011 Report. PY 2012 EM&V Report at xii and 70.4 She also states that [a]ll three evaluation teams engaged by the IOUs (ADM Associates, Inc. ("ADM"), Cadmus, and EnerNOC Utility Solutions Consulting ("EnerNOC")) identified the benefits that such a study would provide, including gathering information about customer preferences, participation likelihood, and savings potential across the entire state, as well as additional technologies to consider in future program designs. She indicates that the market potential study should be a multi-utility, cross-fuel effort to

ensure the most efficient use of ratepayer funds, requiring coordination between all members ofthePWC." !d. at70. The Commission takes administrative notice that several ofthe individual utility evaluation reports referenced by Dr. Johnson mention particular benefits of a market potential study. The evaluator for CenterPoint, AOG, and SourceGas EE programs (ADM Associates, Inc., or "ADM") found that the current programs of these utilities have been designed and implemented without the benefit of guidance from a market potential study, which should be done to make sure that program resources are allocated in an efficient manner. CenterPoint Annual Report, Appendix A at 2-8 through 2-9; AOG Annual Report, at 33 and Appendix A at 4-31, 5-21 and 7-24; SourceGas Annual Report, Appendix A at 2-10. As part of its program evaluation of theseprograms, ADM took the opportunityto conduct surveys-whichfell short ofa full market potential study-of several hundred customers who did not participate in the

4 In the Report for PY 2011, the IEM recommended that utilities consider "performing market assessments, such as amarket potential study based on primary data from Arkansas,.. in order to "ensure that planning projects are based on actual market conditions. ., The !EM recommended that the study "should be coordinated statewide and linked to other EM&V tasks to ensure cost-effectiveness." Annual Summary Report on Evaluation, Measurement & Verification Findings, Johnson Consulting Group, June 1, 2012.Docket Nos. 13-002-U Order No.7 Page 12 ofg1 CenterPoint, AOG, and SourceGas EE programs. For example, ADM asked residential customers who did notparticipate in CenterPointEE programswhatpercentage ofthem have tankless water heaters versus storage-tank water heaters, and the age of those units; similarly, ADM asked commercial customers to identify their highest gas loads andthe age ofequipment serving those loads. CenterPointAnnual Report, Appendix A at2-8 through 2-9. Cadmus indicated that SWEPCO's initial estimates ofmarket demand for some programs (Load Management Standard Offering Program, Appliance, and Home Performance with Energy Star) were low, and others (CFL, Small Business Direct Install) were high. SWEPCO Annual Report, Appendix A (Energy-Efficiency Portfolio Evaluation Report 2012 Program Year) at 5 and 15-16. Cadmus recommends that SWEPCO conduct market research or a potentials studyto betterunderstand customer preferences andparticipationand savingspotential. Id. at 16. Similarly, Cadmus recommendedthat Empire conduct market research to better understand residential customers' housing characteristics and purchasing habits to inform residential prescriptive program design. Empire Annual Report, Attachment B (Empire, Evaluation Report) at 7· As an example, Cadmus recommended that Empire seek to understand the types, ages, and quantities ofelectric HVAC equipment found in customers' homes, the types ofnew equipment they are likely to purchase, and where theypurchase sucit equipment. Id. EnerNOC recommended that OG&E should research the target market for its commercial and industrial ("C&I") programs to find the current market share ofhigh efficiency equipment; to understand the common characteristics of customers alreadyDocket Nos. 13-002-U Order No.7 Page 13 ofg1 investing in energy efficiency and what characteristics make up the next tier of customers the program is hoping to reach; and to proactively identify specific equipment to promote. OG&E Annual Report, Appendix D (Evaluation of OG&E ArkansasPY2012EnergyEfficiency Programs) atv. Dr. Johnson further testifies thatthe various evaluators this year provided more than 400 recommendations on ways in which to improve the EE programs. Johnson Direct at5. Dr. Johnson recommends that the Commission continueto encouragejointcollaboration and implementation of cross-fuel programs. Id. at 6. She reports that suchjoint program implementation can significantly reduce the cost per achieved kWh

or therm, 

### by sharing the administrative cost ofthe programs, and even more so when

measure costs are allocated across fuel types. IEM Report at72. She further recommends that utilities continue to improve database tracking; that evaluators undertake strategic primary evaluation research in 2013 to ensure that the TRM is reliable and based on Arkansas-specific data; that utilities and evaluators should track and report on the implementation of !EM recommendations for program improvement; and that evaluators should take several steps to improve the timing and conduct ofEM&V activities. IEM Report at70-73. Besides the evaluator comments specifically addressing the Market Potential study and the !EM's general program improvement recommendations, the utilities' Annual Reports and accompanying ("Appendix A") evaluatorreports provide a snapshot ofprogress, challenges, and recommendations for improvement after the first full year of comprehensive program implementation. For instance, EAI's EE Annual Report indicates that during this first full year of comprehensive program implementation,Docket Nos. 13-002-U OrderNo.7 Page 14 of91 energy savings more than doubled and that EAI's programs are building a growing network of vendors and contractors to support program implementation. Entergy Annual Report at 5-6.s Overall, EAI achieved 111% ofthe Commission's energy savings goals, while spending roughly $29 million (74%) ofits $39 million planned budget. !d. at 5; Workbook at A1. EAI served about 510,000 participants, ratherthan the 934,568 planned (in this case, "participants" includes each individual light bulb or other measure); for programs other than upstream lighting and Residential Benchmarking (which each reach a mass market ofover 100,000 customers), EAI served about 15,000 oftheplanned 26,ooo customers. Workbook atA2. Six of EAI's fourteen programs became available to customers later in the year than planned. Id. at 10-11. For instance, the EAI Residential Direct Load Control program (which installs controls on air conditioners allowing EAI to reduce compressor cycling during peak events) installed almost 8,000 air conditioner control devices during 2012. 

### I d., Appendix A at 247, Figure 39· However, over 5,000 ofthese devices

were installed after August, and only two events were called in 2012. Id. While the program met only 40% ofits demand reduction goal in 2012, EAI's evaluators indicate that it is well-positioned to meet or exceed its 2013 goals. Id. at 240. Furthermore, based on the first year level of achievement, the program provided 32% of the Total Resource Cost ("TRC") test netbenefits for theEAI portfolio, andwas thelargest factor contributing to a total EAI portfolio RIM test score of 0.98. EAI Annual Report Workbook atB2.

sThis performance has garnered an Award ofExcellence at Platt's 2012 Global EnergyAwards. I d. at 6.Docket Nos. 13-002-U Order No.7 Page 15 ofg1 EAI notes thatits 2012 IRP includes a load forecast showing that, by 2023, EAI could achieve 700 MW ofcumulative peakdemandreduction and 1,788,584 cumulative MWh ofenergy savings for a total cost of $750 million, which compares favorably with other potential resource options under most scenarios modeled. !d. at 134. EAI states that, whiletheIRP DSM assumptions remainvalidfor planning purposes, atthe current level ofEE effort, overthelongterm EAI will surpassthem. 

### Id. EAI's evaluator (Cadmus) interviewed over 150 program participants across

seven programs and about So non-participants. EAI Annual Report, Appendix A at 5· Cadmus states that "in every case respondents listed lack of funding as their primary program barrier." !d. at 5· Cadmus thus recommends offering low-cost financing to customersthrough partnerships with national lenders or local banksthrough an on-bill repayment mechanism. !d. Cadmus notes thatseventy-five percent ofnon-participating customers indicated

no awareness ofany EAI EE programs. !d. at 6. No morethan4% ofnon-participants

are aware of any particular program, and 1% of non-participants are aware of most individual surveyed programs. 

### Id. However, for program participants, a customer satisfaction survey of400 participants in nine programs found 95% to 100% customer satisfaction for all buttwo surveyed programs, withtheremainingtwo having customer satisfactionrates of84% and 86%. !d. at 15. SWEPCO achieved 113% of the Commission's energy savings goals while spending $5.3 million (78%) of its $6.8 million planned budget. SWEPCO Annual Report at 7· SWEPCO served 94,807 customers rather than the planned 28,556, but when CFL sales are removed from the calculation, it served roughly 3,800 of 15,600DocketNos. 13w002-U Order No.7 Page 16 of91 planned customers. SWEPCO Annual Report Workbook at A2. SWEPCO reports that its long, non-contiguous, narrow territory is a significant challenge for implementation ofeach ofits programs. SWEPCO Initial at 1-2. SWEPCO added new appliances to its upstream CFL/ Appliance program, launched a new Home Performance with Energy Star program, and added direct-install program components targeted to multi-family housing, small businesses, and Oate in 2012) dual-fuel commercial and industrial customers. SWEPCO AnnualReport at 6-7. SWEPCO's evaluator (Cadmus) found that, overall, 82% of non-program participants arenot aware ofSWEPCO's EE programs, with 1-4% reporting awareness of individual programs. SWEPCO Annual Report, Appendix A at 9· Cadmus notes that these results are not unexpected or unusual during early program implementation, and that it believes customer awareness will increase over time with strategic marketing efforts. 

### Id. Cadmus reports 99% to 100% customer satisfaction with surveyed programs. I d. at 18. Cadmus found that, while SWEPCO's programs are designed to provide comprehensive offerings, few achieved comprehensive uptake of whole building measures; thatprogram goals andbudgets couldbesignificantlybetteraligned; andthat SWEPCO does not offer residential load control or promote appliance incentive programs to its commercial customers. 

### Id. at 15-16 and 31-32. Cadmus reports that SWEPCO is exploring the possibility of offering energy-efficiency home improvement loans in future years; Cadmus recommends that SWEPCO continue to explore this option. Id. at 132.Docket Nos. 13-002-U OrderNo.7 Page 17 ofg1 CenterPoint achieved 114% ofthe Commission's energy savings goal and spent 78% ofits plannedbudget. CenterPointAnnual Report at45 and 6. CenterPoint served 114,934 customers rather than the planned 61,546; however, other than the Home Energy Reports program and the program that mails customers free, low-flow shower heads andfaucet aerators, CenterPoint served4,753 of7,746 planned customers. I

d. at 9, n, 13, 16, 19, 22, 26, 29, 32, and 35. CenterPoint's evaluator (ADM Associates) reports that there are many opportunities for cross-fuel coordination that are not being capitalized upon, including joint implementation of mailer kits, and that the portfolio bas a gap in residential building envelope offerings, in that both the A WP and HEAL programs have participation criteria that may prevent most CenterPoint customers from participating. Id., Appendix A at 1-3 through 1-4. Evaluators note, however that HEAL could serve as

a model for cross-fuel savings andfor its measurefinancing provisions. Id. at 1-6. ADM states that CenterPoint's C&I Solutions program (which produced over a quarter ofits portfolio therm savings) was highly successful and that many projects already had incentives reserved for 2013. ADM notes, however, that the program has not yet engaged certainkey trade allies ina meaningful manner. Id. at 1-5. The AG suggests thatthe Commission mayneedto scale backitsproposedtargets in order to reduce rate impacts on customers who do not participate in EE programs. AG at 13 (theAG's concerns arefurther detailedbelowinthe discussion ofprogram cost effectiveness evaluation). Sierra Club disagrees that reduced targets are the answer to non-participant rate impacts, and states that reducing program goals to avoid nonparticipant impacts would be inconsistentwiththe purpose ofthe Energy ConservationDocket Nos. 13-002-U Order No.7 Page 18 of91 Endorsement Act ("ECEA"), which aims to achieve broader structural and societal benefits. Id. Audubon recommends that making comprehensive programs available to all customer sectors is a better way to address equity and rate impact concerns. Audubon Reply at4· Ruling Regarding Joint Motion andTargets The Commission appreciates the work of the parties in reaching consensus regarding a coordinated, joint Potential Study; the work ofprogram administrators in ramping up EE program performance; and the assistance of Staff, the AG, evaluators, and intervenors in supporting, verifying, and providing constructive critiques of that performance. This "remarkableprogress," notedbyDr. Johnson, is a credittothe State. Not inconsequentially, according to the IEM, "[c]ustomer satisfaction, a critical indicator ofprograms success, was overwhelmingly positive across the entire Arkansas energy efficiency program portfolio" including ''high marks for all aspects of the program operations including the simplicity ofthe paperwork, rebate processing time, and interactions with the contractors." IEM Report at vii and 22. The Commission notes that its further rulings in later parts ofthis order are necessarily interconnected with the issues of energy savings potential and target-setting, because the setting of reasonable EE savings targets, and the evaluation and achievement ofcost-effective EE potential, depends in part onthe rules for defining achievement and determining costeffectiveness. The Commission supports implementation ofajointPotential Study, butrequires clarification ofseveral issues. The Joint Motion does not detail the purposes, scope, orDocket Nos. 13-002-U OrderNo.7 Page19 of91 methods ofthe proposed study. Rather, it indicates that "the scope and other issues" will be determinedinthefuturethroughPWC collaborative deliberation. The Commission takes administrative notice that the National Action Plan for Energy Efficiency ("NAPEE") indicates that potential studies may generally fall within three categories (although a particular study can perform more than one function): (1) High-level studies thatgenerallybuild a case for energy efficiency; (2) Investment-grade estimates ofspecific savings neededto avoid a particular supply-side investment; or (3) Detailed Planning and Program Design studies. Guide for Conducting Energy Efficiency Potential Studies, NAPEE, November 2007, at ES-3. NAPEE further indicates that such studies may estimate four types of EE potential: (1) technical potential, (2) economic potential, (3) achievable potential (or "maximum achievable potential"), and (4) program potential (or the potential achievable through the implementation of a specific set of programs). Id. at 2-4. Technical and economic potentials are theoretical maxima, independent of program design and real-world barriers to program achievement. Maximum achievable potential and program potential, however, are dependent upon program budgets and designs and (the Commission would assert) on relatedjurisdictional policies. Id. Finally, NAPEE points outthat, while detailed potential studies useful for program design must include various types of baseline, energy forecast, cost, and disaggregated sales data, the quality and availability of data is often the limiting factor of a potential study and drives the methods used. Id. at 3-3. Audubon's comments that the PWC Potential study would indicate an approximate upper limit on reasonably achievable savings; that it would not account forDocket Nos.**13~002.-U** OrderNo.7 Page 2.0 of91 various factors such as program portfolio design, differences among program administrator portfolios and resources, and the time required to "ramp up" programs; and that savings goals would need to be scaled to an achievable level given available time andresources. Thesecomments seemto indicatethatAudubon currentlyviews the proposed Potential Study as less than a program design study, and as an estimate of maximum achievable potential, if not of economic potential. On the other hand, the recommendations of Cadmus, ADM, and the !EM (in some cases with some level of explicit agreementby utilities), appearto focus onprimary data collection necessary for theimprovement ofspecific programs, andfor the appropriate development ofprogram portfolios andthe strategic allocation of funding among programs within a portfolio. The Commission interpretstheJoint Motion to refer to a studywith enough data collection, analysis, and detail to inform program andportfolio design--in effecthelping describe not only what the maximum achievable potential is, but also how to better realize it. Each purpose is legitimate, and each requires careful consideration of the types ofdata collection and analysis thatwould need to be specified for an RFP bidder. Furthermore, it seems reasonable that a joint, comprehensive Potential Study would overlap in purpose and methodology (as indicated by recent Cadmus surveys and the recommendations ofthe !EM), withprogram evaluation andthe annual updating ofthe TRM andits Protocols. The Commission therefore directs the PWC to develop and submit to the Commission for its approval, on or before noon on November 1, 2013, an RFP and accompanying testimony that describes PWC's more detailed recommendations for an Arkansas EE Potential Study that reasonably lays the groundwork to maximize theDocket Nos. 13-002-U OrderNo.7 Page 21 of91 achievement of cost-effective EE potential, including: a clear set of objectives and expected outcomes anduses for the potential study; a scope ofwork that includes data collection and study approach as well as a report outline; a recommended budget (or budget range with options); and a schedule with timelines for solicitation ofa Potential Study consultant, data collection, report preparation, review ofdrafts, and presentation ofthe final report. The RFP should provide that all data, assumptions, formulas and algorithms used to estimate EE potential shall betransparentto the Commission andto stakeholders. The Potential Study shall estimate potential, taking into account the rulings in this Order regarding avoided costs and program and portfolio screening for cost effectiveness. The Commissionrecommends thatthePWC considertheparameters ofthe Potential Study with the following issues in mind andinform the Commission of thePWC's recommendations aboutthemwhen theRFP is submittedfor approval:
1. Which of the four common types of EE potential will be quantified, and over what time period? Will potential be presented as a specific number or a range with indicated estimates of confidence and precision?

2. What time period will the Study cover (5 years, 10 years, 20 years, etc.?); will the study assume only existing commercially available technology and/ormake assumptionsfor future innovation? g. What will bethe source(s) ofdata used to generate the indicated potential for energy efficiency in Arkansas? What is the basis for knowing thatsuch data are available within thecost and schedule indicated?Docket Nos.13-oo2-U OrderNo.7 Page220f91 4· How is the budget-or range ofbudgets--for the poteutial study estimated? Wbat trade-offs were made between Study schedule, costs, and accuracy ofresults? Are there some alternativebudget, schedule, and quality options that the Commission should consider for the potential study?

## s. Will the Studyincludebaselinemarket studies andwill theStudy

use existing Arkansas TRM and EM&V data and/or be a basis for a coordinated effort to strengthen and update the Arkansas-specific measure/program baseline information intheTRM and thus beuseful for otherEM&V activities? 6. Will the Study address snbsectors ofresidential, commercial and industrial customer classes, such as: low-income residential, multifamily, institutional, agricultural andindustry-specificindustrial subsectors? Will theStudyindicate results as statetotals orby service territories; and/orby different regions (e.g., urban/rural) anddemographics inthestate? 7· Will the Study include an assessment of the energy efficiency delivery markets (i.e. contractors, retailers, distributers, etc. that do or could serve theArkansas market)? 8. How will the Study account for inter-utility and cross-fuel EE savings opportunities andtheadministrative improvements recommended bythe !EM andprogram evaluators? While a Potential Study can help inform goal setting, goal-setting and the establishment ofthe related utilityperformance incentive are ultimatelytheprovince ofDocket Nos.1g-oo2-U OrderNo.7 Page23 of91 the Commission, in its role of establishing a framework that produces a just and reasonable balance between utility and ratepayer benefits. After three years of Quick Start programs without Lost Contribution to Fixed Costs ("LCFC") and utility performance incentives, the Commission in late 2010 approved an overall framework including those elements "only inthe context ofsignificant goal setting

... not [as] an independent right of utilities, but rather [as] a component of a coordinated group of policies reasonably calculatedto deliver overall benefits to ratepayers, to utilities andto society in a cost-effective manner." Order No. 14, Docket No. oS-137-U at 18. The Commission will consider the results of the Potential Study-not as a definitive statement of what is possible-but rather as part ofits reasoning in establishing goals andincentivesfor 2.016 and2.017 and in approving three-yearplans. Withregardto goal-settingfor 2.015, theAnnual Reports and EM&V reports show that most IOUs are exceeding existing Commission goals, despite spending less than their approved budgets and reaching fewer than planned participants. This is true despite growing pains during the first full year of program implementation, despite partial-year implementation of some programs and despite non-participant program

awareness levels that are frequently at or near 1%. Evaluators make over 400 specific recommendations for program improvement, including cross-fuel improvements, facilitation offinancing to address near-universal customer concerns with the first cost ofmeasures, and filling ofprogram gaps that can lower administrative costs perunit of energy saved and create new energy savings opportunities. Also, EAI indicates that at the current level of effort, it will exceed its long-term energy savings plans, which formed one ofthebases for thetargets proposedin OrderNo. 1. This evidence is not, asDocket Nos.1g-oo2-U OrderNo.7 Page 24 of91

some parties suggest, borrowed from other states, but rather is rooted in the recent experience and considerable documentationbyandwork ofparties inthis docket. Also 1 the Commission interprets the JCP's proposal to receive performance incentives for meeting up to 150% of Commission goals as an indication that tbe JCP believe that some level of achievement above the current level is possible. Multiplying the current level of achievement (0.75% for electric utilities and 0.40% for natural gas utilities) by 150% wouldyield anupperboundfor incentives of 1.13% for electricutilities and o.6o% for natural gas utilities. This is one more indication that an initial, incremental increase in energy savings goals is reasonable. Finally1 no party indicates thatthe Commission's proposed goals areunachievable. Thus, given the time sensitivity and the need to carefully plan to maximize the usefulness of the Study, and in order to provide some clarity and direction, tbe Commission hereby relies upon the evidence of gro·wing and more cost-effective achievement to establish a 2015 target of0.9% ofkWh sales for electric IOUs and 0.5% oftherm sales for natural gas IOUs. In deference to the concerns ofthe AG regarding rate impacts, these targets are slightlybelowthefirstyeartargetsproposed in Order No

1. This slowerramp-up ofcomprehensive program offerings provides more timefor the PWC to coordinate programs to reduce duplicative costs, and to implement other lessons learned and efficiencies of scale. The Commission reserves the right to revisit the 2015 target atthetime thatit establishes targets for 2016 and 2017, based upon the Potential Study or otherdatathat maybecome available.Issue 3: Utility EE Performance Incentive Docket Nos. 13-002-U OrderNo.7 Page 25 ofg1

TheJCP agree withthe Commissionthattheutilityperformanceincentive should be reformed, but recommend alternatives to the Commission's proposed revision. JCP at 11. The JCP agree that the incentive should increase linearly along its range, rather thanincreasing step-wise from a cap of5% ofEE program budgets to a cap of7% ofEE programbudgets atthe transitionfrom 99% to 100% ofgoal achievement. Id. The JCP further recommendthatthe cap on theperformance incentive shouldrange from 5% 

### to 15.5% ofprogram budgets, ratherthan the4% to S% proposed by the Commission. Id. at 12. The JCP statethatthis incentive cap conforms with nationalbestpractices, which average 12-13%. 

### Id., citing, Carrotsfor Utilities: Providing Financial Returnsfor Utility Investments in Energy Efficiency, American Council for an Energy Efficient Economy ("ACEEE"), 2011. The JCP further recommendthatthe amount ofthe capped incentive should be based on 15% ofnet TRC benefits, rather than 10%, as a means of motivating utilities to reach the higher anticipated performance goals. 

### Id. The JCP recommend that performance should be awarded between So% and 150% of goal achievement, ratherthanthecurrent So% to no% ofgoal, orthe So% to 120% proposed by the Commission in Order No. 1. The JCP note ACEEE's finding that "when the available incentive falls within a range, most utilities have earned at thehigh end ofthe range;" the JCP supports a performance range and associated incentives that encourage utilities to continue to deliver more energy savings. Id. at 13. The JCP also agree with the Commission that the utility avoided cost portion of the net benefits calculation shouldbeheld constantduring each 3-yearEE program cycle. Id. at 14.Docket Nos. 13-002-U Order No.7 Page26 of91 The JCP recommend that the Commission retain the practice of awarding incentives based on annual performance, rather than shifting to a cumulative, 3-year performance award. Id. at 14. The JCP indicate that a cumulative incentive will be complex and may eliminate a utility's ability to earn an incentive in year 3 if its performance is above goal in years 1 and 2, or conversely if its performance in years 1 and 2 is substantiallybelow goal. Id. at 14-15. Ifthe Commission adopts a cumulative incentive, the JCP oppose any "claw-back" provision requiring the utility to refund earlier incentives based on later under-performance because it would increase regulatoryuncertainty. Id. at 15. While EAI is included within the JCP, it does not agree with the PWC that avoided costs should be fixed for three years for purposes of calculating the EE performance incentive. EAI at g. Rather, EAI favors annual adjustment ofthe avoided coststhatare includedinnetbenefits,to avoid hinderingtheintegrationofEE resources withintheIRP process. Id. AEEC/AGC does not favor the award ofutility incentives, butto the extent they

are awarded, favors modifying the existing structure to provide a linear relationship between performance and incentive awards, and limiting themto modest levels that are paid only for superior performance. AEEC/AGC at 5· For instance, AEEC/AGC suggests that incentives couldbeawarded onlyfor achievement above 110% ofgoal, with the incentive capped at 5% ofprogram budgets. Id. at 5-6. AEEC/ AGC object thatthe JCP's proposalto allowincentives ofupto 15% ofprogrambudgets, in combinationwith EAI's LCFC costs of 15% of 2013 program budgets, could lead to LCFC and incentives comprising almost a third of a utility's program budget. AEEC/AGC Reply at 17-18.Docket Nos.1g-oo2-U OrderNo.7 Page270f91 AEEC/ AGC opposes any lowering ofthe threshold for allowing incentives and opposes the award of incentive payments for any program with a Ratepayer Impact Measure cost-effectiveness test ("RIM test") scorebelow one. AEEC/AGC at 6. Audubon and Sierra Club support the Commission's proposed revisions to the utility EE performance incentive, including the three-year cumulative goals. Audubon at 3; Sierra Club at 3· Audubon argues that it is appropriate to use the same, fixed avoided cost to determine net benefits that is used in establishing program savings targets, because this structure links financial rewards to factors that the EE program administrator can control-such as measure selection and program implementationrather than uncontrollable market prices for energy. Audubon at 3-4. Audubon states that updated avoided cost projections at the end of the three-year period may be no

more accurate than those initially forecast. Id. at 4· Audubon notes that the Commission's proposal also fixes the total amount of available incentive based on the three-year program budget, eliminating further uncertainty, and that the three-year cumulative incentive will reward midcourse adjustments by program administrators to compensate for underperformance. Id. Sierra Club favors theincrease ofthe maximum incentive cap to 8% ofprogram budgets, but has concerns about raising the incentive any higher; Sierra Club seeks to maximize the amount of program funds spent on implementation and to ensure that incentives are no larger than necessary to motivate cost-effective program implementation. Sierra Club at3· The AG reviews the existing performance incentive structure, finding that it includes some incentive for utilities to overspend due to caps based on EE program budgets, andtobenefitfrom higher avoided cost numbers. AG at4-5. However, theAGDocket Nos.1g-oo2-U OrderNo.7 Page28 of91 finds that, overall, most factors included in the shared savings calculation aligu utility interests with ratepayer interests. Id. The AG states that the Commission's establishment ofan IEM and robust EM&V have "been critical inproducing reasonably accurate estimates of the amount of energy savings and preventing a disconnect" betweenthereporting andreality ofEEprogrambenefits. !d. at5-6. The AG supports a modified version of the proposed cumulative 3-year goal, under which the goal for each year simply adds to a total cumulative goal, thereby rewarding early achievement ofthe total goal and eliminating any need for a clawback provision.' Id. at 12. The AG also supports implementing a linear scale for incentive rewards over a broader achievement range-particularly with regard to expanding the high end oftherange. Id. at 12-13. TheAG contends thatthere is no needtoincrease the incentive caps or to increase the proportion of shared savings available for incentives because the current levels have been sufficient to incentivize significant program expansion. Id. at 13. The AG further states that, because LCFC in practice includes variable costs, itfunctions as an additional incentive. !d. at 13. AOG finds the AG's position favoring a higher range for rewarding utility performance, but opposing

an increase in incentive caps or shared**savings~** to beinconsistent. AOG Reply at 7. Ruling Regarding the Utility Performance Incentive The Commission accepts the recommendations ofthe JCP to retain an annual goal and incentive structure in order to avoid unnecessary complexity.7 The Commission accepts thewidespread agreementthattheincentive shouldbe awarded on

6 TheAG does not specifyhow, orwhetherpartial performancewithin eachyearwould berewarded. 1 The Commission notes that, in evaluating CenterPoint programs, Cadmus suggested that utilities currently have no incentive to over-perform in a single year, leading to mid-year shutdown of some programs and loss ofprogram momentum. Cadmus recommended allovving over-performance in a single year to becredited to the subsequent program year goal. CenterPointAnnual Report, AppendixA at3-5.Docket Nos. 13-002-U Order No.7 Page29 of91

a linearratherthan stepwisebasis, andthattherangefor award shouldnot reachbelow So% of performance, and that the upper end of the range should be extended. The Commissionretainsits originalproposalto settheupperend oftheperformancezone at 120%; to cap theincentive at the sliding scalebetween 4% and S% ofprogram budgets (such thatthe incentive is capped at 4% ofbudgets for So% achievement; s% for go% 

### achievement; 6% 

### for 100% 

### achievement; 7% 

### for no% 

### achievement; and 8% 

### for 120% achievement); and to limit shared savings to 10% of net benefits, in recognition of AEEC/AGC's argument that performance incentives themselves need not and should notbecome a majorshareofEE programbudgets. Issue4: UtilityAvoided Costs. The JCP generally agree with the majority ofthe Commission's proposals related to the determination of utility avoided costs. JCP at 16. The JCP observe that the proposals leave sufficient opportonity for utilities to account for differences in their 

### individual circumstances regarding utility-specific avoided generation capacity, energy, andtransmission and distribution ("T&D") costs. Id. Regarding avoided energy costs, theJCP agree thatthey should includethevalue ofenergy freed by EE programs and sold into the wholesale market or avoided market purchases. Id. at 17. The JCP also agree that utilities should differentiate avoided energy costs by time and season so as to facilitate the valuation of individual EE 

### programs, or individual measures, ifthe measure forms asignificant portion ofportfolio energysavings. Id. Regarding avoided capacity costs, the JCP agree that they may appropriately be based on the cost of a combustion turbine ("CT" or "peaking unit"), as modified toDocket Nos.1g-oo2-U OrderNo.7 Page go of91 account for market conditions, and as applied to years in which the utility or relevant market area is not in surplus for capacity. Id. at 18. The JCP note that it may be necessary and appropriate to use CT-based values as a proxy ifmarket based values are not available. Id. The JCP support the avoided capacity calculations based either on actual prices that are escalated, or on modeling that is based on available market data, taking into account any significant, foreseeable changes to marginal capacity costs due to environmental controls. Id. The JCP note, however, thatspecific values may notbe readily available in the latter case, and thatthe JCP do not expect thatthe cost ofnonpeakingresources will bebroughttothemargin or avoided duringtheplanninghorizon. Id. Regarding the economic valuation of capacity costs over time, the JCP support adoption ofa Real Economic Carrying Charge ("RECC," described more fully below) to annualize thevalue ofavoided capacity savings, tothe extentthat a utilityuses a CT as a proxy for avoided capacity costs. Id. at 19. The JCP observe, however, that a utility using market prices will not have a levelized capacity price or a smooth escalation of costs. Id. Regarding transmission and distribution ("T&D") costs, the JCP support the proposal that each utility should develop avoided T&D costs, but question whether specific costs for these categories can be determined, and observe that the calculation may involve more utility-specific data than is appropriate for the purpose. Id. at 19. Regarding the value of line losses, the JCP support the proposal to require that EE avoided costs should reflect marginal, ratherthan average, avoided line losses, although in some cases specific avoided costs maybedifficultto accurately estimate. Id. at 19-2.0.Docket Nos. 13-002-U Order No.7 Page 31 of91 Regarding carbon pricing, the JCP are not unified, with contention surrounding the Commission proposal to develop a common assumption (per unit) for C02 compliance costs. Id. at 20. The JCP state that agreement is possible only if the

common C02 cost is used solely for evaluating EE programs, without implied endorsement by the utility, and not for broader planning purposes. The JCP seek further time to develop consensus on this subject. Id. The JCP seek further time to consider this issue, but observe that the U. S. Energy Information Agency's ("EIA's") 

### Annual Energy Assessment includes a credible, readily-accessible, cost-free estimate that may be useful. The JCP note that market prices for energy and capacity may include implicit estimates for carbon prices, and that a distinction may be drawn between projected C02 compliance costs (i.e., EPA compliance) and broader C02 damage costs (i.e., healthimpacts). Id. at 21. EAI expresses general support for many ofthe Commission's proposed avoided cost guidelines, but is concerned that some elements would require "wholesale revisions" to EAI's current process for calculating avoided costs. EAI at 10. EAI states that it currently relies on proxies for market based costs for avoided capacity, energy, and T&D which are consistent with the Commission's proposals to use timedifferentiated costs, and to integrate avoided energy, capacity and T&D costs. Id. EAI

uses a levelized avoided capacity cost, rather than a RECC, because it views EE as a long-term investment and assumes that a customer would install a measure as efficient as, or more efficient than, the EE program installed measure at the end ofthemeasure's life. !d. at 10-11. EAI statesthat a RECC approach would count onlythe earliest, lowestcost years ofEAI's long-term avoided costs, and is thus inconsistent with a long-termDocket Nos.1g-oo2-U OrderNo.7 Pageg2of91 view of EE. 

### Id. at 11. EAI references AG witness William Marcus's tabular representation of levelized vs. RECC avoided capacity values to argue that the RECC approach undervalues EE and takes a short-term view, because the value ofmeasures would be calculated starting from the date ofindividual measure installation, which is always inthe early, low-cost years ofthe cost curve. Id. at 14. EAI comments that this approach never realizes the full cost of avoided capacity because individual measures

neverhave a 

### life that equals that ofthe CT. Id. EAI also commentsthatthe RECC's use ofmeasure-specificlives is inconsistentwiththe Commission's focus onportfolio-based, rather than measure- or program-specific cost-benefit. Id. EAI warns that adoption of RECC methodology will drive the cost-effectiveness of comprehensive programs negative, eliminating whole-house or facility programs and leaving only a few commercially-available EE measuresfor deliverythrough standard-offer ormeasure-bymeasure discount approaches. EAI Reply at g. EAI warns that this decision will, in tum, affect target-setting. 

### I d. EAI notes that no partyprovides an example ofhowthe RECC hasbeen appliedelsewhere, andthatitis thus nota demonstrated "bestpractice." Id. at 11-12. EA1 views the Commission's proposals to include non-peaking resources when they are brought to the margin, or transmission substation and line upgrade costs, as laudable goals if they increase accuracy, but cautions that such estimates are too granular, andpotentiallyimpossibleto determine. 

### I d. at 12. EAI comments that avoided costs usedfor EE program screening and evaluation shouldbeutility-specific andthatusingthe same avoided costs across utilities wouldbe inconsistent with the IRP Guidelines, and would lead to inconsistent assumptionsDocket Nos. 13-002-U OrderNo.7 Pagegg of91 within a utility's IRP. Id. at 11 and 15. AEEC/AGC agree with this comment. AEEC/ AGC Reply at 15. EAI also does not agree that the PWC could or should reach

consensus on a single C02 compliance costforecast. EAI at 15. AEEC/AGC note that avoided cost determination is inherently uncertain and should be pursued conservatively by incorporating only costs that are known and measurable, or estimated with reasonable accuracy. AEEC/ AGC at 6. AEECJ AGC support the use of market-based, hourly and seasonally differentiated avoided energy costs that are, to the extent possible, estimated using production cost models using the most up-to-date energypricing data. !d. at 6-7. For capacity costs, AEEC/ AGC support theuse ofthelevelized cost of a 

### cr, as adjusted for current market prices and need for capacity. Id. at 7· AEEC/AGC are concerned that T&D avoided costs are difficult to reasonably estimate, but agree that they are appropriately included to the extent they

can be identified and estimated with reasonable certainty. Id. AEEC/ AGC support the

use ofmarginal line losses. Id. at 8. AEEC/AGC state that, until carbon prices and compliance costs for otherfuture environmental regulations are known and measurable, their inclusion in determining avoided costs are purely speculative and would likely overstate market prices and EE program benefits, increasing cost risks for consumers. I

d. Sierra Club supports the Commission's proposed refinements of avoided costs. Sierra Club at 4. Sierra Club agrees with the Commission proposal that properlyconducted production modeling may incorporate environmental costs into energy costs, but cautions that such modeling must incorporate likely future environmental regulations such as strengthened wastewater discharge standards, disposalDocket Nos.1g-oo2-U OrderNo.7 Pageg4of91 

### requirements for coal combustion residuals, and more protective air quality standards, in order to avoid nuder-estimating EE benefits. Id. Sierra Club also suggests that agreement by the PWC on avoided carbon costs would be more likely with the involvement of an independent facilitator. Id. at 

## s. Sierra Club suggests that existing transmission planning documentation should provide a reasonable basis to develop avoided T&D costs, and notes that recent proceedings concerning theproposed retrofit of the Flint Creek power plant (Docket No. 12-008-U) demonstrate that very small increasesinpeakload mayresultinlarge utilityinvestments. !d. Audubon agrees that a market-based, time- and seasonally-differentiated approach to determining avoided energy costs is appropriate and environmental compliance costs shouldbeincluded. Audubon at

## s. Audubon supportsthe adoption of

a reasonable third-party forecast of carbon compliance costs to be fixed for the threeyear program cycle, and as developed through PWC review of the relevant literature. Id. at 

## s-6. Audubon supports market-based avoided capacity costs, or a proxy valued under the RECC method. !d. at 6. Audubon states that long-run marginal utility T&D



### can serve as areasonable basis for the determination ofavoided costs, and supports the

use ofmarginal linelosses. !d. The AG generally agrees with the Commission's proposals to bring some standardizationto the methods for estimating energy, capacity, T&D, marginal line loss, and carbon-related avoided costs, because better avoided cost estimates will lead to appropriate sizing ofprograms and will increase ratepayer benefits. AG at 14-17. The AG specifically agrees with theJCP thatmarketprices, where available, are preferableto proxies and that either method should be adjusted if necessary to incorporateDocket Nos. 13-002-U OrderNo.7 Page 35 of91 foreseeable changes in price or cost. 

### Id. at 15. The AG also agrees with the JCP that accurately estimating avoided T&D costs can beproblematic because itis difficult draw

a linkagebetween aggregate efficiency measures and specific avoided infrastructure. Id. Regarding avoided carbon regulatory costs, the AG notes that market prices, if used, may include avoided carbon coststhatshouldnotbeduplicated. Id. at 16-17. Regarding the RECC (which was originally proposedbytheAG), theAG indicates that, in general, thelowest-available cost to supply capacity within a marketwill be less than the cost ofmarket entry (i.e., building a new CT). AG at 5. Also, he states that, when the value of a CT is used as a proxy for avoided capacity costs, it is more appropriate to say that a short-lived EE measure defers that cost during the life ofthe

measure ratherthan avoids it. AG at 5. Further, atthe end ofan EE measure's life, the efficiency of any replacement measure should be measured against the baseline for efficiency atthatfuture time, according to theAG, and cannotbe assumedto exceed the

newbaseline by an amount equivalentto the original measure. AG at 6. In accordance with these observations, the AG argues that a RECC method, which estimates the value ofdeferred capacity as an escalating annual carrying charge, more accurately annualizes the value of deferring capacity during the specific life ofthe EE measure in question, allocating less value to short-term deferral and more value to long-lived measures. Id. at 6-7. Regarding incorporation ofTRC results within IRPs, the AG states thatit is not 

### unreasonable to use different, appropriate approaches and assumptions for comparisonsbetween demand- and supply-sideresources. AG Reply at7· TheAG disagrees, however, with the proposal to freeze avoided costs during the three-year EE program cycle, and advances thefollowing arguments: (1) while all futureDocket Nos.1g-oo2-U OrderNo.7 Pageg6 of91 estimates will be wrong, the accuracy of estimating avoided costs for the next year improves as theyear gets nearer: avoided cost estimates for 2017 will be more accurate in 2016 than they were in 2014 (I d. at 17); (2) prudentutility operators must take into account changing market prices in managing generation, and ratepayers are similarly best served ifEE program administers are required to manage using thebest and most current available information (Id. at 17-18); and (3) the increased accuracy sought by the Commission through standardizing components ofavoided costs such as line losses andT&D will likelybe outweighed by theinaccuracy generatedbyfreezing avoided cost for three years (I d. at 18-19). AEEC/ AGC concurs with the AG on this point, favoring annualupdatesto EE avoided costs. AEEC/ AGC Reply at 15. AOG responds, regarding freezing avoided costs, that the avoided cost for a natural gas utility is the commodity cost ofgas, which is set bythe market. AOG Reply at 9· AOG states thatfreezing avoided costs during an EE program cycle is reasonable because the utility cannot control the fact that an EE portfolio submitted in year 1 can result in dramatically different TRC test results inyear 3, introducing significant riskto the utility thatitwill not earn an incentive. Id. at 9-10. AOG also notes that there are practical barriers to making changes to an EE portfolio because program changes take timetoplanandimplement. 

### Id. at 10. AAEA statesthat, while the PWC notesthatmarketpricesfor capacity and energy may include implicit estimates for carbon prices, carbon price estimates should include both direct regulatory costs and indirect costs such as property damage and healthDocketNos. 13-oo2-U Order No.7 Page37 of91 impacts. AAEA 3·s AAEA performed modeling to estimate direct and indirect lifecycle emissions costs, which it offers for considerationbythe PWC. Id. at 3-8. AAEA reports that 14 state ntility commissions attemptedto establish reliable avoided-cost metricsfor carbon costs as early as 2008, and that six New England states have assigned avoided carbon costs for energy and capacity from 2005 through 2030 on a levelized basis. 

### I d. at 9-10. AAEA points to the U. S. DOE Annual Energy Outlook as another potential

source of carbon cost estimates. Id. at 11. AAEA notes that, in recent Massachusetts estimates, carbon costs comprised a sizeablepartoftotal avoided costs. Id. at 12. The AG replies to AAEA that the states cited by AAEA appear to have been very successful at saving energy, butthat nearly all have seen prices for electricity rise since the year 2000 at a faster rate thanArkansas. AG Reply at 8. The AG does not assert a causal link between EE program success and higher prices, but does suggest that aggressive EE programs may not help to keep rates low. Id. at 8-9. AEEC/AGC similarly caution against modeling Arkansas EE program policies onjurisdictions with highrates. AEEC/ AGC Reply at4· While Staffsupports the PWC positions regarding avoided cost, Staffalso agrees with EAI that a levelized cost ofa proXY CT is a reasonable approach, andthatthe RECC approach may not be appropriate with determining long-term avoided capacity costs. Staff Reply at 5. Staff also agrees with EAI that each utility will have utility-specific avoided costs forplanningpurposes, includingutility-specific carbon costs. Id.

sWhile AAEA agrees with the Commission proposal and with the JCP that carbon regulatory costs should be inc1uded within utility avoided costs, the Commission notes thatAAEA's comments regarding avoided indirect costs could be inc1uded in the discussion ofNEBs, below. In order to preserveAAEA's integrated discussion, the Commission summarizes ithere.Ruling Regarding UtilityAvoided Costs Docket Nos. 13-002-U OrderNo.7 Page38 of91

The Commission accepts the JCP's recommendations (which were largely uncontroversial among parties) regarding the quantification of avoided energy and capacity costs. As recommended by the JCP, avoided energy costs should include the value of energy freed by EE programs and sold into the wholesale market or avoided market purchases, and avoided energy costs shouldbedifferentiatedbytime and season

so asto facilitate thevaluation ofindividual EE programs, or individual measures, ifthe

measure forms a sigoificant portion ofportfolio energy savings. Avoided capacity costs may bebased on the cost ofa combustion turbine ("CT" or "peaking unit"), as modified to account for market conditions, and as applied toyears in which the utility or relevant market area is not in surplus for capacity. Avoided capacity costs also may bebased on available market data, taking into account any sigoificant, foreseeable changes to marginal capacity costs, including any such foreseeable changes due to major investments such as environmental controls. The JCP and the AG, argoe persuasively that, when the cost ofbuilding a CT is used as a proxy for avoided capacity costs, the RECC is a more accurate reflection ofthe annual value of capacity deferral. One cannot assume that short-lived EE program

measures will later be replaced by measures that equally exceed future efficiency baselines. Adoption of a RECC approach also is in aligoment with the Commission's original intent to promote long-lived measures by adopting a shared savings mechanism. The Commission adopts its proposed goidance, accepted by the JCP and others, regarding T&D avoidance, heeding the recommendation by Audubon that long-runDocket Nos. 13-002-U OrderNo.7 Pagegg ofg1 marginal utility T&D can serve as a reasonable basis for the determination of avoided costs, and the numerous cautionary comments that proving specificT&D avoidance may be unreasonably difficult. The Commission adopts the use of marginal, rather than average line losses, which is unopposed by any party, to quantify EE's incremental effects. With regard to the estimated cost of compliance with carbon regulation, the Commission accepts the JCP's recommendation to allow time for and accept for consideration a collaboratively-considered, reasonable third-party estimate that would beused solely for evaluating EE programs, without implied endorsement bythe utility, and not for broader planning purposes. The Commission directs utilities and Staff, and requests the PWC more generally, to recommend a price for carbon regulatory cost avoidance as part ofthe EE Potential Study RFP submission. Ifthe PWC are unable to reach consensus at thattime, parties maymakejoint or individual recommendations for the selection by the Commission. The Commission accepts EAI's argument that each utility will have individualized avoided costs, including individualized forecasts of carbon compliance costs. Establishing a common assumption for the unit cost of carbon, however, brings reasonable uniformity and cost-comparabilityto the evaluation ofEE resources across utilities, while preserving theflexibility (as the JCP suggest) for potentially widely-ranging, individualized overall carbon cost impacts on each utility's

resource portfolio. The Commission retains theflexibility to take into account credible evidence that market prices for energy and capacity include implicit estimates for carbon prices. The Commission also acknowledges the distinction between projectedDocket Nos. 13-002-U OrderNo.7 Pagc4o of91 C02 compliance costs (i.e., EPA compliance) andbroader C02 damage costs (i.e., health impacts), which are moreproperly addressed as societal NEBs. The Commission also accepts the JCP's recommendation to fix avoided costs during the three-year program implementation period. While EE program managers must frequently and rapidly adjust to market conditions, it is the changing markets for

measure technologies, for consumer and contractor preferences and requirements, and for available delivery strategies, rather than fluctuating fuel and capacity prices (or forecasts of prices) that most require nimbleness in the pursuit of a long-term, incremental resource strategy. Given that nearly all portfolios submitted and approved to date remained cost effective through implementation under the TRC test, and even

more so under the Program Administrator Cost ("PACT") test, allowing managers to focus onthefactors theycan most profitably control will create a better linkagebetween performance andreward Issue 

## s: Cost-Effectiveness Screening and Evaluation and Non-Energy Benefits C'NEBs") The JCP support the Commission's proposal to include appropriate, reasonably quantifiable NEBs in program screening and evaluation because EE programs may provide NEBs in addition to currently-evaluated energy savings. 

### Id. at 21-22. The JCP do not, however, completely agree on which NEBs should be included and what values theyshouldbegiven, andseekfurthertimeto form agreement. Id. at 22 and23. The JCP also favor the continued primary reliance on the TRC test with the inclusion ofcollaboratively-developed NEBs, rather than a shift towards reliance on the PACT test. 

### Id. at 22. The JCP recommend thatthe same test be used in planning and evaluation of individual measures, programs, and program portfolios, and that theDocket Nos.1g-oo2-U OrderNo.7 Pagc41 of91 Commission continue to require thepresentation ofall four standard cost-effectiveness tests, considering each as appropriate. Id. at 23. Particularly, theJCP recommendthat the Commission retain the flexibility to include individual education, training and marketing programs that may not pass TRC within overall program portfolios that are cost-effective. Id. at 23-24. The JCP agree with the Commission that NEBs may fall into three categories: benefits to the utility, benefits to customers, and benefits to society not captured in utility or customer NEBs. Id. Noting the Commission's suggestion that parties could review the literature on the comfort and health benefits of weatherization and recommend reasonably quantifiable, significant NEBs for inclusion in program screening, the JCP agree and recommend thatthe parties should work to develop such 

### recommendations. Id. EAI generally agrees with the PWC regarding NEBs, but believes NEBs should only be included when they are quantifiable and material. Id. EAI believes that the statutory requirement that EE programs mnst be beneficial to both utility ratepayers and the utility itselfmay limit the Commission's authority to take NEBs into account Id. EAI supports reliance on the TRC test without NEBs as the most appropriate approach, butnotes thatthe current C&EE Rnles are flexible enoughto allow a utilityto present the Commission with Societal Test or other cost benefit analysis that includes NEBs. Id. at 16. EAI agrees with theJCP thatthe same cost-benefit tests that are used for program screening and approval should be used throughout the EE evaluation and 

### reviewprocess. I d.Docket Nos.13-002-U OrderNo.7 Page42of91 AEEC/ AGC urges the Commission to focus primarily upon the RIM test in screening EE programs. AEEC/ AGC at 8. AEEC/ AGC emphasizes thatthe majority of ratepayers are non-participants in EE programs, and thatthe RIM test is the only test that capturesthe shift in costs among ratepayers causedbyEE program LCFC. !d. at 9· AEEC/ AGC recommends that the Commission require EE programs to pass the RIM test. !d. at 10. AEEC/ AGC states that utilities may in certain instances not include utility performance incentives within RIM test resuits, and urge the Commission to establish by rule the standard components of each test. Id. AEEC/AGC opposes inclusion of health and environmental externalities in EE program cost evaluation, noting that such benefits may not accrue to ratepayers who pay all EE program costs. Id. at 10-11. AEEC/AGC argues that Arkansas law requires that EE programs benefit ratepayers, while the law of other states such as California and Massachusetts is "in direct conflict" with this mandate, providing that EE is the highest-priority resource. AEEC/ AGC Reply at 19. As indicated above, AAEA favors inclusion of societal and customer NEBs, such

as indirect environmental damage and health effects from air emissions. AAEA also indicatesthatits computer modelinghastheabilityto estimate dollar savings for certain NEBs related to societal issues and economic development amenities such as lower taxes and improvedbusiness competitiveness. AAEA at 23-24. Sierra Club supports continued reliance on the TRC test for program screening rather than PACT, because only the former reflects customer impacts. Sierra at 7· However, at the portfolio level, Sierra Club supports use ofthe PACT test as the bestDocket Nos. 13-002-U OrderNo.7 Page43 of91 indication ofpotential customer bill impacts, aud to provide consistency in comparing demand- aud supply-sideresources. Id. at7-8. Sierra Club supports inclusion ofNEBs within theTRC on thebasis thatthe test is distorted ifit includes all costs, but not key benefits. Id. at 6. Sierra Club suggests that it is penny-wise and pound-foolish to forego quantifying the more complicated NEBs, since the ultimatebenefit realized through program implementation may greatly outweigh administrative costs of estimation. Id. Sierra Club indicates that Arkansas

can draw on thework ofstatesthatalready quantify certainNEBs, orfollowthe example of other states that employ adders to account for hard-to-quantify NEBs. Id. at 6-7. (CenterPoint believes that Sierra's suggestion 

### to use au "adder" to reduce NEB estimation costs may have merit. CenterPoint Reply at 4.) Sierra Club states that inclusion ofNEBs within TRC does notconflictwithresourceplanning guidelines, as the PACTis thepropertestfor comparing resources inthatcontext. Sierra Club Reply at4. Audubon supports program screening through the TRC test, aud not the PACT test, because TRC is designed to account for net impacts on all resource costs, and because PACT does not account for costs aud benefits ofprogramparticipation that do not impactutilityrevenue requirements. Id. at 9-10. Regarding NEBs, Audubon states that, because EE investments do not serve thepublic interest ifthey do not decrease the cost of end-use service, program administrators should include only those NEBs that

can be quantified with a level of confidence commensurate with primary program benefits such as avoided energy costs. Audubon at 6-7. Audubon therefore recommends that auy included NEB must (1) be well-defined in terms of measurably reducing scarce resources; (2) have a quantifiable economic value; aud (3) be clearlyDocket Nos. 13M002MU Order No.7 Page44 ofg1 applicable to the specific program ormeasure atissue. Id. at7· Audubon recommends that the use ofgeneric "adders" should be avoided and that NEBs should be subject to the same EM&V standards and review as electric and gas energy savings. 

### I d. Audubon offersthefollowing examples ofwell-defined, quantifiable NEBs:

a. avoidedfuel costs (e.g., propane, oil, kerosene, wood, coal); b. avoided water andsewer costs;

c. deferred equipment replacement costs for early-replacementmeasures; d. avoided equipment replacement costs for measures with longer useful lives; and

e. avoided equipmentrepair orrefurbishment costs (e.g., motorrewinding). Audubon at 7-8. Audubon also favors inclusion ofthe following NEBs ifthey are welldefined, quantifiable, and if their magnitude justifies the cost of assessment and verification viaArkansas EM&V impactevaluations:

a. Avoided utility transaction costs associated with improved bill payment and reduced customer service calls; b. Secondary space-conditioning benefits resulting in resource savings (such as reduced spaceheaterandfan use from infiltrationreduction);

c. Reduced labor or other inputs resulting from improved commercial space conditioning, lighting, and industrial processes; and d. Reducedwaste disposal costs resulting from processimprovements. Id. at 8. Audubon recommends critical review oftheliteratureregarding putativehealth benefits of weatherization and does not support exceptional treatment for NEBs associated with weatherization or other particular programs. Id. at 9· AudubonDocket Nos. 13-002-U OrderNo.7 Page45 of91 cautions that NEBs do not lend themselves to generic treatment and can vary significantly among customers participating in the same or similar programs, so that NEB policy should remain flexible. Id. Audubon allows, however, that consistent treatment ofNEBs within theTRM review process does providefor initial stipulation of documented values that are applicable to specific measures and programs, pending EM&V review, as warranted by the magnitude of the benefit and the cost of measurement andverification. Audubon Reply at5· ACAAA agrees with Audubon's recommendations regarding specification of NEBs where they can be readily quantified through EM&V, and opposes the use of generic adders. ACAAA Reply at 4· ACAAA, however, also recommends that, where values for other NEBs have been established through extensive research relied upon in jurisdictions that have implemented EE programs for many years, the PWC should review and adapt such research appropriately to Arkansas, for Commission approval. Id. 

### at4-s. The AG submits the following views regarding the four standard costeffectiveness tests, which utilities mustapplyunderthecurrent C&EE Rules: In practice the Participant Cost Test ("PCT") is nearly always the most positive and has little policy impact. AG at 6. The next-highest scoring test is usually the Program Administrator Cost Test ("PACT"), which includes avoided utility system supply costs and amounts paid to customers as EE measure incentives, but not LCFC, which the AG characterizes

as a weakness. Id at 6-7. PACT determines which system resources are cheapest from the utility's perspective, but it only addresses aggregate customer bill impacts, rather than impacts to specific customers, and thus fails to recognize potential non-participantDocket Nos.13-002-U OrderNo.7 Page46 ofg1 rate and bill increases. 

### I d. TRC tends to belower than PACT because it adds the total cost ofEE measures to theavoided utility supply costs, andsharesthesameweakness of viewing LCFC as a transferwithin system costs ratherthan an added cost. Id. at 8. The Ratepayer Impact Test ("RIM"), which alone includes LCFC, determines whether rates will increase and is often overlooked, in part because utility rates will increase even without EE programs. 

### Id. RIM results below 1 indicate that both rates and bills for non-participants will rise, and that for these non-participants, EE resources are more costlythansupply-sideresources. Id. at 8-9. The AG states that EE portfolios in Arkansas tend to pass PCT, PACT and TRC, indicatingthatparticipants and thesystem arebenefitting andthatutilities are choosing the cheapest supply options, butthatlack ofattention to RIM scores has given utilities little incentive to address rate impacts. 

### Id. at 9. The AG notes that, when customers install alternative resources, such as solar panels, improved insulation, or load control devices, they contribute system resources anditis not necessarilyunfairfor the share of supply resources paid by other customers to increase. AG Reply at 3· The AG emphasizes, however, that over-reliance on EE programs that do not pass RIM can rapidly increase rates. 

### Id. at 4· The AG provides the example that the revenue requirement for EAI's current EECR, at $63,086,302, is comparable to the $73,781,760 increase in base revenues approved in its last rate case, and has resulted in an increase from $0.23 per month to $3.55 per month for a typical customer since the inception of EE programs. Id. The AG estimatesthatEE programs have benefited some customers andprobablyproduced aggregate benefits, buthas notbenefited all customers. Id. The AG concludes that the TRC test is a reasonable way to gauge EE program costDocket Nos.13-002-U OrderNo.7 Page470f91 effectiveness and to calculate performance incentives, but thatthe Commission should consider mitigating non-participant impacts by including RIM net benefits within the shared savings calculation (while still giving TRC greater weight) or by setting less aggressive goals, which shouldbebasedon a potential study. AG at 13; AG Reply at4-5. The AG contends that only quantifiable utility-perspective NEBs-such as avoided baddebt, avoided arrearages, and avoided customer service are appropriate for inclusion in a modified TRC test, because TRC is intended to estimate benefits to the system. AG at 19. According to the AG, any NEBs included within a cost-effectiveness test should be those that take the perspective of the particular test-i.e., customerperspective NEBs should beincluded inthe ParticipantTest, and societal NEBs should be included in the Societal Test, but neither customer nor societal NEBs should be included withintheTRC test. Id. at 19-20. Particularly, customerNEBs are a benefitto individual customers, and not the system 

### as a whole. 

### I d. at 20. CenterPoint states that the AG's suggestion to include RIM net benefits within the shared savings calculation should be "summarily rejected" onthebasis that few EE programs pass the RIM test and that it would thus reduce utility incentives for factors beyondtheircontrol. CenterPointReply at3. SierraClub statesthatitis sensitivetothe non-participant rate impacts highlighted by the AG, but suggests that they can be miulmized by requiring programs to pass the PACT test, or by giving preference to portfolios thatincludeprogramswithbetter RIM testscores. SierraClub Reply at 2. Sierra Club and ACAAA disagree with the AG's statement that TRC assesses "benefits to the system," encompassing "benefits to the utility," arguing instead that it addresses all costs and benefits to the utility and to customers. Sierra Club Reply at 3;Docket Nos. 13-002-U OrderNo.7 Page48 of91 ACAAA Reply at 3. ACAAA argues thatthe AG's concern that NEB inclusion may raise rates or exacerbate non-participant cost shifting is misplacedbecause inclusion ofNEBS influences how EE budgets are allocated, butnotthe size ofthebudgets. ACAAA Reply at3. ACAAA statesinsteadthatthe Commission sets overall EE budgets. Id. Audubon, in comments echoed by ACAAA, rejects suggestions by the AG and Sierra Club that RIM test results should be incorporated into program screening or shared savings. Audubon Reply at 1-2. Audubon comments that the outcome ofthe RIM test is intrinsically determined by utility cost allocation and rate desigu, and that the same measure with identical cost, energy savings and avoided cost can pass or fail the RIM test depending on which utility administers the program or even on the participant rate class within the same utility. 

### Id. at 2. Audubon adds that an energy saving measure with zero total resource implementation cost will fail the RIM test ifthe resulting reduced customer payment for energy is less than the avoided cost of supplying and delivering the energy (i.e., ifmarginal rates exceed marginal costs). 

### Id. AOG adds on this pointthat, for natural gas utilities, theretail ratewill always behigher thanthe avoided costfor a gas utility. AOG Reply at 9· Audubon further asserts that a negative RIM score indicates the amount that utility revenue must increase to maintain revenue requirements, but that it is independent ofthe mechanism for recovering the shortfall in fixed cost recovery, which might include ratepayers (including program participants), shareholders, or a combination of the two. 

### Id. A program that fails RIM will do so regardless of the magnitude of any subsequent rate increase, according to Audubon. 

### Id. Audubon further notes that a customer who implements their own efficiencies outside ofutilityDocket Nos. 13-002-U Order No.7 Page49 of91 EE programs causes a similar revenue reduction and potential rate impact on other customers. Id. Audubon suggests that utilities should be encouraged to aggressively promote the broad distribution of such customer benefits, thereby transforming markets so that, over time, installation of efficient equipment becomes standard and

even non-participants benefit. Id. at 3-4. Audubon argues that use ofthe RIM test for program screening will preclude orlimitthe attainment ofsuchbenefits, and statesthat the AG's concerns are best addressed through implementing a broad EE program portfolio that makes cost-reduction available to all ratepayers through broad participation. Id. Audubon also takes issue with the AG's recommendation to include customer perspective NEBs within the

## Per, butnotwithinTRC. Audubon Reply at

## s. According to Audubon, the 

### California Standard Practice Manual adopted by the Commission provides fortheinclusion ofthesameparticipant avoided costs for alternatefuel devices

as a benefit in both the

## Per andTRC tests. Id. Audubon sees no sound economicbasis to exclude any quantifiable energy ornon-energy cost savings fromTRC. Id. at 6. In response to the AG's recommendation to lower costs by including RIM test results within net benefits, AOG indicates that LCFC and incentives totaled less than 10% ofprogram costs in 2012, andthatthepractical impact ofrelying on RIM wouidbe to significantlydecreaseEE programs andenergy savings inArkansas. AOG at8-9. Staffresponds to suggestionsthatthe Commission give greaterweight tothe RIM test by recommending that the Commission continue to require submission ofall tests, and continue to rely on TRC as the primary cost-effectiveness test. Staff Reply at 3.Docket Nos. 13-002-U Order No.7 Page so of91 Staffstatesthat NEBs shouldbeincluded ouly whenthey are quantifiable, material, and relevanttothespecific program orportfolio. StaffReply at 6. Ruling Regarding Cost-Effectiveness Screening and Evaluation and NEBs The Commission accepts JCP's recommendation to rely primarily on TRC with the inclusion of collaboratively-developed NEBs, for the screening of programs and portfolios rather than shift toward reliance on PAGr. The Commission accepts the recommendation of JCP that the same test be used in planulng and evaluation of individual measures, programs, and program portfolios, and that the Commission continue to require the presentation of all four standard cost-effectiveness tests, considering each as appropriate. The Commission thus retains the flexibility to include individual education, traiulng and marketing programs that may not pass TRC within overall program portfoliosthatare cost effective. The Commission declines to systematicallyincreasetheweight ofthe RlMtest, or to insert it into utility performance incentive calculations for EE programs. The Commission declined to use the RlM test as the primary means of screening EE programsin Order No. 12ofDocket No. o6-004-R.9 Regarding the use of the RlM test for utility performance incentives, the Commission credits Audubon1s careful reasoning regarding the precise information regarding theoretical rate impacts thatis producedbythe RlM test. Programs should notbe developed andplanned on a basiswhich is intrinsically determinedbyutility cost allocation and rate design, rather than by comparing the total costs and benefits of

9 The Commission there found that various beneficial supply-side investments, such as tree trimming, would fail the RIM test, and that, with proper program planning and over time, all ratepayers will benefit from programs approved after consideration of all of the standard tests. Order No. 12, Docket No. 06- 004-Rat 32.Docket Nos. 13-002-U OrderNo.7 Page 51 of91 alternativeresources. Nor shouldprogramsthat save natural gas beexcluded whenever (as AOG claims) theretail rate is higherthan the avoided costfor a gas utility. TRC has the primarypurpose ofcomparingtotal resource costs, and is thebettertest to evaluate overall program cost-effectiveness and performance. Furthermore, as ACAAA notes, while cost-effectiveness tests are used to screen programs, they do not dictate program budgets, which are instead proposed by program administrators and approved by the Commission. The Commission, however, appreciatesthe concerns oftheAG and ofAEEC/ AGC regarding RIM scores and rate impacts, which become more salient as EE portfolios reach scale. As in all ratemaking matters, the Commission seeks to maximize the value of ratepayer funds invested, and to minimize overall ratepayer impact. The evidence that the largest EE program portfolio-that of EAI-can achieve a neutral RIM score (0.98, as detailed above) in significant partthrough the first-year implementation of a residential load control program is one indication that portfolio composition can reasonably address RIM test cost-effectiveness. The !EM's recommendations for crossfuel coordination and for program improvements also explicitly aim to yield cost-saving efficiencies. Improved datatracking also should enable Parties and the Commission to understand whether and to what degree EE programs, over time, are leading to lower bills not only for participating ratepayers and for ratepayers in the aggregate, but also for the majority ofratepayers. The one-year extension ofcurrent EE programs and the Potential Study provide an opportunity for all stakeholders to carefully consider and to develop strategies on ongoing practicesthat maximize thevalue ofratepayer investment and mitigateratepayerimpactsrelatedto EE portfolios.DocketNos. 13M002-U Order No.7 Page 52 of91 Further, with regard to AEEC/AGC's concerns regarding program cost and costeffectiveness, the $334/MWh average energy savings cost cited by AEEC/ AGC may conflate first-year EE program savings with program lifecycle savings.'0 The $334/MWh average savings cost cited represents total program costs divided by firstyear savings, and notsavings over thelifecycle oftheprogram; itthus greatly overstates the lifecycle cost of energy saved. Similarly, AEEC/ AGC's summary of EAI's achievement (0.2.8% of retail sales over four years) appears to omit the persistence of any savings from year to year, greatly understating the impact ofthe ongoing program portfolio. The Commission accepts JCP's proposal to review the literature on the comfort and health benefits of weatherization and to seek consensus on any recommended, reasonably quantifiable, significant NEBs for inclusion in progmm screening. The Commission also accepts Audubon's well-reasoned guidelines for NEB consideration and inclusion, with some modification: Audubon recommends the inclusion of only those NEBs that can be quantified with a level of confidence commensurate with primary program benefits such as avoided energy costs. Audubon also recommends thatNEBs shouldbewell-defined interms ofmeasurablyreducing scarce resources; (2) have a quantifiable economicvalue; and (g) beclearly applicable to thespecific program

or measure at issue. The Commission's modification ofthe Audubon guidelines is that

some NEBs should be quantified because they add value or reduce costs, rather than because they reduce the use of scarce resources. 

### Also, while Audubon cautions that weatherization should not receive special treatment, the JCP's proposal to seek

10 The Commission accepts this number for purposes ofdiscussion only, without exploring whether it is appropriately weighted for the different amounts ofprogram savings in different years, whether it takes into account capacity avoided, orwhether it is otherwise appropriatelypresented.DocketNos. 13-002-U Order No.7 Page 53 ofg1

consensus on any reasonably quantifiable, significant NEBs specific to weatherization need not vary from Audubon's recommendation that NEBs should be well-defined, quantifiable, and specifictotheprogram atissue. To address concerns by AEEC/ AGC, EAI, the AG and others that inclusion of NEBs may require ratepayers to fund non-utility service, the Commission clarifies that any inclusion of customer NEBs within the TRC is intended to make the primary program and portfolio screening tool accurately assess the available EE resource. The Commission intends that, at the measure incentive level, ratepayer incentives to customers, and thus the ratepayer resources spent to achieve EE savings, would remain constrained by utility system avoided costs (i.e., by PACT analysis, which might properly include utility NEBs, butnot customer NEBs). ATRC test properly including NEBs will therefore give program administrators a broader range ofEE measures and programsfrom which to select, theoretically enabling lower cost or morecomprehensive services; but it will not entail customer incentive spending to subsidize individual customer NEBs. At the portfolio level, the concern can be met by ensuring that EE program portfolios pass both TRC and PACT tests. In this way, both programs and portfolios will remain cost effective as compared to alternative resources, while retaining the flexibility to include auxiliary programs such as training and education, or programs aimed at ensuringthat all ratepayers have access to EE services.n The Commission does not specify, as mentionedbyJCP, thatindividual measures should pass the TRC test, in order to allow for the possibility that combinations of

measures might reasonably be part of a program that passes TRC. Regarding the

nOG&E's window air-conditionerprogram or EAI's mobile home efficiency program might be examples.Docket Nos. 13-002-U OrderNo.7 Page 54 of91 Societal Test (which includes societal NEBs), current C&EE rules allow, and the Commission continuesto accept, voluntaryutility submission ofthe SocietalTestfor the Commission,s consideration in approving EE programs and portfolios. Issue 6: Process andTasks for Continuous Program Improvement Order No. 1proposedthatutilities andother stakeholders should collaborate over the next program cycle to develop core EE programs for each rate class that, insofar as possible, have standardized, transparent features to promote comparability across utilities, betterunderstanding and participation by customers, contractors, vendors, and trade allies across the state, and increased administrative efficiency and cost savings. Order No. 1 at 39· The Commission acknowledged thevalue ofthePWC's collaborative development of proposed rules, ongoing management implementation issues, and role in creating and updating the deemed savings values, the TRM and its EM&V Protocols, and standards for administrative costs and Reporting Needs. Id. at 40. Order No. 1 proposed to build on these successes through an enhanced Continuous Program Improvement Collaborative ("CPI Collaborative") that, under the leadership of Staff, would select and engage a facilitator with extensive experience in the development of utility EE programs to manage collaborative resolution ofissues. Id. The Collaborative would take advantage ofexperttechnical assistance, facilitation and procedural reforms in order to facilitate stakeholder cooperation and Commission reliance on its results. The CPI Collaborative wonid includetheutilities, Staff, theAG, all partiesto this docket, and any other participantsthatthe Commission might deem appropriate. Procedurally, it would aim to reach consensus on each issue addressed, make a record ofits decisionsDocket Nos. 13-002-U OrderNo.7 Pagessof91 for reporting to the Commission, and provide for any dissenting reports to the Commission on issues notresolved bytheparties. Id. The Commission proposed that the CPI Collaborative would address ten substantive tasks, developing a core group of statewide EE programs." Id. at 41. The CPI Collaborative's consultant(s) would help identify and capture opportunities for program improvement and increased statewide coordination and standardization. The Commission proposed that the consultants and the facilitator selected should be independent ofthe utilities and other stakeholders, i.e., they should not have financial

or business interests with any ofthe stakeholders, and thatthey should be paid for by using a small portion ofthe total annual energy efficiency budgets, with costs allocated to all utilities usingthejoint-utilitycost allocation methods developedbytheutilities for the AWP, EEA, and EM&V programs. Id. at 42-43. According to the Commission proposal, the consultants should have demonstrated technical expertise in the design, planning, implementation, and improvement of EE programs and strong familiarity with best practices in those areas. The Commission stated its view that the CPI Collaborative should be the client of the consultants, who are expressly intended to perform tasks separate from the consultants and vendors used by the utilities and EE program administrators to design, implement, and evaluate their programs and

12 These tasks were (1) Standardizing and achieving efficiencies in the delivery of whole-house weatherization services; (2) Developingjoint-utility EE services offerings to national accounts customers; (3) Exploring an expanded role in EE planning and implementation for Arkansas Manufacturing Solutions ("AMSn) and the Arkansas Industrial Energy Clearinghouse ("AlEC"); (4) Increasing participation and achieving deeper energy and demand savings in the industrial sector; (5) Improving cost-effectiveness ofcommercial programs; (6) Making EE programs more consistent across the state; (7) Separating new construction EE programs from retrofit programs; (8) Strengthening EE program delivery methods in order to increase participation; (9) Improving planning assumptions so that EE plans better reflect likely savings, participation, and cost estimates and (10) Exploring creation of a statewide database.Docket Nos. 13-002-U OrderNo.7 Pages6 of91 separate from the EM&V responsibilities performed bythe !EM. Order No. 1 indicated thatthe Commission would establish a procedural schedule for the work to be done by the CPI Collaborative following its review of comments received in response to the proposal. Id. at 41-42. Finally, Order No. 1stated thatthe CPI Collaborative's mission shouldbeongoing, with annualreporting ofitsfindings andrecommendations. Id. The JCP respond that a new collaborative with a third-party facilitator is not needed andthatthe existing framework, includingthe EM&V activities and input ofthe !EM, effectively address the development and improvement ofEE programs and other issues. JCP at24. TheAG agrees with theJCP's comments. AG Initial at21. The JCP oppose creation ofa duplicate process with additional unnecessary costs and activities. Id. at 25. The JCP recommend instead that the Commission direct the PWC to engage third-party consultants as needed, or the PWC may request such authorization, including for issues such as program planning, financing, cross-company program coordination, and others. !d. at 25 and 33. The JCP present, for example, the PWC's requesttohire a consultantto conduct a Potential Study. Id. at 25. The JPC note that EM&V activities and planning activities are interrelated and should not be separated, and that NAPEE has similarly endorsed the concept that EM&V should provide a feedback loop for timely program enhancement. !d. at 25-26. The JCP indicate that that the PWC process is already addressing program standardization; program cost and NEB issues; incorporation of lessons learned to increase consistency, transparency, and comparability among programs; resolving differences among stakeholders; strengthening EE program delivery options to increase participation; and improving EE program planning assumptions to better reflect likelyDocket Nos. 13-002-U OrderNo.7 Page570f91 cost and energy savings per participant and expected participation. 

### Id. at 30-31. The JCP state that the current EM&V activities already support program consistency, transparency, and comparability across the state, while preserving the ability of individual utilities to design, propose, and implement EE programs that best fit their respective customers. 

### Id. at34. The JCP add thattheIOUs currentlysecuretheservices of experienced national and international consulting firms that develop, design and implement "bestin class" EE efforts. 

### I d. at33· While the JCP agree that consistency among IOU programs is desirable where possible, they indieate that program consistency is not achievable in all sectors ofthe Arkansas market and that it is not practical to offer completely uulform portfolios for each utility. 

### Id. The JCP note that many states that began mandating statewide programs subsequently modified this stance after realizing that customers are not homogeneous from one utility to another. Id. The JCP note thatthe IOUs continue to share best practices to promote program consistency, particularly in the area ofhome weatherization and energyservices. Id. at 34-35. EAI supportstheJCP's comments and assertsthattheutilities shouldcontinueto determine what programs they will offer totheir customers, subjectto the Commission,s approval, beeausetheutilities areultimatelyresponsible for achieving theEE goals. EAI Initial Comments at 17. Ifutilities lose control overtheirprograms, EAI statesthatthey shouldberelieved ofresponsibilityfor achieving results. 

### Id. at 19. EAI adds that a new, facilitated collaborative process may hamper the ability to adapt to real-time market changes, create market confusion by changing programs and requiring new training, conflict withthe Commission's Comprehensiveness Checklist (which requires, interalia,Docket Nos. 13-002-U OrderNo.7 PagesS of91 EE services for all major end-uses of electricity and natural gas), lower the costeffectiveness ofprograms administeredbyindividual utilities, and stifle innovation. Id. at 17-20. EAI notes that the program improvement proposals in Order No. 1 were issued at a timewhen only partial-year, PY 2011 results were available, andthatin 2012 EAI exceeded EE targets usingbestpracticeprogramsthat were planned in conjunction with world class consultants and expertlyimplemented. EAI at5 and 21. CenterPoint and Staffalso agreethat, whilethere is valueto program consistency,

a "one-size-fits-all'' approach to program standardization is "unlikely to be a workable model in the State ofArkansas." CenterPoint Reply at 5, StaffReply at7· CenterPoint statesthatthe degree ofstandardizationthatis appropriate in a rural statebears further discussion, particularly considering the waiver from C&EE Rules granted to rural electric cooperatives. CenterPoint Reply at

## s. Sierra Club states that the proposed enhanced stakeholder collaborative is an excellent way to achieve increased standardization and transparency in order to create economies of scale in program delivery. Sierra Club at 8. Sierra Club indicates that independent, neutral facilitation is important and has worked inArkansas and in other states. Id. Sierra Club cautions that, while it supports the creation of statewide, standardized programs, utilities need flexibility to meet unique service categories when theircustomershave very different needs. Id. at 9· Audubon notes thatthe success ofcollaboration ultimately depends on effective communication, consultation, and decision processes that promote a focused effort to achieve consensus on major issues and to advance the collaborative planning agenda toward the fulfillment of its stated objectives. Audubon adds that an experiencedDocket Nos. 13-002-U Order No.7 Page59 ofg1 facilitator can render critical assistance to organize andrnn effective meetings, facilitate group decisions, and create a record ofcollaborative deliberations and decisions

- all of which activities can constitute a continuous program improvement process inwhich the stakeholders andthe Commission can place their confidence. Audubon Initial at 10-12. Audubon replies to the JCP's concern that time and expense would be needed for a facilitator to become familiar with the unique characteristics ofArkansas EE program experience, asserting that the requirement of neutrality does not rule out the employment of a facilitator that has direct experience with the Arkansas EE issues. Audubon Reply at 7· Audubon maintains, however, that neutrality does prohibit the assignment ofsuch a role orresponsibilityto collaborative stakeholders, a partytothese proceedings, or others who have interests with any of the parties or stakeholders. Audubon accordingly proposes that a neutral third party facilitator with previous experience in Arkansas be considered as a qualified candidate to assume this responsibility, but that such experience should not be a prereqnisite for consideration. Id. See also Sierra Club Comments at 5, 8 andACAAA Reply Comments at 1-2. ACAAA agrees withJCP thatitis notnecessaryto fund a new collaborativetopromotestatewide consistency among EE programs and shares their concern regarding the cost and time needed to educate a facilitator unfamiliar with the Arkansas EE experience. ACAAA Reply at 1. ACAAA states thatthese views canbereconciled withAudubon's supportfor

an independentfacilitator andtechnical expertsbyrelying on a member ofCommission advisory staffto facilitate resolution oftheissuesproposedin Order No. 1. The advisory staff facilitator would propose agendas, organize meetings, facilitate consensus, and ultimately present a proposal on behalfofthe collaborative to the Commission withoutDocket Nos. 13-002-U OrderNo.7 Page 6o of91 divulging party negotiations or supporting the proposal with testimony. 

### Id. at 2. AEEC/ AGC is concerned that the CPI Collaborative would increase costs and recommends that any decision to implement a new collaborative should be deferred untilitsneedisfurther evaluated and cost-justified. AEEC/AGC at 11. Ruling on Procedurefor Continuous Program Improvement The Commission generally agrees with the JCP that a duplicative CPI Collaborative is not necessary to promote increased consistency,**coordination~** and standardization of EE programs. Further, as noted by EAI, PY 2012 program performance generally exceeded targets, and program administrators and EM&V evaluators are focusing on cross-utility and cross-fuel**coordination~** achievement of deeper savings, standardization of processes, improvement of data collection and participant**tracking~** and a host of other program improvement recommendations that overlap with many of the objectives outlined in Order No. 1. The Commission also acknowledges the JCP's summary of areas of overlap between the current PWC's activities and the proposals in Order No. 1, and EAI's suggestion that a new Commission-ordered process could disrupt progress onresolvingtheseissues. The record does not indicate, however, how the collaborative is operating with respect to the PWC's schedule, agendas, or methods ofbuilding consensus and maldng and/or recording and reporting decisions. For example, it is unclear to the Commission whether the A WP and otherweatherization issues discussed below are being addressed by thefull PWC orby a subgroup ofthe PWC, and whether the collaborative process is currently facilitated by Staff, the !EM, the A WP program administrator (the Central Arkansas Development Council, "CADC") or program coordinator (ACAAA). Moreover,DocketNos. 13M002-U Order No.7 Page 61 of91

no evidence was submitted regarding what procedures or practices guide the provision of notice for meetings, information gathering and sharing by parties, and issue discussion and resolution. The Commission is under the impression that the !EM currently serves as a convenerfor some purposes andthat Staffand/orACAAA does for others. The Commission also finds that certain issues such as cross-fuel coordination (particularly with regard to weatherization) and facilitation of uniform offerings for commercial customers-including national accounts customers-shouldbe addressed to the fullest extent possible prior to the initiation ofthe next program cycle, which was delayed in part to allow resolution ofthese issues. The Commission agrees that each utility needs flexibility to address customer segments and utility circumstances unique to itsterritory. The Commission also does notwish toburdenthe detailed, vital ongoing work ofthePWC with unnecessarybureaucracy. Reasonable uniformityin core programs, however-particularlyasthey appearto and affect customers and trade allies-need not conflict with necessary variation in program offerings among utility territories. Also, the increased administrative duties of facilitation and increased transparency have value when parties with differing interests address a complex, time-sensitive task with significant resources at stake. The Commission is not persuaded that such facilitation must be an expensive and timeconsumingundertaking. Further, while a facilitator with exhaustive experience withthe Arkansas EE landscape would be a strength, a capable facilitator that lacks such familiarity might bring the benefit of neutrality, which 

### is typically required in 

### issue resolution among parties with different points of view and disparate resources forDocket Nos. 13-002-U OrderNo.7 Page 62 of91 collaborative participation. Moreover, a skilled facilitator with strong experience in energy utility issues should be able to study and prepare inrelatively quick course. As the PWC embarks onits secondthree-year cycle, itis evident thatithas reached a stage ofmaturityinwhich a more sophisticatedprocess isnecessaryto matchthe objectives of providing Arkansas citizens with comprehensive, cost-effective energy efficiency programs. The Commission agrees with the JCP that all PWC meetings do not require independent, outsidefacilitation, andthatthe PWC mayrequestauthorizationto engage third-partyconsultants as needed, andthatin some casesthe Commission shouid direct the PWC to engage facilitation or technical expertise. To that end, the Commission herein directs that (1) general meetings ofthe PWC should, nevertheless, follow certain basicproceduralguidelines ledby a facilitatorthat maybe chosenfrom withinthe PWC; and (2) that the specific task of developing a more unified approach to residential weatherization shouldbefacilitated eitherby a member ofthe IEM's team who is expert in weatherization, or by an outside facilitator, with adequate technical expertise availabletothePWC. These decisions acknowledge theprogress ofthePWC asreflected in advances in program achievement during 2012 andthe indications that the PWC will address program coordination andimprovement, as recommendedbythe !EM. The Commission directs the PWC to propose for Commission approval on or before noon on January 10, 2014, procedural guidelines to govern meetings and deliberations ofthe PWC. The Commission requests that such guidelines address the designation ofa facilitator for meetings, notice and development of agendas, the timelyDocket Nos.1s-oo2-U OrderNo.7 Page 63 of91 provision of information and materials, and the manner in which decisions are made and recorded, includingthe recording ofany dissenting opinions. The Commission also accepts JCP's general recommendation that the collaborative may request authorization to hire, or may be directed to hire, facilitation

or technical expertise as needed with respect to any issues being addressed by the collaborative. In the event that there is no consensus on this point, any party may petition the Commission at any time to seek technical assistance or facilitation for the collaborative. With respect to weatherization, which includes services for not just severely energy inefficient homes, but for all residential customers, the Commission provides the following procedural directive: The PWC shall identify a facilitator to guide deliberations concerning the standardization ofthe existing models of weatherization approaches detailed below and coordination of weatherization programs in time for implementation during the next three-year EE program cycle, taking into account the discussion below regarding existing weatherization programs. The !EM, through a person on the !EM's team with specific expertise in weatherization may serve as the weatherization facilitator, or the PWC may identify a person independent of all the parties and with expertise in the coordination and delivery of utility-funded and/or federally-funded weatherization services. The PWC shall also ensure that any technical expertise necessary to establish best-practice program elements, to maximize the leveraging ofthe resources ofthe federal W AP program and other potential program partners, and to establish financing mechanism(s) that enable customers to implement comprehensive whole-house retrofits and to avoid lost opportunities for savings, isDocket Nos. 13-002-U OrderNo.7 Page 64 of91 made available to the members of the weatherization collaborative throughout its process for timely, in-depth consultation. To provide greater transparency to the existing and the enhanced PWC process, the weatherization facilitator shall follow the procedures enumeratedabovefor all facilitation. With respect to the utilities' respective C&I Prescriptive and Custom programs the PWC shall, as detailed further below, also develop uniform offerings that allow commercial customers-including particularly national accounts customers-to transparently access EE services through a single application process across fuels and utilities. These two tasks (weatherization and enhanced C&I program standardization), along with a third area of exploration (continuing improvement of uniform data collection and reporting)

- each of which is further outlined below

- represent a prioritized, simplified consolidation of the ten collaborative agenda items originally proposed in Order No. 1. The Commission adopts this more focused agenda in consideration ofthe evidence in therecord thatutilities have made substantial progress toward, andthatprogram evaluators andthe IEM, throughtheirprogram improvement recommendations are substantiallyadvancing, the same goals thatthe Commission had in making its earlierproposals. Given the need to ensure that the objectives of this Order are met with due consideration ofall the stakeholder positions and with proper Commission oversight of the process and the budget that may be required for such purposes, the Commission directs utilities and Staff, and requests other members of the PWC, to submit on or before noon on November 1, 2013, a plan describing how the PWC would engage aDocket Nos. 13-002-U Order No.7 Page 65 ofg1 facilitator(s) and other consultants to assist the PWC in developing a unified weatherization approach and weatherization program coordination, and how the PWC will address standardization ofcore C&I programs across fuels and utilities. The plan shall describe the PWC collaborative process going forward, including the roles performed by Staff, the IEM, and other parties, and a proposed scope of work that addresses the enhanced responsibilities outlined above pertainingto the weatherization collaborative and thatidentifies thetasks tobeperformedbythe collaborative for which

afacilitator and/or consultantare sought. Utilitv-Funded Weatherization Programs and Services in Arkansas In Order No. 1, the Commission proposed thatthe PWC, or perhaps a subgroup of the PWC that has a particular interest in weatherization and building thermal envelope issues, should develop a standard approach to whole-house weatherization activities that would be followed by all utility programs, and ultimately by a single, statewide coordinated utility weatherization program. The Commission statedthatthis approach should allow trade allies, customers, and the Commission itselfto understand

one set of rules the eligibility and analysis of residential buildings; for the ranking, selection, and implementation of covered measures; for rebates and incentives to customers and trade allies; and for the training, and qualifications required of contractors, andfor EM&V activities. In addition, the Commission proposed thatthe PWC explore the development of appropriate financing mechanisms for statewide weatherization services for both residential and small commercial buildings, through exploration of state or federal

revenue bond financing or otherwise leveraging non-utility program resources as aDocket Nos. 13-002-U OrderNo.7 Page 66 ofgi complement to the ratepayer-funded AWP. The Commission also stated its beliefthat the PWC should convene the program administrators of the A WP program, the statewide federally-funded Weatherization Assistance Program for Low-Income Customers ("WAP"), thejoint-utilitydual-fuel weatherizationprogram offeredbyOG&E and AOG, and the Home Energy Assistance Loan ("HEAL") Program Partnership between CenterPoint andthe William J. Clinton Foundation's Clinton Climate Initiative \'CCI"), as well as the other utilities and the state's electric cooperatives, to explore these issues. The Commission summarizes below testimony, comments, and other evidence in the record regarding these and other utility-funded programs providing weatherization services inArkansas. I. TheArkansas Weatherization Program ("AWP") The AWP is a utility-funded program administered by the Central Arkansas Development Council ("CADC"), a Community Action Program ("CAP") agency, and coordinated byACAAA. For a home to be eligible for AWP services, it must be built priorto 1997 and mustbe "Severely Energy Inefficient," based on a checklist offeatures such as inadequate insulation, or a non-working heating system orheating system with lessthan 70% efficiency. A WP Annual Report at42. Since 2007, AWP has weatherized nearly 4,000 homes. ACAAA at 2. AWP weatherized 641 homes in 2012-a slight decrease from 2011. Annual Report at 3. W AP-eligible customers accounted for all but four of these homes. Id. at 4· A WP performed 1,047 projects at the 641 homes, which was 61% of its planned target. Id. A

WP implemented nineteen different types of EE measures, including insulation, reduction ofinfiltration, tune-up or replacement ofair conditioners, furnaces, and heatDocketNos. 13-002-U OrderNo.7 Page 67 of91 pumps, lighting improvements, water heater insulation and replacements, window sealing and replacements, and storm windows. Ceiling insulation and infiltration reduction were among the top three sources of savings for both electricity and natural gas. Lighting improvements and refrigerator replacements contributed significantly to electricity savings, and window replacements contributed significantly to natural gas savings. A WP EM&V Report at 1-5. Because ofits connectionto the federal W AP, A WP provides non-cost-effective heating unit replacements and home repairs that save little to no energy.ta Utilities spent almost $1.2. million on AWP, and federal funds (including American Recovery and Reinvestment Act ("ARRA") funds) contributed about $3 million. Id. AWP produced over 1.1 million kWh in annual energy savings within IOU territories and almost 190,000 in annualtherm savings. Id. at 3-5. AWP also produced

an estimated 1.8 million kWh oflifecycle (not annual) savings in municipal and electric cooperative territories (although these utilities did not participate in program funding). 

### Id. at 3-4. Accomplishment oftargetswithin specific IOU territories ranged from a low of30% for SWEPCO to a high of78% for CenterPoint. Id. at 5· AWP cost effectiveness in 2.012. ranged from a TRC score of 1.06 to 5.01 among natural gas utilities, and from 0.31 to 3.65 among electricutilities. Table B.2.., AnnualEE ReportWorkbooks. The network of W AP

### J A

WP providers received nearly 7,000 person-hours of training in 2.012., resulting in 335 certificates awarded to trainees. Annual Report at 8. Taking into account non-A WP W AP homes, this network currently has the capacity to weatherize over 2,000homesperyear.

### I d. at 22.

1 3 AWP measures may include replacement of glass and/or windows, doors, ground cover, duct and plenum repair, return air cavity sealing, CO detectors, and smoke detectors, some ofwhich may not be cost-effective for energy savings. OG&E PY 2012Annual Report at 47·Docket Nos.**13~002-U** Order No.7 Page 68 ofg1 ACAAA comments that, when AWP was established in 2007, it offered the promise ofleveraging existing, trained personnel, infrastructure, and funding from the federal Weatherization Assistance Program ("WAP"), reaching severely energyinefficienthomes, and serving a long waiting list ofhard-to-servehomesthrough a dualfuel, comprehensive approach.'• ACAAA at 1-2. ACAAA indicates thatA WP's strengths include ongoing coiiaboration among the IOUs andtheir contractors, CAP agencies, and the Arkansas Department of Human Services C'ADHS") (until July 1, 2013, the state administrator oftheWAP), andthe abilityto provide one point ofcontact for customers

across electric andgas utilityservices. Annual Report at7· ACAAA reports that three major challenges have become apparent. Id. at 2. First, AWP's success has proven to be dependent on fluctuating federal funding: the number ofAWP-weatherized homes feii in 2012because CAP agencies were requiredto prioritize the spending ofARRA funds on the W AP program, and also because federal funding declined for the regular W AP funds thatprovide a match for utilityfunding for WAP-eligibleAWP customers. Id. Second, AWP has had difficulty in reaching non-WAP eligible customers (who might othenvise provide an independent source of program funding). Id. This is because their incomes exceed the WAP eligibility limit (200 percent of the Federal Poverty Level) andthus do not qualifYfor federal funds to paythe $1500 co-payto cover A

WP weatherization services. Many ofthese customers are working-poor or near-poor and thus lack the resources to cover the co-pay costs. Id. Third, AWP has experienced

l4 The current DOE WAP waiting list is over 3,ooo, many ofwhich likely arc eligible for AWP. AWP Annual Report at 22. Some CAP agencies report that they have stopped promoting the program or are no longer referring customers to W A:P because customers become un-interested in the program when they learn about thewait time. A WP EM&VReport at 3-5.Docket Nos. 13-002-U OrderNo.7 Page 69 of91 geographic gaps in service delivery because, under the W AP program individual CAP agencies can opt notto provide services withintheirterritories (and somehave doneso). Id. ACAAA notes that the Arkansas General Assembly in 2013 enacted Act 1111, which authorizes thetransfer oftheWAP program from ADHS tothe Arkansas Energy Office ("AEO"). ACAAA reports that AEO is restructuring WAP to include the Clinton Climate Initiative's ("CCI") Home Energy Affordability Loan ("HEAL") program in an as-yet-to-be-determined role, and to involve the PWC in determining a new W AP program design. 

### Id. ACAAA agrees with AEO that the existing A WP Collaborative should discuss restructnring of WAP and AWP. Id. at 3. ACAAA indicates that the transfer and restructnring of W AP should allow modifications that can enhance program delivery for both W AP and A WP. A WP Armual Report at 7· Given the uncertaintyfacing W AP andA WP, ACAAArecommends no specific changesfor PY 2013 forAWP, butreportsthat CCI has recommendedthat HEAL should have access to AWP funding for the remainder of 2013 in order to offer services within under-subscribed partsofthe state. Id. ADM evaluated AWP's 2012 activities. ADM agrees that dependence on federal funding andthe ability ofindividual CAP agencies to decidetheirlevel ofinvolvementin W AP have been A WP program barriers, and that decreased federal funding could be a greater barrier in the futnre. AWP EM&V Report at 1-5 through 1-6. ADM also agrees that financing and marketing issues hamper AWP's ability to serve non-WAP eligible customers. ADM finds thatAWP will likely beunableto attract manynon-WAP-eligible customers without addressing the upfront cost barrier presented by the co-payDocket Nos. 13-002-U Order No.7 Page70 of91 requirement. 

### Id. at 1-7. ADM adds that the WAP waiting list is a barrier to AWP performance, and that the association between A WP and W AP creates confusion requiring new marketing approaches if AWP is to reach out to non-WAP-eligible customers. !d. at 1-7 and 3-2. ADM notes further that, while measures are installed for WAF customers based on cost-effectiveness, AWP customers may choose which

measures to install, creating the risk that customer choices will erode the costeffectiveness enjoyed by WAP. 

### Id. at 1-9. ADM cites the comprehensiveness ofAWP whole-house offerings as a strength. !d. at 1-6 and 2-2 atTable 2-1. ADM's interviews with CAP agency staffsuggestthat, while the current collaborative structure is sufficient for operating the program as it is currently designed, it would be difficult for it to produce agreement in a timely fashion among all involved parties on specific program improvements. 

### Id. at3-7. II. The Home EnergyAssistance Loan ("HEAL") Program The HEALprogram is administeredbythe Clinton Climate Initiative and is a part of the CenterPoint Energy Arkansas's 

### Energy Efficiency Program Portfolio. Large employers with a minimum number of low-to-moderate income employees receive a free audit and complete energy efficiency retrofits totheir facilities. The employerthen makes funds generated by energy efficiency savings available to its employees. Alternatively, an employer works with commercial partners such as credit unions to provide low- or no-interest loans to employees to retrofit their homes. CenterPoint Annual Report at 12 and Appendix A at 11-1. In some cases, HEAL may offer the programto non-employees living in neighborhoods adjacentto participating employers. !d. at 12. Employees receive a free home energy audit, including a blower-door test andDocketNos. 13-002-U OrderNo.7 Page 71 of91 duct blaster. Loans to employees for EE measures are repaid through payroll deductions. Id. CenterPoint's HEAL programbegan inmid-2011 andinstalled217 measures at75 homes in PY 2012. Id. While there is no income restriction on program participation, HEAL is largely limited to participating employers. Id. at 12 and 14. HEAL produced annual savings of 19,636 therms in PY 2012 and had a TRC cost effectiveness of 2.80. HEAL achieved these savings through three measures: 

### air sealing, ceiling insulation, and ductrepair. Id., AppendixA, at 11-6.15 ADM evaluated the HEAL program and found that, although it is a very small portion ofCenterPoint's overall EE portfolio, itcould provide a model going forward for cross-fuel services and customer financing. CenterPoint Annual Report for PY 2012, Appendix A at 1-6. ADM notesthat, while CCI frequently obtains both CenterPoint and EAI incentives for HEAL customers, there is little cross-utility coordination between CenterPoint and Entergy and as a result, some participants may be receiving retrofits at

no cost when incentivizedbyboth utilities. Id. at 11-5. ADM also indicates that, other than for that limited number ofcustomers eligible for and servedby HEAL, CenterPoint lacks residential building envelope rebates. Id. at 3-3. ADM recommends that CenterPoint make such rebates available more broadly, citingthe successful example of the OG&E/AOGjointweatherizationprogram. Id.

1 5The Commission notes that electricity savings for those CenterPoint HEAL customers who also are IOU electric customers presumably are included in the reporting for electric utility EE residential programs, to the degree that HEAL assembled natural gas and electric rebates for the customer to achieve these savings.IlL TheAOG/OG&EWeatherizationProgram Docket Nos.1g-oo2-U OrderNo.7 Page72 of91

The AOG/OG&E Weatherization Program ("Joint Weatherization Program," or "Program") is a cooperative program funded by both utilities. To be eligible for weatherization, the structure must showthat ithas**·~substantial** energy efficiency needs" by requiring three of seven listed weatherization measures in order to receive services. ADM Evaluation of Joint Weatherization Program ("Joint Evaluation") at 1-1. The auditors for this program are certified by the Building Performance Institnte or the Residential Energy Services Network ("RESNET"). OG&E Annual Report at 15. The total utility contribution (from both utilities combined) is limited to $3,000 pereligible customer, with no out-of-pocket costs required ofthe customer. Joint Evaluation at 3-1. The Program served a total of 1,631 OG&E homes (7% ofthe homes in OG&E's Arkansas territory) and 1,360 AOG homesin 2012. OG&E Annual Report at 6 andJoint Evaluation at 1-4. It produced 3.6 million kWh in annual electricity savings and 0.2 million therms in annual natnral gas savings. Joint Evaluation at 1-4. Three highlycost-effective measures (air infiltration reductions, ceiling insulation, and CFLs) accounted for almost ail ofthe program's gross energy savings. Joint Evaluation at 2-3. The Program also covers water heaterjackets and pipe wrap, and occasionally provides refrigerator replacement. Id. at 1-4. For instance, while 1,387 OG&E customers received ceiling insulation, only 158 received refrigeratorreplacements. Id. at5-8. ADM notes that despite limited marketing, the Program has high customer awareness, participation, and satisfaction, with several hundred customers per month seeking services. Id. at 3-3 and 3-5. ADM finds that word-of-mouth marketing, theDocket Nos.13-002-U OrderNo.7 Page73 of91 Program's short wait time, and its high incentive levels acconnt for the high level of customerparticipation. ADM Evaluation at3-3through 3-5. Program contractors indicated to ADM that the majority of participant homes would benefit from further energy efficiency improvements that are not covered by Program offerings. 

### Id. at 3-6. However, the contractors expressed concern that the further improvements might not be adequately cost-effective. Id. Some customers expressedinterestinpayingforfurther improvements, butdidnotfollow through dueto the cost. 

### Id. at 3-5. ADM recommends that OG&E and AOG explore offering further services such as wall insulation or heating system improvements and explore opening the program gradually to a larger pool ofhomes thanthose meetingthe current criteria. 

### Id. at 1-7. IV. Other EE Programs ProvidingWeatherization Services. Under EAI's Home Energy Solutions ("HES") program, customers may seek an energy audit through the program to learn about potential EE improvements, or may directly contact a contractor ifthey are aware oftheir needs. EAI Annual Report at 26. HES offers incentives for energy audits, direct-install measures such as faucet aerators and low-flow showerheads, ceiling and wall insulation, infiltration reduction, duct sealing, and replacement of HV AC equipment. !d. at 30. In order to promote comprehensive home EE improvements, EAI provides a bonus incentive to customers who choose to implement multiple measures. 

### Id. at 26-27. Customers installing multiple measures increased from 9% in PY 2011 to 23% in PY 2012. For testingintensive measures such as duct and air sealing and wall insulation, 14% ofparticipants who had an energy assessmentin PY 2012 adopted these measures, as opposedto 7% inDocket Nos. 13-002-U OrderNo.7 Page740f91 2011. Id. Implementation contractors also may receive a banns for installing multiple

measures. I d. at 27. Just over 350 customers ordered an assessment in 2012. 

### Id. This constitutes 0.64% ofEAI's 584,559 residential customers. EAI FERC Form 1 Supplement Annual Report for 2012 at E-1. Ofthose, 38% (138) installed at least one measure and 72% of that subset (100) installed two or more measures. EAI Annual Report at 27. EAI notes that some HES customers were also CenterPoint HEAL customers. HEAL performed 157 assessments, of which 32% (50) installed at least one measure and 66% ofthose (33) installedtwo ormore measures. Id. at 27-28. HES achieved over 3.2 million kWh innet annual savings in PY 2012, which was 101% ofits goal. Id. at 28. In 2013, EAI plansto require all participating contractorsto have at least a BPI-Building Analyst or RESNET Home Energy Rater Certification (except that insulation-only contractors may have appropriate certifications from Pulaski Technical College or BPI), andto growits contractor networkto include out-ofstate firms. EAI also plans to use more mass marketing to raise customer**awareness~** and to implement 25 recommendations by its independent evaluator, Cadmus. Id. at 29-30.Cadmus found that HES served 1,970 homes with either direct install measures, rebatedmeasures, orboth. EAI EM&V Report at 70. (The Commission does not discern how many ofthe 1,970 homes were served only with direct install measures and how manyreceived more comprehensive services.) Approximately 82% ofkWh savingsfrom rebated measures in PY 2012 derived from ceiling insulation. 

### Id. at 62. Duct**sealing~** heat pump replacement, and air sealing accounted for 8%, 3%, and 3% ofrebated kWhDocket Nos. 13-002-U OrderNo.7 Pagc75 of91 savings, respectively; direct-install measures as a whole prodnced lower total kWh savingsthantheseindividualrebatedmeasures. Id. at 62-63. SWEPCO offers customers a Residential Standard Offer Program ("RSOP") and a Home Performance with Energy Star ("HPwES") Program. RESOP pays incentives to customers and to contractors for insulation1 infiltration reduction7 duct sealing, AC tune-up, ENERGY STAR windows, window film, and replacement of central air conditioners and heat pumps. SWEPCO Annual Report at 36. RSOP completed 545 projects (aside from direct install measures targeted through the same program to multi-family housing). Id. at 39· This constitutes 0.56% of SWEPCO's 95,979 residential customers in 2012. SWEPCO FERC Form 1Annual Report at E-1. Among non-direct-install customers and measures7 ceiling insulation at 348 homes provided the vast majority of energy savings, followed by 39 heat pump replacements and 75 central airconditionerreplacements. SWEPCO EM&V Report at 96. HPwES, which SWEPCO launched inthe Spring of 2012, is a US DOE and EPAbacked, whole-house program that begins with a comprehensive home energy audit. SWEPCO Annual Report at40. The program covers similar measures to the RSOP, but also promotes the comprehensive energy audit 7 contingent upon installation ofat least two major measures. Id. at 41. HPwES offers enhanced incentives compared to the RSOP for installation ofmajor measures such as insulation and HV AC replacement. Id. at 41. After having onlytwo HPwES participants in 2012, SWEPCO began in December 2012 to partnerwith HEALto deliver HPwES services; 14 of20 auditedbyHEALhomes installed measures in early 2013. Id. SWEPCO reports that, despite extensive marketing efforts7 HPwES participation was constrained by low customer awareness,Docket Nos. 13-002-U OrderNo.7 Page 76 of91 challenging market conditions, andlimitedcontractorengagement. Id. at43· SWEPCO also reports that many contractors are unfamiliar with building-science-based efficiency. Id. SWEPCO is discussingjointimplementation ofHPwES with various gas utilities. Id. at44. According to SWEPCO's evaluator, Cadmus, a large percentage of SWEPCO customers cannot afford to make significant purchase or repairs to increase home energy efficiency, and approximately one third of these may be eligible for W AP. SWEPCO EM&V Report at 112. SWEPCO is reportedly considering offering home improvementloans as one wayto remove financial barrierstoparticipation. Id. Ruling Regarding Weatherization Collaborative Since 2007, weatherization program administrators in Arkansas have innovated to meet the considerable challenges inherent in seeking to provide comprehensive, whole-house EE services. These challenges have included creating an educated and trained contractor sector; educating consumers; keeping program offerings costeffective andwithinbudget; tracking projects, customers, and energy savings; delivering services in various overlapping or non-contiguous territories; accounting for administrative and marketing costs (whether for anindividual utility or across utilities) and helping customers address the cost ofhome improvement. The Commission salutes the effort and accomplishment to date and finds that it is time to consolidate lessons learned so far. A

WP offers the longest track record of cross-fuel energy savings and the most comprehensive services, but its ability to deliver within any particular year is strongly influencedbyfederal rules andfunding affecting W AP. WhileA WP has allowed W AP toDocket Nos. 13-002-U Order No.7 Page770f91

serve a larger number ofW AP-eligible customers, A WP hasbeenlargelyunableto reach beyond this core market, although service to other customers might reduce its dependence onfederal funds. Also, a variety ofconstraints have limitedA WP's abilityto deliver services on behalf of utilities, thereby negatively affecting the expected performance of utility portfolios in some cases. The variation in A WP performance among utility territories demonstrates both the challenges involved in funding services through CAP agencies that may decide not to participate, and also the strong cost

### effectiveness that can result when implementation runs more smoothly. The original A WP goals of leveraging federal funding and trained personnel, 

### providing comprehensive whole-house services across fuels, ensuring the participation of low-income customers in ratepayer-funded services, and targeting severely energyinefficient structures remain valid. Experience has shown, however, that these goals cannotbefully realized without further collaboration and program development. While the Commission does not regulate WAP, ratepayers have a strong stake in WAP's improved operation because A WP cannot reach its goals so long as it merely "piggybacks" on the federal program. Rather, AWP stakeholders should take the opportunity ofW AP reorganization to contributeto the coordination ofW AP with A WP

so thatthe state plan for WAP provides as much flexibility under federal regulation as possible in order to enable the achievement ofjoint WAP, utility, and AWP goals. Technical expertise regarding ways to achieve regulatory flexibility and to build ajoint AWP-WAP structure that can address theWAP waiting list and reach out to non-WAP eligible customers mustbe apartofthatcollaborative effort.Docket Nos. 13-002-U Order No.7 Page78 of91 The AOG/OG&E Joint Weatherization Program has demonstrated an ability to coordinate utility efforts across fuels, and to weatherize a significant percentage of customers' homes within a short period of time. It minimizes marketing costs and maintains a pipeline ofprojects, in part because it shares with W AP the characteristic that a certain level of highly-cost-effective, core services are free to the customer. As with AWP, it offers the largely unrealized opportunity to provide additional costeffective measures. Its implementation contractors report customer interest in these further measures, butnotethat customers are unlikelyto implementthem so long asthe initial costis unmanageablefor them. The HEAL program is short in numbers (perhaps due to budgetary constraints), but by combining electric and gas rebates for some customers, it appears to achieve something similar to WAP and to the OG&E/AOG program: free, or near-free weatherization services for the most cost-effective measures. Early results in SWEPCO territory suggest thatthis approach increases the rate at which the administrative costs spent on comprehensive audits are converted to cost-effective, multi-measure projects. Furthermore, HEAL appears to offer a model for customer financing of more comprehensive projects, at least for that portion ofcustomers who may have access to payroll deduction for loan re-payment. It is clear that HEAL has so far been made available onlyto a small portion ofCenterPoint's (andEAI's) customerbase. By virtue of EAI's large customer base, the HES program has developed the essential market of auditors and implementation contractors in a way that no other utility could. It exceeded energy savings goals on only 75% of budget, and offers a rebate structure designed to incentivize more comprehensive projects, which may beDocket Nos. 13-002-U Order No.7 Page79 ofg1 gaining traction, although not all of the evidence is clear on this at this stage of implementation. For instance, per-house annual savings appears to be significantly greater for the OG&E program than for HES (2231 kWh per home vs. 1629 kWh), althoughEAI obtains greaterpeak savingsperhome andsimilar energylifetime savings. EAI may be less likely to capture infiltration savings (based on thefact that only 3% of HES program savings derive from infiltration, as opposed to 14% for OG&E), but HES achieves air-conditioner and heat pump replacement savings not covered bythe OG&E program. While each program had similarTRC scores (1.57 and 1.47), thelevelized cost ofHES savings in 2012 was 9 cents perkWh andthatfor OG&E weatherization wasjust above 2. cents. While these kinds of differences are subject to variation from year to year as programs develop, they provide evidence that lessons from each program can be consolidatedto form a more optimal unified program. Also, thefact thatthe number of homes weatherized, the number and type ofmeasures implemented at each home, the amount of electricity and the natural gas saved per home based on specific measures, and the ratepayer-funded cost per home and per measure cannot easily be compared among utility territories (except to some degree for A WP and the OG&E/ AOG program)

on the basis ofthe same metrics, is one strong indication that further standardization wouldbenefit all ratepayers. Based onthis review, the Commissionrefines its original proposal and directs the utilities and Staff, and requests the PWC in general, to collaboratively develop uniform whole house program offerings for all residential customers, including those in severelyDocket Nos. 13-002-U OrderNo.7 Page Bo of91 energy inefficient homes, for implementation by January, 2015 that include the following elements:

1. Joint funding between electric and natural gas utilities ofwhole house energy assessment and energy efficiency services that are available to customers, to the full extent that electric and natural gas utility territories overlap, and with uniform offerings to all-electric IOU customers in non-gas areas, and to natural gas customers within municipal and electric cooperativeterritories. Thejointly-fundedprogram should particularly address anyfirst costs for comprehensive auditing and should provide unified incentives and services for measures that benefit both beating and cooling applications, thereby reducing the overall administrative costfor implementation ofmeasures wherethe costs can be reasonably allocated between the gas and electric utilities. The PWC should carefully considerthe value ofan approachthat offers major, costeffective services such as insulation and infiltration reduction and potentially other services-upto some initial dollar amount, for little or no upfrontcosttothecustomer.

2. A comprehensive technical standard that governs the qualification and energy assessment of homes, the recommendation and selection ofmeasures, and the implementation ofmeasures performed by all utility-sponsored and government-funded energy efficiency programs. This technical standard should ensure high-quality, best-practice work that maximizes available savings and avoids lost opportunities to improveDocket Nos. 13-002-U Order No.7 Page 81 of91 homes and equipment. It also should include a single set ofstandards for education, training, certification, and continuing education of implementation personnel delivering lOU-funded programs, and should be coordinated to the fullest extent possible withthe standards that apply to federally-funded weatherization services. g. A proposal by the PWC for the provision of a financing mechanism or mechanisms by utilities, or the facilitation of a financing mechanism or mechanisms through non-utility parties that allow customers to finance any measures with significant costs that go beyond initial no-cost measures and to thereby implement multiple cost-effective measures, in effect allowing the customer to implement a multiplemeasure, cost-effective energy plan to substantially reduce whole-house energy use. Based on the apparent success of the HEAL model, the Commission favors financing options that feature automatic repayment through payroll or utility collection (regardless of whether the utility actually finances the measures). The Commission requests that the PWC

assess theextenttowhich HEAL's financing mechanism couldbe extended to and would likely be implemented by employees of state agencies and other employers who maybewilling to adoptits payroll collection method. The financing mechanism should, inter alia, enable non-low-income residential utility customers to obtain or afford the "good funds" required to participateintheAWP;Docket Nos.13-002-U OrderNo.7 Page82 of91 4· The elimination of duplication in programs that would prevent implementation contractors and trade allies from seamlessly providing services across participating utility territories, or that might engender confusion among customers. 

## s. Active participation inthereorganization ofW AP to optimizeits coordinationwith utility-fundedweatherization services, and coordination ofntility-funded whole house weatherization services with WAP so as to leverage available personnel andfederal funding. 6. Aplan to effectively marketjoint-utilityweatherization services,

as appropriate to the various sub-sectors of residential customers and markets, including exploration of the marketing aspects of the HEAL Program model. The weatherization collaborative shall file in this docket a report on or before

noon on April 1, 2014, which includes its recommendations for implementation by January 1, 2015, ofthe statewide weatherization program meetingthese requirements. Ruling Regarding Joint-UtilityEE Services Offerings to Commercial and National Accounts Customers During the 2012 hearing to review OG&E's EECR, OG&E witness Billy Dean Pollock testified that there is merit to worldng out a national chain program with the other utilities because all ofthe utilities confront the same barriers when they address big-box storemanagers who often lack decisional andbudget authorityto signup for EE programs. Docket No. 07-075-TF, June 14, 2012, Tr. at 118. Only the JCP commented

onthe Commission's proposalthatthe PWC shouldfocus onthistask, inthatitincluded "Focus on National Accounts" as a proposed new requirement for the collaborative.Docket Nos. 13w002-U Order No.7 Page 83 ofg1 However, theJCP didnot comment onits importance orhowitmightbe accomplished. Joint Comments at 2.7, Table 1. Given the lack of objection to this task, the Commission directs the PWC to develop a joint, cross-utility and cross-fuel program to submit in time for implementation on or before January 1, 2.015, that provides energy auditing, technical assistance, prescriptive measure (including lighting, HV AC, building thermal envelope, refrigeration, and other common end uses), custom measure, and marketing provisions that are appropriate for the end-uses represented by national accounts customers in Arkansas.1 6 Such offerings need notrepresent a separate national accounts programper se, butshouldgive national accounts customers a singlepathwayfor participation inthe C&l programs of all Arkansas IOUs. Such offerings should thereby avoid program overlap and duplication, reduce confusion over program-type names, standardize elements offered measures, rebates and services, and facilitate marketing to these customers. The development oftheseuniform offerings shallberesponsive to the many recommendations for C&l program improvement of the evaluators and of the !EM. Utilities need not and should not abandon cost-effective EE services appropriate to commercial sectors that are uniquely important in their individual territories, but rather, may and should provide such services additionally to the core offerings, as appropriate within their EE program portfolios. In orderto develop these offerings, the PWC may hire facilitation and technical expertise as needed for this task, and shall

1 6 The Commission takes administrative notice that the U. S. Department of Energy's Building Technologies Office has, subsequent to the initiation of this proceeding, launched an Advanced Rooftop Unit ("RTU") Campaign to address the air conditioners used in 6o% ofcommercial buildings nationally, which might provide a model or supporting technical information for one aspect of service to national accounts customers.Docket Nos. 13-002-U OrderNo.7 Page 84 of91 submitanyrequestforbudgetaryresource neededto accomplish thistaskas an addition totheweatherization collaborativefiling onorbeforenoononNovember 1, 2013.

Ruling Regarding exploring theBenefits and Challenges Involved inEstablishing and Maintaining a StatewideEE DatabasewithEnhancedTracking ofProgram Participation Order No. 1 requested comment on the development ofa statewide databasethat would consolidate of all EE planning and achievement data, particularly including unduplicated, cumulative data for customer participation and for program and measure impacts and costs. The proposed database would be publicly available on the internet, and would allow a user to aggregate and manipulate the data using standard data base queries andsearches, andtoproduce a variety ofreports informats dictatedbytheuser. The database would facilitate information sharing among utilities and comparison and reviewbyall parties. Orderat 63-64. The JCP states that it does not support creation ofsuch a database at this time. JCP at31. No partycomments on anyofthe specific parameters outlined above, andno party comments in direct support ofthe Commission proposal. The JCP, the utilities, and AEEC/ AGC argue that it would be duplicative of ongoing efforts, costly, and time consuming. JCP Initial at 31-33; AEEC/AGC Initial at 12; EAI Initial at 20-21. The JCP detail a series oftasks that would be necessary to implement a statewide database and concludethatitwouldtake 12 to 18 months. JCP at 32. AEEC/ AGC commentregarding customer privacy that the only information that could be provided to the data base wouldbeusageinformationinthe aggregatebycustomer class. AEEC/ AGC Reply at 12, 21.Docket Nos. 13-002-U OrderNo.7 Page Ss of91 The Commission clarifies that assembly of the database might start with information that is currently presented in the EE Plans, the Annual Reports and Workbooks, and the EM&V reports of the evaluators and the !EM, such as program implementation costs, broken out by categories of costs; energy and capacity savings; benefits; netbenefits; benefit-costratios; customerparticipation andparticipation rates. With refinement, itmight allow useful metrics such as energy savings, the costto save a unit of energy, and costs per participant, to be calculated across programs, across utilities, and over time, and to be aggregated in a non-duplicative manner. The development of such capabilities could enhance program review and improvement and facilitate evaluation ofhow manyratepayersbenefit directly from programs overtime. The Commission notes that much of this data is already collected, in utilityspecific form, as part of the Energy Efficiency Standardized Annual Report Packet ("SARP") approvedby the Commission in Docket No. 10-010-U on September 14, 2.012.. On November 19, 2.012., the PWC filed in that docket, and the Commission granted by Order No. 15, a motion requesting thatthe PWC be given until September 2.7, 2.013, to file comments and/or testimony in support of any proposed changes to the SARP. Given thatthose comments mayreasonably address some ofthe Commission's concerns regarding program comparability, enhanced analytical value, and non-duplicated participant tracking, the Commission defers further ruling on this issue until after the imminentSARP filing. Finally, AEEC/ AGC requestedthatthe Commission initiate a rulemaldng to enact

new rules consistent wifu the provisions of Act 2.53 of 2.013 and encouraged the Commission to decrease the peak demand requirements for a non-residential businessDocket Nos. 13-002-U Order No.7 Page 86 ofg1

consumer to opt-out ofutility energy efficiency programs to an electrical demand of at least 200 kW at a single facility. AEEC/ AGC Reply Comments at g. Staff responded thatthe Self-Direct (SD) Rules are notpart oftheissues identifiedbythe Commission in Order No. 1, noting that the SD Rules were developed in Docket No. 10-101-R and approved by Commission Order No. 10 and subsequently modified by Order No. 28. Staff asserts, and the Commission agrees, that this docket is not the appropriate proceeding in whichto address modifications to the SD Rules. StaffReply at4· On July 8, 2013, by Order No. 29 in Docket No. 10-101-R, the Commission directed Staffto file proposed amendmentstothe Commission's C&EE Rules astheypertainto SD programs to complywithAct 253 of2013. Accordingly, based on the comments and evidence in this docket, the Commission directs and orders:

1. That the programs, portfolios; and tariffs ofindividual utilities will continue to beconsidered within individual utilitytariffdockets; provided that cross-cutting issues may be addressed, as needed, in separate policy dockets; andthatfilings relatedto EEprograms, portfolios andtariffs shall conform to the JCP's proposed schedule (as displayed on page 3 of this Order); provided that the Commission will strive to approve portfolios by September 1ofeach year, butreserves the rightto extendthat deadline as necessary; and that Staffshall file, on orbefore noon ofJanuary 10, 2014, any proposed changes to the C&EE Rules necessary to effectuate this amendedfiling schedule.Docket Nos. 13-002-U Order No.7 Page 87 of91 2. Thatthe PWC may and shall causetobeperformed an EE Potential Study,jointlyfunded bytheutilities; provided that an RFP and testimony describing the study and its purposes, in accordance with the more detailed directives outlined above, shall be filed in this Docket for Commission review and approval on or before noon onNovember 1, 2013; and thatthe energy savings goal for 2015 is established at 0.90% of 2014 retail kWh sales for electric utilities and 0.50% of 2014 retail natural gas sales for natural gas utilities, with the Commission reserving the right to revisit the 2015 target at the time that it establishes targets for 2016 and 2017, based upon the Potential Study or other data that may become available. 3. That the utility performance incentive shall be awarded in a linear, rather than stepwise basis, within a range from achievement of So% to 120% of the Commission1s established goals; annual performance incentive earnings shallbebased on 10% ofprogram netbenefits, butshall be capped on a sliding scale between 4% and 8% of approved program budgets, as described intheruling underIssue 3inthis Order. 4· That the development and application of utility avoided costs for the purposes of EE program and portfolio screening and approval and performance incentive calculation shall follow the guidance established in the ruling on Issue 4 in this Order; and that the PWC shall consider and recommend, as part of the testimony supporting the proposed EE Potential Study RFP, the adoption of a reasonable third-party estimate ofDocket Nos. 13-002-U Order No.7 Page 88 of91 the cost ofcompliance with carbon regulation; andthat, for thepurpose of calculating any utility EE performance incentive, the approved avoided cost component ofnetbenefits shall be fixed during the three-year 2015- 2017 EE program cycle. 5· That utilities shall continue to submitthe TRC, RIM, PACT, and PT tests for consideration, as currently provided in the C&EE Ru1es; and that the Commission will continue to evaluate approval of portfolios and programs primarily based upon the TRC test, retaining the flexibility to include measures andprogramsthatindividually do notpasstheTRC test; and that the TRC test shall include well-defined NEBs which (a) measurably reduce scarce resources, add significant value or reduce costs; (b) have a quantifiable economic value; and (c) are clearly applicabletothe specific program or measure at issue; provided thatthe PWC shall review the literature on the non-energy benefits of weatherization services and seek consensus on any reasonably quantifiable, significant NEBs for inclusion in program screening for the 2015-2017 EE program cycle; the Commission, however, constrains the amount of customer rebate or incentives provided at the level ofa measure (or group ofmeasures) to an amountequal totheutility's avoided cost. 6. That with respect to procedures for continuous EE program improvement:

a. the PWC may request authorization to engage third-party facilitation ortechnical consultants as neededto address issues;Docket Nos. 13-002-U Order No.7 Page 89 of91 b. in some instances the Commission may direct the PWC to engage facilitation ortechnical expertise.

c. meetings ofthe PWC, whether facilitated bya Party, the !EM, or

an outside facilitator, shall follow procedural guidelines proposed bythe PWC and approvedbythe Commission; d. the specific task of developing a more unified approach to residential weatherization shall befacilitated by either a member of the !EM's team who is expert in weatherization, or by an outside facilitator, with adequate technical expertise available to the PWC; and

e. the cost of facilitation and technical consultants shall be allocated to all utilities using the joint-utility cost allocation methods developed by the utilities for other EE programs such as theAWP. 7· That, with respect to weatherization services for residential customers, the facilitator identified by the PWC shall guide deliberations concerning the standardization ofexisting weatherization approaches inArkansas and the coordination ofsuch programs in time for implementation during the nextthree-yearEE program cycle. 8. That, with respect to the utilities' Commercial and Industrial Prescriptive and Custom programs, the PWC shall develop uniform offerings that allow commercial customers, including national accountsDocket Nos. 13-002-U Order No.7 Page 90 of91 customers, totransparently access EE servicesthrough a singleapplication process across fuels and utilities. g. Thattheutilities and Staff, withtheparticipation ofthe other members ofthe PWC, shall submit on orbefore noon on November 1, 2013, a plan describing how the PWC would engage a facilitator(s) aod other consultants to assist the PWC in developing a unified weatherization approach and weatherization program coordination as described in this Order, and how the PWC will address standardization of core C&I programs across fuels and utilities.
10. That the PWC shall file on or before noon of Jaouary 10, 2014, a proposed general collaborative process going forward, in accordaoce with theruling in Issue 6 ofthis Order.

11. That the weatherization collaborative shall file in this docket a report

on or before noon on April 1, 2014, which includes its recommendations for implementation by Jaouary 1, 2015, of the statewide weatherization programs meeting the requirements ofthis Order.

12. That, regarding the Commission's proposal to require development of

a statewide database consolidating all EE planning aod achievement data, the Commission defers a ruling pending the PWC filing on September 27, 2013, oftheupdated EE SARP.

### BY ORDER OFTHE COMMISSION, This 

# qri-flday ofSeptember, 2013.

....hucertifYthatthis order, IssUedbythe Ihe''""1 P bileserviceeommJsslon, Ar\(anS8S u A'l

_......u....ofrecord on haS beenserved on .., ,......,_ . this date bythefollowing methOd· mallwithpostaoe prepaid usingthe _u.s. ofeachpartyas mailing address**_...,...~ol**docketfile or cated In the c1'""**~I** addfe8S ectronlcmall**~edtheln**the-

partyas\nd-· docl<etfile,

Kristi Rhude, Secretaryofthe Commission Docket Nos. 13-002-U OrderNo.7 Page91 of91

# ~Mtfl.MAI--ti Colette D. Honorable, Chairman

Olan W. Reeves, Commissioner

Elana C. Wills, Commissioner