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The Energy Efficiency
Public Goods Charge Report:
A Proposal for a New Millennium


Publication Number: P400-99-020
Date Released: December 15, 1999

The final report summarizes the California Energy Commission's key recommendations for future energy efficiency program directions, funding levels, and administrative structure. It was written in support of the mandate contained in Assembly Bill 1105. This bill directed the Energy Commission to conduct a public process and prepare and submit a "transitional plan report" and an "operational plan report" regarding the transfer of energy efficiency programs, currently funded by a public goods charge, from the California Public Utilities Commission to the California Energy Commission. It further directed the Energy Commission to submit these reports to the Legislature by January 1, 2000.

This report was prepared by the California Energy Commission's Efficiency Committee to be consistent with the objectives of Assembly Bill 1105. The report was adopted by the full Commission on December 15, 1999.

The Executive Summary of the report is available below. You can also download a copy of this report in Adobe Acrobat Portable Document Format. You will need the free Acrobat Reader software to read this PDF file. The software is available from Adobe Systems Incorporated's Website. If you would like to obtain a printed copy of this report, please contact the Commission's Publications Unit at 916-654-5200.






EXECUTIVE SUMMARY

For over twenty years, two California public agencies have shared responsibility for the State's energy efficiency programs. The California Energy Commission (Energy Commission) has developed building and appliance energy efficiency standards, worked with municipal utilities and city governments on energy efficiency measures, and implemented energy efficiency programs statewide. During this same time, four investor-owned utilities, Pacific Gas and Electric, San Diego Gas and Electric, Southern California Edison, and Southern California Gas have gone to the California Public Utilities Commission (Public Utilities Commission) with requests for energy efficiency program funding and have had the costs and benefits of their energy efficiency programs debated in Public Utilities Commission proceedings.

With the passage of Assembly Bill 1105, on July 1, 1999, this bifurcation of responsibility for energy efficiency may end and a new system of review and oversight could emerge, a system where the investor-owned utilities, which have historically looked to the Public Utilities Commission for direction on energy efficiency, could look to the Energy Commission instead.

Assembly Bill 1105 directs the Energy Commission to report on transferring the authority over the energy efficiency programs funded by the public goods charge from the Public Utilities Commission to the Energy Commission, the State's energy analysis, research and development, energy efficiency, and power plant siting body.

In responding to the letter and spirit of the legislation, the Energy Commission has held three public Energy Efficiency Committee Workshops, one public Staff Workshop, and one Committee Hearing to receive comments on the Staff Draft Energy Efficiency Public Goods Charge Report released in November 1999. The Energy Commission adopted this report in a Business Meeting on December 15, 1999.

While the recommendations in this report are not likely to satisfy any one party completely, this report substantially reflects the concerns of stakeholders while also holding to the Energy Commission's vision for the disposition of public goods funds.


VISION

In this age of utility deregulation, energy efficiency public goods funds should be used to stimulate investments in cost-effective, sustainable energy savings that are not likely to be adequately provided by the competitive or the regulated market. Saving energy and using energy more efficiently is in the vital interest of the State's future, and public goods funds should be used to significantly reduce California's electric system loads.

Energy efficiency programs can reduce the energy intensity of the State's infrastructure, make businesses more competitive, and allow consumers to save money and to live more comfortably. Energy efficiency programs reduce the need for new generation or transmission capacity, improve the environment, and help customers control their utility bills. Analysis by Energy Commission staff shows that the amount of additional energy that would be saved by continuing all utility programs at current funding levels over the next decade is only a fraction of the remaining cost-effective potential to save energy. To achieve these additional savings, public goods funds should not be used to simply sustain existing programs. New programs must be developed to exploit the power of the market.

The Energy Commission proposes a program delivery structure that both builds on past successes and is well-suited to a restructured market—a structure that allows contributions from multiple actors can make utility service territories transparent and encourage coordination with municipal utility systems.


STRATEGY

The Energy Commission must follow a strategy and develop a Strategic Plan to ensure that the transfer of the oversight of efficiency programs from the Public Utilities Commission to the Energy Commission is completed with minimal disruption to existing programs or markets.

The elements of this strategy are laid out in detail in this report under the headings of Operational Plan and Transition Plan. The general characteristics of the Commission's strategy are as follows:

Programs: All means of achieving cost-effective energy efficiency will be considered. That includes programs that focus on markets for new products or that dispense information (market transformation programs), programs that provide financial incentives and require precise, short-term quantifiable measurement of savings (resource acquisition programs), programs that seek to capture so-called ‘lost opportunities', and programs that encourage the initiative of the public and private sectors. All program approaches have their place. No one approach, as a rule, is preferable to others.

Governance: The Energy Commission is the proper governing body for the Energy Efficiency Public Goods Charge Program (Energy Efficiency Program). The Energy Commission will set broad policies in a Strategic Plan for how these funds should be spent. The Energy Commission is ultimately responsible to the Legislature and to the people of California for the success or failure of the program.

Administration: The Energy Commission will act as the chief administrator for the funds. This means the Energy Commission will develop a general statement of goals and objectives for the Energy Efficiency Program in the Strategic Plan and designate a project manager and support staff to select market sector (program) administrators based on competitive bids. Program administrators will have broad authority to manage their programs with little State intervention. This is both essential for the success of the program and to minimize State involvement. In order to accomplish this type of contracting, however, the Energy Commission will need legislative relief from various State contracting restrictions.

Non-Profit Corporation: While establishing a legislatively authorized non-profit corporation to administer the entire Energy Efficiency Program has a certain appeal, the Commission cannot at this time recommend such an action. The high start-up costs of developing a new organization and uncertainties related to whether or not the non-profit corporation would be governed by State contracting rules ultimately outweighed the perceived benefits of a new organization.

Evolutionary Process: Ultimately, administration of all programs covered under the public goods charge should be competitively bid, and where applicable, all programs should be delivered statewide. The Commission proposes to reach this goal through an evolutionary approach with a four-year phased-in bidding process. The process would take place incrementally. In year 2001, the Energy Commission will release two Requests for Proposals, one for innovative energy programs and one for a contractor to work on independent measurement and evaluation. In 2002, the Energy Commission will release a Request for Proposals for all the new construction programs. In 2003, based on the experience of the previous three Requests for Proposals, the Energy Commission will release a Request for Proposals for all nonresidential programs. And in 2004, a Request for Proposals for all residential programs will be released. During the interim, utilities will continue to manage the programs in their service territory until independent contractors have been selected. Utility program administrators will be eligible to bid for the statewide administrator positions. In keeping with the "contracting" nature of this process (as opposed to the "regulatory" nature), the utilities will manage programs under a sole source agreement with the Energy Commission during the transition period. The Energy Commission will also need legislative relief to expedite the sole source contracting process.

Competitive Bids: During the transition, utilities will not be required to bid against other utilities to maintain their program administrator roles, and will continue to administer programs in their service territories. Utilities will be eligible to bid for program administer roles at the statewide level as those positions evolve over the transition period.

Funding: The funding level for energy efficiency programs will stay at the current level of $270 million (in 1998 dollars), with annual adjustments for inflation. Included in the total is a non-bypassable natural gas public goods charge to collect roughly $50 million in funds annually. Municipal utilities will continue to be obligated to collect revenues to support energy efficiency programs and will be asked to report their spending levels and energy efficiency program results to the Energy Commission. The current program should sunset in 2011 (ten years) and require legislative reauthorization to continue.

Staffing/Assistance: The Commission plans to request in the range of 10 to 15 new staff in each of the first two years of the transition period. These additional people are necessary to set up and operate the Energy Efficiency Program. The Energy Commission will also need contract funds for technical assistance. The start-up costs for this $270 million program will be approximately $3.5 million.

Review—An Independent Review Panel should be mandated by the Legislature to evaluate the overall operation of the Energy Efficiency Program. The panel should operate much like the current Public Interest Energy Research (PIER) Independent Review Panel.


CONCLUSION

The Energy Efficiency Program should continue at the current funding level for a set period of time. The Energy Commission should be the governing body of the Energy Efficiency Program. The actual management of the programs should be done by program administrators who would be selected by competitive bid over a four-year period beginning in year 2001. The Energy Commission will need 10 to 15 new staff in each of the first two years of the transition period to set up and operate the Energy Efficiency Program, for a total of approximately 30 new staff.

The Energy Efficiency Program will complement the Energy Commission's existing programs and enable the Energy Commission to continue providing Californians with the information and services they need to use energy as cost-effectively as possible.






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