BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

 

Order Instituting Rulemaking to Examine the Commission’s Future Energy Efficiency Policies, Administration and Programs.

 

 

Rulemaking 01-08-028

(Filed August 23, 2001)

 

 

COMMENTS OF LOCAL POWER ON THE DRAFT DECISION (“DD”) OF ADMINISTRATIVE LAW JUDGE KIM MALCOM ENTITLED “INTERIM OPINION IMPLEMENTING PROVISIONS OF ASSEMBLY BILL 117 RELATING TO ENERGY EFFICIENCY  PROGRAM FUND DISBURSEMENTS”

 

Local Power is a service list participant in R:01-08-028. This is the second time that Local Power has submitted comments in this proceeding.

 

We are disappointed with the framework that is established by ALJ Malcolm’s Interim Opinion, which fails to recognize the distinction between allowing customers to administer their own funds to competitive suppliers and allowing suppliers to compete to serve customers. Not only does the DD fail in this regard, it also appears to illegally preserve monopoly set-asides that could seriously threaten the ability of consumers who have formed CCAs to even compete to administer their own money. Apart from addressing these basic flaws, we will raise concerns that the omission of several issues would establish Community Choice Aggregators (CCAs) in a subordinate role in relation to investor- owned utilities (“monopolies”).

 

Moreover, we are deeply disturbed with the DD’s concluding claim that the Commission is already complying with AB117:

 

“In summary, the Commission is already implementing that portion of AB117 that requires a process for parties to apply for energy efficiency programs funding authorized in Section 381. It selects programs using criteria that are consistent with AB117 and expressed in Section 381.1(a). To the extent the Commission changes its energy efficiency programs and policies, it will consider the requirements of AB117” (DD, p.9).

 

As will be shown below, this statement is the result of a series of errors concerning Section 381.1 and AB117 in general. The fact that the Commission’s process allowed non-monopolies to apply for only 20% of the EE funds in 2001 and 8% in 2002 makes the DD appear to be an effort to subvert the will of the legislature. The DD should be changed:

 

1. CCAs should be allowed to administer funds paid by customers in their jurisdictions provided that they use competitive solicitations for suppliers to provide the services, rather than being treated the same as Third Parties;

2. There should be no specific set-aside for monopoly programs, which was 80% in 2001 and 92% in 2002;

3. The DD’s implied preference for monopoly programs that would adversely impact CCAs should be removed; clarifications are needed.

 

I. DRAFT DECISION SHOULD BE CHANGED TO ALLOW CCAs TO ADMINISTER THEIR OWN FUNDS TO THIRD PARTY IMPLEMENTERS

 

We continue to be disturbed that the DD fails 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.

 

The DD provides that special treatment should not be given to CCAs over monopolies and non-monopoly suppliers:

 

“Nevertheless, we are not prepared t treat CCAs any different from other parties at this time. To treat them differently at this time would presume a policy direction that we are not prepared to address in the narrow context of this inquiry.” (DD,page 10)

 

Moreover, we are concerned that ALJ Malcolm’s DD continues, like her Draft Ruling, to fail to understand that Community Choice Aggregators are themselves administrators of competitive bidding processes by third parties. The DD appears to treat CCAs as if they were themselves suppliers when they are not suppliers. The DD would treat CCAs under the same guidelines as Third Parties when in fact CCAs will administer competitive solicitations among Third Parties. The result is a wholly inappropriate treatment of CCAs.

 

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 which after all are themselves administering a competitive bidding process among suppliers. The DD, like ALJ Malcolm’s previous ruling, continues to miss the fact that CCA’s represent customers, not suppliers. Community Choice devolves formerly state regulatory functions to municipalities and counties. Community Choice Aggregation is itself a devolved competitive solicitation in which competitive suppliers, not municipalities, provide services to customers: thus the requirement in Section 3 of AB117 that “The commission shall take actions as needed to facilitate direct transactions between electricity suppliers and end-use customers.”

 

ALJ Malcolm’s decision in her ruling to consider Section 381.1 in isolation from the Chapter of state law in which it was embedded has resulted in a misunderstanding of Community Choice Aggregation in general in such manner that its treatment in the DD continues to be seriously inappropriate. CCAs are customers, not suppliers.

 

We are concerned that ALJ Malcolm continues to ignore 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 who are organizing competitive opportunities for vendors, electric service providers, energy service companies, and the like. The misread of Community Choice of this sentence continues in the DD, as if CCA’s are stifling competition when in fact they are facilitating and improving competition among suppliers. As a result, the ALJ’s subsequent DD 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 policy is inconsistent with AB117..

 

The failure to establish a policy for CCA’s that is distinctive from suppliers also 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.

 

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.

 

Apart from this profound public policy advantage, Community Choice aggregators offer numerous advantages over other non-utility applicants for PGC funds administration:

 

  • Community Choice Aggregators Are The Customers Who Paid the PGC Money. Community Choice Aggregators represent the customers who have paid these funds. They are not power suppliers but consumers, and have a special right to administer their own funds.

 

  • Community Choice Aggregators are Publicly Accountable. Community Choice Aggregators are locally elected, as accountable to the public as any entities can be, and are subject to Sunshine Ordinances and Open Meeting Laws. Other market participants have no accountability to the public, provide services in order to reap a profit or maintain a program budget, and are not required to be transparent to the public.

 

  • Community Choice Aggregators are Non-Profit. Community Choice Aggregators are providing a non-profit service to benefit the public. Other market participants are providing a for-profit service primarily to benefit their investors.

 

  • Community Choice Aggregators Are Demand-Side Entities. Community Choice Aggregator administration of PGC funds provides a demand-side orientation that is impossible with supplier-based administrators that also procure power such as monopoly utilities, which have a vested interest in maximizing throughputs on their infrastructure in order to maximize gross revenues and thus profits.  The conflict of interest in supplier-based administration of PGC funds is inherently unsustainable. By replacing the conflict-of-interest inherent in utility monopoly administration of energy efficiency and conservation programs, Community Choice Aggregators are ideal agents for cost-effective energy efficiency and conservation programs. Indeed, unlike utility monopolies, whose throughput-based revenues are directly threatened by cost-effective energy efficiency and conservation programs, Community Choice Aggregators view energy efficiency as the most cost-effective means of achieving economic benefits for their residents, businesses and their public agencies. Some of the key opportunities for aggregation to provide economic benefits to consumers, - lowering costs and minimizing price volatility to residents and businesses, and improving energy reliability - will be achieved by targeting conservation and energy efficiency, installing new load shaving and load reduction elements to the community’s resource mix, and generally establishing a new level of demand responsiveness that delivers efficiencies that any utility monopoly would view as fundamentally threatening to their long-term profitability.

 

Finally, the DD presumes (p.7) to reinterpret the plain language of the legislature in Section 381.1, specifically the word “administration” as a qualitatively different word, “implementation.”  This unauthorized reinterpretation has the effect of limiting the meaning of Section 381.1 to favor monopoly administration, and is not only inappropriate and discriminatory but illegal. Section 381.1. says nothing about establishing procedures for “program implementation,” but concerns only “program administration.” While the legislature repeatedly calls for non-monopoly administration of these funds, the DD limits this to “implementing” EE programs. These are elementally different and must not be conflated: Not only could “implementer” CCAs could me made to remain subservient to local monopolies under the DD’s illegal reinterpretation, but the reinterpretation reflects the basic misunderstanding of Community Choice Aggregators, under which a third party implements a CCA program under local public administration. It is a simple, elegant structure to facilitate competitive solicitations for blocks of publicly organized consumers. Clearly, if CCA’s are required to compete against their local monopoly to administer their own funds and wins, they should not be required to remain as “implementers” under administration of those same monopolies. The DD should be changed fundamentally to reflect these basic facts.

 

II. DRAFT DECISION PLACES CCAs IN A SUBORDINATE RELATIONSHIP TO MONOPOLIES.

 

The DD gives special treatment to monopolies. While a clear statement against special treatment for CCAs is made – “Until and unless we do (reconsider CCA procedures), we will apply the same procedures and criteria for review that we apply now to all Third Party applicants for energy efficiency funding, including EM&V requirements.” (DD, p.10) – no such statement is made relative to monopoly programs.

 

What is worse the DD could be interpreted to preserve special privileges for monopoly programs over CCAs. Considering that Third Party applicants currently have a subordinate status in relation to monopolies under the current manual, the decision to place CCAs under the same procedures and criteria as Third Parties in effect gives preferential treatment to monopolies. This is an outrageous policy considering the sordid history of monopoly administration, and is also a clear violation of AB117. Specifically, under the program manual, Third Parties have been prohibited from submitting proposals for more than 60% of the EE funds in 2001 and were prohibited from submitting proposals on 92% of the funds in 2002, both due to a set-aside for utility administration and implementation of so-called “statewide programs” and large blocks of local program funds. In 2001, third parties were limited to $100 million (36%) out of $278.4 million, in 2002 to $20 million (8%) of $240 million. Third Parties were not allowed to implement any programs whose funds were not covered by the remaining funds.

 

This is not only an unwise but also an illegal policy. To meet the requirements of Section 381, the Commission may not prohibit CCAs from an opportunity to administer any and all of the EE funds. By placing CCA’s on the same footing as Third Parties, the DD clearly would have the illegal result of favoring monopolies. Even the monopolies did not recommend that utility set asides be exempted from the principle that “the process and review criteria applied to CCAs should be the same as those applied to other parties,” including monopolies. No interpretation of Section 381 could logically allow for a continuation of monopoly set-asides after July 15, 2003. In our May 17 comments, we made it clear that Community Choice Aggregation creates an opportunity for superior EE program performance. Clearly it would be contrary both to AB117 and sound policy to prohibit CCAs from submitting potentially superior programs to the CPUC in competition with local or statewide programs administered by monopolies. Clearly the Commission should not and cannot reasonably presume that statewide or local EE programs are superior to CCA programs; clearly it is contrary to AB117 for the Commission to refuse to compare CCA programs with monopoly programs and to create an a priori preference for the latter.

 

If the Commission is unwilling to ascertain a reason to give CCAs (who represent customers, not suppliers, and administrators of competitive bidding among suppliers, not implementers) the right to administer their own funds in local solicitations among suppliers, it would be an outrage and clearly violate the intent of AB117 to preserve any preference for monopoly programs. A clear statement should be made by the Commission, similar to that made relative to not giving preference to CCAs, to the effect that no pre-AB117 preference will be given to monopolies. We recommend the following language:

 

“We will apply the same procedures and criteria for review of all monopoly programs that we apply now to all Third Party applicants for energy efficiency funding, including EM&V requirements.”

 

III. INADVERTENT PREFERENCES FOR MONOPOLY PROGRAMS

 

A. The DD limits the availability of Electric and Gas Funds to electric customers. Given that previous Commission orders have repeatedly sought to coordinate delivery of electric and gas energy efficiency services, and considering that the EE Manual, which treats electric and gas programs equally, is repeatedly cited in the DD as sufficient to meet the requirements of AB117, there are no grounds for suddenly limiting the administration of funds by CCAs to electric customers.

 

B. The DD presumes Two-Year Programs to be the Norm. Several commentators have suggested that funding of programs should be set for multiple years for better planning (DD, pp.11, 12).  In fact, the average duration of a CCA contract in other states with CCA is six (6) years long. Given that CCA solicitations require suppliers to bid energy efficiency programs as components of their service and to include the cost of such programs in their rates, it is essential that program funding be set for multiple years of up to at least ten (10) years. Again, this assumption of the DD reflects the mistake in taking Section 381.1 in isolation from the law in which it was merely a part.

 

C. The definition of “proportional share” is flawed. The DD’s use of per capita and population and “customers” as the way to indicate the proportionate share will discriminate against communities with large amounts of commercial and industrial customers and iwht large numbers of master metered living units: meaning rich suburbs would be favored over poor urban communities. Clearly this is unacceptable. The DD should indicate that the proportionate share is the fraction of all PGC funds collected form a community, regardless of customer class.

 

IV. CONCLUSION

 

We urge the Commission to give serious reconsideration of the DD’s declaration that preference should not be given to CCAs. CCAs are customers, not suppliers; giving preference to CCAs simply means allowing customers to administer their own funds to third party suppliers: that is all. It does not mean allowing CCAs to make those funds unavailable to third party suppliers. If the Commission needs to restrict preferential treatment of CCAs by requiring those who receive it to bid out their EE funds to third parties, so be it. In fact, it has not been done any other way.

 

Moreover, we urge the Commission to reconsider the misguided course of considering Section 381 in isolation from the law in which it is inextricably embedded. If the Commission misunderstands the basic structure of CCA, its policies on CCA administration will bring further crises and require future amendment.

 

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 DD repeats all the mistake of the Draft Ruling and makes it worse by pretending that the current manual, which has a record of 80%-92% set asides for monopoly programs, already complies with AB117. It does not.

 

The Commission faces, 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.

 

Respectfully Submitted,

 

PAUL D. FENN

 

 

By: _________________________________________

                                                                        PAUL D. FENN

 

 

Local Power

4281 Piedmont Avenue

Oakland, CA 94611

Telephone: (510) 451-1727

Email: paulfenn@local.org

 

Dated: June 30, 2003

 

Cc: Commissioner Susan Kennedy

ALJ Kim Malcolm

Interested Parties, 01-0