III. AB 117 Issues

The issues the Commission must resolve to implement energy efficiency provisions of AB 117 are as follows:

· What is a "Community Choice Aggregator"?

· What does the Commission need to do to create a process for parties to apply to become administrators for cost-effective energy efficiency programs, as AB 117 requires?

· What criteria and process should the Commission use to determine whether to fund CCA energy efficiency program proposals?

· What is the "proportional share" and what is its significance for purposes of implementing AB 117?

· How should the utilities calculate the "proportional share" for counties and cities?

· What kinds of information should the utilities provide parties interested in applying for energy efficiency program funds? When and in what format?

· What implementation costs must the utilities be able to recover and from whom?

Some parties who submitted comments in this proceeding proposed resolution of broader issues that we do not address here. For example, ORA, Sempra, TURN and PG&E proposed the Commission address energy efficiency program administration. This and other broader policy issues that were not subjects of the April 28, 2003 ALJ ruling are appropriately addressed in other forums or at a later date.

A. What is a "Community Choice Aggregator?

AB 117 defines a CCA as follows:

Sec. 331.1. For purposes of this chapter, "community choice aggregator" means any of the following entities, if that entity is not within the jurisdiction of a local publicly owned electric utility that provided electrical service as of January 1, 2003:

(a) Any city, county, or city and county whose governing board elects to combine the loads of its residents, businesses, and municipal facilities in a communitywide electricity buyers' program.

(b) Any group of cities, counties, or cities and counties those governing boards have elected to combine the loads of their programs, through the formation of a joint powers agency established under Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 of the Government Code.

In general, AB 117 provides that cities and counties and their governing bodies establish CCAs. No Commission action is required to affect that status although AB 117 requires several preconditions before a CCA may aggregate load, including the adoption of rules (Section 366.2(i)(3)), the submittal of a Commission report to the state legislature (Section 366.2(i)(2)) and the Commission's adoption of a cost recovery plan that would assure CCA customers assume a fair share of certain utility liabilities (Section 366.2(i)(1)). Sempra suggests that these preconditions for aggregation apply equally to CCA applications for energy efficiency program funding.

AB 117 does not prescribe any preconditions before a CCA may apply for energy efficiency program funding or implementing energy efficiency programs. Further evidence that the Legislature intended the energy efficiency program move forward expeditiously is the legislative deadline of July 15, 2003 for the Commission to develop procedures under which CCAs may apply for energy efficiency program funding. For purposes of AB 117, CCAs may apply for energy efficiency program funding beginning with the first solicitation for proposals following issuance of this order.¹

B. What Does the Commission Need to Do to Establish a Process for Parties to Apply to Become Administrators for Cost-Effective Energy Efficiency Programs, as AB 117 requires?

AB 117 requires the Commission to implement certain of its provisions by July 15, 2003. Those provisions concern the ability of CCAs and other parties to be able to apply to be administrators of energy efficiency programs:²

Sec. 381.1. (a) No later than July 15, 2003, the commission shall establish policies and procedures by which any party, including, but not limited to, a local entity that establishes a community choice aggregation program, may apply to become administrators for cost-effective energy efficiency and conservation programs established pursuant to Section 381. In determining whether to approve an application to become administrators, the commission shall consider the value of program continuity and planning certainty and the value of allowing competitive opportunities for potentially new administrators. The commission shall weigh the benefits of the party's proposed program to ensure that the program meets the following objectives:

(1) Is consistent with the goals of the existing programs established pursuant to Section 381.

(2) Advances the public interest in maximizing cost-effective electricity savings and related benefits.

(3) Accommodates the need for broader statewide or regional programs.

In some respects, the Commission already conducts its energy efficiency program solicitations in ways that are consistent with AB 117. Specifically, it solicits proposals and allocates program funds to any party, including cities and counties, that presents a proposal that is compelling and complements other programs. It selects programs to recognize local system needs, equity and cost-effectiveness, among other things.

Section 381.1(a) also requires the Commission's process for allocating funding to various energy efficiency programs to consider certain criteria and outcomes. The Commission's existing rules explicitly or implicitly consider "program continuity" and "planning certainty" when the Commission considers the length of program funding, the types of programs to fund and the appropriate administrators. It has recognized the "value of competitive opportunities for potentially new administers" by allocating some funds to third parties. It has emphasized the need for cost-effective programs and creating a portfolio of statewide and local programs that are complementary. The Commission will continue to consider these program objectives and those set forth in Section 381, consistent with AB 117. This is also consistent with Section 381.1((c)) which provides that CCAs proposing energy efficiency programs shall do so "under established Commission policies and procedures."

Significantly, by directing the Commission to establish procedures for non-utilities to apply for energy efficiency program funding, AB 117 encodes the Commission's current policy to permit third parties to apply for energy efficiency program funding rather than allocating all energy efficiency program funding and responsibilities to the Commission's jurisdictional utilities.

In summary, the Commission is already implementing that portion of AB 117 that requires a process for parties to apply for energy efficiency program funding authorized in Section 381. It selects programs using criteria that are consistent with AB 117 and expressed in Section 381.1(a). To the extent the Commission changes its energy efficiency programs and policies, it will consider the requirements of AB 117.

C. What Criteria and Process Should the Commission Use to Determine Whether to Fund CCA Energy Efficiency Program Proposals?

AB 117 does not specify the process the Commission should use to consider CCA applications for energy efficiency program funding. It broadly establishes criteria for that review but does not require that the Commission treat CCAs or their proposals differently from other parties.

CCSF, Santa Monica, and WEM propose the Commission articulate a preference to CCAs for energy efficiency program funding. CCSF goes so far as to suggest CCAs should have a right of first refusal for local program funding and should not have to compete with third parties. TURN makes a similar proposal, arguing that utilities have a conflict of interest in administering energy efficiency programs while they are able to profit from energy sales and associated capital investments.

The utilities, ORA and NRDC propose that the process and review criteria applied to CCAs should be the same as those applied to other parties, including requirements for evaluation, measurement and verification (EM&V), as defined in the Commission's energy efficiency policy manual. SCE argues that AB 117 does not permit the Commission to apply different procedures or criteria for CCAs.

AB 117 generally preserves the Commission's discretion to determine the procedures and criteria under which it will consider applications for energy efficiency program funding. While the statute requires the Commission to develop procedures for all interested parties, it does not distinguish types of parties or state that the Commission must treat all types of parties the same (Section 381.1(a)). Nevertheless, we are not prepared to treat CCAs any differently from other parties at this time. While we may ultimately find that CCAs are appropriately independent agencies that should have considerable deference to use Section 381 funds, we leave the issue of CCA's role and discretion to our broader rulemaking. To treat them differently at this time would presume a policy direction that we are not prepared to address in the narrow context of this inquiry. We may reconsider the process and criteria for reviewing CCA applications for energy efficiency program funding. Until and unless we do, we will apply the same procedures and criteria for review that we apply now to all Third Party applicants for energy efficiency program funding, including EM&V requirements. CCAs shall refer to Commission orders and its energy efficiency policy manual in making requests for Section 381 funding.

D. What is the "Proportional Share" and What is its Significance for Purposes of Implementing AB 117?

AB 117 requires the Commission to allocate a "proportional share" of energy efficiency program activities to a CCA's territory under certain conditions:

Sec. 381.1 (c) If a community choice aggregator is not the administrator of energy efficiency and conservation programs for which its customers are eligible, the commission shall require the administrator of cost-effective energy efficiency and conservation programs to direct a proportional share of its approved energy efficiency program activities for which the community choice aggregator's customers are eligible, to the community choice aggregator's territory without regard to customer class. To the extent that energy efficiency and conservation programs are targeted to specific locations to avoid or defer transmission or distribution system upgrades, the targeted expenditures shall continue irrespective of whether the loads in those locations are served by an aggregator or by an electrical corporation. The commission shall also direct the administrator to work with the community choice aggregator ... to accommodate any unique community program needs by placing more, or less, emphasis on particular approved programs to the extent that these special shifts in emphasis in no way diminish the effectiveness of broader statewide or regional programs. The commission may order an adjustment to the share of energy efficiency program activities directed to a community aggregator's territory if necessary to ensure an equitable and cost-effective allocation of energy efficiency program activities.

The parties provide a variety of comments about the proportional share, mostly relating to the availability of related information, which we address below. Some parties, including PG&E, appear to assume the Commission will automatically allocate a proportional share of activities (or funding) to all local territories. The City of Santa Monica goes so far as to ask that the Commission guarantee the availability of certain funding levels so that cities may plan their energy strategies over a multi-year period.

The statute does not require a proportional share of energy efficiency program funding to CCAs or the jurisdictions of cities and counties. It does require that the Commission direct a proportional share to the CCA's territory, which presumes that a CCA has been created in an identified territory. The statute does not require an allocation of the proportional share where no CCA is established.

While we might agree that an automatic allocation to CCAs is reasonable in some cases to promote equity or other values, the Commission retains its discretion to direct energy efficiency funds to locations where the need is greatest and benefits are greatest, discretion that is explicitly recognized in Section 381.1(c), which permits the Commission to adjust the proportional share to assure equitable and cost-effective programs statewide and to continue programs designed to defer system upgrades.

Moreover, the statute does not require the Commission to allocate a proportional share to local jurisdictions, even where CCAs exist, except when the CCA is not the administrator of energy efficiency programs. The statute only requires such an allocation where a party other than the CCA administers programs.

We understand the cities' need for some certainty so they may plan staffing and resource requirements over several years. Other parties, including the utilities, have made similar comments in this docket in the context of funding periods for energy efficiency programs.

At this point, however, we are not willing to allocate the proportional share to cities and counties or CCAs, except to the extent the statute requires. We are poised to review the funding periods for all energy efficiency programs in this docket and may consider the needs of CCAs in that context. In the meantime, the Commission will comply with AB 117 by allocating a proportional share of energy efficiency program activities to a CCA's territory where a CCA has been formed but is not the administrator of energy efficiency programs in its territory. In allocating a proportional share of energy efficiency program activities to a CCA's territory, the Commission will consider the impacts on programs designed to defer system upgrades, and the equitable and cost-effective allocation of programs and funding levels in other parts of the state, as AB 117 requires.

Although we here interpret the statute literally and retain our discretion to allocate funds to the most responsible administrators and the programs that best meet our stated criteria, we nevertheless believe the intent of AB 117 is to promote the use of Section 381 funds by cities, counties, and CCAs in ways that are responsive to local needs, cost-effective and fair. For that reason, we encourage those entities to apply for funding and state a commitment to granting them funding where they demonstrate that their programs meet with statewide objectives and will be well-managed.

E. What is the Appropriate Way to Calculate the "Proportional Share of Approved Energy Efficiency Program Activities"?

AB 117 requires the Commission to allocate a "proportional share of approved energy efficiency program activities" in a CCA's territory where the CCA does not administer energy efficiency programs funded by Section 381. The bill, however, does not define "proportional share" of "activities."

The parties to the proceeding had several suggestions, many of which appear to assume that the Commission will automatically allocate the proportional share to local communities. Several parties suggested the proportional share be calculated according to the Section 381 funds collected from customers in the CCA's territory or some variation of that amount. The utilities raise concerns that the proportional share net out customers who are not served by the CCA and spending on statewide programs, to avoid double incurrence of costs.

Because the statute does not require such an allocation except in certain narrow circumstances, we adopt a calculation of the proportional share that is simple and consistent with the statute.

The statute uses the term "proportional share of activities." In considering whether to apply the term "activities" literally, we find that the exercise would be impractical at best. Using a simple example, if the utility sponsored a program statewide that provided air conditioner rebates to one of every 300 customers, the proportional share of activities in the CCA's territory would require air conditioner rebates to one in 300 customers in the CCA's territory. Requiring this type of allocation of activities is troubling in cases where the CCA's air conditioning rebate market may be saturated, where one in 300 customers may not use qualifying air conditioners (if the CCA territory is mostly industrial customers, for example) or where rebates in the CCA's territory would be much less cost-effective than in other areas of the state (if the CCA territory is cool relative to other areas of the state). In some cases, such an allocation would be nonsensical, for example, where the energy efficiency "activity" was the provision of agricultural equipment and no CCA customers was designated agricultural.

The Legislature could not have intended by its use of the term "activities" to limit our discretion to implement programs that are designed according to local needs, cost-effectiveness and equity. Indeed, the language of AB 117 suggests exactly the opposite. The practical problems associated with literally applying the term "activities" motivates us to use funding levels as a proxy for "activities."

The simplest way to define "activities" in this case would be to calculate per capita spending in the CCAs territory and raise or lower the amount to make it comparable to average per capita spending statewide. In some cases, this monetary proxy for "activities" would not necessarily portray the level of activity accurately. For example, defining "proportional share" according to funding levels may overstate activities in areas where customers are hard to reach. Conversely, using funding as a proxy may understate activities where implementation is simple and low cost. We can overcome these types of problems by considering cost-effectiveness, equity and local conditions, as the statute suggests.

We therefore define the CCA's "proportional share" as an average of statewide per capita activities from the previous year applied to the CCA's territory according to the number of customers. To calculate the "proportional share," the annual Public Goods Charge (PGC) budget is divided by the population of the state to determine per capita PGC funding. The result is multiplied by the population of the CCA's territory to determine that CCA's proportional share. We believe this calculation is also consistent with the statute's admonition that we develop the proportional share "without regard to customer class."

Using the "proportional share" as we do obviates the need to net out statewide program expenses or "opt out" customers because the "proportional share" is only used to estimate non-CCA expenditures in the CCA's area. It does not necessarily represent an amount of funds that are available for energy efficiency programs in the CCA's territory, some of which may duplicate utility efforts. Moreover, if it appears there may be some duplication where a combination of utilities, third parties and CCAs administer programs in a CCA's territory, we may adjust the "proportional share" accordingly.

This "proportional share" calculation must be provided to the Commission and interested parties any time a CCA has been established and the CCA is not administering local energy efficiency programs funded under Section 381. The utility must also present to the Commission its proposal for complying with the statute's requirement that the utility direct a "proportional share" of activities to the CAA's territory. The Commission will determine whether the calculation of the "proportional share" is accurate and reasonable, and whether the amount should be adjusted, consistent with Section 381.1.

F. What Kinds of Information Should the Utilities Provide to CCAs? Should That Information be Available to All Parties Who Request it?

AB 117 anticipates that "the administrator" of energy efficiency programs will work with CCAs and provide information about energy efficiency programs:

Sec. 381.1(c)...The commission shall also direct the administrator to work with the community choice aggregator, to provide advance information where appropriate about the likely impacts of energy efficiency programs...

Cities appear to interpret this section broadly to require the utilities to provide information on proportional share and spending to all cities, counties and CCAs by geographic area. LGC also proposes that non-CCA program administrators be required to provide implementation plans and impact forecasts. In this regard, LGC proposes that non-CCA administrators be required to coordinate with CCAs so that CCAs may collaborate with administrators, develop accurate resource plans and design their own programs in ways that are equitable, cost-effective and comprehensive. WEM and others seek information about what the utilities have collected in each local jurisdiction.

Sustainable Novato seeks detailed descriptions of the utilities' program implementation plans and energy efficiency programs for all cities and counties requesting such information. LGC believes having information about available funds would permit CCAs to plan their resource plans and give cities information necessary to analyze whether to become a CCA.

The utilities propose to provide certain types of information but caution that its collection and dissemination could be costly in some cases. On the basis of the utilities' proposals, we direct them to provide the information listed on Attachment C.³ Where that information may be confidential, the utility should mask the information or require the city, county or CCA representative to sign a nondisclosure agreement.

The types of information listed in Attachment C should be provided to any party within one week of the request. We will direct each utility to file a tariff that permits cities, counties and CCAs to receive other types of data and information that the utilities do not currently compile or analyze, such as CCA territory load profiles or estimates of the proportional share for areas in which a CCA is not formed. This type of information should be available at an hourly rate that reflects actual utility costs. We will consider ordering the utility to provide additional types of information in the broader inquiry into AB 117 aggregation issues.

We will also require non-CCA administrators to provide to any requesting party copies of implementation plans and impact forecasts.

G. What Implementation Costs Must the Utilities be Able to Recover and From Whom?

The utilities state that they are entitled by AB 117 to recover the costs of implementing its provisions. SCE cites Section 366.2:

Sec. 4 Section 366.2 is added to the Public Utilities Code to read: 366.2. (a) (17) An electrical corporation shall recover from the community choice aggregator any costs reasonably attributable to the community choice aggregator, as determined by the commission, of implementing this section.

This provision of AB 117, however, does not apply to the portions of the bill that address energy efficiency program funding. Section 366.2 explicitly limits itself to costs "of implementing this section." Here, "this section" only refers to the costs relating to CCA procurement programs.

Consistent with our findings today on other matters relevant to AB 117 energy efficiency program funding, we intend to implement only those program changes required by the statute. We are not today requiring extraordinary efforts of utilities to implement AB 117. They are fully reimbursed for the costs of implementing energy efficiency programs generally. The only incremental requirements imposed by this order are information the utilities state they already have or could easily compile. We invite the utilities to file tariffs that permit an hourly charge for compiling and analyzing other types of information. We therefore do not establish here any new funding mechanisms for implementing those portions of AB 117 that are the subject of this order and expect the utilities to absorb those costs as the normal cost of doing business.