V. Other Issues

A. Program Implementation Plans

We expect each IOU and third party whose programs we have chosen to file and serve Program Implementation Plans (Plans) no more than 60 days after the Commission approves this decision. Each party shall also post its Plan on its website in a prominent and easy-to-find location. The IOUs chosen to administer each third party program shall oversee the filing and service of these entities' Plans. Each Plan shall contain at least the following information for each program funded (IOUs and third parties with more than one funded program shall submit one document containing separate Plans for each individual program):

· Title of individual program

· Plans to implement this decision's changes to original proposals

· Revised energy and peak demand savings targets, as well as per-unit energy savings and unit-count projections, as applicable

· Revised cost-effectiveness calculations, as applicable

· For information-only programs with no energy savings targets, other objective measures for evaluating program progress

· Hard-to-reach targets and goals. Where this decision does not specify such targets and goals, the program implementer should define them in its Plan. Where this decision specifies such targets, they should appear in the Plan

· Budget (in the format and following the guidelines set forth in the following section and in Attachment 4 to this decision.)

The Commission will monitor and evaluate the local programs using the Plans as a benchmark. No party shall delay program preparations or commencement while preparing or after submission of the Program Implementation Plans.

B. Budgets

The Energy Efficiency Policy Manual accompanying D.01-11-066 required program proposers to submit budgets according the following guidelines:

Any program proposal submitted for Commission consideration should include an itemized budget including the following elements . . . , as applicable:

Administrative Costs

· Labor

· Benefits

· Overhead

· Travel Costs

· Reporting Costs

· Materials and Handling

· General and Administrative costs

· Subcontractor costs

· IOU Administrative Fee (only for non-IOU programs)

Marketing, Advertising, and Outreach Costs

· Itemized (e.g., 6 brochures, 1000 copies @ $10 each)

Direct Implementation Costs

· Itemized financial incentives (e.g., 100 water heaters @ $75 each)

· Itemized installation costs (e.g., 100-14 SEER Central AC units @ $2000 each, installed)

· Itemized activity costs (e.g., 100 walk-through audits @ $500 each)

Evaluation, Measurement and Verification Costs

· Itemized, including subcontractor costs

Other Costs

· Financing costs

· Other

The manual also contained a sample budget format.

We sent data requests to several local program proposers seeking better budgetary information than that originally provided.¹¹ For the most part, we obtained budget information that is adequate to allow us to approve those programs. Nonetheless, in order for us adequately to monitor and evaluate the programs, all providers shall submit better budget information with its Program Implementation Plans. These parties shall follow the budget format found in Attachment 4 to this decision, entitled "Budget Format for Implementation Plan."

We seek budgets with a higher degree of detail than those already provided. Many of the budgets submitted, both by the IOUs and other proposers, did not provide the level of itemization that was called for by the Policy Manual, especially in the area of subcontractor costs. Such costs are not always "administrative"; rather, their character depends on the type of work subcontractors are doing. Subcontractor work that provides direct energy efficiency services, for example, is not "administrative" expense. In addition to providing itemization where it is required, we need explanatory material either within the budget table or in footnotes. For instance, formulas for allocating costs to overhead should be explained. If a party uses historical or experiential information to allocate certain costs, it should explain the basis for its allocation. These parties should explain their budgets in straightforward and easily understood language.

Moreover, IOUs and third parties often apportioned like costs under different categories in their local program proposals. In connection with D.02-03-056, our decision approving statewide energy efficiency programs for 2002, we required the IOUs and third party funding recipients to meet and confer and then file a uniform plan for the allocation of costs within categories. This plan - and any modifications to it ordered by the Commission or ALJ - should be used to allocate local program costs in a consistent manner. Any change in allocation that results should be filed with parties' Program Implementation Plans.

In many cases, we have adjusted the proposer's budgets downward to reflect the fact that we must balance out the energy efficiency portfolio. Where we have done so, we have made a straight-line reduction in the savings goals for the program. If a proposer feels this reduction is not accurate, it should identify an alternative method for reducing energy savings goals, and calculate the new goal, in its comments on this draft decision.

In addition, because many proposers assumed we would be awarding local program funding in time for programs to be up and running on April 1, 2002, we have attempted to adjust budgets of those programs to reflect a more realistic start date. Proposers seeking different budget adjustments shall recalculate and explain them in their comments on this decision. Third party local programs shall end no later than December 31, 2003 despite this later program commencement.

Finally, some proposers noted that certain program costs would be paid by sources other than public purpose funds - e.g., local water departments, other funders, etc. Where this is the case, the proposer shall include the costs it expects to recover from another source as a line item so that each budget is comparable.

C. Program Payments and Bonding

As in the statewide decision, the final 15% of program funding (for programs with energy savings) or the final quarterly program payment (for information/training programs) will be contingent on program performance, with the risk of proportionate reductions in these amounts for programs that do not meet their goals. We will apply an objective reasonableness standard to our determination of whether each program meets its goals, and will not require a refund if the program sponsor's failure to meet goals was reasonable. If, on the other hand, the program proponent did not make reasonable attempts to meet its goals, or cannot explain why its failure to meet goals was reasonable, a portion of this final payment will have to be refunded.

Because we do not directly regulate the third parties receiving funding, we must have security not only for the final 15% or quarterly payments, but for the entire budget amount. As part of its process of contracting with the IOUs, each third party will be required to post a bond or other security ensuring that the Commission and/or the IOUs administering each contract will have a means of recovering such funding for ratepayers. Such bond or other security must guarantee the return of any funding to which the third party was not entitled - either because it unreasonably failed to meet program goals, or due to bankruptcy, complete program failure, malfeasance or other similar circumstances. Such bonding or other security will be a condition precedent to any third party receiving funding.

If a third party provider secures the required bond or other security, it will be entitled - barring bankruptcy, complete or partial program failure not deemed reasonable, malfeasance or other similar circumstance - to receive all program payments, including the final 15% (or quarterly payment for information/training programs), as they come due. We will provide this funding up front in order to avoid having to shut programs down before the end of 2003. If the third party provider does not secure the required bond or other security, then it will be ineligible to receive any energy efficiency program funds.

The third parties shall also provide evidence that they have the requisite California licensing, bonding and insurance to perform work for the State of California no later than April 22, 2002.¹²

D. Independent Evaluation, Measurement and Verification (EM&V)

We require that independent third parties not affiliated with the program provider evaluate local programs and measure and verify local programs' claimed energy savings and measures installations. Parties shall report their plans in this regard in their Program Implementation Plans. The IOUs responsible for the third party contracts should ensure that independent EM&V occurs. It may be appropriate in certain cases for EM&V to occur with regard to a group of like programs. The Commission's Energy Division will provide guidance to parties in this regard. Before commencing EM&V activities, IOUs and third parties shall contact the Energy Division for such guidance.

E. Total Resource Cost (TRC) Recalculation

We required all program proponents to calculate the Total Resource Cost (TRC) of their programs. This cost measures the overall cost-effectiveness of energy efficiency programs from a societal perspective, taking into account benefits and costs from more than just an individual perspective. Because of changes we have made to individual programs, some proponents will have to recalculate TRC. We instruct proponents whose programs we change herein to recalculate TRC and submit the new calculation - with all supporting workpapers or other detail - in their Program Implementation Plans.

Moreover, no program proponent gave us adequate back-up detail for their TRC calculations. Thus, all providers whose programs we select here shall resubmit their TRC calculations, with back-up information sufficient to allow the Commission to replicate such calculations, no later than April 22, 2002.

F. Hard-to-Reach Program Targets

We have established hard-to-reach targets for most of the local programs we select in this decision. Each such target is reflected in the program summaries accompanying this decision. All programs with such targets - either suggested by the provider or by the Commission - shall include such targets in its Program Implementation Plan.

G. IOU Contracts With Third Parties

Each third party awarded program funding also has been assigned an IOU with which it will contract. That IOU will be responsible for carrying out day-to-day program administration, distributing funding, ensuring that third parties prepare and submit quarterly program reports, and notifying the Commission of serious concerns with a program. In comments on this decision, each IOU assigned contract oversight responsibilities shall identify persons whom the third parties awarded funding may contact for guidance on contracting and other next steps.

The IOUs commenced the process of developing a standard contract during Winter 2002. It appears that the efforts were by-and-large unsuccessful, due partly to the fact that at the time the IOUs were contesting the Commission's right to have them administer the contracts. In comments, the IOUs and third parties shall report on where things stand with contracts and how much re-work will be necessary if the Commission denies the IOUs' application for rehearing.

Each IOU shall use a consistent contract format statewide, and shall ensure that contracts are signed no later than May 15, 2002 so that programs can begin serving customers no later than June 1, 2002. We recognize that Program Implementation Plans are due after this contracting deadline. Because third parties may submit Plans after program commencement, but may not commence program services without a contract, we have done this deliberately. Parties shall identify any problems this process may present in their comments on this decision.

Where we have funded one program in more than one IOU's territory, we have appointed a single IOU to oversee the program in each area. We were concerned that it would be burdensome to third parties to have more than one IOU responsible for day-to-day program administration. While having the IOU close to the provider is an important countervailing argument, we realized that it probably is no less convenient for an IOU in San Francisco to administer a program in Southern California than to administer one in the far northern reaches of the state.

H. No Double Dipping

With the large number of providers receiving local funding, we are concerned that there may be more opportunities for customers to double dip - i.e., receive rebates, discounts, incentives and services from more than one program. The IOUs overseeing the third party programs are the most centralized resource to see to it that double dipping is minimized. They shall include a provision in their third party contracts requiring third parties to ascertain whether customers have received other energy efficiency program benefits and to minimize or eliminate double dipping. The IOUs shall also propose a mechanism for minimizing double dipping in their Program Implementation Plans.

I. IOU Administration Expenses

In D.01-11-066, we stated that IOUs administering programs would be eligible to receive up to 5% of program budgets in compensation for their reasonable costs of administration. Because we do not yet know which programs will involve the greatest (and the least) amount of oversight, we will not set those percentages at this time. To ensure that funds are available for such IOU reimbursement (up to 5%), we will hold back approximately 5% of total local program funding.

IOUs shall assume that the 5% figure is the outlier, and only will be paid in unusual cases. Based on their past experience, including what occurred with the Summer Initiative programs (A.99-09-049 et al.), the IOUs shall present estimates in their comments of the appropriate percentage they anticipate for each program. They shall not estimate each or even most programs at 5%, as we do not believe past experience, especially with the Summer Initiative, will bear out such estimates.

J. Shareholder Incentives/Profits

Consistent with our decision awarding statewide funding, we will not allow IOUs (or third parties) to receive profit or shareholder incentives for their energy efficiency programs. We will examine this issue in further depth when we take up the issue of how energy efficiency programs should be administered.

K. Programs That Provide Limited Services With Energy Efficiency Funding But Offer Additional Full Fee Programs

We do not wish energy efficiency providers to use their energy efficiency funding to market full fee products and services to consumers. Therefore, all providers must prominently disclose to customers, orally and in writing, that such customers are not obligated to purchase any full fee service or other service beyond that which we fund here. For example, if all this decision does is fund a lighting program, the provider shall not make the customer believe that to get the lighting rebate, he/she must also purchase other services that we do not fund here. All providers shall provide the text of their disclosure in English and Spanish with their Program Implementation Plans. They may work together to devise such language.

Moreover, all funded providers shall disclose the source of funding by stating prominently that their programs are "funded by California ratepayers under the auspices of the California Public Utilities Commission."

L. Measurement, Assessment and Evaluation

In D.01-11-066, we set aside $10.5 million in funds for measurement, assessment and evaluation activities to be carried out by the IOUs.¹³ We have since determined that it would be best if independent third parties performed this evaluative work, since the programs analyzed often will be IOU programs. Therefore, we propose to modify those portions of D.01-11-066 that indicate that utilities should perform this work. Rather, the Commission will arrange for contractor(s) to carry out these projects.