BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Concerning

Energy Efficiency Rolling Portfolios,
Rulemaking 13-11-005
Policies, Programs, Evaluation, and Related
Issues.

JOINT MOTION OF SETTLING PARTIES FOR COMMISSION

ADOPTION OF SETTLEMENT AGREEMENT

Erica L. Martin Tovah Trimming

8330 Century Park Court, #CP32D
San Diego, CA 92123
Telephone: (858) 654-1813
Facsimile: (619) 699-5027
E-mail: EMartin8@sdge.com
Attorney for
San Diego Gas & Electric Company
300 Capitol Mall, Suite 400
Sacramento, CA 95814
Telephone: (916) 823-4836
E-mail: Tovah.Trimming@cpuc.ca.gov
Attorney for the
Public Advocates Office
California Public Utilities Commission

Hayley Goodson
785 Market Street, Suite 1400
San Francisco, CA 94103
E-mail: hayley@turn.org
Attorney for
The Utility Reform Network (TURN)

December 9, 2020
 TABLE OF CONTENTS
 
I.  INTRODUCTION .............................................................................................................. 1 
II.  BACKGROUND ................................................................................................................ 3 
III.  PROCEDURAL HISTORY................................................................................................ 5 
IV.  DESCRIPTION OF SETTLEMENT AGREEMENT ........................................................ 9 
A.  SDG&E Acknowledgement .................................................................................... 9 
B.  Refunds ................................................................................................................... 9 
1.  Program Refund .......................................................................................... 9 
2.  Energy Efficiency Shareholder Incentive Award Refund ........................ 10 
3.  Tax Treatment of Refunds ........................................................................ 10 
C.  Rule 1.1. Fine ........................................................................................................ 10 
D.  Other Terms .......................................................................................................... 11 
1.  Cost of Investigation ................................................................................. 11 
2.  Recovery from Manufacturers .................................................................. 11 
3.  Terms to Promote Timely and Effective Employee Whistleblower
Reporting................................................................................................... 11 
V.  THE SETTLEMENT AGREEMENT IS REASONABLE IN LIGHT OF THE WHOLE
RECORD, CONSISTENT WITH THE LAW AND IN THE PUBLIC INTEREST ....... 14 
A.  The Settlement Agreement is Reasonable in Light of the Whole Record ............ 15 
B.  The Settlement Agreement is Consistent with the Law ........................................ 16 
1.  Severity of the Offense ............................................................................. 16 
2.  Conduct of the Utility ............................................................................... 18 
3.  Financial Resources of the Utility............................................................. 20 
4.  Totality of the Circumstances ................................................................... 20 
5.  Role of Precedent ...................................................................................... 21 
C.  The Settlement Agreement is In the Public Interest ............................................. 23 
VI.  CONCLUSION ................................................................................................................. 24
ATTACHMENT A SETTLEMENT AGREEMENT REGARDING ALJ RULINGS
RELATED TO SDG&E COMPANY'S UPSTREAM RESIDENTIAL
LIGHTING PROGRAM FOR THE YEARS 2017-2019

i
 BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Concerning

Energy Efficiency Rolling Portfolios,
Rulemaking 13-11-005
Policies, Programs, Evaluation, and Related
Issues.

JOINT MOTION OF SETTLING PARTIES FOR COMMISSION

ADOPTION OF SETTLEMENT AGREEMENT

I. INTRODUCTION

Pursuant to Rule 12.1 of the Rules of Practice and Procedure of the California Public

Utilities Commission (“Commission”), San Diego Gas & Electric Company (“SDG&E”), the

Public Advocates Office at the California Public Utilities Commission (“Cal Advocates”), and

The Utility Reform Network (“TURN”) (collectively, the “Settling Parties”) respectfully request

that the Commission approve and adopt their “Settlement Agreement Regarding Administrative

Law Judge Rulings Related to San Diego Gas & Electric Company’s Energy Efficiency

Upstream Lighting Program for the Years 2017-2019” (“Settlement Agreement”), attached

hereto as Attachment A.1 If approved by the Commission, the Settlement Agreement will

resolve issues raised in the following Administrative Law Judge (“ALJ”) Rulings: (1) Ruling

Seeking Comment on Upstream Lighting Program Impact Evaluation for Program Year 2017

(“Ruling Seeking Comment”); and (2) E-Mail Ruling Requesting Further Comment on 2017 and

2018 Upstream Lighting Programs (“Email Ruling Seeking Further Comment”). The Ruling

Seeking Comment sought comments regarding the Upstream and Residential Downstream

1
Pursuant to Rule 1.8(d), SDG&E has been authorized to file this Joint Motion on behalf of all the
Settling Parties listed on the caption pages.

1
Lighting Impact Evaluation Report, Lighting Sector – Program Year 2017 prepared by DNV GL

Energy Insights USA, Inc. (“2017 DNV GL Report”) and issued by the California Public

Utilities Commission (“Commission”) on April 1, 2019. In particular, the Ruling Seeking

Comment focused on findings in the 2017 DNV GL Report indicating that the 2017 Upstream

Lighting Programs at both Southern California Edison Company (“SCE”) and SDG&E resulted

in approximately 15 million unaccounted for energy-efficient light bulbs subsidized by

ratepayers. The Ruling Seeking Comment also sought responses to five questions related to the

potential for remedies or refunds associated with SDG&E’s and SCE’s 2017 Upstream Lighting

Programs. The Email Ruling Seeking Further Comment expanded the Ruling Seeking Comment

to include the 2018 program year and set a date by when SCE and SDG&E should report on their

investigations and respond to the questions in the Ruling Seeking Comment.

The Settlement Agreement resolves all issues raised in both the Ruling Seeking Comment

and Email Ruling Seeking Further Comment regarding SDG&E’s conduct, including issues

arising from SDG&E’s conduct in implementing and administering the Upstream Lighting

Program, as well as the energy savings claims and other reporting submitted by SDG&E to the

Commission regarding the Upstream Lighting Program for the program years 2017 and 2018. In

addition, although not addressed in the Rulings, the Settlement Agreement resolves the same

issues as they relate to SDG&E’s Upstream Lighting Program for the program year 2019.2

For good cause, as described in more detail below, the Settling Parties respectfully

request that the Commission find that the Settlement Agreement is reasonable in light of the

whole record, consistent with the law and in the public interest; and approve it without

modification.

2
SDG&E’s Upstream Lighting Program was terminated, effective January 1, 2020.

2
II. BACKGROUND

The Upstream Lighting Program was one of a number of Energy Efficiency (“EE”)

programs managed by SDG&E’s Customer Programs group (“Customer Programs”). Like other

EE programs, it was ratepayer-funded and generally designed to produce cost-effective EE

savings within SDG&E’s service territory, for which SDG&E could earn a performance-based

incentive for its shareholders. In general, the Upstream Lighting Program was designed to

encourage the purchase and installation of residential energy-efficient light bulbs (“bulbs”) by

offering incentives in the form of rebates to manufacturers, that would then be passed on as

discounts to purchasing retailers and eventually to retail customers.

Historically, SDG&E’s Upstream Lighting Program team worked with different

manufacturers to purchase residential energy-efficient bulbs and arrange for shipment to

retailers. The retailers provided sales records to SDG&E to demonstrate the movement of the

bulbs into customers’ homes. As noted in the 2017 DNV GL Report, the 2017 Upstream

Lighting Program year marked a shift in program strategy to emphasize hard-to-reach retail

locations such as small independent grocery stores, drug stores, low-income markets, and

discount shops, alongside the typical “big box” stores.3 This shift was based on a

recommendation included in the Impact Evaluation of the 2015 Upstream and Residential

Downstream Lighting Programs (2015 Impact Evaluation), issued on April 1, 2017.4 The goal

of this effort was to increase the cost-efficiency savings of the EE portfolios managed by the

various Program Administrators, including the investor-owned utilities (“IOUs”) by expanding

3
2017 DNV GL Report at 3-4.
4
Impact Evaluation of 2015 Upstream and Residential Downstream Lighting Programs (April 1, 2017) at
9, Recommendation 3.

3
energy-efficient lighting into new retail locations that served customers who may not typically

purchase energy-efficient bulbs.

In response to the 2015 Impact Evaluation’s recommendation, SDG&E, Pacific Gas and

Electric Company (“PG&E”) and SCE, jointly submitted the following, which is titled “RTR

Appendix” to the 2015 Impact Evaluation, referenced above:

The IOUs have been actively pursuing the activities prescribed in these
recommendations and will continue to do so. With a shift of focus from resource
savings to code readiness, we continue aggressively to bring in new
manufacturers and ship to new retailer locations, many of which pertain to hard-
to-reach markets.5

Subsequently, SDG&E submitted Implementation Plan Changes, including in October

2017 and March 2018, documenting the shift in funds that increased funding to the Primary

Lighting Program budget.

Given the nature and operation of these small, hard-to-reach retailers, as is evident in the

program design, it was acknowledged by SDG&E and SCE that these retailers were unlikely to

maintain sales records for their inventory in the same manner that larger chain stores might do.

As a result, manufacturers would be unable to invoice SDG&E based on sales data. To

accommodate this scenario, as reflected in SDG&E’s Primary Lighting Program Handbook for

2017 (“Program Handbook”), manufacturers were provided with the option to invoice SDG&E

using shipment data rather than sales data.6 The Program Handbook identified the requirements

necessary for payment using shipment data, and SDG&E’s Customer Programs staff assigned to

the Upstream Lighting Program were required to review the invoices and supporting

5
The “RTR Appendix” is available at,
http://calmac.org/publications/CPU0152.02.Impact.2015Up&ResDownLighting.DNVGL.2017.pdf.
6
Program Handbook at 7.

4
documentation from the manufacturers.7 The figure, below and provided in SDG&E’s June 8,

2020 response, illustrates the design of the Upstream Lighting Program and the prescribed

process for reviewing invoices:

The flexibility afforded by the use of shipment data allowed the Upstream Lighting

Program to expand into hard-to-reach markets and significantly raised potential cost-efficiency

savings. Without this adjustment, it would have been difficult or impossible to place the energy-

efficient bulbs in the hard-to-reach stores. However, the use of shipment data removed some of

the requirements that provided a clear basis for tracking and inspection, and clearly contributed

to the problems discovered by SDG&E in the course of its investigation, described below.

III. PROCEDURAL HISTORY

The Ruling Seeking Comment also directed SDG&E and SCE to propose remedies to

account for the 2017 DNV GL Report’s finding that approximately “80 percent of SCE’s

program bulbs and 95 percent of SDG&E’s program bulbs [in the discount and grocery store

channels] may not have been sold to customers and were likely overstocked or missing entirely”

7
Id. at 10.

5
and that “[t]hese discrepancies made up roughly 60 percent of SCE’s and 80 percent of

SDG&E’s total upstream lighting program bulbs.”8 Specifically, the Ruling Seeking Comment

directed both SDG&E and SCE to respond to the following questions:

1. What remedies do you propose to address the findings of the "Upstream and
Residential Downstream Lighting Impact Evaluation Report: Lighting Sector –
Program Year 2017," published April 1, 2019, by DNV GL, with respect to
unaccounted-for lamps?

2. Should the Commission order refunds or other compensation to the ratepayers

of SCE and SDG&E for the upstream lighting lamps that were unaccounted for in
the 2017 program year? Explain your reasoning.

3. If refunds or compensation are warranted, how should the amounts be

calculated? What are your proposed amounts? Provide and explain your
calculations.

4. If refunds or compensation are warranted, what method or vehicle should be

used to credit the appropriate amounts to ratepayers? Explain your approach.

5. Make any other comments or proposals related to the topic of the 2017
upstream lighting impact evaluation and its findings with respect to unaccounted-
for shipments of lamps.9

SDG&E and SCE were given until January 31, 2020, to file and serve responses to the Ruling

Seeking Comment, and interested parties were given until February 14, 2020, to file and serve

comments.

On January 31, 2020, SDG&E responded to the Ruling Seeking Comment. In its

response, SDG&E noted that it had begun a review of program activity. SDG&E urged the

Commission to refrain from reaching any final conclusions until SDG&E completed its review

and was able to provide a more detailed report. SDG&E also indicated that it would need

approximately three months to conduct its review. Finally, SDG&E noted that if it failed to

reasonably administer the Upstream Lighting Program, then a refund would be appropriate.

8
January 9 Ruling at 4.
9
Id. at 8.

6
 On February 14, 2020, following SDG&E’s January 31, 2020 response, Cal Advocates

and TURN were the only parties to file comments. Both Cal Advocates and TURN raised

serious concerns about SDG&E’s and SCE’s mismanagement of the Upstream Lighting Program

and recommended refunds and other remedies, but also agreed that time for additional

investigation should be allowed.

As noted above, on April 3, 2020, the ALJ issued another ruling expanding its January 9

Ruling to include the 2018 program year and the 2018 DNV GL Report. The Ruling also set

June 8, 2020, as the deadline for SCE and SDG&E to report on their investigations and respond

to the questions in the Ruling Seeking Comment.

On June 8, 2020, SDG&E responded to both the Ruling Seeking Comment and Email

Ruling Seeking Further Comment, describing how it conducted a good faith and thorough

independent investigation into the activities under the Upstream Lighting Program for the 2017

and 2018 program years. Since the 2017 Upstream Lighting Program year marked the shift in

program strategy to emphasize hard-to-reach retail locations, SDG&E proactively reviewed the

activities during the 2019 program year, although not required by the ALJ Rulings. In the course

of its investigation, SDG&E engaged an independent third-party investigator to conduct a

forensic investigation, which included conducting approximately 30 witness interviews and

assisting in the gathering and review of thousands of documents. Ultimately, the investigator

reached conclusions demonstrating that SDG&E’s management of the Upstream Lighting

Program was imprudent and inconsistent with Program requirements. SDG&E also noted that it

had taken steps to address the limited number of employees within its Customer Programs who

had responsibility for the Upstream Lighting Program for the 2017 through 2019 program years.

In addition, SDG&E noted that it had taken and would continue to take measures to assure

7
compliance and effective and efficient operation of its EE portfolio. Moreover, SDG&E noted

that it was considering pursuing legal remedies at shareholder expense against the manufacturers

who participated in the Upstream Lighting Program. Finally, SDG&E proposed to refund

ratepayers approximately $11.267 million in shareholder incentives awarded or to be awarded

through the Energy Savings Performance Incentive mechanism for 2017-2019.

On July 17, 2020, Cal Advocates and TURN filed a Joint Motion asking the Commission

to order SCE to undergo an independent external investigation of SCE’s Upstream Lighting

Program funded by SCE’s shareholders and to extend the time to file comments on both SCE’s

and SDG&E’s June 8, 2020 responses. SCE responded to this motion on July 22, 2020. On the

basis of SCE’s representations, the ALJ suspended the comment deadlines, directed SCE to file

the results of its investigation by no later than October 30, 2020, and gave interested parties an

opportunity to file comments on December 11, 2020, and reply comments on January 15, 2021.

On October 19, 2020, SCE requested an extension to submit its investigative report and to file

opening and reply comments on the report. The ALJ granted SCE’s request on October 19,

2020, extending the deadline for SCE to file and serve the results of its investigation by no later

than November 30, 2020, and setting opening and reply comment deadlines to January 20, 2021,

and February 19, 2021, respectively.

Since receiving SDG&E’s June 8, 2020, response, Cal Advocates issued a number of data

requests, to which SDG&E responded. The data requests were followed by multiple rounds of

settlement discussions with Cal Advocates and TURN, involving additional information

exchange, which resulted in this Settlement Agreement.

8
 Pursuant to Rule 12.1(b) of Rules of Practice and Procedure of the Commission”),

SDG&E hosted a settlement conference that was noticed on October 22 and held on October 29,

2020.

IV. DESCRIPTION OF SETTLEMENT AGREEMENT

The Settlement Agreement has been extensively negotiated by the Settling Parties in good

faith and includes the following principle terms and conditions, including an acknowledgment by

SDG&E.

A. SDG&E Acknowledgement

SDG&E understands that its responsibility as a program administrator of energy

efficiency programs requires prudent management and accurate data reporting to the

Commission. SDG&E acknowledges its failure to prudently manage the Upstream Lighting

Program in 2017-2019 and that SDG&E knowingly submitted inaccurate information,

compliance documents, and other reports to the Commission.

B. Refunds

In light of the foregoing acknowledgement, SDG&E agrees to provide the following

refunds to ratepayers.

1. Program Refund

SDG&E agrees to return $45.440 million in shareholder funds to its ratepayers for funds

spent by SDG&E on energy-efficient light bulbs in connection with the Upstream Lighting

Program during the 2017, 2018, and 2019 program years. This amount reflects a reasonable

estimate of the program cost for efficient light bulbs purportedly shipped by manufacturers to

discount and grocery store channels that could not have been stocked and sold by these retailers

or otherwise absorbed by the market in SDG&E’s service territory. Although it is impossible to

determine exactly how many of the light bulbs were actually purchased by consumers, the

9
Settling Parties have used available data from the Commission’s consultant, DNV GL, to

estimate the effectiveness of the program and, therefore, to determine how much of the funding

should be returned to ratepayers. Following Commission Approval, this refund will be credited

to the Post-1997 Electric Energy Efficiency Balancing Account (“PEEEBA”), and then refunded

to ratepayers as part of SDG&E’s next Consolidated Rate Filing.

2. Energy Efficiency Shareholder Incentive Award Refund

SDG&E agrees to return $6.162 million in shareholder funds to ratepayers for awards it

received, or is due to receive, as part of the Efficiency Savings Performance Incentive (“ESPI”)

mechanism for the 2017, 2018, and 2019 program years. ESPI awards are based on SDG&E’s

role and performance in administering its Energy Efficiency Portfolio. Following Commission

Approval, this refund will be credited to the Rewards and Penalties Balancing Account

(“RPBA”), and then refunded to ratepayers as part of SDG&E’s next Consolidated Rate Filing.

3. Tax Treatment of Refunds

The Settling Parties agree that for purposes of the identification requirement of Section

162(f)(2)(A)(ii) of the Internal Revenue Code, 26 U.S.C. §162(f)(2)(A)(ii), the performance by

SDG&E of the refunds described above in Section IV. B. 1 and 2 are restitution or required in

order to come into compliance with the law.

C. Rule 1.1. Fine

Based on the foregoing acknowledgement (set forth in Section IV. A.), SDG&E agrees to

pay a fine of $5.5 million in shareholder funds for violation of Rule 1.1. This fine results from

two violations committed by SDG&E when it knowingly submitted inaccurate information to the

Commission in its (1) 2017 Energy Efficiency Annual Report, filed on May 1, 2018, and its (2)

2018 Energy Efficiency Annual Report, filed on May 1, 2019. For purposes of this Settlement

Agreement, the Settling Parties agree that these violations were continuing until they were cured

10
by SDG&E on June 8, 2020, when it informed the Commission of the results of its external

investigation of the Program. The daily fine amount of approximately $4,677 is based on a total

day count of 1,176 for both violations and is intended to reflect the five factors used by the

Commission to set Rule 1.1 fines: (1) severity of the offense; (2) conduct of the utility; (3) the

financial resources of the utility; (4) the totality of the circumstances; and (5) the role of

precedent, which are discussed in more detail, below. Within 60 days of Commission Approval

of this Settlement Agreement, SDG&E will pay this fine to the General Fund of the State of

California.

D. Other Terms

1. Cost of Investigation

The cost of SDG&E’s hiring of an outside investigator to investigate the 2017, 2018, and

2019 Upstream Lighting Program, estimated at $1.5 million, will be borne by shareholders and

not recovered from ratepayers.

2. Recovery from Manufacturers

If SDG&E pursues and recovers money from manufacturers for wrongdoing related to the

Program during the 2017, 2018, or 2019 program years, SDG&E ratepayers will be awarded

33% of any amount SDG&E is able to recover in litigation or settlement, after costs are

accounted for.

3. Terms to Promote Timely and Effective Employee Whistleblower

Reporting

SDG&E will encourage timely and effective reporting by employees of utility conduct

that violates the Commission’s rules, regulations, requirements, and orders, including but not

limited to activities that employees suspect are unsafe, unlawful, or dishonest, through the

following agreements.

11
 a) SDG&E has requested and been advised that Sempra Energy will

within 90 days of Commission Approval of this Settlement Agreement expand the information on

its Ethics & Compliance Helpline webpage (at

https://secure.ethicspoint.com/domain/media/en/gui/51305/faq.html) by adding a new FAQ that

would include the following:

Who can I report to?

All employees have a duty to timely report any known or perceived violation of
the Code of Business Conduct
(https://www.sempra.com/sites/default/files/content/files/node-page/file-
list/2020/CodeofBusinessConduct-2020.pdf) or the law. All concerns can be
reported to your supervisor or any of the contacts listed in the Code. If you
don’t feel comfortable talking to your supervisor directly, or are not satisfied
with your supervisor’s response, you may contact another member of
management, Human Resources, the Chief Ethics Officer
(Ethics@sempra.com) or the Ethics & Compliance Helpline (800-793-7723 or
EthicsHelpline@sempra.com). Concerns can be raised anonymously through
the Ethics & Compliance Helpline.

If you are a customer, supplier or contractor for a Sempra Energy company, you
may also report concerns through the Ethics & Compliance Helpline (800-793-
7723 or EthicsHelpline@sempra.com).

Shareholders, employees and other interested persons who wish to

communicate with the audit committee of Sempra Energy’s board of directors
may do so by writing to the committee care of Sempra Energy’s corporate
secretary at (SempraAuditCmte@sempra.com ). The purpose of the audit
committee is to assist the board of directors in fulfilling the board’s oversight
responsibilities regarding: the corporation’s internal controls over financial
reporting, the integrity of the corporation’s financial statements, the
corporation’s compliance with legal and regulatory requirements, the
qualification and independence of the independent auditor, and the
performance of the corporation’s internal audit function and independent
auditor.

Employees, contractors, or subcontractors for SDG&E and Southern California

Gas Company may also report suspected unsafe, unlawful, or dishonest
activity to the California Public Utilities Commission’s Whistleblower
hotline. (https://www.cpuc.ca.gov/Whistleblower/ or 800-649-7570)

12
 b) SDG&E shall provide whistleblower training within one year of

Commission Approval of this Settlement Agreement to all SDG&E employees and Corporate

Center Employees whose costs are allocated in whole or in part to the utility, as follows:

 Selection of Trainer and Costs

1. Shareholders will pay for training

2. SDG&E will select a third-party contractor to create the training, which

would be offered as an on-line training similar to the current Code of
Business Conduct training.

 Scope of Training

1. State and federal rights of whistleblowers (and limits to those rights)

2. External Reporting

a. Opportunity to submit anonymous whistleblower complaints to the

CPUC

b. Other state and federal whistleblower programs that may be

relevant to utility employees

3. Internal Reporting

a. Opportunity to contact another member of management,

whether your supervisor or another manager

b. Opportunity to contact the Sempra Energy Board of

Directors Audit Committee by writing to the committee
care of Sempra Energy’s corporate secretary at
(SempraAuditCmte@sempra.com).

c. Opportunity to submit anonymous, confidential complaints

to the Sempra Energy Ethics & Compliance Helpline

d. Opportunity to submit complaints to the Helpline

management team or the Chief Ethics Officer

e. Information about how complaints are investigated and

what happens next, including protection from retaliation

 Proof of Compliance

13
 Within 60 days of completing this whistleblower training, SDG&E will provide TURN

and Cal Advocates (a) a copy of the training materials used to satisfy this requirement and (b)

a certificate of completion.

c) Subsequent to the whistleblower training described above under

item b, SDG&E will incorporate training on CPUC Rule 1.1 and the importance of timely

reporting of non-compliance issues into a supplement to the annual Business Code of Conduct

training that will be taken by all SDG&E employees and Sempra Corporate Center employees

whose costs are allocated in whole or in part to SDG&E. SDG&E will provide TURN and Cal

Advocates a copy of the supplemental training materials used to satisfy this requirement.

d) SDG&E understands that TURN and Cal Advocates may advocate

that the Commission expand its own whistleblower program in response to the 2017 and 2018

Upstream Lighting Impact Evaluations and related investigations, with applicability to all

utilities. TURN and Cal Advocates agree not to recommend additional remedies for SDG&E for

its conduct with regard to the Upstream Lighting Program for the 2017, 2018 and 2019 program

years, beyond those expressly provided for in this Settlement Agreement, but reserve the right to

recommend that a portion of the agreed upon fines for SDG&E be directed to support the

Commission’s whistleblower program. SDG&E reserves the right to respond to any such

recommendations by TURN and Cal Advocates.

V. THE SETTLEMENT AGREEMENT IS REASONABLE IN LIGHT OF THE

WHOLE RECORD, CONSISTENT WITH THE LAW AND IN THE PUBLIC
INTEREST

Numerous Commission decisions have endorsed settlements and express a strong public

policy favoring settlement of disputes if they are fair and reasonable in light of the whole

14
record.10 This policy supports many worthwhile goals, including not only reducing the expense

of litigation and conserving scarce Commission resources, but also allowing parties to reduce the

risk that litigation will produce unacceptable results.11 This strong public policy favoring

settlements also weighs in favor of the Commission resisting the temptation to alter the results of

the negotiation process. Where a settlement taken as a whole “is reasonable in light of the whole

record, consistent with law, and in the public interest,” it should be adopted without change to

avoid “harm[ing] the balancing of interests and compromises achieved in the Settlement.”12 As

shown below, the Settlement Agreement meets this standard.

A. The Settlement Agreement is Reasonable in Light of the Whole Record

Regarding settlement agreements, the whole record “consists of all filed documents, the

Settlement and the motion for its adoption.”13 Here, the record also includes the 2017 DNV GL

Report, incorporated by reference into the Ruling Seeking Comment, and the 2018 DNV GL

Report, incorporated by reference into the Email Ruling Seeking Further Comment. SDG&E’s

Comments in response to the ALJ’s Rulings, as well as those of Cal Advocates and TURN, are

part of the record in support of the proposed Settlement Agreement. In particular, SDG&E’s

June 8, 2020 response provide sufficient detail regarding its Upstream Lighting Program for the

years in question and include a summary of the findings of the independent outside investigator

it retained to examine the issues. These findings, as noted above, were based on approximately

30 witness interviews and the gathering and review of thousands of documents. The Comments

10
See, e.g., D.05-10-041 at 47 and D.15-04-006 at 8-9.
11
D.14-12-040 at 33-35.
12
D.16-07-008 at 12; Rule 12.1(d) of the Commission’s Rules of Practice and Procedure (requiring that
settlements be “reasonable in light of the whole record, consistent with law, and in the public interest” for
Commission approval).
13
D.15-03-006 at 6.

15
of Cal Advocates and TURN both agreed that SDG&E should be afforded additional time for

investigation and, prior to receiving the results of the investigation, stated that ratepayer refunds

would be necessary.14 This Settlement takes into account the results of the in-depth investigation

conducted by SDG&E and proposes to refund both program costs and ESPI awards back to

ratepayers, among other remedies, as discussed above.

B. The Settlement Agreement is Consistent with the Law

To determine if a settlement is consistent with the law, the Commission evaluates

whether the settlement contravenes a statute or prior Commission decision.15 Here, the

Settlement Agreement is consistent with the law because its terms are consistent with the legal

standard the Commission uses in assessing penalties for non-compliance. In particular, the

Settlement Agreement was based on consideration of the five factors the Commission uses to

measure the appropriateness of sanctions, such as refunds and fines: (1) severity of the offense;

(2) conduct of the utility; (3) the financial resources of the utility; (4) the totality of the

circumstances; and (5) the role of precedent.16

1. Severity of the Offense

As noted in SDG&E’s June 8, 2020 response to the ALJ’s Rulings, its independent

investigator’s conclusions were significant. The regulatory process was harmed in that

SDG&E’s Customer Programs failed to prudently manage the Upstream Lighting Program,

which is inconsistent with the Commission’s policies in support of energy efficiency as a critical

14
TURN Opening Comments (February 14, 2020) at 3-4; Cal Advocates Opening Comments (February
14, 2020) at 3-5.
15
D.17-03-005 at 6.
16
See, e.g., D.19-12-001 at p. 12-13; and Pacific Gas & Elec. Co. v. PUC, 237 Cal. App. 4th 812, 845
(2015).

16
tool for addressing greenhouse gas (“GHG”) emissions in the energy sector17 and which led to

inaccurate reporting to the Commission. In particular, SDG&E knowingly submitted inaccurate

information to the Commission in two annual reports, submitted in May 2018 (for the program

year 2017) and May 2019 (for the 2018 program year).

Moreover, SDG&E could have addressed concerns about overstatements of bulb

quantities before the ALJ’s Ruling Seeking Comment. SDG&E’s independent investigation

found that Customer Program employees were aware of significant problems with the quantity of

bulbs invoiced by manufacturers to SDG&E two years earlier, in early 2018, and reported

concerns to Director-level and Manager-level employees in the Customer Programs group. In

addition, SDG&E approved noncompliant invoices and failed to conduct inspections despite

recognizing the need for such inspections in early 2018. Customer Program staff continued to

have concerns about the alleged quantities of bulbs delivered during the 2018 program, and

Director-level and Manager-level employees were aware of these concerns. Nonetheless,

SDG&E continued to report program results to the Commission without adjusting the bulb

quantities or noting any concerns.18

SDG&E takes responsibility for this failure and commits to taking steps designed to

prevent this from happening again, including fulfilling the remedies proposed in the Settlement

Agreement. That said, the non-compliance documented by SDG&E’s independent investigation

was limited to a relatively small group of employees (i.e., it was not known among employees

outside the Customer Programs group, including other directors, vice presidents, or other

executive-level employees at SDG&E). Further, the immediate harm was limited to economic

17
Energy Action Plan (2008 Updates), pp. 3, 6.
18
SDG&E June 8 Response, pp. 5-7.

17
impact (i.e., there was no direct or immediate physical harm to public health and safety or

reduction in the safety of employees).

2. Conduct of the Utility

Upon receipt of the ALJ’s Ruling Seeking Comment, SDG&E’s management moved

quickly to determine the answers to the ALJ’s questions and retained an independent outside

investigator on January 17, 2020. During the following months, SDG&E provided the

investigator with complete access to employees, including the limited number of employees who

had been responsible for managing the Upstream Lighting Program during the years in question

and who remained with the company. The investigator was also provided access to thousands of

pages of relevant documents and e-mails. As noted above, following the conclusion of the

investigator’s significant efforts, a summary of the factual findings were provided to the

Commission in SDG&E’s June 8, 2020 response. In addition, concerning discovery efforts by

Cal Advocates, SDG&E provided responsive information to all of Cal Advocates’ requests.

SDG&E’s conduct following the ALJ’s Ruling Seeking Comment reflects considerable

effort to ensure that the investigation was complete and thorough and to be transparent about the

results. Moreover, although the Upstream Lighting Program was closed, effective January 1,

2020, the investigation into the Upstream Lighting Program has caused Customer Programs to

review, assess and expand its efforts and measures to assure the prudent management and

effective implementation of all its energy efficiency programs going forward. These reasonable

review efforts began prior to the start of negotiations for this settlement and include the

following, as reported by SDG&E in its June 8, 2020 response:

 In view of the investigation’s conclusions, SDG&E reviewed the role of the

Upstream Lighting Program team that was responsible for the management of the
program during the relevant years. As of the start of the investigation, several of
the employees had already left the company, but others remained. The failure of
that group to properly implement the Upstream Lighting Program is unacceptable,

18
 and the limited group of remaining employees primarily responsible for managing
the program received significant and appropriate discipline based on their role,
including separation of employment.

 Going forward, there will be further emphasis on audits and inspections.

Customer Programs conducted a review of its current programs and implemented
changes in its inspection protocols to ensure that current inspection rates follow
industry-standard practice. They will continue to develop additional, statistically
sound methodologies for each program to establish the frequency of field
inspections. For new programs, inspection rates are being expressly included in a
contract’s statement of work and metrics. For third-party implemented programs,
where inspections are conducted by the third-party, SDG&E will be auditing these
inspections and results and also conducting inspections beyond those performed
by the vendor, along with a pay-for-performance contract term.

 Customer Programs is developing a program administration training program for

its staff as they bring in new contractors. The training is expected to elevate
program advisor knowledge and implementation of best practices in managing
contracts for existing programs, including tracking and managing contract
performance indicators and metrics, scopes of work, and other contract elements.
This training will also extend to ancillary groups that provide systems,
engineering, inspections, policy, and compliance support.

 Customer Programs has strengthened the process for invoice review and payment.
In order to address issues created by the siloed review of invoices, they have
developed a formal checklist procedure for the review and approval of each
invoice, which includes signature requirements of the reviewer and approver, to
ensure that appropriate documentation is included with each invoice and that the
invoice is accurate and paid in accordance with program and company rules.
Furthermore, Customer Programs will institute a training program regarding
program requirements for its energy efficiency programs staff at all levels who are
responsible for reviewing and approving invoices to ensure internal approval
policies and standards are understood and followed.

 Customer Programs has developed and strengthened the process for onboarding
new vendors and contractors, including a more in-depth review of whether such
vendors and contractors can contractually, legally, and financially perform under
their contracts. This includes conducting credit reviews where appropriate and
ensuring that solicitation processes are implemented.

 Customer Programs has also instituted additional monitoring processes to ensure

that vendors and contractors comply with program rules, especially where
program rules change after contracts have been signed. This effort will include
more frequent meetings with contractors and internal customer program staff to
discuss vendor/contractor compliance and internal program compliance, in
addition to program performance. While such monitoring work has been
implemented on a quarterly basis, Customer Programs has identified the need to

19
 conduct these processes with more formalized procedures and increase the
frequency of meetings for new programs to a monthly basis for at least the first 6
months of the program.

 Customer Programs is developing protocols in cases of contractor non-

compliance, including instituting controls corresponding to corrective action. In
conjunction with enforcement of contractor compliance, Customer Programs is
also examining existing protocols and tools to ensure its own compliance (e.g.,
audits from an internal audit group and/or Customer Programs Compliance
group).19

On the whole, the remedies set forth in the Settlement Agreement reflect SDG&E’s

conduct both before the ALJ’s Ruling Seeking Comment and afterward, when it commenced the

independent investigation, acknowledged responsibility for the imprudent management of the

Upstream Lighting Program, and took steps to improve its processes.

3. Financial Resources of the Utility

Although it is the smallest of the investor-owned utilities in California, SDG&E has

significant financial resources. That said, these resources are not unlimited. Moreover, Settling

Parties believe that the total package of remedies included in the Settlement Agreement,

including refunds and fines totaling $58.6 million, is not excessive and is reasonable in light of

the issues identified in order to have the intended deterrent effect on future misconduct while

also providing adequate restitution to SDG&E’s ratepayers.

4. Totality of the Circumstances

Although serious, as noted above, the imprudent management that led to the unaccounted

for bulbs and inaccurate reporting to the Commission resulted from a failure among a relatively

small group of employees, managers, and a single director. The problem, in other words, was

not widespread throughout the company. As noted above, based on the independent

investigator’s findings, it was not known among employees outside this group, including other

19
SDG&E June 8 Response, pp. 8-11.

20
directors, vice presidents, or other executive-level employees at SDG&E. Moreover, as noted

above, physical safety was not an issue. In addition, the investigation did not find evidence that

any employee of SDG&E engaged in fraud or personally benefited from the imprudent

management. That said, SDG&E is responsible for this conduct, which resulted in economic and

regulatory harm, and stands ready to meet all the terms of the Settlement Agreement. These

efforts to “own” the problem and move forward in a proactive way should be considered as part

of the totality of circumstances, demonstrating that the remedies set forth in the Settlement

Agreement are sufficient to resolve the issues.

5. Role of Precedent

The Settling Parties considered previous Commission settlements and decisions in

evaluating the terms of the Settlement Agreement and find that this Settlement Agreement is not

inconsistent with those prior decisions. For example, there are several past Commission cases

involving a violation of Rule 1.1, refund of ratepayer funds, payment to the general fund, and

remedial measures. In particular, the Settling Parties reviewed D.08-09-038 as relevant to the

issues regarding the Upstream Lighting Program. In that case, the Commission imposed a

penalty of $30 million on SCE, which amounts to just under $12,000 per day for 7 years, for one

ongoing violation of Rule 1.1.20 The Commission determined that SCE violated the

Commission’s decision on Performance Based Ratemaking (PBR) and Rule 1.1.21 The

Commission found that SCE submitted false and misleading data to obtain PBR awards.22 The

misconduct included underreporting of first aid data.23 The Commission noted that the most

20
D.08-09-038 at 111.
21
Id. at 2, 139-140.
22
Id. at 2, 6.
23
Id. at 101.

21
serious violation is one that results in harm to physical safety,24 a factor that is not present in the

Upstream Lighting issues.

The economic harm to ratepayers was also substantial in the SCE PBR penalty, totaling

more than $80 million in ratepayer funding rewarded based on false and misleading

information.25 Further, SCE’s conduct harmed the regulatory process by abusing an incentive

mechanism and breaking the trust between the Commission and the utility.26 In imposing

penalties, the Commission found that the misconduct was severe given that it “was widespread

throughout the company, affected all ratepayers and employees, and were [sic] continuing

violations.” 27

The circumstances at issue in D.08-09-038 are distinct from those here, where the

misconduct was limited to a relatively small group of SDG&E employees who managed the

Upstream Lighting Program. However, similar to the case here, SCE’s “excellent cooperation,”

investigation, self-reporting, and corrective measures when the misconduct came to light were

mitigating factors28 and should similarly be considered mitigating in the instant proceeding. In

approving the reasonableness of the settlement in D.08-09-038, the Commission cited a number

of prior decisions that supported its findings.29

24
Id. at 111.
25
Id. at 102.
26
Id. at 102-103.
27
Id. at 103.
28
Id. at 108.
29
Id. at 109-111 (citing to D.94-04-057, Toward Utility Rate Normalization, Inc. v. Pacific Bell; D.02-10-
073, The Utility Consumers’ Action Network v. Pacific Bell; D.03-01-087, Investigation into Qwest
Corp.; and Pacific Bell Wireless, LLC v. Pub. Util. Comm’n, 140 Cal. App. 4th 718, 728 (2006)).

22
 In addition, D.16-01-014 provides another relevant precedent to demonstrate the

reasonableness of this Settlement, and in particular, the penalty applied for the Rule 1.1

violation. In that decision, the Commission imposed a $7,626,000 penalty on Rasier-CA, LLC

(“Rasier”), the company that operates Uber, for failing to comply with a Commission decision

setting forth reporting requirements for rideshare companies and for violating Rule 1.1.30 In

considering the severity of the offense, the Commission found that Rasier’s conduct harmed the

regulatory process because it impeded the Safety and Enforcement Division’s (SED) ability to

analyze data to determine the impact of rideshare operations in the state.31 Additionally, the

Commission found the legal arguments made by Rasier in the proceeding to be specious and

unsubstantiated.32 Rasier was out of compliance for time periods ranging from 168-328 days for

five violations and was fined $5,000 per day, totaling $7,626,000.33 These date ranges

represented the dates between the time Rasier submitted its annual report or became aware of the

responsive information and the time when Rasier complied with the reporting requirements.34

C. The Settlement Agreement is In the Public Interest

The Settlement Agreement was reached after extensive negotiations by parties that were

actively engaged in examining the conduct in question, including ratepayer advocacy groups.

The negotiation process itself, involving groups dedicated to protecting the rights of ratepayers,

lends credence to the fact that the Settlement Agreement is in the public interest and is the

preferred outcome. In particular, the support of Cal Advocates, the independent organization

30
D.16-01-014 at 6-7, 128, 158-159.
31
Id. at 78-79, 145.
32
Id. at 36, 82.
33
Id. at 2, 82-83, 159, 160.
34
Id. at 2, 5, 34.

23
within Commission responsible for representing ratepayer interests, strongly indicates that the

Settlement Agreement is reasonable and in the public interest.

VI. CONCLUSION

For all the foregoing reasons, the Commission should find that the Settlement Agreement

is reasonable in light of the whole record, consistent with the law, and in the public interest,

thereby resolving all outstanding issues in this proceeding with respect to the ALJ’s Ruling

Seeking Comment and the Email Ruling Seeking Further Comment.

Dated in San Diego, California, this 9th day of December, 2020.

Respectfully submitted,

By: /s/ Erica L. Martin

Erica L. Martin

ERICA L. MARTIN
8330 Century Park Court, CP32C
San Diego, California 92123
Telephone: (858) 654-1813
Facsimile: (619) 699-5027
E-mail: emartin8@sdge.com

Attorney for
SAN DIEGO GAS & ELECTRIC COMPANY

24
ATTACHMENT A
 SETTLEMENT AGREEMENT REGARDING ADMINISTRATIVE LAW JUDGE
RULINGS RELATED TO SAN DIEGO GAS & ELECTRIC COMPANY’S UPSTREAM
RESIDENTIAL LIGHTING PROGRAM FOR THE YEARS 2017-2019

I. INTRODUCTION

Pursuant to Rule 12.1 of the Rules of Practice and Procedure of the California Public Utilities
Commission (“Commission”), San Diego Gas & Electric Company (“SDG&E”), the Public
Advocates Office at the California Public Utilities Commission (“Cal Advocates”), and The Utility
Reform Network (“TURN”) (collectively, the “Settling Parties”) enter into this agreement resolving
all issues raised in the Administrative Law Judge’s Rulings, dated January 9 and April 3, 2020
related to SDG&E’s Upstream Residential Lighting Program for the years 2017 and 2018
(“Settlement Agreement”), including issues arising from SDG&E’s conduct in implementing and
administering the Upstream Lighting Program, as well as the energy savings claims and other
reporting submitted by SDG&E to the Commission regarding the Upstream Lighting Program. In
addition, although not addressed in the January 9 and April 3, 2020 Rulings, the Settlement
Agreement resolves the same issues as they relate to SDG&E’s Upstream Lighting Program for the
program year 2019.

Settling Parties acknowledge that the terms and conditions reflected in this Settlement
Agreement were reached after consideration of positions advanced by all Settling Parties and declare
and mutually agree that the terms and conditions herein are reasonable, consistent with the law, and
in the public interest.

II. RECITALS

A. On January 9, 2020, in Rulemaking 13-11-005 (“Order Instituting Rulemaking

Concerning Energy Efficiency Rolling Portfolios, Policies, Programs, Evaluation and Related
Issues”), the Administrative Law Judge (“ALJ”) issued a Ruling Seeking Comment on Upstream
Lighting Program Impact Evaluation for Program Year 2017 (“January 9 Ruling”). The January
9 Ruling sought comments regarding the Upstream and Residential Downstream Lighting
Impact Evaluation Report, Lighting Sector – Program Year 2017 prepared by DNV GL Energy
Insights USA, Inc. (“DNV GL Report”) and issued by the California Public Utilities
Commission (“Commission”) on April 1, 2019. The January 9 Ruling focused on findings in the
DNV GL Report indicating that the 2017 Upstream Lighting Programs at both Southern
California Edison Company (“SCE”) and SDG&E resulted in approximately 15 million
unaccounted for energy efficient light bulbs subsidized by ratepayers. The January 9 Ruling also
sought responses to five questions related to the potential for remedies or refunds associated with
SCE’s and SDG&E’s 2017 Upstream Lighting Programs.

B. On January 31, 2020, SDG&E responded to the January 9 Ruling. In its response,
SDG&E noted that it had begun a review of activities under its Upstream Lighting Program
(“Program”) and urged the Commission to refrain from reaching any final conclusions until
SDG&E completed its review and was able to provide a more detailed report. SDG&E also
indicated that it would need approximately three months to conduct its review. Finally, SDG&E
noted that if it failed to reasonably administer the Program, then a refund would be appropriate.
1
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
 C. On February 14, 2020, following SDG&E’s January 31, 2020 response, Cal
Advocates and TURN were the only parties to file comments. Both Cal Advocates and TURN
raised serious concerns about SDG&E’s and SCE’s mismanagement of the Upstream Lighting
Program and recommended refunds and other remedies, but also agreed that time for additional
investigation should be allowed.

D. On April 3, 2020, the ALJ issued another Ruling (“April 3 Ruling”), expanding its
January 9 Ruling to include the 2018 program year for both SCE’s and SDG&E’s Upstream
Lighting Programs and setting June 8, 2020 as the deadline for SCE and SDG&E to report on
their investigations and respond to the questions in the January 9 Ruling.

E. On June 8, 2020, SDG&E responded to both the January 9 and April 3 Rulings,
describing how it conducted a good faith and thorough independent investigation into the
activities under the Program for the 2017 and 2018 program years. Although not required,
SDG&E also reviewed the activities under the Program for the 2019 program year. In the course
of its investigation, SDG&E engaged an independent third-party investigator to conduct a
forensic investigation, which included conducting approximately 30 witness interviews and
assisting in the gathering and review of thousands of documents. Ultimately, the investigator
reached conclusions demonstrating that SDG&E’s management of the Program was imprudent
and inconsistent with Program requirements. SDG&E also noted that it had taken steps to
address the limited number of employees within its Customer Programs group who had
responsibility for the Program for the 2017 through 2019 program years. In addition, SDG&E
noted that it had taken and would continue to take measures to assure compliance, and effective
and efficient operation of its Energy Efficiency (“EE”) portfolio. Moreover, SDG&E noted that
it was considering pursuing legal remedies, at shareholder expense, against the manufacturers
who participated in the Program. Finally, SDG&E proposed a monetary refund.

F. On July 17, 2020, Cal Advocates and TURN filed a Joint Motion asking the
Commission to order a shareholder-funded independent external investigation of SCE’s upstream
lighting program and to extend the time to file comments on both SCE’s and SDG&E’s June 8
responses. SCE responded to this motion on July 22, 2020. On the basis of SCE’s
representations, the ALJ suspended the comment deadlines, directed SCE to file the results of its
investigation by no later than October 30, 2020, and gave interested parties an opportunity to file
comments on December 11, 2020 and reply comments on January 15, 2021. On October 19,
2020, SCE requested an extension to submit its investigative report and to file opening and reply
comments on the report. The ALJ granted SCE’s request on October 19, 2020, extending the
deadline for SCE to file and serve the results of its investigation by no later than November 30,
2020 and setting opening and reply comment deadlines to January 20, 2021 and February 19,
2021, respectively.

G. Since receiving SDG&E’s June 8, 2020 response, Cal Advocates issued a number
of data requests, to which SDG&E responded. This was then followed by multiple rounds of
settlement discussions with Cal Advocates and TURN, involving additional information
exchange, which resulted in this Settlement Agreement.

H. Pursuant to Rule 12.1(b) of Rules of Practice and Procedure of the Commission, a

2
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
settlement conference was noticed and held on October 29, 2020.

III. EFFECTIVE DATE/COMMISSION APPROVAL

This Settlement Agreement shall become effective on the date the last Settling Party
executes the Settlement Agreement; provided, however, that the Settling Parties acknowledge and
agree that the terms and conditions contained herein (including each Settling Party’s
acknowledgments and obligations in this Settlement Agreement) shall be subject to approval and
adoption by the Commission, without material change or condition unacceptable to any adversely
affected Settling Party (“Commission Approval”).

IV. PRINCIPLE TERMS AND CONDITIONS

In consideration of the mutual obligations, covenants and conditions contained herein, the
Settling Parties agree to all of the following terms and conditions, subject to obtaining Commission
Approval:

A. SDG&E Acknowledgement

SDG&E understands that its responsibility as program administrator of energy efficiency

programs requires prudent management and accurate reporting of data to the Commission. SDG&E
acknowledges its failure to prudently manage the Program in 2017, 2018, and 2019 and that
SDG&E knowingly submitted inaccurate information, compliance documents, and other reports to
the Commission.

B. Refunds

In light of the foregoing acknowledgement, SDG&E agrees to provide the following refunds
to ratepayers.

1. Program Refund

SDG&E agrees to return $45.440 million in shareholder funds to its ratepayers for funds
spent by SDG&E on energy efficient light bulbs in connection with the Program during the 2017,
2018, and 2019 program years. This amount reflects a reasonable estimate of the program cost for
efficient light bulbs purportedly shipped by manufacturers to discount and grocery store channels
that could not have been stocked and sold by these retailers or otherwise absorbed by the market in
SDG&E’s service territory. Although it is impossible to determine exactly how many of the light
bulbs were actually purchased by consumers, the Settling Parties have used available data from the
Commission’s consultant, DNV GL, to estimate the effectiveness of the program, and therefore, to
determine how much of the funding should be returned to ratepayers. Following Commission
Approval, this refund will be credited to the Post-1997 Electric Energy Efficiency Balancing
Account (PEEEBA), and then refunded to ratepayers as part of SDG&E’s next Consolidated Rate
Filing.

3
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
 2. Energy Efficiency Shareholder Incentive Award Refund

SDG&E agrees to return $6.162 million in shareholder funds to ratepayers for awards it
received, or is due to receive, as part of the Efficiency Savings Performance Incentive (“ESPI”)
mechanism for the 2017, 2018 and 2019 program years. ESPI awards are based on SDG&E’s role
and performance in administering its Energy Efficiency Portfolio. Following Commission
Approval, this refund will be credited to the Rewards and Penalties Balancing Account (RPBA),
and then refunded to ratepayers as part of SDG&E’s next Consolidated Rate Filing.

3. Tax Treatment of Refunds

The Settling Parties agree that for purposes of the identification requirement of Section
162(f)(2)(A)(ii) of the Internal Revenue Code, 26 U.S.C. §162(f)(2)(A)(ii), the performance by
SDG&E of the refunds described above in Section IV. B. 1 and 2 are restitution or required to come
into compliance with the law.

C. Rule 1.1. Fine

Based on the foregoing acknowledgement (set forth in Section IV.A), SDG&E agrees to pay
a fine of $5.5 million in shareholder funds for violation of Rule 1.1. This fine results from two
violations committed by SDG&E when it knowingly submitted inaccurate information to the
Commission in its (1) 2017 Energy Efficiency Annual Report, filed on May 1, 2018, and its (2)
2018 Energy Efficiency Annual Report, filed on May 1, 2019. For purposes of this Settlement
Agreement, the Settling Parties agree that these violations were continuing until they were cured by
SDG&E on June 8, 2020, when it informed the Commission of the results of its external
investigation of the Program. Within 60 days of Commission Approval of this Settlement
Agreement, SDG&E will pay this fine to the General Fund of the State of California.

D. Other Terms

1. Cost of Investigation

The cost of SDG&E’s hiring of an outside investigator, estimated at $1.5 million, will be
borne by shareholders and not recovered from ratepayers.

2. Recovery from Manufacturers

If SDG&E pursues and recovers money from manufacturers for wrongdoing related to the
Program during the 2017, 2018 or 2019 program years, SDG&E ratepayers will be awarded 33% of
any amount SDG&E is able to recover in litigation or settlement, after costs are accounted for.

3. Terms to Promote Timely and Effective Employee Whistleblower

Reporting

SDG&E will encourage timely and effective reporting by employees of utility conduct that
violates the Commission’s rules, regulations, requirements, and orders, including but not limited to
activities that employees suspect are unsafe, unlawful, or dishonest, through the following
4
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
agreements.

a) SDG&E has requested and been advised that Sempra Energy will
within 90 days of Commission Approval of this Settlement Agreement expand the information on
its Ethics & Compliance Helpline webpage
(at https://secure.ethicspoint.com/domain/media/en/gui/51305/faq.html) by adding a new FAQ
that would include the following:

Who can I report to?

All employees have a duty to timely report any known or perceived violation of
the Code of Business Conduct
(https://www.sempra.com/sites/default/files/content/files/node-page/file-
list/2020/CodeofBusinessConduct-2020.pdf) or the law. All concerns can be
reported to your supervisor or any of the contacts listed in the Code. If you
don’t feel comfortable talking to your supervisor directly, or are not satisfied
with your supervisor’s response, you may contact another member of
management, Human Resources, the Chief Ethics Officer
(Ethics@sempra.com) or the Ethics & Compliance Helpline (800-793-7723 or
EthicsHelpline@sempra.com). Concerns can be raised anonymously through
the Ethics & Compliance Helpline.

If you are a customer, supplier or contractor for a Sempra Energy company, you
may also report concerns through the Ethics & Compliance Helpline (800-793-
7723 or EthicsHelpline@sempra.com).

Shareholders, employees and other interested persons who wish to

communicate with the audit committee of Sempra Energy’s board of directors
may do so by writing to the committee care of Sempra Energy’s corporate
secretary (at SempraAuditCmte@sempra.com). The purpose of the audit
committee is to assist the board of directors in fulfilling the board’s oversight
responsibilities regarding: the corporation’s internal controls over financial
reporting, the integrity of the corporation’s financial statements, the
corporation’s compliance with legal and regulatory requirements, the
qualification and independence of the independent auditor, and the
performance of the corporation’s internal audit function and independent
auditor.

Employees, contractors, or subcontractors for SDG&E and Southern California

Gas Company may also report suspected unsafe, unlawful, or dishonest
activity to the California Public Utilities Commission’s Whistleblower
hotline (https://www.cpuc.ca.gov/Whistleblower/ or 800-649-7570).

b) SDG&E shall provide whistleblower training within one year of

Commission Approval of this Settlement Agreement to all SDG&E employees and Corporate
Center Employees whose costs are allocated in whole or in part to the utility, as follows:

5
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
 • Selection of Trainer and Costs

1. Shareholders will pay for training

2. SDG&E will select a third-party contractor to create the training, which

would be offered as an on-line training similar to the current Code of
Business Conduct training.

• Scope of Training

1. State and federal rights of whistleblowers (and limits to those rights)

2. External Reporting

a. Opportunity to submit anonymous whistleblower complaints to the

CPUC

b. Other state and federal whistleblower programs that may be

relevant to utility employees

3. Internal Reporting

a. Opportunity to contact another member of management,

whether your supervisor or another manager

b. Opportunity to contact the Sempra Energy Board of

Directors Audit Committee by writing to the committee
care of Sempra Energy’s corporate secretary at
SempraAuditCmte@sempra.com.

c. Opportunity to submit anonymous, confidential complaints

to the Sempra Energy Ethics & Compliance Helpline

d. Opportunity to submit complaints to the Helpline

management team or the Chief Ethics Officer

e. Information about how complaints are investigated and

what happens next, including protection from retaliation

• Proof of Compliance

Within 60 days of completing this whistleblower training, SDG&E

will provide TURN and Cal Advocates (a) a copy of the training
materials used to satisfy this requirement and (b) a certificate of
completion.

6
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
 c) Subsequent to the whistleblower training described above under
item b, SDG&E will incorporate training on CPUC Rule 1.1 and the importance of timely
reporting of non-compliance issues into a supplement to the annual Business Code of Conduct
training that will be taken by all SDG&E employees and Sempra Corporate Center employees
whose costs are allocated in whole or in part to SDG&E. SDG&E will provide TURN and Cal
Advocates a copy of the supplemental training materials used to satisfy this requirement.

d) SDG&E understands that TURN and Cal Advocates may advocate

that the Commission expand its own whistleblower program in response to the 2017 and 2018
Upstream Lighting Impact Evaluations and related investigations, with applicability to all
utilities. TURN and Cal Advocates agree not to recommend additional remedies for SDG&E for
its conduct with regard to the Upstream Lighting Program for the 2017, 2018 and 2019 program
years, beyond those expressly provided for in this Settlement Agreement, but reserve the right to
recommend that a portion of the agreed upon fines for SDG&E be directed to support the
Commission’s whistleblower program. SDG&E reserves the right to respond to any such
recommendations by TURN and Cal Advocates.

V. RESOLUTION OF CLAIMS

A. Resolution and Settlement of Claims

The Settling Parties, each on behalf of itself and each of its successors and assigns by
operation of law or otherwise, agree that, subject to obtaining Commission Approval, this
Settlement Agreement and the terms and conditions set forth therein shall be a complete,
comprehensive and final resolution and settlement of all claims, issues, disputes and investigations
pertaining to or against SDG&E arising from the Administrative Law Judge’s Rulings, dated
January 9 and April 3, 2020, related to the Program for the 2017, 2018 and 2019 program years,
including issues arising from SDG&E’s conduct in implementing and administering the Program, as
well as the energy savings claims and other reporting submitted by SDG&E to the Commission
regarding the Program for such program years.

B. No Additional Relief

Cal Advocates and TURN agree that they will not seek additional relief from the
Commission or any other court, agency, or body for SDG&E’s conduct related to the Program for
the 2017, 2018, and 2019 program years, except as expressly provided for in Section IV.D.3.d,
above.

VI. ADDITIONAL TERMS AND CONDITIONS

A. Performance

The Settling Parties agree to support and defend this Settlement Agreement, and shall
perform diligently, and in good faith, all actions required or implied hereunder, including, but not
necessarily limited to, the execution of any other documents required to effectuate the terms of this
Settlement Agreement, and the preparation of exhibits for, and presentation of witnesses at, any
required hearings to obtain Commission Approval. Without limiting each Settling Party’s rights set
7
Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
forth in Section VI.B. below with respect to SCE, no Settling Party will contest in this proceeding, or in
any other forum, or in any manner before this Commission, the adoption of this Settlement Agreement. It
is understood by the Settling Parties that time is of the essence in obtaining Commission Approval
and that all will extend their best efforts to ensure such Commission Approval. In this regard,
Settling Parties agree that they will not seek or support any measure that would delay immediate
Commission consideration and disposition of the motion filed submitting this Settlement Agreement
for Commission Approval.

B. Non-Precedential Effect

This Settlement Agreement is not intended by the Settling Parties to be precedent for any
other proceeding, whether pending or instituted in the future. The Settling Parties have assented to
the terms of this Settlement Agreement only for the purpose of arriving at the settlement resolving
remedies for SDG&E’s conduct that is embodied in this Settlement Agreement.

Each Settling Party expressly reserves its right to advocate positions, principles,
assumptions, arguments and methodologies which may be different than those underlying this
Settlement Agreement for resolving the issues related to SCE as presented in the January 9 and April 3
Rulings. Further, each Settling Party expressly reserves its right to advocate, in other current and
future proceedings, or in the event that the Settlement Agreement is rejected by the Commission,
positions, principles, assumptions, arguments and methodologies which may be different than those
underlying this Settlement Agreement, and the Settling Parties expressly declare that, as provided in
Rule 12.5 of the Commission’s Rules of Practice and Procedure, this Settlement Agreement should
not be considered as a precedent for or against them.

C. Indivisibility, General Provisions

This Settlement Agreement embodies compromises of the Settling Parties’ positions in this
proceeding. No individual term of this Settlement Agreement is assented to by any Settling Party,
except in consideration of the other Settling Parties’ agreement with all other terms. Thus, the
Settlement Agreement is indivisible and each part interdependent on each and all other parts. Any
Settling Party may withdraw from this Settlement Agreement if the Commission modifies, deletes
from, or adds to the disposition of the matters settled herein. The Settling Parties agree, however, to
negotiate in good faith with regard to any Commission-ordered changes in order to restore the
balance of benefits and burdens, and to exercise the right to withdraw only if such negotiations are
unsuccessful.

The Settling Parties acknowledge that the positions expressed in the Settlement Agreement
were reached after consideration of positions advanced by parties in the proceeding and declare and
mutually agree that the terms and conditions herein are reasonable, consistent with the law, and in
the public interest. This Settlement Agreement sets forth the entire agreement of the Settling Parties
on all of the subject matters addressed herein and may only be modified in writing subscribed by all
Settling Parties.

No Settling Party has relied, or presently relies, upon any statement, promise, or
representation by any other Settling Party, whether oral or written, except as specifically set forth

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Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019
in this Settlement Agreement.

This Settlement Agreement shall be binding upon and inure to the benefit of the Settling
Parties hereto and their permitted successors and assigns. No Settling Party may assign this
Settlement Agreement or its rights or obligations hereunder without the prior written consent of the
other Settling Parties.

D. Modification of Settlement Agreement

The terms and conditions of this Settlement Agreement may only be modified in writing
subscribed to by the Settling Parties.

E. Governing Law

This Settlement Agreement shall be interpreted, governed and construed under the laws of
the State of California, including Commission decisions, orders and rulings, as if executed and to be
performed wholly within the State of California.

F. Non-Waiver

It is understood and agreed that no failure or delay by any Settling Party hereto in exercising
any right, power or privilege hereunder shall operate as a waiver hereof, nor shall any single or
partial exercise thereof preclude any other or future exercise thereof or the exercise of any other
right, power or privilege.

G. Execution

This Settlement Agreement may be executed in counterparts by the Settling Parties with the
same effect as if all the Settling Parties had signed one and the same document. All such
counterparts shall be deemed to be an original and shall together constitute one and the same
Settlement Agreement

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Settlement Agreement Re SDG&E Upstream Lighting for Program Years 2017-2019