6. Program Governance and Process

The staff proposal included a recommended governance structure for EPIC funds where the Commission would retain the policy and funding oversight role, consistent with our customary regulatory role where utility ratepayer funds are involved. The staff proposal suggested that the CEC be designated as the administrator for all of the EPIC funding, subject to Commission oversight.

The rationale suggested for selection of the CEC included:

· The CEC's status as a state agency created to develop and support state energy policy;

· The importance of continuity with similar existing efforts;

· Preference for public agency administration over a private entity; and

· Numerous continuing statutory obligations beyond the expired PGC for the CEC to provide analysis, support, and programs to support state clean energy goals.

The staff proposal recommended a triennial investment plan approval process by the Commission and submission of annual reports. The approved investment plan would, for all intents and purposes, be a grant to the CEC of ratepayer funds by the Commission, with rules adopted governing sub-grants by the CEC to other entities. Thus, the investment plans would be very detailed. In addition, the staff proposal recommended an independent evaluation by a third party hired by Commission staff during 2016, after completion of the first three-year investment plan period, to assess the effectiveness of the program and provide recommendations for improvement.

The staff proposal proposed that the administrator be required to address at least the following elements in each investment plan:

· The amount of funds to be devoted to particular program areas (applied research and development, technology demonstration and deployment, market support and market facilitation);

· Policy justification for the funding allocation proposed;

· The type of funding mechanisms (grant, loan, pay-for-output, etc.) to be used for each program area;

· Eligibility criteria for award of funds in particular areas;

· Any suggested limitations for funding (per-project, per-awardee, matching funding requirements, etc.);

· Other eligibility requirements (technology, program area, etc.); and

· Summary of stakeholder comments received during the development of the investment plan and the administrator's response to them.

The staff proposal also suggested that the administrator propose specific objectives for the program and metrics against which program success will be evaluating. Staff suggested that the metrics should include at least the following:

· Quantification of estimated benefits to ratepayers and to the state, such as:

o Potential energy and cost savings

o Job creation

o Economic benefits

o Environmental benefits

o Other benefits

· Identification of barriers or issues resolved that prevented widespread deployment of technology or strategy. Examples include collecting baseline data, developing tools and methods, and research to overcome or address energy-related environmental barriers that could impact meeting state energy policy goals, and streamline permitting processes;

· Effectiveness of information dissemination. To determine whether information about a technology or strategy has reached target audiences, by tracking quantity of research outputs and the extent to which research is cited in other publications;

· Adoption of technology, strategy, and research data by others including utility rebate programs, codes and standards, and other entities in the marketplace (e.g., residential, commercial, industrial, government sectors); and

· Funding support from venture capitalists or others for EPIC-funded research on technology or strategies.

The staff proposal also included the suggestion that a parallel three-year investment plan process be used to evaluate future utility RD&D funding plans alongside EPIC efforts administered by the CEC, to ensure coordination among the various programs and projects being funded by IOU ratepayers. The staff proposal suggested that this triennial process be the primary, and preferably only, venue for utility RD&D proposals, such that they would no longer be included in general rate case (GRC) applications in the future.

6.1. Parties' Comments

CBIA generally supports the staff proposal and the designation of the CEC as overall EPIC administrator, given its institutional knowledge and existing relationships. The Joint Environmental Groups and TURN agree that the Commission should retain policy oversight with the CEC as administrator. CFC and the University of California specifically commented in support of the concept of an independent evaluation of the program after the first three-year period.

The utilities, on the other hand, universally oppose the designation of the CEC as the sole program administrator for EPIC funds, at least at this time. PG&E suggests that the Commission should consider alternative program or governance structures and allow other interested entities to come forward to propose investment plans, prior to the Commission selecting any administrator, in the spirit of competitive selection. PG&E also cites the 2011 LAO letter to Senator Padilla, which recommends a larger role for utilities and consideration of alternative structures for RD&D funding.

SCE argues that the staff proposal grants considerable discretionary power to the CEC, limits the Commission's regulatory oversight, requires infrequent evaluation, and fails to institute an authoritative governing advisory board.

SDG&E, similar to SCE, believes that the proposal gives too much discretion to the CEC to set EPIC policy, and suggests that the triennial investment plan process will be little more than a rubber stamp of the CEC's proposals. SDG&E therefore recommends that the tasks given to the CEC be strictly administrative, such as executing contracts.

Finally SDG&E argues that the one-time independent evaluation in 2016 proposed by staff is too infrequent and the budget is unjustifiably large. SDG&E feels that the evaluation will come too late to influence any changes before 2020. SDG&E recommends that evaluations be conducted every two years until the program is fully established, and should be considered for termination each time an evaluation is conducted.

In terms of the staff proposal elements devoted to coordination of utility RD&D with EPIC and suggesting a similar triennial application process by utilities for RD&D expenditures, several parties support these ideas. The Efficiency Council and CFBF generally support the notion of greater coordination of IOU RD&D activities with those of the CEC. CFBF also objects to the staff report's segregation of utility RD&D efforts from the rest of the EPIC program, and suggests that there may be no need for utility RD&D outside of EPIC. CFBF argues that only in considering both CEC and utility efforts "jointly in some manner will ratepayer interests be protected and programs delivered most effectively."¹⁵ The Joint Environmental Groups suggest that the CEC EPIC program should not supplant all utility RD&D, but support staff's proposals to consider the review and approval of all utility RD&D activities into one proceeding. CFC also supports having one procedural vehicle to evaluate all utility RD&D.

TURN takes it a step further, supporting a consolidated review process and suggesting that the Commission should "explicitly prohibit IOUs from submitting stand-alone applications for R&D funding outside of the process outlined in the staff proposal ... When individual proposals are considered in a vacuum, there is little hope that the outcomes will be rational, consistent and unbiased."¹⁶ TURN recommends that we adopt a presumption against utility-specific programs and focus all stakeholders on refinements to independently administered statewide programs.

The utilities all argue that consolidating utility RD&D activities is outside the scope of Phase 2 of this proceeding. PG&E, however, supports the general intent of coordination, though they oppose the creation of a separate application process for utility RD&D, and suggest that this issue be taken up in this proceeding after Phase 2. SCE argues that the staff proposal for a consolidated triennial review of utility RD&D departs from existing processes and could lead to duplicative work. SDG&E suggests that conducting some type of RD&D informational exchange along with a regular reporting process would alleviate concerns about coordination.

Several parties including the utilities also raise concerns about the impact of the staff proposal on pending proceedings before the Commission or projects already approved for funding during GRC proceedings or via other proceedings already completed.

Parties did not comment specifically on the program metrics suggested by staff or on what elements should be included in each investment plan.

6.2. Discussion

As written, the staff proposal conceived of the entire EPIC program as a set of activities to be administered by the CEC, under Commission oversight, for the benefit of electric ratepayers. IOU RD&D projects and expenditures were proposed to be considered in parallel, with the objective of close coordination.

After consideration of comments from parties, we believe it makes more sense to conceive of the EPIC program as a set of coordinated public interest activities with two sets of administrators: the CEC and the utilities.

For activities that are completely pre-commercial in nature, including applied research and technology development, a state agency with public interest objectives is ideally suited to administer those activities. For activities that are more related to technology demonstration and deployment on the grid, as technologies and approaches move toward commercialization, utilities may be better suited to administer the funding, as they point out, since they own the infrastructure on which or through which the technologies are being tested. They also may ultimately become the consumers of technologies or processes that are designed to improve utility systems, so it will behoove them to invest in and test some new ideas.

Other technology demonstration and deployment activities may be best suited to a state agency that does not have a business interest in any particular company or solution.

Depending on the type of process or technology, during the early stages of technology demonstration and deployment activities, there is still also a role for public interest investment and administration by the CEC. The precise definitions of the various areas for investment are discussed in more detail later in this decision.

Therefore, instead of considering the EPIC program in parallel with utility RD&D investments, we will instead consider utility RD&D investments as part of the EPIC program, and designate the utilities to administer 20% of the EPIC budget in the areas related to technology demonstration and deployment, which constitutes about 40% of the budget devoted to this activity area. The remainder of the activity areas approved for funding should be administered by the CEC for the reasons set forth by staff.

The result will be a process similar to the one proposed in the staff proposal, except that instead of having the utilities propose RD&D investments in parallel with the EPIC process, we will have both the CEC and utilities present their investment plans as part of EPIC at the same time, for joint consideration by the Commission. Once adopted, the CEC's investment plan must be sufficiently detailed to constitute a grant to the CEC by this Commission of ratepayer funds, and must lay out all of the rules under which the CEC will make further grants and awards of funds.

All of the requirements the CEC recommended in the staff proposal, such as annual reports, a triennial investment plan, administrative budget limits, and an independent evaluation, will also now apply to the utilities' administration of the demonstration and deployment funds.

We also clarify that this EPIC triennial application process is intended to supplant the GRC RD&D proposals in the future, but does not affect any utility RD&D funding decisions already made by the Commission. In addition, it does not affect any investments for which there is already a pre-existing Commission proceeding considering whether to approve those investments, even if a decision in that proceeding has not yet been rendered.

Going forward, however, this approach will ensure a better process for RD&D investments, as described by TURN, that allows for consideration of trade-offs among investments in a comprehensive manner by the Commission. The utilities shall no longer make RD&D proposals in their GRCs, and should make every effort to detail all of their planned RD&D investments in each triennial EPIC investment plan.

We will not go so far as to prohibit any separate RD&D applications by utilities, since it is impossible to completely anticipate future opportunities, but we put the utilities on notice that they will face a burden to show why a proposal outside of the EPIC process should be considered immediately and not simply included in the next cycle for EPIC funding consideration by the Commission. Should the utilities make any requests for RD&D funding outside of the EPIC process, we will require them to serve any such request on the service list for the relevant EPIC proceeding, whether an open docket or the most recent docket. In addition, as suggested by DRA in its reply comments on the proposed decision,¹⁷ we will require that any RD&D proposals outside of the EPIC triennial investment plan process address how it meets the objectives and metrics of the EPIC program.

We also find that the staff proposal for an independent evaluation of the EPIC program to be conducted in 2016 is reasonable. As discussed later in this decision, it is unlikely that any project investments will happen before mid-2013. Thus, 2016 seems to be a reasonable timeframe in which to assess how well the program is working. We leave open the possibility that more independent evaluations may be conducted after 2016 but prior to 2020.

We also find the requirements in the staff proposal for the elements that the administrators should propose in each investment plan, as well as the metrics to be included, are reasonable and we will adopt them. In addition, as detailed in the staff proposal previously, the administrators are required to propose in detail, in each investment plan, the criteria that they will use to evaluate individual proposals for EPIC funding.

Table 1 below summarizes the investment plan process and schedule we anticipate. In comments on the proposed decision, PG&E recommended that it would be preferable to modify the schedule so that any rate changes in the context of EPIC could be consolidated annually with any other electricity annual rate adjustments. This is logical and we have adjusted the table below accordingly, where possible. In addition, they request to delay the filing of annual reports to March 31 of each year. We compromise at February 28, since it would be preferable to have the annual reports available for consideration when the administrators are meeting with stakeholders in March of the years where investment plans will be considered. We also clarify that implicit in this schedule is review and evaluation of previous annual reports and accomplishments during the consideration of each subsequent investment plan.

Table 1: Anticipated Schedule for EPIC Program Approval Activities

As we have discussed here, the investment plans will require a high level of detail sufficient to support a grant to the CEC overseen by the Commission; the CEC's and IOUs' investment plans are to be coordinated to ensure effective comparisons of the numerous programs for RD&D and clean technology support; and the record supports the 80%/20% general division of EPIC-related activities between the CEC and IOUs based on institutional objectives and operational responsibilities. For these reasons, the EPIC program's structure and governance are just and reasonable in light of the whole record.

¹⁵ CFBF comments, March 7, 2012, at 4.

¹⁶ TURN comments, March 7, 2012, at 3.

¹⁷ DRA reply comments on proposed decision, May 21, 2012, at 5.