8. Commission Policies and Legislative Intent

From our perspective, consideration of the issues in this case must focus on the interests of those being served by the program, low-income utility customers, and those paying for the program, non-participating ratepayers. With respect to low-income customers, we believe that their interest in the program is fundamentally the same as all customers participating in energy efficiency programs, namely, to improve the comfort of their homes and reduce utility bills. As we stated in D.97-02-014, "our goal is to provide low-income ratepayers with assistance in managing their energy bills."²⁶

Because this segment of the population needs the bill savings the most, we should strive to maximize the participation of eligible participants and work to reduce their electric and gas bills as much as possible, within the constraint of limited funding. At the same time, to protect the interests of non-participating ratepayers that subsidize the costs of the program, we need to ensure that service delivery is as efficient as possible.

Meeting the needs of low-income customers as cost-efficiently as possible is also the stated intent of Legislature, as articulated in Pub. Util. Code § 2790, recently amended by AB 1393. This section directs the utilities to meet the need for weatherization services by low-income utility customers "taking into consideration both the cost-effectiveness of the services and the policy of reducing the hardships facing low-income customers."²⁷ Consistent with that intent, we have defined the program in our DSM rules as serving "an equity objective in assisting customers who are highly unlikely or unable to participate in other residential programs" and therefore the program is not subject to strict cost-effectiveness requirements.²⁸ At the same time, we have promoted consideration of cost-efficiency in the provision of these services:

"We recognize that direct assistance and energy management services programs are not designed to defer or avoid more costly supply-side additions, and that they may never pass the [total resource cost] test of cost-effectiveness. Nonetheless, as long as these services are being provided, we believe that the utility should be motivated to reduce the cost and increase the amount of kilowatt-hour savings generated by these programs."²⁹

Our direction to SoCal to competitively bid out 25% of its DAP program was motivated by similar concerns, namely, how best to ensure how the program could be implemented efficiently while still maintaining quality service:

"We agree...that DAP be administered as efficiently as possible. We have no evidence, however, that SoCalGas' use of CBOs as prime contractors results in unreasonable costs or inefficient operation of the program. We lack this evidence, in part, because SoCalGas failed to make the showing on its DAP that was ordered in Resolution G-3018....

"...[I]n order to obtain information which will permit us to determine how SoCalGas' program can be most efficiently structured in the future, we will order that a limited portion of the program be subject to competitive bidding how. We will order SoCalGas to make a filing, within 60 days of the effective date of this order, setting forth a proposal to begin a

competitive bid for 25% of its weatherization services under its DAP.

"We are convinced by the testimony of CBO administrators that, because CBOs rely on the local labor force, the existing program promotes economic development in some of southern California's most depressed neighborhoods. It also appears that local residents are comfortable with CBOs because CBOs tend to be a part of the local community and conveniently offer a variety of services and access to other types of assistance.

"These CBO attributes, however, need not be lost through a competitive bidding program. The fact that CBOs offer services other than low income weatherization, their knowledge of low income areas, and their experience working in the community are all attributes that should allow CBOs to effectively compete with private contractors.

"We are concerned not only with the cost of providing low income weatherization, but also with the quality of these services. Both components can be reviewed in a competitive scheme. SoCalGas should develop a program that is fair, and nondiscriminatory. In addition, SoCalGas should have the flexibility to fashion a bidding scheme that adequately balances the values and attributes brought by both CBOs and private contractors in the delivery of weatherization services to low income customers."³⁰

Our policy of balancing the equity goals of CARE and the low-income energy efficiency programs with the need to also consider cost-efficiency is consistent with the recently enacted AB 1393. The statute encourages the implementation of these programs in a manner that will "ensure the effective

and efficient delivery" of programs as well as the community building potential of involvement of local community-based providers offering local employment opportunities. (§ 327(a)(2) and (c).) Moreover, AB 1393 recognizes (as we did in directing SoCal to bid out part of their program) that both cost-of-service and quality-of-service criteria should be considered in any bid evaluation process that the Commission may direct. (§ 327(b)(1)-(9).)

In addition to maximizing participation in the programs and working to reduce consumers bills, AB 1393 directs utilities "to the extent practical" to (1) continue to leverage funds available under the program with funds from state and federal sources; (2) work with state and local agencies, CBOs, and other entities to ensure efficient and effective delivery of programs; and (3) encourage local employment and job skill development. (§ 327(a)(1)-(5).) This language echoes our acknowledgement in D.93-12-043 that "CBO attributes" should be recognized in the implementation of low-income energy efficiency programs.

AB 1393 also adds Section 381.5 which, articulates the Legislature's intent to assure the participation of local community-based organizations in the delivery of program services³¹ by "evaluating the programs based on cost criteria and program accessibility."³² In particular, Section 381.5 states that any evaluation of the effectiveness of low-income energy efficiency programs should also be based on the degree to which the programs provide access to "quality programs to low-income communities" provided by "entities that have demonstrated performance in effectively delivering services to the

communities." This section also reiterates the objective of ensuring the efficient and effective delivery of programs by directing that "high quality, low-income energy efficiency programs are delivered to the maximum number of eligible participants at reasonable costs." AB 1393 thus strikes a delicate balance, consistent with our approach in our past decisions, among the objectives of community participation in program delivery, maximizing bill and energy savings for low income households, and cost effective use of ratepayer funds.

While AB 1393 clearly articulates goals to be achieved by the program, "to the extent practical" and "subject to Commission oversight," it is silent on the issue of how utilities should administer the program to attain these objectives. In particular, AB 1393 is silent on the extent to which the utilities should outsource program implementation activities and what functions should be kept in-house. AB 1393 is also silent on the issue of whether the utilities should competitively bid out their low-income energy efficiency programs. Those implementation considerations are appropriately left to this Commission.

As described in Section 2.4 above, we have stated our intention that all the utilities move to outsourcing and competitive bidding to the broadest extent appropriate for maximizing the achievement of our objectives. This has been our policy goal for several years. (Res. E-3586 p. 31; D. 99-03-056, mimeo., p. 16.) We developed this policy based on our concerns over potential conflicts between utility administration and the restructured industry, as well as our belief that outsourcing and competitive bidding is the best way to ensure that the most low-income customers could be served for the amount of funds available. As we discussed in SoCal's test year 1994 general rate case, we have been concerned that without a reasonable level of competition between CBOs and other entities, our program goals for efficient and effective delivery of services to low income households would not be met. We do not understand that the Legislature's

reiteration of its intention in AB 1393 that a place in program delivery be retained for CBOs represents a fundamental change of this direction.

Nonetheless, we recognize that policy-setting is not a stagnant process and should evolve as new information is available and as circumstances warrant. AB 1393 now codifies the attributes we should look for in program implementation. This proceeding now affords us the opportunity to examine the premises underlying our implementation policies for LIEE programs and to refine them as appropriate.

³¹ The exact statutory language is: "It is the intent of the Legislature to protect and strengthen the current network of community service providers by doing the following: . . . ."