Rulemaking 01-08-028 Filed August 23, 2001
Filed August 23, 2001
May 12, 2003
REPLY COMMENTS IN RESPONSE TO ADMINISTRATIVE LAW JUDGE’S RULING PROPOSING CHANGES TO ENERGY EFFICIENCY MANUAL TO IMPLEMENT CERTAIN PROVISIONS OF ASSEMBLY BILL 117
Local Power hereby submits these comments according to a published May 16, 2003 deadline, on Administrative Law Judge (ALJ) Kim Malcolm’s “Ruling Proposing Changes to Energy Efficiency Manual To Implement Certain Provisions of Assembly Bill 117,” Chapter 838, chaptered September 24, 2002, which authorizes any city, county, or combination of cities and counties to aggregate their electrical loads, which designates such entities as Community Choice Aggregators (CCA), and which adds Public Utilities Code Section 381.1, directing the Commission, no later than July 15, 2003, to establish policies and procedures by which any party, including a CCA, may apply to administer cost-effective energy efficiency and conservation programs. We are focusing our comments on Attachment A, which proposes revisions to the Commission’s Energy Efficiency Policy Manual.
Local Power is a service list participant in R:01-08-028. This is the first time that Local Power has submitted comments in this proceeding. Our credentials and purpose are as follows:
Inventors of Community Choice. Local Power staff authored the California Community Choice of Energy law of 2002, Chapter 838, after co-authoring, also, the nation’s original Community Choice bill, Massachusetts Senate bill 447, which was filed on January 4, 1995 and preserved intact in the subsequent 1997 energy industry Restructuring law in 1997 with local control also of a pro rata share of ratepayer-financed energy efficiency funds enabled for a similar non-bypassable surcharge-based state subsidy program. We advised in the drafting of Community Choice laws in Ohio (1999) and New Jersey (2003), and drafted California’s new Community Choice law for Assembly Speaker Pro Tem Fred Keeley (finally declined to sponsor, 2000) and then Assembly Member Carole Migden (AB48x, AB9xx of 2001, AB117 2002), which was passed by the legislature and signed by the Governor on September 24 as Chapter 838 of 2002. Local Power has also assisted, observed and published articles about aggregation efforts that have been undertaken in recent years as part of its American Local Power Project, a national 501c3 project to educate public officials about Community Choice.
Inventors of “H Bonds.” Local Power is not only uniquely qualified to speak for the interests of Community Choice Aggregators in California; it has also developed models, written and won voter approval of a San Francisco city charter amendment authorizing the issuance of municipal revenue bonds to finance renewable energy and conservation facilities. As author of San Francisco’s 2001 Proposition H, Local Power has broken new ground for Community Choice with a plan announced by Supervisor Tom Ammiano in May, 2001 to use aggregation and revenue bonds to finance construction of a solar photovoltaic power system into San Francisco’s rooftops that is five times larger than the Sacramento Municipal Utility District’s, currently the largest, in conjunction with energy efficiency and other conservation measures as components of San Francisco’s Community Choice contract
Integration Innovators. The San Francisco Solar Power Facility (local.org) proposal would be 50 Megawatts in capacity, built as a single system rather than an incremental patchwork of individual installations, and be built as an integrated network with large facilities providing a variety of services to San Francisco neighborhoods, business areas and public facilities, ranging from providing the whole city with peak power to powering specific facilities in a grid failure. Taking revenues from Community Choice aggregations as the basis of municipal revenue bonds to finance the project, the Community Power facility would deliver multiple benefits to consumers, public and the environment. Informed by staff experience in designing and regional and national telephone networks for Lucent, Motorola, Western Wireless and others for more than ten years, Local Power staff have adapted the rapid buildout and risk-assumption methods of rooftop network operators and in January, 2002 presented the solar industry with a model for the 50 Megawatt network, predicting it should take only three years to install (SMUD took seven years to install 10 Megawatts). Enabling legislation for a Community Choice implementation with 50 Megawatts included will be introduced at the San Francisco Board of Supervisors in coming weeks.
Local Power’s purpose in R:01-08-028 is both to protect consumers and deliver substantial benefits to the environment. The single argument that persuaded the legislative leadership to support Section 381.1 in the Community Choice law was Integrated Resource Planning: the principle that communities choosing to use Community Choice aggregation to make supply-side energy resource decisions on behalf of their communities should not be restricted from including demand-side decisions at the same time on an apples-to-apples basis.
With the conflict-of-interest inherent in supplier control of energy efficiency and conservation eliminated by Community Choice, a great opportunity has been created for Integrated Resource Planning that the Commission must not overlook. Many California municipalities have recently made 7-20% net greenhouse gas reduction commitments in recent years as members of the Cities for Climate Protection initiative. The Commission must not miss this opportunity. Community Choice presents a rare opportunity for dramatic and substantial mitigations on 20 to 25% of the cause of all greenhouse gases in California, not to mention similar opportunities to address childhood asthma and other diseases caused by California’s energy industry. This is the kind of opportunity that California needs, also to revive its energy markets and its high technology sector as well as protect its consumers and environment.
ALJ Malcolm’s definition of what constitutes a “proportional share” of the energy efficiency PGC funds for Community Choice Aggregators is arbitrary and discriminatory, and should be changed to directly reflect the dollar amount of PGC surcharge funds collected from the CCA’s territory during the year previous to an application to administer the funds. The current language reads as follows:
“Proportional Share – The proportional share of energy efficiency program activities will be an amount between the estimated dollar amount spent in the CCA’s territory in the previous year and the average dollar amount of PGC surcharge collected from the CCA’s territory during the previous four years. Allocated funds may be less or more than the estimated proportional share range depending on the quality of programs proposed for theca territory, type and availability of programs in the CCA territory and response of the CCA’s customers to energy efficiency programs.” (p.1)
Massachusetts’ Community Choice law, the only other Community Choice law to be passed in a state with a PGC funds system, provides the best example of a policy that reflects the values of Integrated Resource Planning. Under law, Community Choice aggregators in Massachusetts are entitled to a pro rata share of energy efficiency funds collected from their communities if their plans for those funds are approved by state regulators. The principle is simple: the PGC funds are the customers’ money after all, if those customers form a regional purchasing pool as a CCA and attempt Integrated Resource Planning, they should be allowed to decide how their own money is invested according to local conditions and preferences, provided the Public Utilities Commission approves their plans for that expenditure. Experience with this approach in Massachusetts has demonstrated a dramatically improved performance and greater program transparency compared to any precedent, whether public or private.
There is no justification for diluting this principle with a “funding floor,” defined as “the estimated dollar amount spent in the CCA’s territory in the previous year.” This criterion is arbitrary and has no foundation in Section 381.1 of the Public Utilities Code; it would in fact discriminate against communities that already suffered from a disproportionately small portion of PGC funds, would erect an irrational barrier to Integrated Resource Planning in Chapter 838 Implementation Plans, and thus would violate the intent §25300, §25303, and §25305 of the California Public Resources Code. The appropriate criterion for determining the “proportional share funding ceiling” for a Community Choice Aggregator – if there is to be a ceiling – would be simply the amount paid by consumers into the fund in the Aggregator’s territory, as it is applied in Massachusetts.
Integrated Resource Planning is California law. Under California Public Resources Code §25300, §25303, and §25305, state and local agencies are subject to a planning regime in which the environmental, economic and security costs and benefits of various supply versus demand side management options are intentionally weighed against each other, with the goal of identifying a mix with the least total cost. Local public agencies that become Community Choice Aggregators should be encouraged, not restricted, in their ability to pursue Integrated Resource Planning in their Community Choice Implementation Plan processes.
Moreover, we are very disturbed that the proposed guidelines fail to draw any distinction between Community Choice Aggregators (who are customers) and other parties (who are suppliers) in evaluating their eligibility to administer PGC funds – and allow suppliers to compete with customers that have formed aggregations and are seeking to administer their own money to competitive suppliers.
There are several reasons for our objection. While Section 381.1 provides for “any party” to have some opportunity to apply to administer the fund, it is no coincidence that Section 381.1 was enacted by the legislature and governor not as a stand-alone law but rather as one section of a larger Community Choice Aggregation law, Chapter 838. Section 381.1 was put into the Community Choice law because, as in Massachusetts, under a Community Choice law it is merely logical that PGC funds be made available to communities that have taken responsibility for the planning and procurement of their energy resources and are themselves administering a competitive bidding process among suppliers. The ruling repeatedly appears to miss the fact that CCA’s are customers, not suppliers, and that Community Choice Aggregation is itself a devolved competitive solicitation in which competitive suppliers, not municipalities, provide services to customers.
The failure to establish a policy for CCA’s that is distinctive from suppliers leads to a failure to comprehend a major opportunity for Integrated Resource Planning. Whereas in the past Integrated Resource Planning provisions in the California Public Resources Code §25300, §25303, and §25305 implied that utility monopolies, as procurement planners, should also administer energy efficiency and conservation programs, under the Community Choice law there is now a better option. With local governments making energy resource decisions pursuant to Chapter 838, and making them without the huge conflict-of-interest posed by utility monopolies, it follows that Integrated Resource Planning would best be managed by Community Choice Aggregators. With no investment in increasing energy throughputs to maximize profits, Community Choice Aggregators have a natural incentive to achieve the kind of sustainability that California has had to bribe utilities to achieve in the past.
Apart from this profound public policy advantage, Community Choice aggregators offer numerous advantages over other non-utility applicants for PGC funds administration:
Community Choice Aggregation is a uniquely demand-side local energy resource management authority. Unlike a utility monopoly or other supply-side business, Community Choice Aggregators have a vested interest in reducing consumption, eliminating waste, slowing down electric meters, and mitigating throughputs. In this capacity, it is incumbent on the Commission not to deny Community Choice Aggregators the opportunity to manage all PGC funds paid by their communities on their monthly electric bills. Any other policy would clearly violate the intent of §25300, §25303, and §25305 of the California Public Resources Code and erect barriers to Integrated Resource Planning under Chapter 838.
Under the local demand aggregation that Community Choice provides, consumers and the environment do not have to compete as “constituencies,” but share in a common public interest: to lower bills by reducing consumption. This structural elegance is the essence of sustainability. By using aggregation to deliver energy efficiency and conservation into the community’s energy services at a lower price than is otherwise possible, and by adapting rate setting mechanisms to the life-cycle characteristics of these new technologies, Community Choice Aggregation will minimize any adverse utility bill impacts of energy efficiency and conservation technologies, and will make them figure not as an added cost but rather an added benefit of the electricity service. By adapting municipal financing to such systems to reflect the peculiar revenue performance of conservation and energy efficiency, these impacts can be distributed to make them better perform against traditional supply-side alternatives. With life-cycle financing and integrated resource planning enabled by both Community Choice Aggregation and H Bonds, green energy technologies will become price-competitive with natural gas- or coal-fired electricity generation. Energy efficiency can thus evolve from the marginality and tokenism of utility monopoly administration to a mainstream and standard component of Community Choice Aggregators’ electricity service packages.
We are concerned that ALJ Malcolm’s ruling ignores the fact that Section 381.1 was made law in the context of the Community Choice law, Chapter 838, and not vice versa: a fact implied in the statement that “the Commission will consider the value…of allowing competitive opportunities for potentially new administrators.” (p.2) In fact, Community Choice Aggregators are customers organizing competitive opportunities for vendors, electric service providers, energy service companies, and the like. This sentence reflects, we think, a misread of Community Choice as if CCA’s are stifling competition when in fact they are facilitating and improving competition among suppliers. As a result, the ALJ’s Ruling irrationally threatens to force a demand-side aggregation of customers to compete against suppliers rather than allowing the aggregation to facilitate competition among suppliers: this is clearly unacceptable.
Again, the “funding floor” defined in this section is arbitrary and discriminatory, “determined by the approximate amount of electric and gas PGC funds spent in the CCA’s territory during the previous year.” (p.3). There should be no floor, but only a ceiling based on the amount collected from a CCA’s territory.
Again, ALJ Malcolm’s ruling makes no basic distinction between Community Choice Aggregator’s applications for PGC funds and other developers:
“Any party may propose programs for all or part of a CCA’s territory whether or not the CCA proposes energy efficiency programs for its customers. Non-CCA’s that propose programs for part or all of a CCA’s territory should request estimates of the CCA’s proportional share from the IOU(s) and design their programs accordingly.” (p.3)
If customers form a Community Choice Aggregator, take responsibility for planning their long-term energy resource use, seek to administer their own PGC funds and submit a qualifying application to the Commission, it would be a absurd and contrary to law for the Commission to allow other for-profit parties to compete against these customers for their own money. Apart from violating principles of Integrated Resource Planning and the intent of §25300, §25303, and §25305 of the California Public Resources Code requiring IRP, this policy would set California ratepayers in a competitive relationship with their own suppliers – suppliers who should be competing to compete amongst themselves to serve those customers, not take their money from them. The Commission should recognize the basic market structure that Community Choice offers and give CCA’s preferential treatment, as customers, over other applicants, when they form CCA’s and secure the Commission’s approval of their energy efficiency plans. This would not eliminate competition among suppliers but merely devolve the competition among suppliers to the CCA’s administration in such cases.
The irrationality of this component of the ruling is exposed by the special provision contained therein that “Non-CCA administrators shall not be held liable for falling short of the proportional share floor.” The fact that for-profit, non-IRP, non-accountable entities would require special privileges not available to non-profit, IRP-based, publicly accountable CCAs demonstrates the inherent non-cost effectiveness of allowing suppliers to compete against their customers.
The Community Choice Law presents the Commission with a new market structure, a key part of which is the opportunity for a more sustainable non-utility administration of PGC funds and improved energy efficiency and conservation programs with local buy in, better program monitoring and transparency. The current ruling makes the mistake of taking Section 381.1 in isolation from the Chapter of state law in which it was embedded, and in this respect fails to grasp the nature of Chapter 838. It is, in short, a dramatic opportunity to evolve from an IRP based on utility monopolies in a massive conflict of interest, to a new form of IRP that has no such conflict. We urge the Commission to change these policies to provide for a full opportunity for communities electing to take this critical responsibility to pursue Integrated Resource Planning by establishing policies that do not allow suppliers to compete with customers where Community Choice Aggregators wish to pursue IRP, and which instead facilitate an orderly process of competitive bidding among suppliers to provide communities with the services that they require.
PAUL D. FENN
PAUL D. FENN
4281 Piedmont Avenue
Oakland, CA 94611
Telephone: (510) 451-1727
Dated: May 15, 2003