III. Selection Criteria

A. Importance of Local Programs

As we stated in D.01-11-066,

Local program options have the advantage of being able to respond flexibly to energy end-users' needs. Local programs also utilize local relationships and networks to increase participation and reach. Individual consumers depend heavily on local infrastructure in making energy efficiency decisions.⁴

Where local programs were too broad in geographic scope to ensure this flexibility and accessibility, we scaled back the proposals. We were also mindful of the need to create a balanced portfolio of programs that served, as much as possible, all areas of the state and different groups of hard to reach utility customers. We made clear in D.01-11-066 that our decision would not only reflect the scores described below, but also the extent to which the proposers conformed their proposals to the policies and rules in that decision and offered programs that help the Commission meet its desired mix of programs for 2002-03:

Parties seeking 2002 funding should both conform their proposals to the policies and rules set forth in this section (and expanded upon in the accompanying Policy Manual), and ensure that their proposals fall within the mix of desired programs set forth in Section III(C) below. Thus, for example, even if a 2002-03 program proposal for local services scores higher in points than another proposal for local services, such score does not guarantee funding for the former program. The Commission will consider point scores and the extent to which proposals help it meet its desired mix of programs for 2002-03 in selecting proposals.⁵

B. Proposal Scoring

In D.01-11-066, we established a points system to use in evaluating statewide proposals. We rated each program according to the criteria described below. In summary, the best proposals/proposers: offer comprehensive service; provide a local presence; have a demonstrated history of success; are innovative; reach the hard-to-serve or niche markets not already served; reach a market that the IOUs did not propose to serve this year; serve a geographic area needing programs; advance emerging technologies; provide persistent, long-term energy savings; deliver services to small business; present the program honestly and credibly; propose reasonable budgets; leave lasting change or infrastructure at the local level; provide maximum benefits to program participants rather than being heavy on overhead; help solve transmission constraints⁶; and work closely with or represent existing city and county governments and institutions.

1. Long-Term Annual Energy (Gas and Electric) Savings

Points: 25

The most important goal of any Commission energy efficiency program is to create permanent and verifiable energy savings over the life-cycle of the relevant energy efficiency measures. Programs are not required to create immediate short-term energy savings, so long as there is a clear, logical, and verifiable link between program activities and eventual energy savings. In other words, the Commission will strive for sustainability in the consumption behaviors and investment choices its programs are designed to stimulate. In general, long-term energy savings are those that continue over at least a three-year period.

2. Cost Effectiveness

Points: 20

All proposals for energy efficiency programs will be required to provide an estimate of life-cycle benefits and costs from various points of view, using the assumptions detailed in the [Energy Efficiency Policy Manual], Chapter 4, [Attachment 1 to D.01-11-066]. The Commission will use this information to compare and rank program proposals designed for similar uses, markets, or customer segments.

3. Addressing Market Failures or Barriers

Points: 17

Any program proposed for Commission approval should include a description of the type of barrier it is designed to address or overcome. The following examples of barriers are listed in order of importance; programs may also address other barriers not listed below:

· Higher start-up expense for high-efficiency measures relative to standard-efficiency measures

· Lack of consumer information about energy efficiency benefits

· Lack of financing for energy efficiency improvements

· Split incentives (between owners/landlords and tenants)

· Lack of a viable and competitive set of providers of energy efficiency services in the market

· Barriers to the entry of new energy efficiency service providers

· Lack of availability of high-efficiency products

4. Equity Considerations

Points: 15

The Commission will generally prioritize programs that provide access to energy efficiency alternatives for underserved or hard-to-reach markets. Although those customers contribute equally to the funds collected to support program activities, in the past, they have had access to fewer program alternatives than other customers. [The Energy Efficiency Policy Manual] provides a more detailed definition of underserved and hard-to-reach markets, either from the point of view of customer class (e.g., multifamily building residents, small businesses) or geography (e.g., rural customers).

5. Electric Peak Demand Savings

Points: 10

Programs paid for by electric PGC funds should emphasize long-term and permanent peak demand savings. Such programs may include, for example, installation of permanent measures to reduce peak demand, such as variable-speed drives on motors, but should not include programs that create peak demand savings only through temporary behavioral change, such as air conditioner cycling or programs that encourage consumers to turn off lighting or air conditioning.

6. Innovation

Points: 8

The Commission will prioritize programs that present new ideas, new delivery mechanisms, new providers of energy efficiency services, or new and emerging technologies to address new program areas, to overcome existing shortcomings, or to improve the effectiveness of existing programs.

7. Synergies and Coordination With Programs Run by Other Entities

Points: 5

To minimize confusion and overlap for consumers, the Commission desires program proposals that take advantage of synergies or coordination with other existing programs, including those run by other state agencies, private entities, municipal utilities, or the federal government.

C. Local Program Mix

In D.01-11-066, we provided that the program mix for 2002 should consist of local residential programs, local nonresidential programs, and local cross-cutting programs. Historically, the single and multi-family residential sectors have been hard to reach and slow to utilize new energy efficiency programs. We will continue to focus on increasing penetration in this area in the future. Nonetheless, we have chosen an excellent portfolio of local residential programs.

In connection with local nonresidential programs, we stressed small- and medium-sized businesses, another hard-to-reach sector that has been particularly hard-hit by rising energy costs. We carry this focus forward to the portfolio of local nonresidential programs we select in this decision.

Cross-cutting programs were to consist either of information and training programs, or programs to improve building codes and educate the trades, builders, developers and others on existing code revisions. We found that the majority of cross-cutting program proposals fell into the information and training category. This category is essential to get the word out about energy efficiency programs, but also presents some of the greatest challenges since the programs themselves do not deliver energy savings and can be high on administrative costs. (While some proponents of information/training programs claimed energy savings, such programs themselves do not actually deliver the savings. Rather, if a consumer is informed about a particular energy efficiency program and uses the program, it is the latter program, and not the program that informed the consumer of its existence, that may claim credit for the energy savings. If information programs claim energy savings along with the program actually delivering the energy efficiency measures, savings will be overstated.) We rejected many such proposals due to lack of specificity, planning and staffing, familiarity or access to the target market, and many other reasons. We selected programs demonstrating the greatest ability to connect customers with energy efficiency programs and train industry to enhance energy efficiency in their businesses.

D. Funding Limitations

There are several classes of proposals not eligible for Public Goods Charge (PGC) funding or for which we have limited funding due to policy considerations:

· Programs that serve municipal utility customers. As we made clear in D.01-11-066, because the PGC funds all energy efficiency programs we select here, we cannot channel such funding to Californians who do not contribute to the PGC. Municipal utility customers do not pay the PGC and thus are not eligible for funding. We have declined to fund such programs.

· Programs that promote proprietary products. We have not funded any program in which a product's manufacturer is attempting to use ratepayer PGC funds to market its product. This is not an appropriate use of public funds. Thus, for example, we do not fund the proposals of General Electric or Maytag for one-brand-name-only appliance rebates.⁷

· Programs that duplicate existing IOU programs. We have endeavored to avoid duplication by eliminating from consideration those programs that duplicate efforts that the IOUs will amply cover in their statewide programs. There are ever more limited funds available for energy efficiency, and we cannot afford to channel such funds to unnecessarily duplicative programs. However, we have funded several programs that complement existing IOU programs, making clear where the IOU and third party should coordinate efforts to enhance synergies between the two types of programs.

· Programs that over-fund a particular proposer. The process we have developed in this proceeding to allow third parties to compete with the IOUs is a new one. We are concerned that over-funding one proponent increases the risk of program failure. Therefore, we have been careful not only to select a diverse portfolio of programs, but also programs offered by a large variety of providers. We have not concentrated an excessive level of funding in any third party.

· Programs solely designed to serve the low income. The Commission has approved separate free programs for low-income customers as part of its Low Income Energy Efficiency (LIEE) programs.⁸ We are concerned that if we award non-LIEE programs funding in this decision, customers eligible for free programs will instead be steered toward programs with associated cost. Similarly, LIEE-eligible households might actually jeopardize their eligibility by taking non-LIEE measures. One requirement of the LIEE programs is that a household need a certain number of a certain type of measures before it can qualify for participation. If another non-LIEE program installs just a few of the measures, it could jeopardize that home for participation in the LIEE program. By the same token, those just above the LIEE income levels could benefit significantly from energy efficiency measures, and we have approved a number of programs that target hard-to-reach consumers with incomes above LIEE levels.

Moreover, it is important that there be coordination between the LIEE and non-LIEE energy efficiency programs. In Rulemaking (R.) 01-08-027, the Commission ordered such coordination from LIEE providers.⁹ We require the same here. Where a third party provider is aware of a competing LIEE program, it shall make LIEE-eligible consumers aware of the free program before attempting to sell a program with an associated cost. The IOUs supervising third party contracts shall build in a mechanism to encourage such program coordination. In addition, IOUs with local (and statewide) programs shall file the reports required of them in D.01-12-020 in this proceeding as well. In all cases, IOUs and third parties shall coordinate the delivery of LIEE and non-LIEE energy efficiency programs targeted at hard-to-reach customers so that the interests of low-income customers are best served.¹⁰

E. Coordinating Statewide and Local Programs

Where possible, we have directed local program providers to coordinate with other existing or selected programs to enhance consistency in rebates and other program details; minimize duplicative administrative costs; and enhance the possibility that programs can be marketed together to avoid duplicate marketing budgets. We expect program providers to work together and coordinate their efforts rather than competing with one another for the same customers. The IOUs administering the contracts will be on the front lines ensuring that these coordinated efforts occur, but we expect the Commission will also be vigilant in enforcing this requirement.

F. Available Funding

We allocated the following potential funding amounts to each category in D.01-11-066:

We discuss each local program category and the awarded funding in order below.