2. Procedural History

By rulings dated July 3 and September 24, 2003, the Assigned Commissioner (Commissioner Kennedy) articulated several priorities for the coming months, including: (1) selecting 2004-2005 energy efficiency programs; (2) adopting specific savings goals based on the overall potential for cost-effective energy efficiency; (3) updating measurement and evaluation protocols; and (4) addressing the issue of long-term program administration. To provide a foundation upon which the Commission could decide these issues, Commissioner Kennedy initiated a series of informal workshops during late 2003 and early 2004 on related topics. All workshops were co-chaired by Commissioner Kennedy and Commissioner Rosenfeld from the CEC, attended by a California Power Authority (CPA) representative and facilitated by both Commission and CEC staff.

Consistent with the inter-agency collaborative model this Commission has utilized in other resource-related proceedings, Commissioner Kennedy and the assigned Administrative Law Judge (ALJ) have worked closely with the CEC and CPA in developing the policy direction for this proceeding, including the development of this draft decision on threshold administrative structure issues for the Commission's consideration.

In December 2003, in its Procurement Rulemaking (R.01-10-024), the Commission increased funding for 2004-2005 energy efficiency programs by $245 million "due to the integration of energy efficiency and procurement programs."⁶ This represented an increase of 43% above levels authorized by statute via the PGC, bringing total authorized funding for energy efficiency to over $800 million for the two-year 2004-2005 funding cycle. Parties to that rulemaking urged the Commission to resolve the issue of energy efficiency administration as a high priority during 2004. The Commission responded in D.04-01-050 as follows:

"Many parties comment on the issue of administration of energy efficiency programs. In its testimony, TURN took no explicit position on whether utilities should or should not administer energy efficiency programs but strongly urged the Commission to address this issue in the energy efficiency proceeding. ORA concurs with TURN, urging the Commission to `promptly' address this issue. NRDC urges the Commission as well to resolve the `unsettled issues' regarding the administration of energy efficiency programs. Utility long-term plans also support prompt resolution of this issue in R.01-08-028.

"Both the initial Order Instituting Rulemaking and the July 3 [Assigned Commissioner's Ruling] for R.01-08-028 identify administration of energy efficiency programs as one of the key issues to be addressed in that Rulemaking, with a goal of resolving this issue in 2004. As the Commission will authorize a uniform portfolio of energy efficiency, we believe it is necessary that the Commission have in place a unified administrative structure to oversee all energy efficiency programs, regardless of the source of funding in the years ahead. For this reason, we are referring the issue of administration of energy efficiency programs authorized in this proceeding to R.01-08-028."⁷

By D.03-12-060 and D.04-02-059, the Commission completed the program selection for the 2004-2005 energy efficiency funding cycle, after reviewing over 400 proposals exceeding $1.2 billion in requested funding. Concurrently, Commissioner Kennedy held workshops on the following topics: (1) The Potential For Energy Efficiency; (2) Customer Needs; and (3) Collaboration and Partnership among Program Implementers. A further prehearing conference (PHC) in this proceeding was held on January 23, 2004. Per the direction articulated in D.04-01-050, a schedule for addressing the issue of administrative structure by the end of 2004 was established at the PHC and subsequent scoping ruling.⁸

Workshops on administrative structure were held on March 17 and 18, 2004 in San Francisco. Over 100 individuals and organizations were in attendance. The workshop included presentations by the Commission's Strategic Planning Division and the Regulatory Assistance Project on administrative structures for energy efficiency in other states.⁹ CEC and Commission staff also facilitated discussions to develop a common terminology, format and list of policy and implementation considerations for parties to address in their administrative structure proposals. Stakeholders were encouraged to work together to find common ground on the issues and develop joint proposals where possible. To address competitive concerns and encourage the broadest possible participation, the ALJ also developed procedures for participants who would prefer to file proposals or comments with their identities under seal.¹⁰

On April 8, 2004, four coalitions and Cal-Ucons, Inc. (Cal-Ucons) filed proposals for the post-2005 administrative structure. Cal-Ucons is a private ESCO that contracts with California IOUs and utilities (both public and private) in other states to implement energy efficiency programs, including programs tailored to reach hard-to-reach market sectors such as mobile homes. The four coalitions are comprised of the organizations listed below. For ease of reference, we have given each coalition a shortened title that indicates some, but certainly not all, of the coalition members.

· IOUs Coalition (also referred to as the Integrated Portfolio Management Coalition): Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE), Southern California Gas Company (SoCalGas), Building Owners and Managers Association, Coalition of California Utility Employers, Efficiency Partnership, Northern California Power Agency, Richard Heath and Associates, Inc., Sacramento Municipal Utility District and The Energy Coalition.

· NRDC/LIF Coalition (also referred to as the Reaching New Heights Coalition): Natural Resources Defense Council (NRDC), Latino Issues Forum (LIF) American Council For An Energy-Efficient Economy, CHEERS, Electric Gas Industries Association, Equipoise Consulting, Heschong Mahone Group, Inc., ICF Consulting, KEMA-Xenergy, Nexant, Inc. and Silicon Valley Manufacturing Group.

· TURN/ORA Coalition (also referred to as the Efficiency California Coalition): The Utility Reform Network (TURN), Office of Ratepayer Advocates (ORA), San Diego Regional Energy Office (SDREO), City and County of San Francisco (CCSF) and K.J. Kammerer & Associates.

· WEM/SESCO Coalition (also referred to as the California Coalition for Energy Efficiency): Women Energy Matters (WEM), SESCO, Inc. (SESCO), RESCUE, Community First Coalition and Local Power and Public Citizen.¹¹

Opening comments were submitted by the following parties:

· American Lighting

· Association of Bay Area Governments

· Cal-Ucons

· City of Berkeley

· CCSF

· City of Santa Monica¹²

· Ecology Action

· ICF Associates, Inc

· Latino Issues Forum

· National Association of Energy Service Companies (NAESCO)

· NRDC

· Jointly by members of the IOUs Coalition and NRDC/LIF Coalition (see above), California Retailers Association, California State Chamber of Commerce, City of Bakersfield, City of Fresno, City of Stockton, County of Kern, Energy solutions and Quantum Consulting, Inc.

· Jointly by PG&E, SDG&E, SCE and SoCalGas

· Quality Conservation Services, Inc.

· Redwood Coast Energy Authority

· Rita Norton and Associates LLC

· SDREO

· SESCO

· South Bay Cities Council of Governments

· TEDCO Energy Services, Inc.

· TURN

· Utility Consumers' Action Network (UCAN)

· WEM

· "John Doe" representing a firm that provides consulting services to IOUs and other parties in energy efficiency programs, filing its identity under seal per the procedures established by the ALJ.

Reply comments were filed by American Lighting, CCSF, Insulation Contractors Association, the IOUs (jointly), LIF, NRDC, SESCO, the TURN/ORA Coalition members (jointly), Cal-Ucons and WEM.

In its reply comments, SESCO submitted cost-effectiveness data regarding 2003 programs implemented by the IOUs to support its position that the IOUs should not perform program administration functions. The IOUs requested an opportunity to respond and, with approval from the assigned ALJ, filed supplemental reply comments on May 18, 2004. In their responses, the IOUs refuted the accuracy of SESCO's evaluation of their 2003 program performance.

We note that this is not the forum for evaluating the performance of either IOU or non-IOU implemented programs during 2003. Such an evaluation should comprehensively consider all of the performance attributes we established for that program year, in contrast to SESCO's selective review. Accordingly, we do not consider SESCO's reply comments with respect to the issues being addressed in this phase of the proceeding. However, as discussed below, the EM&V administrative structure we adopt today is designed to produce objective evaluations of the program performance for all implementers, irrespective of what entity or entities are responsible for the Program Choice and Portfolio Management functions.

Subsequent to the filing of reply comments, Steve Schiller on behalf of a group of parties (referring to themselves as "Collaborating Parties") contacted the assigned ALJ to report that meetings had been held among various coalition members to seek a common ground with respect to the future EM&V administrative structure. The Collaborating Parties are: NRDC, TURN, ORA, SDREO, the IOUs, Nexant Inc., Heschong Mahone Group, Inc., Bevilacqua-Knight, Inc., California Building Performance Contractors Association, Ridge & Associates, UCONS, LLC, and Quantum Consulting, Inc.

Although they did not agree on the threshold issues regarding who should perform the Program Choice and Portfolio Management roles, Mr. Schiller informed the ALJ that the Collaborating Parties were close to consensus on advisory group structure with particular focus on EM&V administration that could be adopted by the Commission irrespective of its final determination on the threshold issues. The assigned ALJ authorized the Collaborating Parties to file their proposal, and provided interested parties an opportunity for comment.

Comments on the Collaborating Parties' proposal were filed on June 4, 2004 by CCSF, NAESCO, Residential Energy Service Companies' United Effort (RESCUE) and WEM. In addition, ORA, TURN, NRDC and the IOUs (filing jointly) submitted comments addressing the remaining non-consensus issue.

On September 30, 2004, Commissioner Susan Kennedy and CEC Commissioner Art Rosenfeld held an oral argument on an initial version of their proposal for energy efficiency administrative structure, which was posted on the Commission website for discussion purposes only. Following the oral argument, Commissioner Kennedy solicited legal briefs and written comments on policy issues related to affiliate transactions and EM&V structure. ¹³ Opening comments and legal briefs were filed on October 18, 2004 by the IOUs (jointly), NRDC and other members of the Reaching New Heights Coalition, TURN, CCSF and ORA (jointly),¹⁴ and WEM on behalf of the California Coalition for Energy Efficiency. Reply comments and briefs were filed on October 25, 2004 by these parties/coalitions, as well as by SESCO, NAESCO and Cal-Ucons.