4. Administrative Structure Proposals and Positions of the Parties

Attachment 2 describes and compares the proposals for administrative structure presented in this proceeding, including the various advisory groups recommended for our consideration. In this section and the discussion that follows, we highlight the major characteristics of each proposal and concentrate on the chief points of contention. Members of each coalition are listed in Section 2 above.

4.1. IOUs in the Role of Program Choice and Portfolio Management

The IOUs' Coalition and the NRDC/LIF Coalition propose an administrative structure that places the IOUs in the role of Program Choice and Portfolio Management. In addition to coalition members, American Lighting, American Synergy Corporation, Cal-Ucons, ICF Associates, Inc. and the National Association of Energy Service Companies filed comments in support of this approach.

4.1.1. IOUs Coalition Proposal: "Integrated Portfolio Management"

Figure 5 presents an overview of the "Integrated Portfolio Management" structure recommended by members of the IOUs' Coalition. This structure is almost identical to the administrative structure in place during the pre-restructuring/collaborative era. It places the IOUs in the role of Program Choice (subject to Commission approval) and ongoing Portfolio Management, with input from advisory groups. The differences relate to the advisory group structure. In addition to an advisory group for each IOU service territory, the proposal creates a statewide policy advisory committee to provide the IOUs with advice regarding program selection criteria and portfolio composition. Overall, the advisory groups are more formally structured than during the pre-restructuring/collaborative era, with membership appointed by the Commission. Parties seeking energy efficiency funds are excluded from membership on the advisory groups. Broader input from parties without a direct financial interest is solicited through public workshops held during the program selection and portfolio management process.

The EM&V framework presented under this proposal is also very similar to the pre-restructuring/collaborative era, including the use of a measurement advisory group. Under the proposed approach, the IOU administrators and implementers contract with EM&V consultants to perform measurement studies, which are required to follow Commission-approved measurement protocols. The study results are subject to independent verification. Similar to the pre-restructuring EM&V framework, ORA is allocated program funds to perform an independent evaluation of program accomplishments. However the structure does not include independent reviewers as part of the measurement advisory structure, as it did under CADMAC.

4.1.2. NRDC/LIF Coalition Proposal: "Reaching New Heights"

Under the "Reaching New Heights" proposal submitted by the NRDC/LIF Coalition, IOUs would also return to the Program Choice and Portfolio Management roles. Figure 6 presents an overview of this proposal. In addition to an EM&V and policy and Program Advisory Group (PAG) structure similar (but not identical) to the "Integrated Portfolio Management" proposal, this proposal includes 1) an Independent Observer and 2) a minimum set-aside for non-IOU implementers.

The Independent Observer is under contract to Energy Division to ensure that the IOUs portfolios are designed, and implementers are chosen, in a fair and transparent process. In particular, the Independent Observer provides feedback to the IOUs on portfolio plans, program selection criteria and final program selections, prior to the submittal of filings at the Commission. In addition, the Independent Observer serves as a conduit of information from market participants to Energy Division and the Commission. The NRDC/LIF Coalition also sets aside a minimum of 20% of the total portfolio funds to be competitively bid out for design and/or delivery by non-IOU implementers.

Subsequent to the filing of proposals, the IOUs Coalition and NRDC/LIF Coalition agreed on an amended version of the "Reaching New Heights" proposal, with the addition of several new supporters, including the City of Bakersfield, City of Stockton, City of Kern and California Retailers Association.⁴³

The amended "Reaching New Heights" structure is illustrated in Figure 7. It retains the 20% set-aside for non-IOU implementers, but puts Energy Division in the role of Independent Observer, rather than a third-party contractor. It also blends certain characteristics of the advisory group structures proposed under the "Integrated Portfolio Management" and initial "Reaching New Heights" proposals. Further description of the amended proposal is presented in Attachment 2.

4.1.3. Proponents' Arguments

Proponents of returning the IOUs to the Portfolio Choice and Portfolio Management roles argue that this is the best approach for capturing all cost-effective energy efficiency resources, given the structure of California's energy industry and the state's political climate. In their view, having the IOUs manage energy efficiency as an integral component of their energy procurement responsibilities will "treat energy efficiency as the valuable resource for meeting customers' needs that it is, and...stop treating it as a limited social program operating on the sidelines of the energy industry."⁴⁴ They contend that the IOUs have the staffing and contracting capability to administer a portfolio of programs of the magnitude necessary to meet the state's goals. In addition, they argue that this approach allows the Commission to retain clear and effective oversight over the entire energy efficiency administrative structure, as well as the combined portfolio of PGC and procurement-funded energy efficiency programs. In their view, the proposed structure can be implemented more easily and without the major start-up costs, uncertainty or potential delays associated with other options.

Proponents argue that these advantages overshadow the potential competitive or financial conflicts associated with putting IOUs in the lead role for program choice and portfolio management. Moreover, they contend that potential conflicts are effectively addressed by the checks and balances incorporated into the proposal, coupled with the overall procurement structure that holds the IOUs accountable for their resource selections.

4.2. Independent Administrator(s) For Program Choice and Portfolio Management

Both the TURN/ORA Coalition and the WEM/SESCO Coalition propose an administrative structure in which the IOUs do not select energy efficiency programs or manage the program portfolio. They recommend that the Commission oversee a competitive RFP to select a single independent administrator (TURN/ORA Coalition) or multiple administrators (WEM/SESCO Coalition) to perform these responsibilities. In almost all other respects, however, the proposals are different from one another, as described below. Figures 8 and 9 present overviews of these two approaches to independent administration.

4.2.1. TURN/ORA Coalition Proposal: "Efficiency California"

The TURN/ORA Coalition proposes an "Efficiency California" administrative structure that is reminiscent of the administrative structure the Commission attempted to put in place during restructuring. The major difference is the absence of a separate CBEE-type advisory board overseeing the RFP and contracting process. Under " Efficiency California," the Commission (rather than CBEE) contracts with a single administrator to perform the Program Choice and Portfolio Management functions. In addition to coalition members, the Association of Bay Area Governments and UCAN support this proposal.

Under "Efficiency California," the program administrator could consist of a single organization or a partnership of firms, but could not be an IOU or any other program implementer.⁴⁵ The program administrator selects all implementers through a competitive bidding process, and contracts directly with the winning bidders. A program advisory committee provides input to the program administrator on program design and mid-cycle program changes. (See Figure 8.)

An expanded CALMAC structure is responsible for managing and contracting for all portfolio-level and program-level EM&V studies, subject to Commission approval. Independent contractors conduct all EM&V studies, with input from Energy Division and other Commission-appointed CALMAC members. The program administrator and implementers do not oversee or contract for EM&V studies under this administrative structure.

4.2.2. WEM/SESCO Coalition Proposal: "The California Standard Offer Program For Energy Efficiency"

The WEM/SESCO Coalition proposes a "California Standard Offer Program For Energy Efficiency," whereby multiple non-IOU entities would administer energy efficiency programs by overseeing a continuous standard offer program. The proposal is presented as a system modeled after the structure currently operating in Texas. In addition to coalition members, two third-party implementers in Texas (Quality Conservation Services, Inc. and TEDCO Energy Services) filed comments in support of the WEM/SESCO Coalition proposal.⁴⁶

This approach envisions that program administrators would be comprised of CCAs, local governments, non-profit and/or for profit entities, and they would be permitted to overlap with respect to geographic regions and climate zones.⁴⁷ The Commission (or a System Director selected by the Commission) would accept applications from any parties who wish to serve as program administrators and evaluate those applications under the criteria set forth in AB 117 (Pub. Util. Code § 381.1).⁴⁸

Each program administrator is responsible for administering contracts with implementers using standard offers developed by the Commission (or System Director, subject to Commission approval), and for assisting customers to participate in the program. These standard offers set forth a standard incentive amount based on a percentage of avoided costs (less than 100%) for installed measures. The payment terms and other conditions are fully spelled out in a standard contract that the implementer can sign without any further negotiations with the program administrator. Under the WEM/SESCO Coalition proposal, program implementers would only get paid after the measures are installed and verified through field inspections conducted by EM&V contractors. Savings per measure are based on "deemed" (ex ante) estimates, i.e., on engineering data or load impact studies, without on-site testing or metering.

Here's how the standard offer program would work: The program implementer approaches residential customers in a specific geographic area to install measures. The type of measures to be installed is the decision between the energy service provider and the customer. The incentive typically does not cover the full cost of the measures that are installed, and the customer usually must make a contribution. The level of the contribution is also between the customer and the program implementer. Typically, projects for residential customers involve insulating homes or upgrading heating or cooling systems. The standard offer program includes a list of these measures with associated "deemed" savings, and the program implementer is credited those savings once that particular installation (or a sample of the installations of that implementer) has been inspected. After that occurs, assuming that the inspector finds the measures to be installed properly, the program implementer receives a payment for the credited savings based on a percentage of avoided costs.

Under the WEM/SESCO Coalition proposal, no entity would be allowed to serve at the same time as program administrator, implementer or EM&V contractor. The Commission (and System Director) and CEC would convene an EM&V committee to oversee periodic updates of the measure savings database, initiate studies to research information in the database, and generally serve as the interface between energy efficiency and supply-side resource planning. This committee would replace the existing CALMAC.

The WEM/SESCO Coalition proposal also provides for a "Special Administrator" to manage program funds for statewide information and education programs, such as Flex-Your-Power, codes and standards advocacy and training programs. In the alternative, the Commission or the System Director (if different) could also administer these programs. Under the proposal, 5% of program funds would be set aside for this purpose. The rest would be administered under the standard offer program described above.

4.2.3. Proponents' Arguments

In general, proponents for independent administration argue that the conflicts-of-interest inherent in an administrative structure where IOUs serve as both program administrators and implementers severely undermine the Commission's resource procurement goals for energy efficiency. Moreover, they contend that regulatory efforts to resolve or mitigate these conflicts will "at best result in dueling incentives that will in the long-run be more expensive for ratepayers than simply changing administrators."⁴⁹ At worst, they argue that these efforts simply will not be effective. In addition, they contend that IOU program administration would not produce highly cost-effective results.

Supporters of "Efficiency California" argue that this approach is particularly well suited to meeting the energy savings goals of the Energy Action Plan and the Commission because it creates a single-purpose administrative entity with sufficient staff and resources to undertake the requisite tasks. In their view, a further advantage of this structure is that it could easily evolve into a statewide administrator for self-generation and demand response programs, thereby fostering more innovative and integrated approaches to serving customers' multiple energy needs. They also argue that this approach will reduce conflict and increase collaboration in the apportioning of the monies. In their view, this approach will build improved centralized information systems for managing the funds and portfolio of programs, as well as for tracking performance and long-term results. They also contend that the single-purpose administrator can be established quickly under existing statutory authority. Finally, proponents of "Efficiency California" argue that strengthening and consolidating CALMAC's role will clarify responsibilities for EM&V and ensure that all assessments of program and portfolio performance are conducted by independent, non-biased entities.

Supporters of the "California Standard Offer Program For Energy Efficiency" argue that this approach has the advantage of eliminating conflicts-of-interest by establishing a clear separation of roles between program administrators, implementers and EM&V contractors. They also argue that standard offers provide the added advantage of creating a "bottoms up" portfolio development process, whereby the choice of what measures to install (and where) is left to the competitive market based on the implementers' assessment of costs and risks, and competition among them. Another key benefit they point to is the shift of performance risk from ratepayers to implementers, since the latter are paid only when measures are installed and inspected. Since payments to implementers are based on a percentage of avoided costs (less than 100%) they also argue that this approach will ensure that ratepayers pay no more than the costs of more expensive supply-side resources for the programs. Proponents of this approach also contend that the Texas standard offer-based administrative structure has demonstrated the ability to deliver large amounts of very cost-effective energy savings at relatively low administrative costs.

4.3. Cal-Ucons' "Discrete Market Segment Focus Plan"

Cal-Ucons proposes a "Discrete Market Segment Focus Plan" that is designed to be complementary to whatever administrative structure is chosen. Under this plan, the Commission would assemble an advisory group whenever necessary to provide input on how to improve success in an energy efficiency market segment, i.e., one that is under-producing in terms of energy savings. Focus advisory group members would serve by Commission-appointment and be comprised of stakeholders in the market segment. At any given time, there could be any number of Focus advisory groups in place to work on a variety of market segments statewide or in specified regions, such as an IOUs service territory. Any interested person may petition the Commission to create a Focus advisory group.

Cal-Ucons argues that this approach would provide the Commission with a powerful tool "to locate rich pockets of untapped [energy efficiency] savings on which to focus institutional attention," such as the hard-to-reach landlord-tenant market.⁵⁰ American Synergy Corp and Insulation Contractors Association supports the Focus Plan specifically in their comments. LIF expresses general support for the concept of focusing program efforts on hard-to-reach constituencies, such as the Latino and Asian communities, based on equity concerns.

4.4. Collaborating Parties' Proposal for Advisory Board and EM&V Administrative Structure

The Collaborating Parties have submitted a joint proposal for a statewide advisory group, called the "California Efficiency Advisory Council" (CEAC), to assist the Commission, program administrator(s) and a separate EM&V advisory group described further below. The purpose of CEAC would be to "provide pro-active input on (a) overall procurement and PGC energy efficiency portfolio designs and implementation, as well as (b) feedback on administrator and portfolio performance in the context of meeting statewide energy efficiency goals, efficiency of administration/implementation, compliance with Commission policies, etc."⁵¹ The CEAC would not have decision-making or contracting authority, but would be a formally constituted advisory group, complying with the Bagley-Keene Act. CEAC would submit an annual report on its findings and recommendations with respect to ratepayer funded and statewide energy efficiency programs. The CEAC would replace the statewide advisory groups proposed in the original filings by the IOUs Coalition, NRDC/LIF Coalition and TURN/ORA Coalition, but would not preclude adoption of regional advisory groups as well.⁵² Additional detail on CEAC is provided in Attachment 2.

With respect to EM&V administrative structure, the Collaborating Parties have developed a joint proposal that is independent of their separate recommendations for Program Choice and Portfolio Management. They all agree that a Measurement and Evaluation Council (MEC) should be established to advise the Commission on technical issues related to EM&V. The purpose of this group would be threefold. First, MEC would be the primary entity responsible for portfolio-level EM&V. Second, MEC would advise the Commission on setting protocols for EM&V of individual programs. Third, MEC would coordinate the program-level EM&V studies. In addition, MEC would make recommendations to the Commission on the level of EM&V funding during each program planning cycle, and on future updates to EM&V protocols.

MEC would consist of technical experts appointed by the Commission, as described further in Attachment 2. Under the proposed structure, MEC would operate by consensus and, if consensus cannot be reached, the assigned ALJ would make the final decision on any unresolved issues.

MEC would not have contracting authority. The Collaborating Parties propose that the IOUs administer and contract for the portfolio-level EM&V studies. These types of studies would include evaluations of energy savings potential, saturation studies, summary studies of statewide programs and achievements, market share tracking studies, updates to energy efficiency savings data, best practices studies, among others. The portfolio of studies would be developed though a public process and in close coordination with CEC and Commission staff through their participation on MEC. A Study Advisory Committee comprised of the IOU project manager and interested MEC members would select the EM&V consultant from among the bidders. The IOU project manager would contract with the EM&V consultant, review the consultant's invoices and approve the disbursement of EM&V funds accordingly.

As each portfolio-level study is underway, the Study Advisory Committee would meet on a regular basis to assess status and report findings and recommendations to the MEC. MEC, in turn, would provide opportunities for public input on the studies. Once finalized, MEC would report findings to the program administrator(s) and the Commission.

For program-level EM&V, the Collaborating Parties could not reach consensus on which organization should be the contracting entity for program-level EM&V. Some collaborating party members support Energy Division for this role (ORA and TURN) to avoid conflict-of-interest issues and others (IOUs and NRDC) support utility contracting for these EM&V studies due to utility expertise and potential limitations of state contracting rules and staff resources. The Collaborating Parties also put forth a third option; that MEC decides who should hold the contracts on a case-by-case basis, with the ALJ making the final decision if MEC cannot agree.

Irrespective of who contracts with the evaluators, the Collaborating Parties agree that MEC should create Project Advisory Committees (PACs) to oversee the efforts of each program-level evaluation study. MEC would appoint an IOU project manager to each PAC, and other PAC participants would include a representative from each program implementer being evaluated, an Energy Division staff person, and additional interested independent participants.

In accordance with the EM&V protocols established by the Commission, the PACs would develop measurement and evaluation plans for each program or group of programs. These plans would be reviewed by Energy Division and other MEC members and approved at a regularly notices MEC meeting. Each PAC would also develop the scope of work to be included in the evaluation consultant RFP, and recommend the selection of the independent evaluation consultant. Each PAC would meet on a regular basis, providing input while the evaluation is being conducted, and report findings and recommendations to MEC and the program administrators. Energy Division would also oversee a Summary Study that includes the issuance of Study Review Memos to verify the compliance of each evaluation study with the adopted protocols and summarize the total energy savings attributed to energy efficiency programs during the funding cycle. At its discretion, ORA may also verify any element of a program evaluation report as a further check on the evaluator's performance and the validity of savings. The Commission would review program performance annually based on study reports and would hold hearings to resolve any disputed results.

The Collaborating Parties believe that this proposal represents a reasonable common ground among competing approaches to advisory group structure and EM&V administrative structure. In addition, they note that the process of developing this proposal has served to build trust and collaboration among parties with widely divergent views on other issues related to administrative structure.