California?s $400 million energy-efficiency programs beginning next year will be run solely by the investor-owned utilities rather than by an independent administrator or local governments, the California Public Utilities Commission decided January 27. The CPUC rejected pleas from consumer and environmental groups and community-choice proponents to delay taking action on returning control of the state?s energy-efficiency programs to regulated utilities until a full five-member commission could consider the issue. The plan was approved by just three of the four seated commissioners. Newly appointed member Dian Grueneich recused herself from voting on any energy issues pending a review to determine potential conflicts of interest posed by her former energy consulting work. Consumer and environmental advocates argued that local control was essential to breaking the utilities? stranglehold over energy-efficiency programs and fostering competition to develop new technologies that will conserve energy and reduce greenhouse gas emissions. ?We all know utilities have conflicts of interests and competitors don?t,? stressed Edward Mainland, senior conservation fellow for the Sierra Club. Utilities historically administered the state?s energy-efficiency programs?funded by a public-benefits surcharge on all utility bills. After California?s electric industry was deregulated in 1998, the CPUC sought to foster a competitive market for delivering energy-conservation solutions. Beginning in 2002, the CPUC set aside 20 percent of the state?s energy-efficiency budget to fund programs administered by community-choice aggregators and nonprofit organizations. But several commissioners questioned whether independently administered conservation programs delivered adequate energy savings and doubted that the commission had the authority to disburse ratepayer money to unregulated entities. ?The threshold issue of who should administer California?s energy-efficiency programs is critical to California?s future,? said commissioner Susan Kennedy, who issued the proposed decision with administrative law judge Meg Gottstein. ?We wanted a clear and unequivocal focus on energy efficiency. In the past we?ve measured success not on how much energy we?ve saved but on how much money we?ve spent on energy conservation.? Under the new rules, utilities must integrate energy-efficiency programs in their resource planning and procurement decisions for the three-year funding cycle beginning January 2006. While utilities will administer the programs, they will be required to put at least 20 percent of their energy-efficiency portfolio out for competitive bid. Utilities will be prohibited from conducting transactions with any of their unregulated affiliates. The CPUC will appoint a peer review group composed of noncompeting parties to review energy-conservation proposals to ensure transparency and prohibit utilities from evaluating their own contracts in violation of conflict-of-interest rules. ?This is a dynamic program in order to ensure that energy efficiency is integrated in resource planning,? Kennedy stressed. ?Nothing in this decision is set in stone.? The commission rejected an alternate proposal by commissioner Geoffrey Brown to set aside 20 percent of conservation funds annually for a pilot program of independent administrators to encourage innovative conservation initiatives. Such incentives are needed to foster competition and new technologies since utilities have inherent conflicts of interest and resist innovation and change, he said. ?Utilities should be in the game, but they have no monopoly on good ideas.? CPUC president Mike Peevey warned utility representatives that the CPUC will revisit the issue if they lag behind competitors in developing innovative technologies to increase efficiency and reduce energy consumption. ?I want to put the utilities on notice that this decision today is not a guarantee of utility administration of energy-efficiency programs through eternity,? Peevey said. ?I hope the word goes up the chain of command that we expect innovation and nimbleness in administering these programs?not the dead hand of bureaucracy. If this doesn?t happen, I?ll propose a new kind of administration.? ?This decision ignores the utilities? fundamental conflict of interest with energy saving and puts them in control of designing and choosing all programs,? lamented Barbara George, director of Women?s Energy Matters. Not all consumer and environmental groups opposed the CPUC?s decision. The Natural Resources Defense Council praised the decision as providing enforceable targets and incentives that could double the state?s energy-efficiency gains and provide $10 billion in net savings over the next decade. The NRDC singled out provisions in the new rules requiring utilities to invest in energy-efficiency measures whenever that is cheaper than building new power plants. The CPUC has projected that energy-conservation programs will reduce demand and avoid the need for 10 new large power plants in California. The program will also provide additional rebates for consumers who purchase energy-efficient refrigerators, furnaces, and other appliances. Southern California Edison also welcomed the decision placing utilities in control of the state?s efficiency programs. Edison has distributed over 120,000 rebates totaling $73 million annually to customers who have purchased Energy Star and other energy-efficient appliances, reducing demand by 1 billion kW a year, according to the utility.