III. The CPA's Operating Budget Will Be Depleted by November 30, 2004

Acting Chair of the CPA, Sunne McPeak, requested the Commission's assistance in ensuring the continued functioning of the DRP in a letter dated November 5, 2004, to Commission President Michael R. Peevey.⁷ According to the letter, the Governor's budget for 2004-2005 effectively reduced the CPA's funding with the result that the CPA's operating fund will be exhausted by November 30, 2004. At the same time, according to the letter, the administration supports the DRP as an important contributor to meeting the state's electric reliability needs and has indicated that the DRP should continue after the CPA's operating funding is depleted.

The CPA initially attempted to place the program with the California Energy Commission (CEC), but according to the CPA that effort failed because the CEC currently lacks the statutory authority to buy and sell power as required by the DRP contracts. The CPA suggests that the IOUs are well-suited to take over the CPA's contractual responsibilities since they regularly buy and sell power, and therefore requests that the Commission takes the steps necessary to transfer responsibility for the DRP to one or more of the IOUs.

Because no changes have been made to its originating statute, the CPA will remain a legal entity after November 30, 2004 despite having exhausted its operating budget. Because the CPA will continue to statutorily exist, its specific funds for the DRP remain established in statute as well. According to a memo from Laura Doll Executive Director of the CPA to the Energy Division, dated November 18, 2004, these circumstances require that an official state government individual must be designated as Fiscal Agent of the CPA with the delegated ability to administer remaining financial actions and/or contractual actions associated with the closeout of the CPA. The CPA states that because the DRP provides critically needed demand response resources to the state, its operation should be continued through 2007. Given the importance of the program, the CPA is arranging to secure a Fiscal Agent who will act on its behalf to ensure the continued functioning of the DRP while the program's operational management is transferred to PG&E in 2005. The Fiscal Agent will have oversight of funds received from DWR, make payments to DRP aggregators and contractors, approve any new agreements with aggregators, and have financial and legal responsibilities for the DRP. The Fiscal Agent will also be empowered to approve the anticipated operational agreement with PG&E. The CPA anticipates that the Fiscal Agent will be from the state Business, Transportation and Housing Agency and that the arrangement will be finalized prior to November 30.