Title: _

R.94-04-031, I.94-04-032  ALJ/MEG/mrj *

ALJ/MEG/mrj

Decision 98-04-063  April 23, 1998

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation.

Rulemaking 94-04-031
(Filed April 20, 1994)

Order Instituting Investigation on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation.

Investigation 94-04-032
(Filed April 20, 1994)

(See Attachment 1 for List of Appearances.)

INTERIM OPINION:  POLICY RULES AND REQUEST 
FOR PROPOSALS FOR ENERGY EFFICIENCY 
PROGRAM ADMINISTRATORS

1.  Introduction and Summary
	By Decision (D.) 97-02-014, the Commission established the California Board for Energy Efficiency (CBEE) to make recommendations about energy efficiency programs in the restructured electric industry.  The Commission determined that new administrators of energy efficiency programs would be selected through a competitive bidding process.  Among other things, CBEE was assigned the task of developing requests for proposals (RFPs) articulating policy and programmatic guidelines for new administrators of these programs, subject to Commission approval.  Pursuant to Public Utilities Code § 381, funding for energy efficiency and other public goods programs will be accomplished through a nonbypassable rate component of the local distribution service, referred to as the Public Goods Charge (PGC).

D.97-02-014 also established the Low-Income Governing Board (LIGB) as an advisory board concerning low-income assistance programs.  LIGB has not yet submitted an RFP or policy rules for our consideration, so the focus of today’s decision is on energy efficiency program administration.

Today’s decision is contingent upon the continuance of the new administrative structure established by D.97-02-014 and subsequent decisions, which is currently being reviewed by the Commission in light of a recent ruling by the State Personnel Board’s (SPB) Executive Director.  On February 4, 1998, the Acting Executive Director of the SPB stated by letter ruling that the agreements between CBEE and its administrative and technical consultants were disapproved.  This action was pursuant to a complaint to the SPB by the California State Employees Association.  A related complaint  by the Association of California Attorneys and Administrative Law Judges regarding agreements for legal consultant services is currently pending at the SPB.
We issue today’s decision to facilitate expeditious implementation of the tasks facing us to further California’s energy efficiency goals in a restructured industry.  Our intention is to stay the course established by D.97-02-014.  However, if this course is not found feasible by June 30, 1998, we will consider alternatives, including the option of continued utility administration.  Accordingly, today’s decision addresses CBEE’s proposed policy rules and RFP on a conditional basis.  Today’s adopted policy rules will not be implemented until further Commission direction is given.  Similarly, the approved RFP package will not be released until we so order.  
Subject to the condition described above, we approve the policy rules and RFP proposed by CBEE for energy efficiency program administrators, with certain modifications.  We eliminate renewable self-generation electricity projects from the definition of energy efficiency in the policy rules, RFP and model contract.  Should CBEE wish the Commission to reconsider inclusion of renewable self-generation in this definition after more public input and workshops, it may resubmit this recommendation under the procedures outlined in the decision.  
As discussed in this decision, we generally adopt CBEE’s recommendations regarding affiliate rules and code of conduct by administrators.  However, we modify CBEE’s proposed rules to allow the transfer of employees to affiliates of administrators, subject to the safeguards contained in our adopted utility affiliate rules.  In addition, we direct the utilities and administrators (utility or nonutility) to provide information to CBEE and the Commission about the energy efficiency market and its participants as the market develops, including the number and dollar value of contracts between administrators, affiliates and other entities providing energy efficiency services. 

We use the term “administrator” and “program administrator” interchangeably throughout this decision.

We also make certain changes to the proposed rules and RFP to remove references to CBEE where, in our view, those references 1) inappropriately delegate decision making authority to CBEE or 2) prematurely conclude that CBEE can receive reimbursement funds or enter into contracts.  In particular, we clarify that CBEE’s recommendations regarding the role of program administrators in nonexcluded implementation functions will be subject to Commission approval.  Because of issues regarding the SPB and CBEE’s legal structure, we are still in the process of considering certain elements of the contracting process, such as what entity or entities will hear protests, serve as contracting agent and serve as procurement official.  Therefore, we defer consideration of CBEE’s proposed model contract until these issues are clarified by further Commission order.
Within 20 days of the effective date of  this order, CBEE should file a revised RFP package, including the policy rules to reflect the modifications and clarifications adopted by today’s decision.  This compliance filing should be filed at the Commission’s Docket Office and served on the Special Public Purpose service list in this proceeding.  The Commission will respond to this filing by a letter from our Executive Director, after consultation with the assigned Commissioner. 
The term set forth in CBEE’s proposed RFP and accompanying model contract requires the Commission to seek a waiver from the Department of General Services (DGS) to extend the term beyond 36 months.  We direct our Executive Director to seek such a waiver as expeditiously as possible.  Accordingly, we condition our approval of CBEE’s proposed contract term upon DGS’s approval of our request for a waiver.
2.  Procedural Background
	On November 24, 1997, CBEE filed its proposed RFP for selection of program administrators, policy rules for energy efficiency activities, affiliate rules and related appendices, pursuant to the assigned ALJ’s implementation rulings.

See the ALJ Ruling of October 27, 1997 on implementation milestones, and previous rulings.

The following parties filed written comments on December 10, 1997: California Energy Commission (CEC),  DGS, Energy Pacific,  National Association of Energy Service Companies (NAESCO),  Natural Resources Defense Council (NRDC), Pacific Gas and Electric Company (PG&E), Residential Energy Efficiency Clearing House, Inc. (REECH),  Residential Service Companies United Effort (RESCUE)/Insulation Contractor Association of California (ICA)/SESCO, Inc. (SESCO), Sacramento Municipal Utility District (SMUD), San Diego Gas & Electric Company (SDG&E), Schiller Associates (Schiller) and Southern California Edison Company (SCE).  In addition, CBEE received oral comments at a CBEE meeting on December 16, 1997. 

Comments from REECH and SMUD were filed late at our Docket Office, but were received in a timely basis by CBEE.  We find that no party has been adversely affected by the delay and will accept the comments late-filed.

	CBEE reviewed all of the written and oral comments and developed responses to those comments at its meeting on December 16 and 17, 1997.  CBEE filed a detailed response on December 19, 1997, explaining why it agreed or disagreed with the commenting parties, by issue.  On January 31 and March 11, 1998, pursuant to the assigned ALJ’s December 22, 1997 ruling, CBEE filed language revisions to its proposed RFP, contract and policy rules.  These revisions were based on CBEE’s agreement with some of the revisions and clarifications recommended by the parties and on recommendations made by the Commission’s contracting staff.  
Before turning to the issues in this case, we want to commend CBEE for its commitment to providing significant and meaningful opportunities for public review of and comment on its RFP proposal.  For several months prior to the RFP filing, CBEE worked with interested parties to explore issues, review options, and develop recommendations on how to implement the new policy objectives and administrative structure adopted by the Commission in D.97-02-014.  CBEE directed its consultants to prepare issue papers, reports and memos on key issues to assist CBEE in reviewing options and developing recommendations.  CBEE reviewed the various documents, discussed the issues at many board meetings, and sponsored two public workshops on October 1 and October 30, 1997.  Issue papers and draft documents were distributed to the CBEE’s Technical Advisory Committee, posted on CBEE’s web site and made available for written comment and public discussion at CBEE meetings.  This approach has provided CBEE, in developing its recommendations, and the Commission, in reviewing those recommendations, invaluable access to public input.
3.  Policy Rules for New Program Development and Implementation [Rules I -VII]

Attachment 2 presents our adopted policy rules, marked to indicate all changes to CBEE’s proposal. 
In this section, we address issues raised by interested parties with respect to Sections  I through VII of CBEE’s proposed rules.  These sections address 1) policy objectives, 2) roles and responsibilities under the administrative structure, 3) program design requirements and eligibility guidelines, 4) measures of value and performance, including cost-effectiveness 5) program design requirements and eligibility guidelines, 6) market assessment, evaluation and performance measurement and 7) compensation and performance incentives for program administrators. 
The common concerns that underlie comments made by parties on Sections I through VII are:
1.	CBEE’s proposed policy rules include market transformation activities that are broader than the Commission’s objectives articulated in D.97-02-014 (Energy Pacific);

2.	Market transformation is not sufficiently well-defined to provide a meaningful basis for designing, implementing and evaluating programs (Energy Pacific, RESCUE/ICA/SESCO);

3.	The policy rules should rely primarily on measured energy savings in determining cost-effectiveness and in establishing funding allocation priorities (Energy Pacific, RESCUE/ICA/SESCO, Schiller, Sierra Club); and

4.	Market participants, not public agencies, are the appropriate bodies to determine how best to meet the Commission’s market transformation objectives, as well as whether they are being met (Energy Pacific, Sierra Club).

To address these issues, we first turn to the policy language of our previous decisions.  In our Preferred Policy Decision (D.95-12-063, as modified by D.96-01-009) and in D.97‑02‑014, we articulated new policy objectives to guide energy efficiency program spending that replaces the former objective of resource acquisition.  In the Preferred Policy Decision, we stated:
“The primary motive behind utility investment in energy efficiency has been to defer or avoid the high costs of new generation.  However, in a restructured environment, evaluating cost‑effectiveness on the basis of utility resource deferral may no longer be as relevant.  The May proposals stated a preference for publicly funded energy efficiency programs to shift to those programs in the broader public interest, for example, programs with market transformation effects and education efforts that would not otherwise be provided by the competitive market.  We continue to prefer this two-track approach.
“We recognize that there are many definitions of market transformation and education activities, and we will not attempt to refine those definitions today.  In general, it is appropriate to use public funding to ensure that energy users have information about managing their energy use….  It may also be appropriate to continue to provide financial incentives for energy efficient products and services.  Any such financial incentives should be focused on transforming the market for energy efficient products and services; some examples of these activities are the Super-Efficient Refrigerator Program, and manufacturer rebates for compact fluorescent light bulbs and high-efficiency motors.  We expect that public funding would be needed only for a specified and limited periods of time, to cause the market to be transformed.” (D.95-12-063, as modified by D.96-01-009, mimeo., pp. 155‑156; see also Conclusions of Law 82, 83, and 84.)
In D.97-02-014, we referred to the policy direction of the Preferred Policy Decision and further articulated our expectations regarding market transformation, as follows:
“Today, we reaffirm our commitment to ratepayer funding for energy efficiency as a transitional step toward the development of a fully competitive market in energy efficiency services.  In our view, the mission of market transformation is to ultimately privatize the provision of cost-effective energy efficiency services so that customers seek and obtain these services in the private, competitive market.
”This will require a two-pronged approach.  First, we need to promote a vibrant energy efficiency services private industry that can stand on its own.  This will require programs that encourage direct interaction and negotiation between private energy efficiency service providers and customers, building lasting relationships that will extend into the future.  Second, we need to promote effective programs that will simultaneously transform the ‘upstream’ market (e.g., manufacturers and retailers) so that energy efficient products and services are available and advertised by private vendors and builders.
“…  As described above, energy efficiency programs will be designed to transform the marketplace in order to reduce and eventually eliminate barriers to energy efficient solutions being adopted by providers and consumers of energy.  Over the next four years, substantial money will be spent in support of this market transformation process.  If these programs are successful in eliminating market barriers, they will no longer be needed.  We choose to leave to future Commissions the determination as to whether market barriers remain, whether continued efforts to transform markets are required and whether continued ratepayer funding is warranted.”  (D. 97-02-014, pp. 21, 22.)
“Our focus for energy efficiency programs has changed from trying to influence utility decisionmakers, as monopoly providers of generation services, to trying to transform the market so that individual customers and suppliers in the future, competitive generation market will be making rational energy service choices.” (D.97-02-014, Finding of Fact 1, p. 81.)
We reiterate our previous statements, in particular our commitment to cost-effective energy efficiency programs, market transformation goals, and the desire to ultimately privatize the provision of these services.
We observe that much of the debate over the specific language of the policy rules, including cost-effectiveness criteria, stems from a fundamental disagreement over what types of activities should be included and emphasized under market transformation.  For example, those parties that recommend adoption of project-specific cost-effectiveness requirements, using measurements that are conventionally understood (e.g., energy savings), prefer that the “first prong” of the Commission’s guidance in D.97-02-014 be promoted through standard performance contracting (SPC).  
	We reject this restrictive interpretation, and concur with CBEE that no element of the two-prong statement in D.97-02-014 or the text surrounding it suggests that this should be construed as an exhaustive description of the activities or considerations for energy efficiency funding, or that the additional Commission guidance articulated in the Preferred Policy Decision should be ignored.  We have reviewed the proposed policy rules, in particular Rule II-6, and find that the rules appropriately consider the various aspects of market transformation discussed in our policy decisions.  
In view of our market transformation objectives, we find that CBEE’s proposed changes in the definition and calculation of cost-effectiveness are appropriate.  We note that our existing demand-side management (DSM) rules do not require that all programs  individually pass a test of cost-effectiveness.  They state that the reason for exempting certain programs is that energy savings are difficult to measure.  Similarly, it would be imprudent to restrict market transformation funding to only those activities for which some measurements (e.g., energy) are less controversial.
CBEE’s proposed cost-effectiveness rules ensure a broad portfolio of market transformation activities that meet the Commission’s objectives.  These rules echo the direction from the Legislature and this Commission that PGC‑funded energy efficiency activities produce benefits in excess of costs.  For example, Rule II-1 states that the goal of PGC-funded energy-efficiency programs is to provide in-state benefits through cost-effective energy-efficiency and conservation programs.  Rule IV-1 requires as a threshold criterion for eligibility that the portfolio of proposed programs must be shown to be cost-effective on a prospective basis.  Ongoing demonstration of continued expectations for cost‑effectiveness of the portfolio (on at least an annual basis) is a condition for continued receipt of PGC funds. (Rule IV-3.)
Furthermore, nothing in the policy rules precludes this Commission from taking the cost-effectiveness of individual programs into consideration when we review the annual program recommendations.  (See Rules IV-4 and V-2.)  As described in CBEE’s filing, CBEE and the new administrators will jointly develop annual program plans and budgets to be submitted in the form of Advice Letter filings to the Commission by October 1 each year.  We direct CBEE and the new administrators to provide program or project-specific (as appropriate) cost‑effectiveness results (prospective) as well as the portfolio total cost‑effectiveness when making this submission. 
We also endorse CBEE’s recommendations to conduct independent market assessment, program planning and program evaluation in developing recommendations to the Commission regarding future program design and funding allocation.  Some parties suggest that placing funds at the disposal of private market participants in return for guaranteed energy savings (e.g., through the SPC program) is sufficient to ensure that the market will be transformed.  We cannot draw any conclusions at this time on SPC’s market transforming potential in California because until 1998 there has never been such a program in California.  Nor do we believe it is possible at this time to identify the most or only appropriate ways in which to transform markets.  In our opinion, reliance on private market participants to self-certify the consistency of PGC-funded activities with our overall market transformation objectives is simply inconsistent with minimal standards of accountability to ratepayers. Instead, we intend to ensure accountability by conducting independent analysis of the PGC-funded programs as we proceed to implement programs that promise market transformation effects.  CBEE’s proposed rules appropriately reflect this approach.  (See Rules VI-1 to VI-4.)
	As CBEE points out, the development of workable market transformation program planning, implementation and evaluation concepts will require more time and effort by CBEE and interested parties.  We do not believe that the absence of details regarding funding allocations and definitions at this time should hold up the RFP process.  This is not unlike the situation faced by the utilities immediately following our decision to authorize shareholder incentives for DSM.  At that time, there were no accepted protocols for measuring energy savings.  Absence of agreed upon protocols was not used as an excuse to hold up aggressive implementation of a broad portfolio of enhanced DSM programs. Instead, parties worked collaboratively and diligently through public workshops to develop protocols, which continue to be refined to this day.  
CBEE has proposed a similar public workshop process for working out important implementation issues for PGC-funded activities, and we endorse that approach.  (See Rules II-8, V-8, VI-4.)  Attachment 3 presents an illustrative example of program development, planning and timelines using the joint planning process proposed by CBEE. 
CBEE requests that we clarify the process by which updates to the policy rules should be made.  After conducting the workshops, CBEE should file any proposed revisions to the rules adopted by today’s order for our consideration as a Petition for Modification under Rule 47 of our Rules of Practice and Procedure.  The Petition for Modification should be filed at the Commission’s Docket Office and served on the Special Public Purpose service list in this proceeding or on the service list of any successor proceeding.  Any revisions to the policy rules adopted today will be made by Commission decision.  
However, one definition requires clarification today.  In its proposed rules, CBEE includes renewable self-generation projects in its definition of energy efficiency and energy efficiency measures.  (See Attachment 2, Appendix A.)  This definition is also included in the proposed RFP and sample contract.  NRDC objects to the inclusion of generation technologies, renewable or otherwise, in the definition of energy efficiency, stating that this expansion of definition represents a significant change from the intent of the Legislature and this Commission.  CEC notes that the inclusion of renewable self-generation in the definition of energy efficiency could exclude other valuable on-site measures from consideration and create possible overlaps or confusion, since renewable self-generation technologies are already eligible for surcharge funding through the Renewables program administered by the CEC.  We find merit to these objections and eliminate renewable self-generation electricity projects from the definition of energy efficiency in both the policy rules and the RFP. 
Should CBEE wish the Commission to reconsider inclusion of renewable self-generation in the energy efficiency definition after more public input and workshops, it may resubmit this recommendation under the procedures outlined above.  We encourage CBEE to coordinate with the CEC on these matters.  In making its recommendation, CBEE should specifically address the concerns discussed by CEC and NRDC in their December 10, 1997 comments, and any other concerns raised by participants at the workshops.  
Several other issues regarding the proposed policy rules were raised by individual parties, including the roles and responsibilities of program administrators and other entities, treatment of state agencies in the bid process and access to utility-held information by providers and customers.  (See Table 1 of CBEE’s December 19, 1997 filing.)  We have reviewed CBEE’s responses to these issues, and concur with them, except as noted above.

We address the issue of access to information in our discussion of Rules VIII and IX in the following section.

In particular, the rules direct that separate residential, nonresidential and new construction administrators (total of three statewide) be selected to administer energy efficiency programs.  SMUD and Energy Pacific object to the separation of new construction from retrofit applications, and prefer an administrative structure with two statewide administrators:  one for residential and one for nonresidential programs.  

Proposers would be allowed to bid on as many of these three positions as they wish, but the same entity will not be selected to be both the Residential and Nonresidential program administrator.

The development of  CBEE’s proposal with regard to number and organization of administrators has involved extensive analysis and public input.  A wide range of options was considered, including SMUD’s and Energy Pacific’s preferred approach, in detailed issue papers prepared by CBEE’s technical services consultants.  These papers were presented and discussed at various public meetings and workshops during the fall of 1997.  We have reviewed CBEE’s analysis of options, and concur  that of all the approaches considered, the combination of residential, nonresidential and new construction administrators is the most reasonable.  This approach best balances the objectives of:  1) presenting each administrator with a scope of responsibilities that is limited enough to be within the capabilities of a wide range of entities, thus allowing for a substantial market response to the RFP, 2) limiting the risks attendant on the possibility that one or more administrators might fail to perform adequately, 3) keeping the total number of administrators small enough to lead to a manageable administrative assignment on the part of the CBEE, 4) ensuring that the responsibilities of each administrator are sufficiently clearly delineated to guard against the possibility of program gaps, overlaps and jurisdictional ambiguities; 5) giving the CBEE as many options as possible in tailoring the selection of administrators to the mix of skills across proposers and 6) ensuring that administrators’ responsibilities are structured in a manner that reasonably approximates the manner in which actual energy efficiency markets are structured.
On the issue of state agency bidders, we believe that the role of program administrator, as defined by this Commission, is well suited to either public or private entities.  To ban state agencies from bidding, as Schiller suggests, would inappropriately eliminate potentially qualified program administrators from consideration.  However, we concur with CBEE that state agencies should be treated no different for purposes of the selection process and criteria or limitations on an administrator also performing implementation.  Moreover, the RFP should reveal to other potential proposers that a state agency may submit proposals and receive an award.
On the issue of performance incentives for program administrators, we note that the proposed policy rules establish a two-part compensation structure, which includes both a base-level of compensation and a performance incentive.  Rules VII-1 to VII-8 provide general guidelines on what forms of incentives, to be proposed by bidders, are considered appropriate.  The revised policy rules proposed by CBEE on January 31, 1998 state that these incentives are to be included in the bidder’s binding proposal for total cost caps, as discussed in the proposed RFP.  (See Rule VII-1.)  This clarification addresses our concern that the rules did not initially specify the inclusion of any performance incentives in the total award to winning bidders. 
In its March 11, 1998 filing, CBEE raised the issue of funding for gas energy efficiency programs.  We are in the process of exploring a gas surcharge mechanism and, in the interim, the guidance we have provided in D.97-02-014 is in effect.  We prefer the approach taken in 1998.  Gas utilities voluntarily worked with CBEE, used the interim policy rules for gas-funded activities, and combined electric and gas funding into single programs.  In any event, today’s adopted policy rules are intended to apply to both electric- and gas-funded activities when the interim administration period is over.
Finally, regulated utilities should be barred from using ratepayer funds for preparation of bids, as this would give them an unfair advantage over other competitors.  Any regulated utility that submits a bid for program administrator must certify that the source of funding for preparation of the bid did not involve ratepayer funding, including PGC, gas DSM or carryover funds.
4.  Affiliate Rules and Code Of Conduct for Administrators [Rules VIII and IX]
As directed by D.97-09-117, CBEE’s proposed policy rules include affiliate rules applicable to the administration of energy efficiency programs. CBEE’s proposed rules also include a Code of Conduct that  applies to an administrator’s interaction with nonaffiliated persons, implementors and other entities.  (See Rules VIII and IX.) 
CBEE has attempted to coordinate the development of  proposed affiliate rules for energy efficiency administration with the development of utility affiliate rules in Rulemaking (R.) 97‑04‑011/Investigation (I.) 97-04-012.  Copies of the CBEE’s proposed affiliate rules were served on the service list in that proceeding on November 24, 1997.  On December 16, 1997, we adopted final utility affiliate rules.  CBEE incorporated much of the language of these rules into its January 31, 1998 filing.
In the following sections, we  1) describe CBEE’s proposed rules regarding the Administrator’s Code of Conduct, 2) describe CBEE’s proposed affiliate rules, 3) highlight the differences between CBEE’s proposed rules and the affiliate rules adopted in D.97-12-088 and 3) consider CBEE’s proposal and parties’ comments in light of our overall policy objectives for energy efficiency program administration. 
4.1	CBEE’s Proposed Code of Conduct
CBEE’s proposed Code of Conduct is included in Policy Rules VIII-1 to VIII-9, as revised in CBEE’s January 31, 1998 filing.  These rules require an administrator to:
(1)	use a corporate identification designated by the CBEE for PGC‑funded tasks and efforts rather than its own corporate identification, unless permitted to do so by the CBEE  (Rule VIII-2);

(2)	maintain separate books and records for PGC-funded activities according to generally accepted accounting principles (Rule VIII-3);

(3)	abstain from performing any program implementation function without the approval of the CBEE (Rule VIII-4);

(4)	abstain from tying access to PGC-funded activities to the purchase or use of non-PGC-funded products, services or programs offered for sale by the administrator (Rule VIII‑5);

(5)	file a plan with the CBEE to ensure that nonpublic and confidential or proprietary information acquired in the performance of its duties from implementors and other market actors will be protected from misuse with said plan to be approved prior to acquiring such information (Rule VIII-6);

(6)	establish a nondiscriminatory process by which implementors may have access to utility customer information and other information received by the administrator if adequate customer privacy protections are included and approved by the CBEE (Rule VIII-7.); and

(7)	establish internal procedures for approval by the CBEE which ensure that the administrator will not unfairly discriminate in its treatment of any entity, market actor or implementor through the design, processing, evaluation and selection, administration of bids, requests or negotiations of contracts or in the performance of any of the functions necessary to provide the scope of services required of an administrator (Rule VIII-8).

The rules incorporate the Code of Conduct as a provision of each administrator’s contract.  (Rule VIII-1.)   The rules allow flexibility in applying a penalty to fit the violation of the Code.  Under the proposed rules, an administrator’s contract may be revoked for a violation of the Code of Conduct.  (Rule VIII-9.)
4.2	CBEE’s Proposed Affiliate Rules
CBEE’s proposed affiliate rules are contained in Policy Rules IX-1 to IX-8, as revised in CBEE’s January 31, 1998 filing.  (See Attachment 2.)  These rules apply to all administrators (utility or otherwise) and their affiliates involved in PGC-funded energy efficiency efforts and activities.  However, several rules apply only to a utility administrator and involve access to utility information and regulatory oversight, including compliance with the Commission’s affiliate rules adopted in D.97-12-088.  (Rules IX-7(1) to (4).) 
CBEE’s affiliate rules limit participation in PGC-funded programs if those programs are overseen by an affiliated administrator.  In such a circumstance, affiliates of that administrator may participate only in SPC programs and may receive (all affiliates in aggregate) no more than 15% of the PGC funds expended for implementation of those SPC programs.  In response to comments, CBEE’s RFP language also prohibits affiliates of an administrator (e.g., for residential programs)  from also serving as an administrator (e.g., for nonresidential programs).  Otherwise, an affiliate of an administrator may participate without limitation in any PGC-funded program administered by an unaffiliated administrator, and in any market activity for which it does not receive PGC funds

See CBEE’s proposed RFP filed on March 11, 1998, page I-2.

Two distinct provisions in CBEE’s Code of Conduct rules are also included in CBEE’s affiliate rules:  (1) the requirement that a firm acting as an administrator use a corporate identification (name, logo, etc.) established by the CBEE rather than its own corporate identification when performing administrator functions and (2) the ability of the CBEE to authorize an administrator to share utility customer information with implementors without the prior affirmative written consent of the customer, if adequate customer privacy safeguards are established.  With regard to the administrator’s corporate identification, the rules permit its nondiscriminatory use by implementors (including the affiliates of an administrator) or by third parties, subject to CBEE approval.  The firm selected to be the administrator may continue to share its private corporate identification with its affiliates to the extent otherwise permitted by law (e.g., subject to the affiliate rules adopted in D.97-12-088).  
CBEE’s proposed rules include nondiscrimination, separation, disclosure and information and oversight requirements similar to the Commission’s use of such categories to develop its affiliate rules in D.97-12-088.  These requirements apply to SPC programs in which affiliates of the administrator overseeing the SPC program are participating and receiving PGC funds.  They apply to all administrators and their affiliates.  Except as noted below,  CBEE’s proposed rules mirror the wording and scope of the Commission’s rules for utilities and their affiliates.  Following is a brief overview of these  rules by type of requirement. 
4.2.1	Nondiscrimination Requirements [Rules IX-6(1)-(6)]
These sections of the affiliate rules prohibit unfair discrimination by an administrator in favor of its affiliate(s) or against nonaffiliated entities for any tasks or activities performed as part of the Scope of Service for an administrator.  These prohibitions include restrictions against an administrator providing leads to its affiliates or tying its services as an administrator of PGC funds to a requirement to take or purchase  non-PGC funded goods and services that it also offers.  These requirements directly parallel and mirror provisions in Part III. A of the affiliate rules adopted in D.97‑12-088.
4.2.2	Separation Requirements [Rules IX-6(7)-(18)]
This section of the CBEE’s affiliate rules also employs separation requirements to mitigate the potential for affiliate interest abuse.  The language of this section, except as noted below, closely parallels the requirements imposed by the Commission in the utility affiliate rules (Part V).  Consistent with Section V.F of those rules, an administrator cannot trade upon, promote or advertise its affiliate’s affiliation with the administrator, or vice versa, except as permitted by the CBEE.  (Rule IX‑6(14).)   Similar to Sections V.A and B. of the Commission’s utility affiliate rules, CBEE’s proposed rules require an administrator and affiliates to be separate corporate entities and to maintain separate books and records, subject to CBEE and Commission review.  (Rules IX‑6(8) and (9).)  Also consistent with D.97-12-088 (Parts V.C and G), the proposed rules prohibit the sharing of employees, facilities and equipment except for corporate support.  (Rule IX-6(7) and (10).) 
However, some of CBEE’s proposed separation requirements differ from those adopted in D.97-12-088.  In particular, the utility affiliate rules do not bar affiliates from using the name and logo of a regulated utility.  Instead, the Commission required utility affiliates to provide disclaimers that clearly indicated to customers that a regulated utility and its affiliates were not the same company and that a regulated utility could not discriminate in favor its affiliates. 
CBEE’s proposed rules regarding corporate identification take a different approach, one that CBEE considers to be consistent with the desired role of administrators in the energy efficiency market.  Under CBEE’s proposal the firms selected as program administrators are identified under a generic statewide identification (name, logo, service mark or “brand”) when acting as the administrator, rather then under their private corporate identifications.  CBEE’s proposed rules allow for co-branding, but only in situations deemed appropriate by CBEE.  Similarly, CBEE’s affiliate rules prohibit affiliates of  administrators from using the generic identification except to the extent that the CBEE also permits other implementors to use such identification.  (Rules IX-6(13), (14).) 
In addition, CBEE’s proposed rules prohibit the transfer of employees performing administrator functions to an affiliate implementor or affiliate operating in energy efficiency markets in California. (Rule IX-6(18).)  The utility affiliate rules (Part V.G.2.) permit transfers of a utility employee to an affiliate, but establish limitations and rules surrounding that transfer.  In particular, the utility affiliate rules prohibit the employee from removing or otherwise providing information to the affiliate which the affiliate would be precluded from having pursuant to those rules.  
CBEE’s proposed rules also differ with regard to joint purchases of goods and services.  The rules applicable to utility affiliates (Part IV.D.) permit the joint purchase of goods and services by a utility and its affiliates in certain circumstances (e.g., purchase of office supplies or telephone service but not marketing), whereas CBEE’s proposed language would prohibit joint purchases without the approval of CBEE.  (Rule IX-6(12).)  In addition, CBEE’s proposed Rule IX-6(11) broadens the examples of services that may not be shared by Administrators with their affiliates to include state and federal regulatory affairs, legal, and lobbying efforts. 
In the area of joint marketing, however, CBEE’s proposed separation requirements are less restrictive than those adopted in D.97-12-088, which prohibit a utility from joint marketing with its affiliates.  CBEE proposes to allow such joint marketing upon prior approval by CBEE, and if such marketing is available to third parties on the same terms as the affiliates.  (Rule IX-6(16).)  
4.2.3	Disclosure and Information Requirements [Rules IX-6(19)-(22)]  
With one exception, the CBEE rules parallel the disclosure and information requirements adopted by the Commission in Part II of its affiliate rules.  The specific provisions require an administrator to provide or share nonconfidential information on a nondiscriminatory basis in terms of access, timing and content with its affiliates, other implementors and third parties.  The major difference is that the CBEE rules allow implementors to receive utility customer information without prior affirmative written consent of customers if adequate customer privacy safeguards have been established and approved by the CBEE.  (Rule IX-6(20).) 
4.2.4	Oversight Requirements [Rules IX-6(23)-(24)]
These two CBEE rules require an Administrator to maintain records available to the CBEE, Commission and public concerning affiliate transactions and to have an annual audit prepared to verify compliance with the rules, consistent with the provisions of  D.97-12-088.  
Rule IX-6 requires that the affiliate rules be incorporated into the administrator’s contract, making them enforceable as an element in that contract.  Violation of these rules is subject to  penalty, which may include disqualification from participation in all PGC-funded efforts.  (Rules IX-3 and IX‑5.)
4.2.5	Definitions
CBEE has used the definitions set forth in the D.97-12-088, with one exception.  The definition of “affiliate” differs from that adopted for utility affiliates in two respects.  First, in response to comments, CBEE has added some language to the definition to clarify and ensure that the definition of affiliate applies to successive chains of ownership and control.  Specifically, the Commission’s rules in D.97-12-088 include the sentence:  “A direct or indirect voting interest of 5% or more by the utility in the entity’s company creates a rebuttable presumption of control.”  CBEE proposes the following language: “A direct or indirect voting interest of 5% or more by the administrator, its subsidiaries, or its affiliates in an entity’s company creates a rebuttable presumption of control.”
Second, the definition of affiliates in D.97-12-088 addresses elements that are unique to a regulated utility and its affiliates, such as a utility holding company.  Those aspects of the definition have been eliminated in CBEE’s proposed rules.  
4.3	Discussion
Before addressing the issues raised by CBEE’s proposed Code of Conduct and affiliate transaction rules, we first summarize parties’ comments on those rules.  Our discussion that follows takes these comments into consideration.
PG&E argues that CBEE should utilize the Commission’s affiliate rules adopted in D.97‑12‑088, rather than include additional restrictions or conditions on transactions between new program administrators and their affiliates.  In particular,  PG&E objects to the proposed restrictions on the use of the administrator’s logo by affiliate implementors.  SDG&E is concerned that uncertainty over the size of the SPC program (the only program that may be implemented by affiliates of the new administrators) may limit bids from certain entities.  
Other parties express concern that CBEE’s proposed rules do not go far enough to mitigate potential market power abuse.  RESCUE/ICA/SESCO recommend that the rules include cross-funding restrictions so that, for example, the residential program administrator cannot award funds that it administers (for SPC or non‑SPC programs) to the nonresidential administrator’s affiliated energy service company.  RESCUE/ICA/SESCO and NAESCO urge the Commission to establish market limits on the participation of affiliates of a regulated utility whether or not the utility is an energy efficiency program administrator.

In its January 31, 1998 filing, CBEE made several modifications to its initial affiliate rules based on comments received, including (1) adding language to clarify that successive chains of ownership and control are covered by the definition of “affiliate”; (2) clarifying in its rules that CBEE intends to create a distinct corporate identification for PGC-funded programs overseen by administrators; and (3) adding language to ensure that a utility administrator is not inappropriately required to comply with two conflicting sets of affiliate interest requirements.  In addition, CBEE clarified in its proposed RFP that  affiliates of an administrator cannot also be an administrator.

As we noted in D.97-09-117, the issues to be addressed with regard to affiliate transactions in this proceeding differ from those we considered in R.97‑04-011/I.97-04-012.  (D.97-09-117, mimeo. p. 45.)  Here we are considering rules that 1) apply to utility and nonutility entities selected to administer energy efficiency PGC funds and 2) address circumstances where an affiliate may receive PGC funding for its market activities.  Moreover, our objectives in this particular proceeding are unique to the nature of the programs being administered under the Boards’ direction and the administrative structure we are trying to create.  Specifically, the focus of affiliate transaction rules in this context is to balance two objectives:  1) maximizing the number of potential proposers to be administrators or implementors and 2) ensuring that vibrant competitive energy efficiency markets develop during the transition from utility administered programs to independent administration.  Therefore, CBEE’s affiliate rules for the new administrators should be crafted to best promote the appropriate balance between these two objectives, allowing for some differences between the policy rules and the rules set forth in D.97-12-088, where appropriate.  
With these goals in mind, we address the issues raised in this proceeding with respect to the administrator’s Code of Conduct and affiliate rules. 
4.3.1	Eligibility of Affiliates for PGC Funds
The affiliate rules we consider today must address a potential abuse that does not arise in our more generic consideration of market participation by utility affiliates, i.e., preventing an administrator from inappropriately awarding PGC funds to its affiliates.  This consideration is different from the issue of whether a utility affiliate can participate in energy efficiency services in the private market.  CBEE’s limitations on the potential receipt of PGC funds do not prevent affiliates of  an administrator (utility or otherwise) from operating in energy efficiency markets.  
CBEE’s proposal to limit the market share of affiliates of an administrator for the receipt of PGC funds represents a reasonable balancing of the objectives articulated above.  An affiliation between firms where one firm is disbursing public funds creates a large potential for self‑dealing, preferences for affiliates and inefficient economic choices.  In addition, the transition from utility‑administered programs to market-based energy efficiency efforts will be aided by the ability to evaluate and assess performance.  This requires openness by implementors to provide information to program administrators.  To the extent that the administrator is perceived as the adjunct to a competitor, it is unlikely that accurate information will be forthcoming from implementors, thus constraining any transition.  For these reasons, we reject PG&E’s arguments that the utility affiliate rules adopted in D.97-12-088 should serve as our affiliate rules for PGC-funded energy efficiency programs.  These rules must be augmented to limit the eligibility of firms to receive PGC funds from affiliated administrators.  CBEE’s proposal does this in a manner that meets our objectives and is practical to implement, given the level of resources available to perform effective oversight of affiliate transactions.
RESCUE/ICA/SESCO and NAESCO recommend limitations to nonutility and utility affiliate participation that go beyond CBEE’s proposal.  We recognize that the issue of utility and utility affiliate market power is a matter of concern for all markets, including energy efficiency. However, this issue should be addressed by monitoring utility (and affiliate) market share over time and revisiting the rules as necessary, as we intend to do in our ongoing consideration of  utility affiliate rules. (See D.97-12-088, page 87; Conclusions of Law 10 and 11.)  Concerns about potential favoritism by one administrator vis‑a‑vis the affiliate of another are more appropriately addressed through the Code of Conduct rules.  Imposing stricter affiliate limitations at this time would unduly compromise the goal of maximizing the number of potential proposers to be administrators and/or implementors. 
Accordingly, we adopt CBEE’s recommendations regarding the limitation of affiliate involvement in PGC-funded energy efficiency programs (Rules IX-3, IX-4 and IX-5).  However, as discussed further below, we make certain changes to remove references to CBEE where those references 1) inappropriately delegate decision making authority to  CBEE or 2) prematurely conclude that CBEE can receive reimbursement funds or enter into contracts. 
4.3.2	Corporate Identification
Rules related to the corporate identification of energy efficiency administrators and their affiliates must be considered in context.  In this proceeding, the context concerns the identification of market transformation programs funded by ratepayers. As we have stated in previous decisions, our goal is to transform the energy efficiency services market such that publicly‑funded programs will become unnecessary over time. (See, for example, D.97‑02‑014.)  In this context, energy efficiency program administrators are acting under contract to perform specific functions that will achieve our market transformation goals.  They are not acting as firms providing products and services directly to customers.   This distinguishes the rules we consider today from those considered in D.97-12-088.  
Given the context for today’s rules, we must be careful not to create an unfair advantage for any one entity in the energy efficiency market through the use of corporate identification.  CBEE’s approach to corporate identification is the best means of facilitating the transition to a fully competitive energy efficiency market.  In particular, it would be unfair and inappropriate to use PGC funds to create a new competitive advantage for a firm or its affiliates because of its status as an administrator that disburses PGC funds.  
Accordingly, we adopt CBEE’s proposed rules for corporate identification of an administrator, affiliate or implementor, as set forth in Rules VIII-2, IX-6(13) and (14).  We make minor language changes to these rules to clarify the role of CBEE in their implementation. 
4.3.3	Access to Information
CBEE’s proposed rules regarding access to customer information by program implementors differ from the utility affiliate rules adopted in D.97-12-088.  However, they are consistent with our resolution of this issue for 1998 energy efficiency programs.  In D.97‑12‑103, issued on the same day as D.97-12-088, we recognized that an approach that requires customer consent prior to release of customer information  “may be unworkable for certain DSM applications and marketing approaches.”  (D.97‑12‑103, p.23.)  For this reason, we directed the interim utility administrators to make customer billing records available to contractors under the standard performance contract program and other programs subject to competitive bid under certain circumstances.  First, the contractor must document its need for such records based on the specifics of its program implementation or marketing plan and, second, the utility must make appropriate security arrangements with the contractor to protect the confidentiality of these records.  If these conditions are met, the utility will develop specific procedures for providing customer records to the contractor, at cost.  We directed that these procedures would apply to contractors serving under the new administrative structure, until further notice.  (D.97-12-103, Ordering Paragraph 8.)
Achievement of our energy efficiency goals requires a nondiscriminatory process that allows access to certain customer information without prior contact with a customer, but with adequate customer privacy protections.  Our directives in D.97-12-103 did not explicitly state that any utility customer information received through this process may be used only for PCG‑funded programs and purposes, as CBEE now recommends.  This restriction is appropriate to ensure against potential abuses by power marketers or potential attempts  to circumvent our utility affiliate rules regarding access to customer information.  Accordingly, we will adopt CBEE’s proposed Rules VIII-7 and IX‑6(20), with modifications that clarify the approval process for ensuring nondiscrimination and customer privacy protection.  
CBEE’s proposed Rule VIII-6 addresses the issue of an administrator’s access to information from implementors or other market actors.  Such information must be obtained and used in a manner that protects nonpublic and confidential or proprietary information.  We adopt CBEE’s proposal that the administrators submit a plan before acquiring information from implementors and other market actors, but clarify that the Commission, and not CBEE, will approve such a plan. 
4.3.4	Transfer of Employees
CBEE argues that a complete prohibition of  transfers between an administrator’s employees and its affiliates is necessary to ensure against the potential transfer of sensitive information to affiliates, as perceived by nonaffiliated implementors.  We disagree.  Our utility affiliate rules regarding this issue appropriately address concerns regarding cross-subsidization, competition and inappropriate transfer of information.  These rules prohibit sharing of employees (joint employment) between the utility and an affiliate, and prohibit temporary or intermittent assignments to utility affiliates.  The rules prohibit any utility employee hired by an affiliate from removing or otherwise providing information to the affiliate which the affiliate would otherwise be precluded from having pursuant to the rules.  They also require that the utility track and report all employee movement between the utility and affiliates.  Moreover, once an employee of a utility becomes an employee of an affiliate, the employee may not return to the utility for a period of one year.
We will modify CBEE’s proposed rules to be consistent with the safeguards provided under Part V.G.2. of our utility affiliate rules. 
4.3.5	Joint Purchases and Joint Marketing
CBEE’s proposed rules recognize that joint purchases of goods and services by an administrator and its affiliates may be appropriate in certain circumstances, but require that such purchases be approved by CBEE.  We prefer the approach taken in our utility affiliate rules, and will modify the language of Rule IX-6(12) to permit joint purchases except for those in association with the provision of energy efficiency services to customers.
We agree with CBEE that there are valid reasons why an administrator and implementors (including affiliates of an administrator) may wish to pursue joint marketing to promote PGC-funded efforts.  Accordingly, we adopt CBEE’s proposed Rule IX-6(16), with clarification that such joint marketing of services is subject to Commission approval.
4.3.6	CBEE’s Role and Authority
Throughout CBEE’s proposed rules on Code of Conduct and affiliates, there are references to CBEE’s role in the implementation and enforcement of these rules.  We have modified many of these references to clarify where CBEE’s role is to make recommendations for approval by the Commission.  Unless otherwise stated in this decision or the adopted rules, CBEE shall request Commission approval by filing an Advice Letter and serving that Advice Letter on the Public Purpose service list in this proceeding or on the service list of any successor proceeding.  Commission approval will take the form of a Commission resolution.
4.3.7	Reporting of Market Share Information and Future Consideration of Market Share Limitations
As discussed in Section 3 above, we anticipate that the policy rules adopted today will be updated after the public workshop on implementation issues for PGC-funded energy efficiency activities.  In addition, as we move toward increasing transformation of the energy efficiency market, we anticipate that the market will be changing.  It is necessary to ensure that the Commission reviews the policy rules and, in particular, the affiliate rules contained therein, as we obtain more information about the market and its participants. 
To this end, the utilities and administrators (utility or nonutility) should report to CBEE and the Commission additional information which could be useful in this review.  Such information should include market share statistics of utilities, utility affiliates and other entities providing energy efficiency services.  It should include the number and dollar value of contracts between utility and nonutility administrators and 1) their affiliates, including affiliates operating in program areas administered by nonaffiliated administrators, and 2) other entities providing energy efficiency services in the market .  
Within 120 days from the effective date of this decision, CBEE should submit recommendations concerning the type of market share information to be submitted by the utilities and by administrators (utility and nonutility), and propose a procedural schedule for the submission of this information to CBEE and the Commission.  CBEE should solicit public comment on its proposal prior to submitting its recommendations.  CBEE should file its recommendations at the Commission’s Docket Office and serve copies on the Special Public Purpose Service List in this proceeding or on the service list of any successor proceeding.  Interested parties will have 15 days to comment.  The assigned ALJ, in consultation with the Assigned Commissioner, will issue a ruling to establish the reporting requirements and filing schedule. 
In its December 19, 1997 and January 31, 1998 filings, CBEE states that it plans to address the propriety of market share limitations in the development of 1999 program design and development, rather than through the policy rules.  According to CBEE’s procedural recommendations, these program plans would be proposed by Advice Letter. As discussed above, we adopt CBEE’s procedural recommendations for program development and planning. (See Attachment 3.)  To ensure that all interested parties have an opportunity to review CBEE’s program design recommendations, including any proposed market share limitations for specific programs, CBEE and administrators should serve the Advice Letter filing on 1) the Special Public Purpose service list in this proceeding or the service list of any successor proceeding and 2) any other individual or organization that sends a written request to CBEE to be served.
5.  RFP for Administrators and Contracting Process
The following sections present an overview of CBEE’s proposed RFP and contracting process for program administrators.  They are based on CBEE’s November 24, 1997 filing, as revised in CBEE’s January 31 and March 11, 1998 supplemental filings.  
Section 5.1 describes the role of program administrators relative to other market participants.  Section 5.2 describes the joint planning process among CBEE, program administrators and other market participants that will determine annual funding priorities for energy efficiency programs.  These two sections provide the institutional framework for program administrators and energy efficiency program development.  
Section 5.3 describes the bidder requirements and selection process contained in the RFP, including a description of the sample contract.
Section 5.4 presents our consideration of parties’ comments and determinations regarding CBEE’s proposed RFP and contracting process.
5.1	Role of Program Administrators and Scope of Services
CBEE proposes to organize the energy efficiency program administrators into three program areas:  1) the residential administrator will oversee programs intended to encourage the adoption of energy efficiency measures by the owners and occupants of existing residential buildings; 2) the nonresidential administrator will oversee programs that encourage energy efficiency in existing nonresidential buildings and 3) the new construction administrator will oversee programs that encourage energy efficiency measures in newly constructed buildings and major additions, both residential and nonresidential.  
CBEE describes the role of program administrators relative to CBEE, its technical support, and program implementors (i.e., entities delivering energy efficiency services under the direction of program administrators) in its proposed RFP.  The following is a summary of the responsibilities of each of these entities, and the manner in which the CBEE envisions them interacting.  Attachment 4 presents an overview of these responsibilities in tabular form, including a description of areas in which the administrator has 1) no direct role in implementation and 2) may have a role in nonadministrative functions on a case‑by-case basis.  
(a)  CBEE (Advisory Board to the Commission)

The CBEE will have overall responsibility for overseeing energy efficiency programs under the direction of the Commission, including: (1) overseeing the development of PGC-funded energy efficiency policies, programs, and budgets; (2) overseeing program administration, the assessment and verification of administrator performance, and administrator compensation and performance incentives; (3) overseeing the transition process from the interim administrators to the new program administrators; (4) overseeing analysis tasks performed by CBEE technical support, including strategic planning, market assessment, market characterization, and program evaluation; (5) making recommendations to the Commission on policy and program issues; and (6) overseeing the preparation and submittal of reports to the Commission.  The CBEE will also play an active role in providing guidance regarding what kinds of programs should be developed and in ensuring the compatibility of programs offered by different administrators.

(b)  CBEE Technical Support

The responsibilities of the CBEE technical support will include: (1) assisting the CBEE in the tasks described above; (2) performing analysis tasks useful to and identified by the CBEE, including strategic planning, market assessment, and program evaluation; (3) providing information that Administrators can use to assess and verify implementor performance and implementor performance incentives; (4) developing and drafting the CBEE recommendations to the Commission on policy and program issues; and (5) assisting the CBEE in the preparation and submittal of CBEE reports to the Commission, in the oversight of reports prepared and submitted by the administrators, and in the oversight and preparation of reports submitted jointly by the CBEE and program administrators.

A special class of CBEE technical support analysts (or entities) of particular interest is the analyst or analysts charged with performing the key analytic functions described in (2) and (3) of this subsection.  Such analysts or entities are referred to as “analysis agents” in the RFP.

(c)  Program Administrators

The primary responsibilities of program administrators shall include: (1) facilitating program development, planning, and budgeting; (2) administering and overseeing program implementation; (3) helping to facilitate the transition from interim administrators; (4) providing reports on the results of these activities to the CBEE and the Commission; and (5) providing general program administration and coordination services.  

(d)  Implementors

The responsibilities of implementors will vary with the type of program, but will generally include the following: (1) participating in program development and joint planning processes led by program administrators; (2) implementing programs and activities agreed to under contract with either the program administrator or the CBEE; (3) working cooperatively with program administrators to resolve any customer complaints; and (4) providing periodic market data and program reports to administrators.

CBEE specifically limits the role of administrators in program implementation. (See Attachment 4.)  In particular, program administrators are to have no direct role in implementation functions involving project development, agreements with customers or the delivery of energy efficient solutions.  However, they may, on a limited case-by-case basis, have a role in implementation and other nonadministrative functions that do not involve these activities.  
It may be decided that a useful program is the bulk procurement of a specific technology from manufactures in exchange for the manufactures agreement to incorporate improvements into the technology.  This program might be implemented as other programs are, through the use of an implement that would be contracted with the CBEE to implement the bulk procurement program.  Alternatively it may make sense for the Administrator to play a more direct role in the implementation of such a program.  Additionally, the administrator may also have a more direct role in the implementation of providing incentives to “upstream” market actors (e.g. retailers, contractors, design professionals, distributors and manufactures) to encourage efficiency improvements in existing technology or the development of new technologies.  In the area of mass advertising the administrator may, likely through a subcontractor, play a direct role in the implementation of mass advertising and public relations or it may rely upon an implement to carry out the mass advertising and public relations programs.  
We remain cautious about any broadening of the Administrator’ functions beyond Administration.  Attached at Attachment 4 (page 2) has a list of areas of program implementation where the Administrator can play no direct role in implementation and a list of program where the Administrator may have a limited direct role in implementation on a case-by-case basis, subject to our approval.  Where the CBEE wishes the Administrator to take on these implementation functions it should make such a request directly to the Commission and justify why it seeks a waiver to the general policy that the Administrator(s) should play no direct role in the implementation of programs.  The fact that the market will not provide the service is not sufficient justification.  The role of this our energy efficiency program is to have energy services delivered that the market would not otherwise provide.  Additionally, simply determining that a program is best implemented by a single entity is again not sufficient to justify the administrators role in implementation.  If it is the case that a single entity would perform the function better than multiple implementers then only one implement need be selected.  Generally, if the Administrator is going to perform an implementation function via a subcontractor then the question is raised as to why the program is being done by the Administrator and not by a third party implementer.
All bidders must complete a proposed work plan for each program area for which they are proposing to be the program administrator.  In its proposed RFP, CBEE describes a minimum scope of services that bidders must agree to perform, as well as the services to be provided that are unique to each program area.  These requirements are presented in Attachment 5.
5.2	Joint Planning Process and Development of Annual Program Budgets 
CBEE presents an illustrative budget by program area for 1999, and describes the joint planning process by which annual funding levels by program area will be established by the Commission.  (See Attachment 3.)  CBEE foresees at least two different administrative arrangements under which new programs are developed.  The first is identified as “CBEE or Administrator‑Defined Programs,” where the administrator works with the CBEE and other parties to develop a program concept.  The administrator would facilitate the joint planning process by which this concept is transformed into an implementable program, be responsible for competitive selection of implementors and oversee program implementation.
Under the second, “Third-Party Programs” administrative arrangement, third parties submit proposals for program concepts in response to a solicitation, and the program administrator coordinates the assessment of each program concept.  If the concept is found worthy, the administrator facilitates the process of transforming the concept into a specific program.  Once the program is ready to implement, it is overseen by the program administrator in much the same way that CBEE/administrator-defined programs are, and implemented either by the entity initially proposing the concept or by another entity identified by the proposer.  
As illustrated in Attachment 3, at the beginning of each year CBEE will identify priorities and emphasis areas with input from administrators, implementors, parties and market participants.  Based on this guidance, the program administrators will conduct assessments of existing programs to determine whether or not they should be continued, modified or discontinued.  The program administrators will also develop and issue RFPs for third-party proposals, and make recommendations on which proposals to fund.  In addition, the program administrators will facilitate the joint planning process to develop new program concepts and designs outside of the third-party proposal process.  Based on these activities, the program administrator will propose and submit a program plan, including program descriptions, program performance indicators and program area budgets, to CBEE, around August 15 of each year.  CBEE will solicit public comment on the proposed program plan and budgets during August and September.  By September 15, CBEE will approve a final recommended plan and budget and submit those by October 1 of each year to the Commission by Advice Letter.  Upon Commission approval, the administrators and program implementors would prepare for implementation.
5.3	Bidder Requirements and Selection Process
Under CBEE’s proposed RFP process, each potential bidder must submit a notice of intent to submit a proposal by a specific date.  CBEE added this requirement to enable the procurement official to compile a list of interested bidders and notify that list of any changes in the RFP or RFP timetable.  However, CBEE proposes that any notice of intent be kept confidential until after the submission of final proposals in order to encourage the maximum number of potential bidders.

The Commission will identify the contracting party or procurement official for this RFP by subsequent Commission order.

A bidder may, at its option, submit a draft proposal as well as a final proposal.  The draft proposal step is designed to enlarge the pool of qualified proposers by identifying administrative and clerical errors that could otherwise cause a final proposal to be rejected for ministerial reasons.  A list will be prepared to highlight the following types of errors or inadequacies discovered in the draft proposals: 1) clerical or computational errors; 2) ministerial errors such as failing to include a mandatory form; 3) failure to respond to a mandatory, threshold or administrative requirement and 4) failure to provide information to fully score a proposal (e.g., an inadequate or incomplete response in terms of a work plan).  There will be no attribution of any specific error to a specific proposal and no discussions with individual proposers.  The names of entities submitting a draft proposal will not be made public or available to the CBEE until after submission of final proposals.    
To be considered for selection as a program administrator, a bidder will have to submit a compliant final proposal and receive a minimum number of points in total and within each of the scoring attributes.  There are a total of 200 possible points to be used in the scoring of qualified proposals in the RFP.  The major scoring attributes, possible points and points as a percentage of total points for each major scoring attribute are as follows:  

If a bidder files for more than one program area, a compliant final proposal is required for each.

In its November 24, 1997 submittal,  CBEE proposed the following weights for selection criteria:
1. 	Capability (90 points possible; 45% of total points)
2. 	Cost (60 points possible; 30% of total points)
3. 	Understanding and Approach to Scope of Work (50 points possible; 25% of total points)
In response to comments, CBEE modified the possible points and weighting as indicated above.

1.	Capability (80 points possible: 40% of total points): This element of the scoring criteria requires a proposer to demonstrate that it has both (1) the management and organizational capability and project team skills to successfully perform the required services (24 points possible) and (2) the demonstrated experience which indicates that it has and can successfully perform the required services (56 points possible).

2.	Cost (60 points possible: 30% of total points):  This element of the scoring criteria compares proposals on the basis of proposed caps that apply to compensation over the contract life.

3.	Understanding and Approach to Scope of Work (60 points possible: 30% of total points):  This element of the scoring criteria is evaluated on the basis of:

a)	demonstrated understanding of the Commission’s policy goals and the role of the administrator in achieving these goals (7 points possible);

b)	overall proposed approach to and work plan for performing the scope of services (25 points possible);

c)	proposed approach to defining markets or market segments and a demonstrated understanding of how specific markets or market segments operate (8 points possible);

d)	proposed performance incentive mechanisms for program administrators (12 points possible);

e)	proposed approach to measuring administrator, implementor and program performance (8 points possible).

To demonstrate capability, the bidder must provide general business information, including a management and organization chart of the proposal organization and team and all proposed agreements between bidder and subcontractors.  The bidder must also provide three years of financial statements for the firm and any partners or subcontractors, and provide the qualifications and experience for the firm and key personnel.  References from previous projects are also required.
To compare and score proposals on the basis of costs, bidders must propose two cost caps that will apply to their compensation over the contract life.  The first is a cap on maximum fully loaded average hourly labor rates, including wages, benefits and performance-based compensation paid to employees, as well as a prorated share of company overhead, general and administrative expenses and profits.  The second is a cap on the ratio of total compensation paid to each administrator for administrative services to the total costs of program activities the administrator is responsible for, including costs associated with proposed performance incentive mechanisms.  Actual compensation paid will be based on specific rate schedules submitted by program administrators and approved by CBEE, on the actual hours of work performed, and on the direct costs incurred and approved.  However, in no case shall total compensation exceed the caps specified by each program administrator in its original proposal. 	
To demonstrate its understanding and proposed approach to the scope of services,  bidders must discuss their understanding of California’s policy objectives regarding energy efficiency, and the role of the administrator in helping to pursue these objectives.  They are also required to provide a work plan that specifically details how they will accomplish each task and subtask set forth in the scope of services described in Attachment 5, and describe proposed approaches to market segmentation.  In addition, for five selected key subtasks, bidders must describe in detail:

Market segmentation is the process of separating markets into groups of customers with similar needs (e.g., for a particular product or service) or characteristics (e.g., renters as opposed to homeowners) who are likely to exhibit similar behavior in purchasing or adopting energy efficiency products, services or practices.  The purpose of market segmentation is to identify factors that allow an entity to influence customers’ decisionmaking or behavior for the purchase of energy efficiency products and services or the adoption of energy efficiency practices.

1.	The approach they propose to use to accomplish the task, as well as the rationale for this approach, 

2.	Why the approach to these subtasks is likely to have a more significant effect on the administrator’s success than the subtasks not chosen and 

3.	Contingency plans for the manner in which the proposed approach may be modified if other parties do not behave as expected, if the overall policy environment changes or if the nature of the programs being overseen by the administrator changes. 

Bidders will also be evaluated based on their proposed performance incentive mechanisms.  The RFP includes the guiding principles that bidders should follow in developing proposed incentive mechanisms, as well as the information bidders must provide regarding those mechanisms.  Bidders are required to specify the maximum percentage of total compensation to be paid that is not linked to superior performance.  Smaller percentages will increase the score given to the performance incentive component of the bidder’s approach.  The overall score given to each bidder’s performance incentive approach will take into account this factor and the substantive attributes of the proposed mechanism or mechanisms.  In addition, because the manner in which administrator, implementor and program performance is measured is likely to have a substantial effect on program administrators, the bidder’s proposal for measuring all three levels of performance is included in the evaluation criteria. Attachment 6 sets forth the RFP score sheet proposed by CBEE.
All final proposals will be initially reviewed by a screening committee established by the CBEE.  Such review shall include an initial scoring of the final proposals.  Proposals that receive a total of at least 140 points (70% of total possible points) and have a score of at least 50% of possible points for the capability attribute will be deemed responsive final proposals which meet the formal requirements of the RFP.
All responsive final proposals will be submitted by the screening committee to the CBEE for final scoring and selection based on the scoring attributes and possible points for each attribute set forth in the RFP.  The CBEE will be the final evaluation committee for all responsive final proposals.  The highest scoring responsive final proposal in each program area (nonresidential, residential or new construction) will be recommended by the CBEE to the Commission for a grant of award as the program administrator in that program area.
CBEE’s proposed RFP includes a model contract, which provides both the general terms and conditions under which the winning proposer will conduct business with the CBEE, as well as the particular terms that apply to the program administrator position for which the proposer is selected.  The initial term of the contract between the selected program administrator and the CBEE is through December 31, 2001, with the CBEE retaining the option to extend it for an additional 24-month term.  In the event of contact breach, CBEE may terminate the contract upon 20 days’ written notice, subject to Commission approval.  CBEE may also terminate the contract for any reason, with or without good cause, after giving the administrator 90 days’ written notice.  The contract will include the cost caps, scope of services and work plan presented by the winning bidders to define expected performance and costs.  The contract also provides for protection of confidential data and ownership by the Commission and/or State of California of all data and intellectual property resulting from performance under the contract.
Bidders are required to agree to all of the terms of the contract.  There are no opportunities to negotiate changes to the contract terms.  Winning bidders will sign the contract after the selection of award.
5.4	Discussion
In its December 19, 1997 filing, CBEE provided summaries of parties’ comments with a summary of its responses.  CBEE has agreed to many of the recommended revisions and clarifications requested in those comments, and has incorporated them into the revised RFP package, filed on March 11, 1998.  In particular, CBEE has modified the RFP and sample contract to:
•	Better organize the RFP package to make it easier for potential proposers to understand what they were required to submit in response to the RFP;

•	Provide more details on the joint planning processes and schedule, the transition process in 1998 and reporting requirements;

•	Clarify the relationship and division of responsibilities between administrators and CBEE technical support regarding market assessment and evaluation activities;  

•	More fully describe the dispute resolution process and administrator’s role;

•	Clarify the roles of administrators in limited implementation and other nonadministrative functions;

•	Revise the program area-specific scope of services and prescribed programs, including the role of administrators in energy center programs;

•	Clarify that the RFP is intended to include industrial and agricultural applications;

•	Redistribute the points between the Capability and Understanding scoring attributes and provide greater specificity to work plan/approach required of bidders;

•	Clarify that CBEE’s ability to disapprove substitution of employees is limited to key employees only; 

•	Add a specific opportunity to cure for breach of contract and a requirement for Commission approval of contract termination;

•	Revise the term of the contract to coincide with the funding term provisions of Public Utilities Code Section 381(c)(1); and

•	Clarify that additional compensation will be paid for services which are beyond the scope of the tasks identified in the contract.

We have reviewed all of the comments and CBEE’s responses, and find that CBEE has incorporated those suggestions that are most workable and consistent with our policies established in D.97-02-014 and subsequent decisions.  We also concur with CBEE’s rejection of certain proposals by commenting parties.  In particular, we agree with CBEE that it would be contrary to our policies to include the selection and supervision of what CBEE terms “analysis agents” in the administrator’s scope of services, as suggested by Schiller Associates.  In D.97‑09‑117, we directed CBEE to have independent analysis capability, rather than delegate that function to the program administrators.  (See D.97-09-117, mimeo., p. 31, Conclusion of Law 21 and Ordering Paragraph 17.)  
We note the comments of Energy Pacific which suggest a potential for conflict-of-interest for Board Members in the selection of analysis agents.  Energy Pacific recommends that analysis agent candidates should have no financial or organizational connections to individual CBEE members, to CBEE subcontractors or other CBEE consultants, and to any program administrators or implementors; other related measures are also proposed.  Energy Pacific is also concerned with the power of analysis agents to drive the energy efficiency planning, funding and evaluation processes.
We agree with the need to avoid the potential for self-dealing or the appearance of impropriety.  Ideally, analysis agents should be objective third party entities.  CBEE should use a competitive selection process to choose analysis agents.  We recognize, however, that the universe of qualified individuals and entities for these functions may be limited.  We will require that minimization of conflict-of-interests be a significant criteria in the selection process for analysis agents, and that individual Board Members refrain from any participation in selection processes when analysis agent candidates have financial or organizational ties to that Board Member.
SCE and RESCUE/ICA/SESCO and NAESCO argue that CBEE’s scope of services for program administrators include implementation functions that go beyond the role intended by the Commission.  We disagree.  In D.97‑02‑014 and D.97-09-117, we delineated the expected functions of energy efficiency program administrators to include assisting the Board in selecting various projects, paying monies to and verifies program milestones/performance indicators, managing any standard offers, and collecting funds and managing the bank account.  We explicitly stated that the program administrators would not “deliver energy efficiency solutions.”
In providing this description of general functions, we stated that it was not intended to be exhaustive of the activities that may be provided by administrators “but simply that any activities should be consistent with this list.”  (Ibid., p. 30 n. 9.)  With respect to implementation functions, we clarified our expectation that project development and agreements with customers “should be left to private companies.”  We also emphasized that “providing customers with meaningful information on energy efficiency investments and reducing barriers to investments in energy efficient technologies” are more properly performed by program implementors.  (Ibid., p. 31;  see also Conclusions of Law 20 and 21, Ordering Paragraph 17.)  
Under CBEE’s proposal, program administrators shall never perform the following functions:  1) provide energy efficiency solutions to customers (e.g., customer incentives, design assistance, direct installation), 2) develop project agreements with customers (e.g., standard performance contracting),  3) provide site-specific information to customers or 4) provide general technical training or commissioning.  (See CBEE’s November 24, 1997 filing, pp. 20-22; CBEE’s  March 11, 1998 proposed RFP, p. I-23.)  These exclusions clearly identify implementors (not program administrators) as the responsible entities for developing projects, reaching agreements with customers and delivering energy efficiency solutions, consistent with our guidance in D.97‑09-117.

We note that the text of the RFP is not as descriptive as CBEE’s November 24, 1997 filing (pp. 20-23) with regard to the nonadministrative functions for which a program administrator 1) will never have a role under this RFP or other funding vehicle (e.g., the October 1 advice letter process) or 2) may have a role, on a case-by-case basis.  CBEE should expand the discussion in the RFP to reflect the description presented in its November 24, 1997 filing.

As discussed in Section 5.1, CBEE identifies program-related functions not falling under the above exclusions that are often categorized under program implementation.  (See CBEE’s March 11, 1998 proposed RFP, pp. I-18 to I-23; I‑39 to I-45.)  Our discussion in D. 97-02-014 and D.97-09-117 did not explicitly address whether program administrators should be allowed to (for example): (1) collaborate with other regional and national market transformation initiatives; (2) coordinate bulk purchasing arrangements; (3) provide summary information intended to communicate with customers the range of services being provided by implementors (and how to contact these implementors); (4) provide product rating and contractor certification services; or (5) provide support and training to improve compliance with codes and standards.  
We agree with CBEE that there are instances where it may be reasonable to allow the direct involvement of program administrators in these nonexcluded implementation functions.  As CBEE explains:
“For some functions, such as bulk purchasing arrangements, effective performance requires an entity with substantial market leverage, a central role in the marketplace, and ties to a wide range of market actors.  Manufacturers, being nationally based, generally prefer to deal with as few organizations as possible, and for those organizations with which they do deal to be as centrally placed as possible.  Under the new administrative structure, administrators appear to meet these criteria.  Thus, administrators may in some cases be better placed than implementors to work with manufacturers.
”For some functions, such as product rating and contractor certification, effective performance requires an entity with substantial credibility in the marketplace and a reputation as a disinterested party.  Under the proposed affiliate rules, the CBEE envisions requiring administrators to use a common logo reflecting the public nature of their funding.  The CBEE hopes that this will result, over time, in implementors aligned with the CBEE programs building up such credibility.  However, at least initially, administrators may be the entity that is best placed to coordinate the use of the logo for program implementation functions such as those described above.   
“For some functions, such as providing a centralized source of information regarding the range of services being provided by implementors and the way to reach these implementors, effective performance requires an entity with full awareness of the range of activities being conducted by implementors.  Because administrators will be responsible for overseeing the program implementation activities of implementors, they may be well placed to play this role.
“Some functions, such as code support and training, may help contribute to meeting the CPUC’s policy goals, but are of such a nature that they cannot be expected to be freely provided by private market actors, even in a vibrant and well functioning energy efficiency market.  Administrators may be a logical entity to assume responsibility for such functions.”  (CBEE’s November 24, 1997 filing, pp. 21-22.) 
However, any such direct involvement in program implementation by administrators should be undertaken, as CBEE recommends, only on a case‑by‑case basis.  Because the role of program administrators in the market may directly impact our policy goals for energy efficiency, these decisions should be subject to Commission approval in the form of a resolution or decision.  Approval for the involvement of program administrators in program implementation not falling under the above exclusions may be requested in conjunction with the October 1 Advice Letter submittal of  energy efficiency program plans and budgets.  Alternatively, this approval may be requested at a later date, as the programs approved by the Commission are being implemented.  
CBEE should clarify in the RFP that it will make recommendations regarding the role of program administrators in nonexcluded implementation functions, on a case-by-case basis, subject to Commission approval.  Factors to be considered in giving this approval should include:  (1) whether a successful case can be made that the administrator is better placed than any private market actor to fill the nonexcluded function and (2) whether a successful case can be made that the nonexcluded function contributes to meeting policy objectives, but will not be freely provided by private market actors even in a well-functioning energy efficiency market.
In their comments on CBEE’s November 24, 1997 filing,  PG&E, SMUD and others urge more specificity regarding program design and funding for the specific programs to be implemented.  Several parties also expressed objections to the program funding levels that were presented in the RFP.  We recognize that the RFP may not contain the level of detail that bidders would prefer. However, too much specificity at this time would limit the effectiveness of further joint planning processes and the impact of public input and ideas from the marketplace, all of which we are trying to encourage.  We believe that CBEE’s response to bidders’ comments, namely to present a list of minimum responsibilities for which administrators are to be responsible and encourage bidders to go beyond that minimum, represent a reasonable balancing of concerns.  We emphasize that the funding levels presented in the RFP for various programs are illustrative examples only.  Final funding levels will be developed through the joint planning process, to be reviewed and approved by the Commission on an annual basis.   
SDG&E objects to the cost cap system because, in its view, such a system imposes excessive risk on administrators.  The cost cap approach is a critical component of the RFP.  The point of conducting a competitive solicitation for program administrator services is, among other things,  to place the risk of cost overruns on market players, e.g., those who choose to bid under the RFP.  The alternative, namely to place that risk on ratepayers, is unacceptable.
Finally, we find no merit to REECH’s allegations that public input was inadequate to consider CBEE’s recommendations.  As described in Section 2, extensive formal and informal efforts and opportunities for public input have been provided in this proceeding.
In sum, we find that CBEE’s proposed RFP and selection process are consistent with our goals and objectives for the independent administration of energy efficiency programs.  We have, however, identified some areas that require further clarification or revisions, as discussed above.  In addition, we note that there are references in the RFP to the “goals and objectives of the CBEE.” (See, for example, page II-11 of CBEE’s March 11, 1998 proposed RFP, Section (iii)(1).)  In its compliance filing, CBEE should consistently refer to the Commission’s goals and objectives (rather than CBEE’s) so there is no misunderstanding that it is our  goals being promoted by the competitive solicitation and subsequent implementation of energy efficiency programs.
Regarding the model contract terms, CBEE requests a determination regarding the contracting party, e.g., what entity (or entities) should sign the contract with new program administrators.  CBEE’s model contract identifies CBEE as the contracting party in the opening statement and in specific contract provisions, but identifies the CPUC and CBEE as joint signatories to the agreement.  CBEE also recommends that we identify the procurement official who will be responsible for issuing the RFP, handling inquiries and questions, ensuring that state procurement principles are followed, ensuring that proposals are held in a secure environment, and transmitting final proposals to the CBEE and its screening committee.
Because of issues regarding the SPB and CBEE’s legal structure, we are still in the process of considering these and other elements of the contracting process, such as what entity or entities will hear protests.  Today’s decision does not reach a resolution of these issues.  We will defer our consideration of the model contract language until these issues can be addressed by further Commission order.  Accordingly, the RFP language should be revised at this time to omit specific identification of the contracting party, procurement official or entity that will hear protests.  We will also defer determination of the manner in which funds will be disbursed to the new administrators, until the issues identified above are addressed.
As CBEE notes, the term set forth in the RFP and accompanying contract requires the Commission to seek a waiver from the DGS to extend the term beyond 36 months.  We find that there is a substantial justification for a longer contract term in this situation, given the current time limitation on the CBEE’s efforts to the period through the end of 2001.  Without such an extension, a contract entered into in August 1998, for example, could require a new competitive procurement for only the remaining four months of 2001.  We direct our Executive Director to seek such a waiver as expeditiously as possible, and report to the assigned Commissioner on the status of that request.  We approve CBEE’s proposed contract term, contingent upon DGS approval of our request for a waiver.
As CBEE points out, the model contract will be amended several times during the term to reflect the development of program designs as a result of the joint planning process.  CBEE requests that we decide how such amendments should be made, and by whom.  CBEE also requests that we decide the procedural process for approval of program administrator awards and contracts.
Amendments to the contracts that reflect program design and development should be presented to the Commission as part of the annual Advice Letter process described in Attachment 3, and considered at that time.  CBEE’s request for approval of the program administrator awards and signed contracts should also be made by Advice Letter, to be approved by Commission resolution. 
Page I-56 of CBEE’s proposed RFP currently states that CBEE has the authority to modify the RFP prior to the date fixed for submission of final proposals.  This language should be changed to state that the Commission, or the Commission’s designee, shall have this authority.
CBEE’s proposed RFP includes a timeline for the transition to the new administrative structure, which includes milestones adopted by the assigned ALJ in compliance with the transition dates adopted in D.97-09-117.  The timeline includes key dates for: 1) the release of the RFP, 2) the preparation and submission of proposals, 3) the review of proposals and CBEE selection, 4) the Commission review and approval of award contracts, and 5) the full operation of new administrators. 
We have been unable to move forward on schedule in light of certain events, in particular, the recent ruling by the SPB Executive Director which disapproved the agreements between CBEE and its administrative and technical consultants.  As discussed in the Introduction and Summary, we are reviewing the extent to which the administrative structure adopted in D.97-02-014 and subsequent decisions can be continued in light of that ruling.  As part of that review process, we may need to make modifications to the transition dates adopted in D.97-09-117, and hence, the key dates included in the RFP.  Therefore, in its compliance filing, CBEE should leave the key dates blank until further direction from the assigned ALJ, assigned Commissioner or the Commission.  
On March 10, 1998, the Governor issued an executive order for all state agencies to cease enforcement of the minority and women business enterprise program participation goals previously required under Public Contracts Code 10115.  The RFP language in Section III should be revised to delete reference to minority and women business enterprises, leaving reference only to disabled veterans.  The corresponding form in Appendix A of the RFP should be modified or replaced accordingly.
State procurement rules may require that the identity of entities submitting letters of intent or bids must be considered public information.  Therefore, CBEE’s proposal to keep the letters of intent confidential may not be consistent with these rules and this confidentiality language should be deleted from the RFP.  We will revisit this question in a future decision on whether to release the RFP.
Finally, we recommend the following editorial changes to CBEE’s proposed RFP:
•	  Clarify that final proposals are public upon completion of the technical evaluation, rather than upon opening.  (Section I-G.1, page I-55);

•	  Clarify that the master copy of proposals will be retained for official files and will become public record after the date and time for technical evaluation of proposals and notice of intent to award, rather that after the date and time for final proposal submission. (Section I.G.5, page I-56.);

•	  Correct the phone number for the Office of the Secretary of State.  (page III-8.);

•	  Move the definitions presented in Section I-H into a separate appendix; and

•	  Include an additional notice to emphasize that a separate proposal must be filed for each separate administrator.

Within 20 days of the effective date of this order, CBEE should file a complete RFP package, including the policy rules, as modified by this decision.  This compliance filing should contain markings that indicate all changes to the documents presented in CBEE’s March 11, 1998 filing.  CBEE should prepare a table of cross-references between the modifications or clarifications required by today’s decision and the location of specific language complying with those requirements in the compliance documents.  CBEE should also include an unmarked version of the documents in its filing.  The Commission will inform CBEE of the results of its review by a letter from the Executive Director, by Commission decision or by Commission resolution, as deemed appropriate by the assigned Commissioner.
Findings of Fact
1.	The Commission’s statements in D.97-02-014 do not exhaustively describe the activities or considerations for energy efficiency funding.  Nor do they imply that the additional Commission guidance in the Preferred Policy Decision should be ignored.
2.	CBEE’s proposed rules, as modified by this decision, appropriately consider the various aspects of market transformation and privatization discussed in the Commission’s policy decision.
3.	CBEE’s proposed cost-effectiveness rules ensure a broad portfolio of market transformation and privatization activities that meet the Commission’s objectives, and are consistent with the direction from the Legislature that PGC-funded energy efficiency activities produce benefits in excess of costs.
4.	CBEE’s proposed rules ensure accountability by requiring independent analysis of the PGC-funded programs as they are implemented.
5.	The public workshop process proposed by CBEE for working out important implementation issues is consistent with the approach this Commission has taken in the past to implement utility-funded DSM activities.
6.	CBEE’s recommendations to have separate administrators for residential, nonresidential and new construction activities best balances the following objectives:  1) presenting each administrator with a scope of responsibilities that is limited enough to be within the capabilities of a wide range of entities, thus allowing for a substantial market response to this RFP, 2) limiting the risks attendant on the possibility that one or more administrators might fail to perform adequately, 3) keeping the total number of administrators small enough to lead to a manageable administrative assignment on the part of the CBEE, 4) ensuring that the responsibilities of each administrator are sufficiently clearly delineated to guard against the possibility of program gaps, overlaps and jurisdictional ambiguities; 5) giving the CBEE as many options as possible in tailoring the selection of administrators to the mix of skills across proposers and 6) ensuring that administrators’ responsibilities are structured in a manner that reasonably approximates the manner in which actual energy efficiency markets are structured.
7.	To ban state agencies from bidding for program administrator would inappropriately eliminate potentially qualified administrators from consideration. At the same time, it would be unfair to other bidders to treat state agencies differently for the purpose of the selection process and criteria or limitations on an administrator also performing implementation.
8.	Including performance incentives in the total award and bidder total cost cap ensures that the total costs of administrator compensation will be limited to the costs proposed by bidders in response to the RFP.
9.	Including renewable self-generation in the definition of energy efficiency represents a significant change to our current definition and could exclude other valuable on-site measures from consideration.  In addition, this modification to the definition of energy efficiency could create possible overlaps or confusion, since renewable self-generation technologies are already eligible for surcharge funding through the Renewables program administered by the CEC.
10.	Allowing regulated utilities to use ratepayer funds for preparation of bids would give them an unfair advantage over other competitors.
11.	CBEE’s proposed administrator code of conduct, as modified by this decision, restrict an administrator from conducting its activities in a manner that would unfairly favor or discriminate against any market entity.  
12.	The context for the affiliate rules addressed in this proceeding is different from that governing the Commission’s consideration of utility affiliate transaction rules in R.97-04-011/I.97-04-012.  First, today’s adopted rules apply to both utility and nonutility entities.  Second, they address circumstances under which affiliates may receive PGC funding for energy efficiency activities, rather than whether affiliates may operate in the market. Finally they apply to program administrators that are acting under contract to perform specific functions to achieve the Commission’s market transformation goals, rather than firms providing products and services directly to customers.
13.	Limitations on the potential receipt of PGC funds do not prevent affiliates of an administrator from operating in energy efficiency markets.
14.	Limiting the receipt of PGC funds to nonaffiliates of  a program administrator, with the exception of SPC programs up to a 15% market share, appropriately balances two objectives:  1) maximizing the number of potential proposers to be administrators or implementors and 2) ensuring that vibrant competitive energy efficiency markets develop during the transition from utility‑administered programs to independent administration.
15.	Remaining concerns over the issue of utility and utility affiliate market power can be addressed by monitoring utility (and affiliate) market share over time and revisiting today’s adopted rules, as necessary.
16.	Concerns over potential favoritism by one administrator vis-a-vis the affiliate of another can be addressed through CBEE’s proposed code of conduct, as modified by this decision.  Imposing stricter affiliate limitations at this time would unduly compromise the goal of maximizing the number of potential proposers to be administrators or implementors.
17.	The context for considering corporate identification of energy efficiency administrators and their affiliates concerns the identification of market transformation programs funded by ratepayers.
18.	Allowing a program administrator to use its private corporate identification in performing PGC-funded administrative services today could create a competitive advantage for that firm, or its affiliates, as the energy efficiency market becomes privatized.
19.	Identifying the firms selected as program administrators under a generic statewide identification when acting as the administrator, rather than under private corporate identification, removes the potential that these firms (or affiliates) would obtain an unfair competitive advantage  based on their role as (or affiliation with) program administrators.
20.	There may be some circumstances where “co-branding” would be appropriate to further the Commission’s market transformation objectives.
21.	The achievement of the Commission’s energy efficiency goals requires a nondiscriminatory process that allows access to certain customer information without prior contact with a customer, but with adequate customer privacy protections.  CBEE’s proposed policy rules achieve this objective and are consistent with our directives in D.97-12-103.
22.	Our utility affiliate rules, as adopted in D.97-12-088 contain adequate safeguards to ensure against the potential transfer of sensitive information to affiliates, without completely prohibiting transfers of employees to affiliates.
23.	The approach taken in D.97-12-088 to address joint purchases between utilities and affiliates adequately protects against cross subsidization without requiring case-by-case approval of those transactions.
24.	Consistency with the utility affiliate rules on the issue of joint marketing is inappropriate in the context of energy efficiency programs, where there may be valid reasons why an administrator and implementors (including affiliates of an administrator) may wish to pursue joint marketing.
25.	CBEE’s proposed policy rules do not clearly delineate the respective roles of CBEE and this Commission in implementing and enforcing these rules.
26.	CBEE’s proposed joint planning process facilitates the evolution of program designs and budgets in light of market developments and with input from a wide range of market participants.
27.	CBEE’s proposed RFP package has incorporated suggestions by commentors that are most workable and consistent with Commission policies.
28.	It would be contrary to Commission policy to include the selection and supervision of analysis agents in the administrator’s scope of services.  It is necessary to take steps to see that analysis agents are objective, third-party entities to the extent possible.
29.	CBEE’s delineation of excluded implementation functions for program administrators is generally consistent with Commission guidance, but requires some clarification.
30.	On a case-by-case basis, a program administrator may be the most appropriate entity in the market to be involved in certain nonexcluded implementation functions, such as bulk purchasing, product rating and contractor certification, code support and training and providing a centralized source of information regarding implementors’ services.
31.	Too much specificity in the RFP regarding the administrator’s scope of services would limit the effectiveness of further joint planning processes and the impact of public input and ideas from the marketplace.  CBEE’s presentation of a list of minimum responsibilities strikes an appropriate balance.
32.	The funding levels contained in the RFP for various programs are illustrative only.  Final funding levels will be developed through the joint planning process to be reviewed and approved by the Commission annually.
33.	CBEE’s proposed cost caps appropriately place the risk of cost overruns on market players rather than ratepayers.
34.	Extensive formal and informal efforts and opportunities for public input have been provided to address the issues in this proceeding.
35.	CBEE’s proposed RFP and selection process, as modified herein, are consistent with Commission goals and objectives for the independent administration of energy efficiency programs.
36.	Given the issues regarding the SPB and legal structure of CBEE, several contracting issues still need to be resolved, such as what entity or entities will serve as the contracting party, serve as the procurement official and hear protests.  The method of fund disbursement to administrators also still needs to be resolved.
37.	CBEE’s proposed contract term requires the Commission to seek a waiver from DGS to extend the term beyond 36 months.
38.	A term longer than 36 months for the program administrator contracts may be required to avoid unreasonable disruptions in program administration.
39.	The model contract, if and when adopted by the Commission, will need to be amended during the term to reflect the development of program designs as a result of the joint planning process.
40.	The key dates and timeline for the RFP may need to be modified in light of recent developments.
41.	On March 10, 1998, the Governor issued an executive order for all state agencies to cease enforcement of the minority and women business enterprise program participation goals previously required under Public Contracts Code 10115.
Conclusions of Law
1.	Because the new administrative structure for energy efficiency programs, as envisioned in D.97-02-014 and subsequent decisions, is currently being reviewed by the Commission, CBEE should not implement today’s adopted policy rules or release the adopted RFP package until the Commission determines that it is feasible to do so.
2.	CBEE’s proposed policy rules, as modified by this decision and presented in Attachment 2, are reasonable and should be adopted subject to the above condition.  The differences between the affiliate rules adopted today and those adopted for utility affiliate transactions in D.97-02-014 are appropriate, given the different context for affiliate transactions in this proceeding.
3.	As modified by this decision, CBEE’s proposed RFP and selection process are reasonable and should be adopted subject to the above condition.  However, adoption of the model contract language should be deferred until issues such as the contracting party, procurement official and entity hearing protests are resolved by further Commission order.
4.	Our approval of CBEE’s proposed contract term should be contingent upon our obtaining a waiver from DGS to extend the term beyond 36 months.  The Executive Director should seek such a waiver as expeditiously as possible.
5.	As described in the RFP, CBEE and the new administrators should jointly develop annual program plans and budgets to be submitted to the Commission as an Advice Letter filing by October 1 of each year.  In this submission, CBEE and the new administrators should provide program or project-specific (as appropriate) cost-effectiveness results as well as portfolio total cost-effectiveness, on a prospective basis.  The annual program plans may also include CBEE’s recommendations regarding market share limitations, as discussed in this decision.  Amendments to the program administrator contract, to reflect changes in program design that modify the workplan and other aspects of the program administrators’ responsibilities, should be presented in this annual submission for Commission review and approval.  Because the new administrators may not be under contract until too late in the process, CBEE should develop the program plans and budgets to be submitted to the Commission for the 1999 program year, as described above.
6.	The public workshop process proposed by CBEE for working out implementation issues is reasonable and should be adopted.  After conducting the workshops, CBEE should filed any proposed revisions to the rules adopted by today’s decision as a Petition for Modification under Rule 47, to be served on the Special Public Purpose service list in this proceeding or on the service list of any successor proceeding.
7.	Renewable self-generation projects should not be included in the definition of energy efficiency in the policy rules or RFP package (including the model contract) at this time.  After additional public input and workshops, CBEE may resubmit this recommendation under the procedures discussed above.  CBEE should coordinate with CEC on these matters and, in making its recommendations, should specifically address the concerns raised by CEC and NRDC in their December 10, 1997 comments, and any other concerns raised by workshop participants.
8.	State agencies should be allowed to bid for program administrator, but should not be treated differently from other applicants for purposes of the selection process and criteria or limitations on an administrator also performing implementation.  The RFP should be modified to reveal that a state agency may submit proposals and receive an award.
9.	Regulated utilities should not use ratepayer funds for preparation of bids under the energy efficiency program administrator RFP.
10.	CBEE’s proposed affiliate rules should be modified to be consistent with the safeguards provided under Part V.G.2. of our utility affiliate rules adopted in D.97-12-088.
11.	The Commission should review the policy rules adopted in today’s decision based on updated market information.
12.	Any revisions to the policy rules adopted today should made by Commission decision.
13.	Analysis agents should be selected through a competitive bidding process, which uses avoidance of conflicts-of-interest as a significant selection criterion.  CBEE members who have a financial or organizational connection to analysis agent candidates should not participate in the selection process.
14.	In its compliance filing, CBEE should expand the discussion in the RFP to reflect the description presented in its November 24, 1997 filing regarding the nonadministrative functions for which a program administrator 1) will never have a role  under this RFP or other funding vehicle or 2) may have a role, on a case-by-case basis.
15.	In its compliance filing, CBEE should consistently refer to the Commission’s goals and objectives, rather than CBEE’s, so there is no misunderstanding that energy efficiency programs are to be implemented to promote the Commission’s policy objectives.
16.	In its compliance filing, CBEE should leave the key dates in the RFP timeline blank until further direction from the assigned Administrative Law Judge, assigned Commissioner or by the Commission in an order or resolution.
17.	CBEE should clarify in the RFP that its request for approval of program administrator awards and signed contracts will be by Advice Letter, to be approved by Commission resolution
18.	Because the role of program administrators in the market may directly impact the Commission’s policy goals for energy efficiency, decisions regarding program administrators role in nonexcluded implementation functions should be subject to Commission approval in the form of a resolution or decision.  Factors to be considered in giving this approval should include: (1) whether a successful case can be made that the administrator is better placed than any private market actor to fill the nonexcluded function and (2) whether a successful case can be made that the nonexcluded function contributes to meeting policy objectives, but will not be freely provided by private market actors even in a well-functioning energy efficiency market.
19.	The RFP language in Section III should be revised to delete reference to minority and women business enterprises, leaving reference only to disabled veterans.  The corresponding form in Appendix A of the RFP should be modified or replaced accordingly.
20.	CBEE should modify the RFP to state that the Commission or its designee shall have the authority to modify the RFP prior to the date fixed for submission of final proposals.
21.	Because state procurement rules may require that the identity of entities submitting letters of intent or bids must be considered public information, CBEE’s proposal to keep the letters of intent confidential may not be able to be adopted.  The Commission should clarify this point in a future decision.
22.	In its compliance filing, CBEE should make the editorial changes to the RFP:
•	  Clarify that final proposals are public upon completion of the technical evaluation, rather than upon opening.  (Section I-G.1, page I-55);

•	  Clarify that the master copy of proposals will be retained for official files and will become public record after the date and time for technical evaluation of proposals and notice of intent to award, rather that after the date and time for final proposal submission. (Section I.G.5, page I-56.);

•	  Correct the phone number for the Office of the Secretary of State.  (page III-8.);

•	  Move the definitions presented in Section I-H into a separate appendix; and

•	  Include an additional notice to emphasis that a separate proposal must be filed for each separate administrator.

22.  Unless otherwise stated in this decision or adopted policy rules, CBEE should request Commission approval by filing an Advice Letter and serving that Advice Letter on the Special Public Purpose service list in this proceeding or on the service list of any successor proceeding.  Commission approval will take the form of a Commission resolution.
23.  Because no party has been adversely affected by the late filing of comments by REECH and SMUD, those comments should be accepted.
  24.  In order to expedite the filing of compliant RFP documents, this order should be effective today.

INTERIM ORDER

IT IS ORDERED that:
1.	The approval given in Ordering Paragraphs 2 and 3 of the policy rules and request for proposal (RFP) proposed by the California Board for Energy Efficiency (CBEE) is conditioned on the Commission’s determination that the approach to the administration of energy efficiency programs adopted in Decision (D.) 97-02-014,  D.97-04-044, D.97-05-041, and D.97-09-117 is feasible.  The adopted policy rules shall not be implemented and the adopted RFP shall not be released until further order of the Commission.
2.	The policy rules proposed by the CBEE to govern the use of Public Goods Charge (PGC) funds for promoting energy efficiency, as modified by this decision and presented in Attachment 2, are adopted subject to the condition stated in Ordering Paragraph 1.  Any modifications to these policy rules shall be made by Commission decision.
3.	The RFP proposed by CBEE, as modified by this decision, is adopted subject to the condition stated in Ordering Paragraph 1.  The model contract proposed by CBEE and included in the RFP is not adopted at this time.  It shall be reviewed by the Commission in a subsequent decision, in which the contracting party, procurement official and entity hearing protests will be identified.
4.	Within 20 days of the effective date of this order, CBEE shall file a complete RFP package, including the policy rules, as modified by this decision.  This compliance filing shall contain markings that clearly indicate all changes to the documents presented in CBEE’s March 11, 1998 filing.  CBEE shall prepare a table of cross-references between the modifications or clarifications required by today’s decision and the location of specific language complying with those requirements in the compliance documents.  CBEE shall also include an unmarked version of the documents in its filing.  These tasks are appropriately considered wrap-up activities for CBEE’s technical consultants, consistent with Assigned Commissioner Neeper’s Ruling of February 24, 1998.  The Commission shall inform CBEE of the results of its review by a letter from the Executive Director, by Commission decision or by Commission resolution, as deemed appropriate by the assigned Commissioner.
5.	CBEE and the new administrators of PGC-funded energy efficiency shall jointly develop annual program plans and budgets to be submitted to the Commission as an Advice Letter filing by October 1 of each year.  In this submission, CBEE and the new administrators shall provide program or project‑specific (as appropriate) cost‑effectiveness results as well as portfolio total cost-effectiveness, on a prospective basis.  Amendments to the program administrator contract, to reflect changes in program design that modify the workplan and other aspects of the program administrators’ responsibilities, shall also be presented in this submission for Commission review and approval.  The annual program plans may include CBEE’s recommendations regarding market share limitations.  The Advice Letter filing shall be served on 1) the Special Public Purpose service list in this proceeding or the service list of any successor proceeding and 2) any other individual or organization that sends a written request to CBEE to be served.
6.	CBEE shall hold public workshops to address implementation issues for PGC-funded activities, including updates and refinements to:  1) initial definitions in the rules, 2) measures of value and performance, including cost‑effectiveness tests, and 3) market assessment, evaluation and performance measurement.  After conducting the workshops, CBEE shall file any proposed revisions to the rules adopted by today’s decision for Commission consideration as a Petition for Modification under Rule 47 of the Commission’s Rules of Practice and Procedure.  CBEE’s Petition for Modification shall be filed at the Commission’s Docket Office and served on the Special Public Purpose service list in this proceeding or the service list of any successor proceeding.  Any revisions to the policy rules adopted today shall be made by Commission decision.
7.	Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, and Southern California Gas Company shall not use ratepayer funds for the preparation of bids in response to the program administrator RFP adopted in this decision.
8.	Within 120 days from the effective date of this decision CBEE should submit recommendations concerning the type of market information to be submitted by utilities and the administrators (utility and nonutility), and propose a procedural schedule for the submission of this information to CBEE and the Commission.  Such information should include market share statistics of utilities, utility affiliates and other entities in the energy efficiency market, the number and dollar value of contracts between utility and nonutility administrators and 1) their affiliates, including affiliates operating in program areas administered by nonaffiliated administrators, and 2) other entities.  CBEE shall solicit public comment on its proposal prior to submitting final recommendations.  CBEE shall file its recommendations at the Commission’s Docket Office and serve copies to the Special Public Purpose service list in this proceeding or on the service list of any successor proceeding.  Interested parties shall have 15 days to comment.  The assigned Administrative Law Judge, in consultation with the Assigned Commissioner, shall issue a ruling to establish the reporting requirements and filing schedule.
9.	In consideration of staffing uncertainties, the timing of requirements for CBEE compliance in Ordering Paragraphs 4, 5, 6 and 8 may be modified by Assigned Commissioner Ruling.
10.	As expeditiously as possible, the Commission’s Executive Director shall seek a waiver from the Department of General Services to extend the model contract term beyond 36 months. 
11.	Unless otherwise stated in this decision or the adopted policy rules, CBEE shall request Commission approval by filing an Advice Letter and serving that Advice Letter on the Special Public Purpose service list in this proceeding or on the service list of any successor proceeding.  Commission approval shall take the form of a Commission resolution.
12.	The late-filed comments of Residential Energy Efficiency Clearing House, Inc. and Sacramento Municipal Utility District in response to CBEE’s November 24, 1997 filing are accepted.
This order is effective today.
Dated April 23, 1998, at Sacramento, California.

						RICHARD A. BILAS
        President
P. GREGORY CONLON
JESSIE J. KNIGHT, JR.
						HENRY M. DUQUE
						JOSIAH L. NEEPER
						               Commissioners

TABLE OF CONTENTS

Title										Page

INTERIM OPINION:  POLICY RULES AND REQUEST
    FOR PROPOSALS FOR ENERGY EFFICIENCY
    PROGRAM ADMINISTRATORS	
1.  Introduction and Summary	
2.  Procedural Background	
3. 	Policy Rules for New Program Development and Implementation 
[Rules I -VII]	
4. 	Affiliate Rules and Code Of Conduct for Administrators [Rules VIII 
      and IX]	
4.1 CBEE’s Proposed Code of Conduct	
4.2 CBEE’s Proposed Affiliate Rules	
4.2.1 Nondiscrimination Requirements [Rules IX-6(1)-(6)]	
4.2.2 Separation Requirements [Rules IX-6(7)-(18)]	
4.2.3 Disclosure and Information Requirements [Rules IX-6(19)-(22)]	
4.2.4 Oversight Requirements [Rules IX-6(23)-(24)]	
4.2.5 Definitions	
4.3 Discussion	
4.3.1 Eligibility of Affiliates for PGC Funds	
4.3.2 Corporate Identification	
4.3.3 Access to Information	
4.3.4 Transfer of Employees	
4.3.5 Joint Purchases and Joint Marketing	
4.3.6 CBEE’s Role and Authority	
4.3.7 	Reporting of Market Share Information and Future 
              Consideration of Market Share Limitations	
5.  RFP for Administrators and Contracting Process	
5.1 Role of Program Administrators and Scope of Services	
5.2 Joint Planning Process and Development of Annual Program Budgets	
5.3 Bidder Requirements and Selection Process	
5.4 Discussion	
Findings of Fact	
Conclusions of Law	
INTERIM ORDER	

LIST OF ATTACHMENTS

Attachment 1 - List of Appearances

Attachment 2 - Policy Rules for Energy Efficiency Activities

Attachment 3 - Illustrative Example of Program Development and Planning
 Processing and Timelines for PY 2000 and PY 2001

Attachment 4 - Program-Related Functions and Responsibilities

Attachment 5 - Minimum Scope of Services for Program Administrators
and Program-Area Specific Scope of Services/Prescribed 
Programs

Attachment 6 - RFP Score Sheet

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