6. Local Government, Government Partnerships
and Third-Party Delivery
In D.05-01-055, the Commission addressed the issue of third-party program delivery in extensive detail. D.05-01-055 recognized concerns over allowing the balance of energy program portfolio design to energy resource procurement objectives to be planned by third-party entities that were not within the Commission's jurisdiction, since Commission authority over third parties is significantly less robust than its authority over programs administered by the utilities. D.05-01-055 also highlighted the challenge of handling ratepayer funds collected by the IOUs and the lack of a process for transferring these resources for utilization by third-party program administrators. D.05-01-055 directed Commission Staff to update the Energy Efficiency Policy Manual to allow the IOUs to competitively bid out 20% of the statewide portfolio to third-party implementers and initiate energy efficiency partnerships with local governments.
We now have two portfolio cycles and over six years of experience with increasing levels of third-party delivery of energy efficiency programs. The Phase IV Scoping Memo noted that parties have urged the Commission to increase the number of efficiency programs overseen and carried out by local governments and third parties that implement programs separately from the utilities. The scoping ruling sought input on which new and continuing programs would be appropriate for such treatment in the 2013-2014 transition period, as well as input on how those programs have helped or can help us achieve the deep retrofit goals.
The Phase IV Scoping Memo further requested input on how non-utility implemented programs should be selected, what kinds of cost-effectiveness characteristics they should exhibit, and how we should make tradeoffs or otherwise harmonize desires for these programs simultaneously with the desire for uniform statewide programs and possibly a smaller number of programs. The Programmatic Guidance Ruling invited further comment on how to expand third-party programs, especially focusing on the commercial sector.
In this section, we consider the continuation and/or expansion of government partnerships and third-party implementation of efficiency programs.
6.1. Government Partnerships
In the 2010-2012 program cycle, $370 million was spent to fund partnerships with local governments, state entities, and institutions. There are 86 local government partnerships statewide and they focus on three broad areas of activity: (1) retrofit of local government buildings, (2) promotion of utility core programs, and (3) pursuit of energy efficiency activities identified in the Strategic Plan. The utilities also have local government innovator pilot programs where local governments are provided data, tools, and training to enable them to better manage their municipal and community-wide energy usage in conjunction with local climate action plans and GHG reduction strategies. Statewide and institutional partnerships provide building retrofit, commissioning, incentive, training, design advice and other services with entities such as the University of California, and the California Department of Corrections.
Most parties agree that successful local government programs should be continued in the 2013-2014 period.166 Several of these parties also suggest utilizing contract amendments to extend identified local government partnerships and programs (City and County of San Francisco (CCSF), LGSEC, PG&E).
We agree that there are many successful local government programs that should be continued without disruption in 2013 - 2014. Unfortunately, other than recommending that "successful" programs be continued, parties did not provide specific criteria that define "success" for existing local government partnerships. We direct the IOUs to submit as part of their 2013 - 2014 applications a description of the criteria that should be used to identify successful local government program/partnerships. The utilities should reference pertinent evaluation findings,167 market transformation indicators, energy savings, and other documents that support these criteria, such as the Strategic Plan and the menu of local government strategic plan activities.168 The utilities should confer with LGSEC and with any other interested local governments to get input on success criteria for local government partnerships. To the extent that the utilities do not accept criteria suggested by the local governments and LGSEC, the utility/ies shall delineate the rejected criteria in their applications and provide their rationale for rejecting them.
Additionally, the utilities' applications shall include Program Implementation Plans (PIPs) for all local government programs and partnerships they seek to continue, including a detailed explanation for how each program will meet their suggested success criteria. To provide the Commission with the flexibility to consider local government proposals that were rejected by the utilities, the utilities' applications shall also include a separate set of PIPs for all local government program and partnerships that meet the local governments' proposed success criteria that were rejected by the utility.
Several parties identify areas where they recommend that local government programs should be expanded. Some areas noted for expanded local government interventions are Energy Upgrade California, the water/energy nexus, codes and standards enforcement and training, emerging technologies deployment, workforce education and training, low to moderate residential and small to midsized business market sectors, and program objectives. PG&E states that, while expanding the role of local governments is appealing, any expansions must be balanced to maintain portfolio level cost-effectiveness.169 SDG&E comments that local governments should be held to the same cost-effectiveness requirements as the IOUs.170
With respect to expanding the scope of local government partnerships and programs, parties provide input that suggests local government partnerships could positively address additional market areas and program objectives as noted above. The criteria that the utilities propose for determining success in terms of continuation of a local government program or partnership include a variety of metrics, such as energy savings, market transformation indicators, and Strategic Plan objectives. We take a narrower approach with respect to expansion of local government programs and partnerships. We observe there is a strong need for programs that can provide deep retrofits. Local government programs/partnerships that seek to expand or increase should demonstrate that capability.171 The utilities' applications shall include a separate set of criteria for increases in local government programs and should be consistent with our overarching goal of deeper retrofits. The utilities are directed to confer with local governments and the LGSEC to get input on the expansion criteria. To the extent that the utilities reject any of the suggested criteria, the utility applications shall list those criteria and the rationale for rejecting them. The utility applications shall also include the PIPs of local government programs/partnerships that meet the expansion criteria, and (again, to provide the Commission, the flexibility to consider local government proposals that were rejected by the utilities) the utility applications shall also include a separate set of the PIPs that meet the expansion criteria that were rejected.
Several parties promote the piloting of a regional local government energy efficiency program in the 2013-2014 transition portfolio. LGSEC comments that, "A bridge pilot would test a modification of the process to enable regional networks to independently prepare and submit program implementation plans directly to the Commission."172 Specific to the role of a local government regional pilot program and how it would be structured, LGSEC suggests that the mission of the local government regional energy networks would be to:
· Provide missing technical resources that will get more projects implemented;
· Include more public agencies in project implementation;
· Leverage existing local government partnerships to implement these resources; and
· Provide centralized, regional program management and administration by local governments.173
LGSEC further states that the Commission "should direct regional energy networks in both urban and non-urban areas. A primary value of a regional program is the ability to tailor the program to local needs and priorities, while pooling energy management resources."174
CCSF supports LGSEC's recommendations for "pursuing regional local government initiatives that are accountable directly to the [Commission] and are not limited by or connected to the IOU shareholder incentive process."175 DRA agrees with "the benefits described by the LGSEC, CCSE, and Beutler Corporation for piloting a regional [local government] administered program during the bridge cycle."176 TURN echoes this view and, "fully supports recommendations to allow local government regional networks to independently submit program implementation proposals directly."177 SCE cautions that, "shifting program administration away from the IOUs or instituting the creation of unfunded oversight councils can increase administrative costs of programs without clearly defined benefits."178
While we decided to forego local government program administration in 2005, we believe enough has changed over the last seven years to warrant revisiting this issue in light of the potential benefits and alternative administrative structures as described in recent party comments. Since local governments began implementing utility energy efficiency programs in 2004, many have become experienced in the energy efficiency field either through their implementation of utility programs or independent efforts initiated at the local level. Local governments have had access to additional funding sources such as federal Community Development Block Grants and Neighborhood Stabilization Programs, and state American Recovery and Reinvestment Act funding (i.e., Energy Efficiency Conservation Block Grants, Weatherization Assistance Programs, and Energy Technology Assistance Programs). Local programs have also contributed to financing efforts such as Energy Efficiency and Renewable Energy Financing Districts. The development and implementation of codes and standards fall under the direct authority of local governments and many are utilizing their experience in energy efficiency to develop reach codes beyond Title 24 standards.
As evidenced by several local government-implemented energy efficiency program evaluations,179 many local governments are better positioned to administer energy efficiency programs than they were seven years ago. While there is still a wide variation of success among local governments, we find it reasonable that more successful local governments can serve as examples to less experienced local governments.
We find the concept of local government regional pilots to be reasonable. Authorizing pilots in the 2013-2014 transition portfolio would provide local governments the opportunity to develop a track record. We anticipate that the 2013-2014 programs would lead to a series of lessons learned on the appropriate level of local government administration of ratepayer-funded energy efficiency programs. Regarding the process for selecting regional pilot proposals, LGSEC recommends:
The bridge pilot would test a modification of the process to enable regional networks to independently (emphasis added) prepare and submit program implementation plans directly ....After [the Commission] reviews and approves sponsored PIPs the [Commission] would then direct the IOUs to contract directly with the [local governments] as identified in the PIP to implement programs.180
Commission Staff and parties should evaluate the proposed pilots to assess which pilots may merit support by ratepayers, and the Commission will determine which, if any, warrant adoption. This approach is consistent with a key objective underlying the proposed pilots - to determine if local governments are in a position to plan and administer energy efficiency programs absent utility support or intervention. We envision approval either in the application proceedings, or via advice letter depending on the timing, but we defer specifics to the evaluation of the proposals.
We encourage the local governments to submit PIPs and budgets for proposed regional pilots in the 2013-2014 applications proceedings, so that Commission Staff and the parties can begin their review as soon as possible. Submitted PIPs for each proposed regional pilot should describe the rationale and benefits of the regional pilot, highlighting its desired characteristics and why it should be selected for the pilot period.
Prospective local government regions should utilize the same PIP template established for the IOUs' programs. Additionally, the proposed PIPs should showcase how the pilot would support the identified benefits of local government program administration as described by LGSEC in its comments. Specifically, the PIPs shall demonstrate the extent to which the proposed regional pilots:
· Leverage additional state and federal resources so that energy efficiency programs are offered at lower costs to ratepayers;
· Address the water/energy nexus;
· Develop and deploy new and existing technologies;
· Address workforce training issues; and
· Address hard-to-reach customer segments such as low to moderate residential households and small to medium sized businesses.
Each PIP should include an organizational chart that identifies the local governments that are part of the proposed regional pilot, a narrative description for each of their roles, and plans to coordinate. Desired characteristics of a regional pilot are inclusion of a broad geographical area, encompassing a variety of demographic characteristics, and depth and breadth of coverage related to energy efficiency program goals and objectives.
In developing the PIP, prospective local governments should refer to the Strategic Plan Menu of Local Government Strategic Actions.181 Consistent with this decision's preference for deep retrofit programs, a goal of the pilots should be to achieve deep energy efficiency savings. Further, ex ante parameters for energy savings and measure costs should be derived from the DEER 2011 Update adopted in this decision.
Commission Staff will conduct and/or oversee the evaluation of any pilots selected, consistent with the process set forth for evaluation of IOU programs in D.10-04-029 and other decisions. If we determine that there are desirable proposals for regional local government energy efficiency pilot programs, the utilities will be directed to contract for selected regional pilots.182
6.2. Third-Party Programs
In D.05-01-055, the Commission established the current standard for third-party program implementation: the IOUs will identify a minimum of 20% of funding for the entire portfolio that will be put out to competitive bid to third parties for the purpose of soliciting innovative ideas and proposals for improved portfolio performance.183 That standard was upheld for the 2010-2012 program cycle by D.07-10-032.184 Parties in this proceeding were asked to comment on the prospect of continuing or expanding these non-government third-party programs.
Parties generally support expanded use of third-party programs.185 The IOUs urge the Commission to extend existing, effective third-party programs through 2014 and express a willingness to add new third-party proposals in their 2013-2014 portfolios. The IOUs further suggest that all energy efficiency programs, whether implemented by an IOU or a third-party, should be held to the same cost-effectiveness standards and evaluation practices. NAESCO suggests that, "new third-party programs be considered, so that proven program options from other states can be offered during the [Transition] Period."186 Similarly, NRDC expresses support for, "providing an opportunity for additional programs to be integrated into the [transition period] to allow for additional entrants into the field."187
OPower expresses support for third-party programs in general, but cautions that some energy efficiency programmatic activity needs to be implemented in close coordination with the IOU. In OPower's view, integration with IOU customer data systems and customer access through the well-known IOU brands is critical to program performance.188 SDG&E/SoCalGas articulate a similar point, asserting that, "customers expect and trust energy management solutions from their utility and the utility is best suited to manage comprehensive programs and advocate for their customers."189
While most parties support extending and expanding effective third-party programs, the IOUs, NRDC, TURN, and DRA all point out that past third-party program solicitations have been time consuming and at times ineffective in achieving the Commission's goal of engaging innovative programs.190 Drawing on lessons learned from past program cycles,191 NRDC urges the Commission to ensure that the third-party review and selection process is "fair and transparent," and recommends that "a future structure be set up with clear roles, responsibilities, process (e.g., facilitators, note takers, follow up, etc.) as well as checkpoints along the way to determine if the review process is on track to meet objectives and to provide an opportunity to resolve any challenges with the process."192
We agree with the majority of parties that IOUs should expand their commitment to third-party implementation. We find two principle reasons to rely more heavily on third-party program implementation. First, to a large extent, third-party implementation can occur pursuant to "performance based" contracts. Under such agreements, executed between the IOU and the third-party, the third-party implementer accepts the risk for program non-performance: if verified energy savings do not result from the program, the third-party service provider receives reduced compensation. With effective IOU oversight, performance based contracts can effectively mitigate risk that ratepayer contributions do not produce commensurate value. While we recognize that all of California's objectives for energy efficiency cannot be achieved through performance based contracts alone, we conclude that their use should be increased by the IOUs going forward.
Second, the Commission's support for expanded third-party program implementation stems from two observed trends: (1) an exceptional rise in new, nimble, mission driven, third-party service providers, and (2) increasing dynamism in customer demand for efficient technologies and services. Each trend complements the other: we need new, innovative service providers to meet the dynamic needs of our increasingly better informed, more conscious energy users. The IOUs must be an integral part of this solution, but smaller, less risk averse organizations are better suited to rapidly changing markets. This confluence in trends compels us to rely more heavily on third parties.
To pave the way for expanded use of third-party programs and improve on past practices, we outline herein new expectations for IOU administration of third-party programs. First, to inform the Commission's decision making going forward, IOUs are directed to file the following with their 2013-2014 applications:
· A table ("Third-Party Procurement Table") identifying all current Purchase Orders (or comparable contracts/agreements) between the IOU and third parties funded through energy efficiency balancing accounts. The table should include:
o the IOU's unique purchase order number;
o vendor name;
o detailed description of the procured activity;
o whether procurement supports IOU implemented program(s) or third-party implemented program(s);
o whether the vendor was chosen through competitive solicitation or bilaterally;
o start date;
o end date;
o purchase order amount;
o whether service is provided on a "performance basis" (Yes or No);
o description of performance basis terms and conditions, as applicable; and,
o determination of whether the purchase contributes to the IOU's General Order 156 goals.
· Complete Purchase Orders (or comparable contracts/agreements) for every entry identified in the Third-Party Procurement Table.193
The purpose of requesting this information is to bring the IOUs' existing third-party procurement practices to light and give the Commission a detailed understanding of past practices to inform future decision making. To the extent elements of the Third-Party Procurement Table or Purchase Orders contain confidential information, the IOUs should file those elements under seal pursuant to Public Utilities Code Section 583.
Second, to extend existing cost effective third-party programs, IOUs are directed to explain in their applications which existing third-party programs should be extended in 2013-2014 and why. IOU explanations should include the criteria used to determine whether to extend third-party programs. To avoid unnecessary contention in the application review process, the IOUs should immediately coordinate with affected third parties. If renegotiations of third-party implementer contracts will be necessary, the IOUs shall explain how they will ensure those negotiations will be completed in time for the programs to begin on January 1, 2013. While contracts may not be finalized until the Commission approves the IOU portfolio application, any necessary negotiations should be complete by October 1, 2012. In addition, IOUs should identify which existing third-party programs should be discontinued in 2013-2014 and why. They should reference relevant purchase orders from the Third-Party Procurement Table and include both a quantitative and qualitative assessment of why the existing third-party program should, or should not, be extended.
Third, IOUs should identify in their applications additional opportunities to enlist new third-party implemented programs through competitive solicitations. Based on the comments in this proceeding and the Peer Review Group Report on the 2009-2011 IOU competitive solicitations, we believe that the third-party solicitation process needs reform; the solicitations need to be better targeted, overseen, and executed. We are not comfortable directing the IOUs to conduct new solicitations until the needed reforms have been executed. As such, this decision begins the reform process with the intention of allowing new solicitations in 2013. In their portfolio applications, the IOUs are directed to propose solicitations for new third-party programs to begin in 2013. The IOUs are directed to include details as to how the solicitations would be effectively targeted, overseen, and executed in their proposal. The IOU proposals should be informed by the Peer Review Group Report on the 2009-2011 IOU competitive solicitations and developed in coordination with key stakeholders. Because the programs procured from these solicitations will not begin until 2013, the proposed solicitations should allow for "rolling" programs consistent with Section 17.2 of this Decision.
166 CCSF, LGSEC, Beutler Corporation, DRA, PG&E, and SDG&E.
167 Commission Staff is preparing an evaluation of non-residential programs, including local government partnerships. This evaluation is anticipated to be completed in July 2012.
168 Described in SCE Advice Letter 2445-E-A.
169 PG&E Comments on Programmatic Guidance Ruling at 10.
170 SDG&E Comments on Programmatic Guidance Ruling at 5.
171 Phase IV Scoping Memo, at 5-6, 8.
172 LGSEC Comments on Programmatic Guidance Ruling at 4.
173 Ibid. at 4.
174 Ibid. at 7-8.
175 CCSF Comments on Programmatic Guidance Ruling at 2.
176 DRA Reply Comments on Programmatic Guidance Ruling at 2-3.
177 TURN Reply Comments on Programmatic Guidance Ruling at 2.
178 SCE Reply Comments on Programmatic Guidance Ruling at 3.
179 For example, see "Comprehensiveness in California's Small Business Retrofit Programs Within Local Government Partnerships." May 2009, at 14.
180 LGSEC Comments on Programmatic Guidance Ruling at 4.
181 The menu is contained in SCE Advice Letter 2445-E-A.
182 In its opening comments, SCE asserts that the Proposed Decision wrongly encourages local governments to submit proposals to administer regional pilot partnership programs for the 2013-2014 program cycle. According to SCE, "[i]n 2005, the CPUC thoroughly examined the proposal for non-utility administration of EE programs, and in D.05-01-055 concluded that it requires statutory authority to do so, because the public interest in the EE programs dictates that the CPUC must select an administrator over which it exercises jurisdiction." (SCE Opening Comments at 3.) SCE's argument suffers three significant flaws. First, it is premature. Rather than authorize programs, the Proposed Decision only requests proposals. Second, as fully detailed by LGSEC (see LGSEC reply comments at 3-5), SCE's argument misinterprets the relevant law. Finally, contrary to SCE's assumptions, rather than calling for an independent administrator, the proposal set forth in the Proposed Decision provides for utility oversight of the non-utility administrator.
183 D.05-01-055 at 94.
184 D.07-10-032 at 74.
185 CCSE, DRA, Greenlining, SDG&E/SoCalGas, LGSEC, NAESCO, NRDC, OPower, PG&E, SCE, South San Joaquin Irrigation District (SSJID), and TURN.
186 NAESCO Comments, November 7, 2011 at 7.
187 NRDC Comments, November 8, 2011 at 9.
188 OPOWER Comments, November 8, 2011 at 5.
189 SDG&E/SoCalGas Comments, November 8, 2011 at 7.
190 PG&E's November 8, 2011 comments included a helpful summary of how past third-party program solicitations worked: "Each third party implementer was chosen as part of a Statewide Competitive Solicitation process which included oversight and input by the Peer Review Group (PRG). Third-party implementers are selected based on their ability to penetrate a target market segment given their specific industry sector and/or technology knowledge. These third-party implementers and government partners are measured by the same cost-effectiveness parameters used to measure utility performance. However, additional parameters such as their ability to reach different customer segments are also considered."
191 PRG Report on the 2009-2011 Energy Efficiency Applications of SCE, SoCalGas, SDG&E and PG&E. September 12, 2008.
192 NRDC Comments, November 8, 2011 at 10.
193 The Third-Party Procurement Table and associated purchase orders should include both third-party procurement supporting the IOU's 20% target and "core" programs.
