SUPPORT BETTER ENERGY CONSERVATION IN CALIFORNIA

CCEE's proposed structure, the California Standard Offer for Energy Efficiency is fair, transparent and highly effective. A similar system created four years ago by local members of Public Citizen, ACEEE and Environmental Defense Fund in Texas is saving 40% more energy per dollar than current California programs. The California Standard Offer:

• provides greater customer bill reductions and other benefits;
• guarantees energy savings, enabling energy efficiency to compete for the first time as a genuine resource to offset expensive and polluting power plants (the current system and all other proposals have no such guarantee);
• greatly expands energy efficiency infrastructure and well-paid jobs; small, innovative organizations can "get their feet wet" with small projects and quickly expand to larger ones. Most importantly, this proposal would give non-utility EE providers such as cities, community-based groups, independent companies or Native American tribes many more opportunities to run EE programs and to develop their own ideas.

A Standard Offer means the opportunity to save energy is offered to everyone under the same terms and conditions. In the California Standard Offer structure proposed by CCEE:

• A variety of contract sizes ($5,000 to $2 million) are offered continuously on a first come, first served basis. (Currently, there is a secret process where somebody else decides whether or not your project is a good idea.)
• There is a simple 4-5 page application and a quick turnaround - just a couple of weeks. (Currently the application process takes 3-6 months.)
• No one party can control more than 20% of the funds at any time. (Currently, utilities control 80% of the funds.)
• Payments are based on energy savings achieved, based on a percent of the "avoided costs" (i.e. not building power plants and buying fuel). (Currently, there is no direct correlation between energy savings and funds paid.)
• Your organization takes the risk — if you save energy, you get paid. If you don't succeed within a specified time, the money goes back into the pot for the next applicant. (Currently, ratepayers are at risk — if the program fails, the money is gone.)

There are only two other full proposals for administrative structure: a joint proposal by the utilities and NRDC, and a proposal by TURN. Although very different in some respects, both proposals perpetuate problems in the current administrative structure:

• Utilities are in a position either to manipulate the system (utility/NRDC proposal) or undermine it (TURN proposal).
• Utilities control key aspects of energy savings measurements. Currently, energy efficiency lacks credibility because utilities have exaggerated energy savings measurements.
• Administrative costs are high because both of the other proposed systems are top-down, micromanaged structures.
• Implementers must submit lengthy, detailed applications describing what each part of their operation will cost — a nearly impossible task, especially for innovative programs.
• Proposals are evaluated once every two or three years in a secret process. Under the current structure, many proposals that scored high on stated criteria were rejected based on subjective judgments open to manipulation by utilities. Winners were subjected to arbitrary changes to programs and budgets.
• "Shareholders Incentives" may be reinstated. In the 1990s the CPUC awarded utilities more than $500 million of these incentives (i.e. bribes) in a vain attempt to get them to do better EE programs.

CCEE's California Standard Offer proposal:

• Easily accommodates hundreds of implementers with many small and medium size contracts ($5-50,000). Such a robust infrastructure would overwhelm the current system or other proposed structures, which rely on micromanagement to protect ratepayers from program failure. With the Standard Offer, the risk for program failure is borne by implementers, not ratepayers. (Currently, there are only about 50 non-utility implementers receiving about $100,000 to a few million each, and four utilities receiving $50-175 million each).
• Neutralizes utilities’ conflicts-of-interest by requiring participants to choose only one role — administration, implementation, or energy savings measurement – and ensuring fair competition on a level playing field for administrators as well as implementers.
• Greatly reduces administrative costs by reducing the need to micromanage.
• Simplifies and speeds up the application/selection process (a few weeks vs. 3-6 months in the current system and other proposals), and offers ongoing opportunities to apply, rather than only one in a two or three-year cycle.
• Guarantees results by paying only for energy savings achieved and measured. Otherwise, funds go back into the pot for others to apply.
• Emphasizes the development of a much more rigorous and independent system of Evaluation, Measurement & Verification (EM&V). Currently, EE lacks credibility because utilities control measurement contractors and the Measurement Advisory Council, which has failed to correct known exaggerations in “deemed” savings.
• Allows for different entities to become administrators as required by the Community Choice law. Ensures statewide accountability and coordination by the overall System Director, which answers to the CPUC. CCEE recommends against utility administrators but believes there is no need to absolutely ban them in the California Standard Offer system.
• Is very flexible, providing tools for the System Director to tailor incentives to ensure attention to areas with reliability problems, and various categories of ratepayers (for example, "hard-to-reach" rural or inner-city residences and small businesses, Native American reservations, or non-profit institutions like schools, hospitals, governments).
• Provides for statewide information and education programs as well as "market transformation" and other pilot programs as the need arises. These programs are selected by a Special Administrator in a non-Standard Offer process comparable to current procedures, however the fact that they are segregated from other programs ensures greater independence and accountability.

Energy Efficiency (EE) funds come from a special Public Goods Charge on all utility bills. They finance a variety of energy saving activities for homes and businesses such as installing or servicing efficient lighting, insulation, heating/cooling and industrial/ agricultural machinery, and providing EE information and education to the public.

California could be saving much more energy with these programs than we currently are. The basic problem is that the CPUC allowed utilities to control all Energy Efficiency funds for thirty years, although they have a huge conflict with conservation - selling more energy raises their profits and their stock prices. Utilities want to control EE because it's great public relations - and they don't want conservation cutting too deeply into their profits.

• The CPUC tried to coax and bribe utilities to do a better job - even gave them 25% of the funds as "shareholders incentives" (pure profit). Nevertheless, utilities continued to waste money on ineffective overpriced programs.
• Utilities squandered up to 50% of the money on administrative costs.
• Utilities wined and dined their EE measurement contractors at resorts — at public expense — and gave them lucrative consulting contracts for studies that make it look like utilities were saving much more energy than they really were.

In 2002, on the heels of the energy crisis, then-President of the CPUC, Loretta Lynch, set up an experimental competition with 20% of the energy efficiency funds. Anybody except utilities could apply.

Utilities tried everything to stop non-utility programs.They appealed CPUC decisions, quarreled over contract language, and sent threatening letters. In spite of all the dirty tricks, non-utility EE providers persevered through months of delay. They not only managed to do the job - they saved more energy per dollar than utilities.

With a better EE system, we could make large reductions in energy use, reduce our bills, help revive California's economy and provide good-paying jobs at all skill levels. We could close power plants that pollute poor communities and reduce natural gas use. We could leverage investments in solar and wind energy. We could slow global warming and eliminate the justification for America's energy wars.