The California Public Utilities Commission adopted comprehensive rules for ratepayer-funded energy-efficiency programs, updating its Energy Efficiency Policy Manual to guide programs for the 2006-08 funding cycle and later. The new rules, adopted April 21, reflect objectives articulated in the CPUC?s and the California Energy Commission?s joint Energy Action Plan that all cost-effective opportunities for energy efficiency should be pursued as alternatives to more costly supply-side resources. It is also considered the most equitable way of distributing the benefits of such programs to all energy customers. Susan Kennedy, the assigned commissioner, noted that the CPUC?s former rules prevented customers from implementing some energy-efficiency measures that were not formally prescribed in the manual. The revised rules reflect the commission?s expectation of achieving 70 percent to 90 percent of potential electric energy savings in the combined service territories of Pacific Gas & Electric, San Diego Gas and Electric, and Southern California Edison. Thus, they would meet a projected 55 percent to 59 percent of the three investor-owned utilities? incremental electric energy needs from 2004 to 2013. For natural gas, the commission?s goals represent a 116 percent increase in projected energy savings for the decade. To achieve these energy-savings goals, the CPUC stressed that priority be given to the most cost-effective energy-efficiency programs and services over both the short and long terms. The new rules incorporate the administrative structure adopted by the CPUC in January when it returned administration of California?s $400 million energy-efficiency programs to the state?s four investor-owned electric and gas utilities rather than an independent administrator. The CPUC established a number of safeguards to prevent conflicts of interest and ensure that the utilities do not favor their own energy-efficiency programs over those of nonutility competitors. These safeguards include an advisory group and minimum requirements for competitive bidding. The commission also established an administrative structure for evaluation, measurement, and verification (EM&V) that prevents program administrators and implementers from evaluating the effectiveness of efficiency programs. Hence, the CPUC delegated responsibility to its Energy Division for managing and contracting all future EM&V studies that measure and verify energy and peak-load savings; generate data to measure savings and cost-effectiveness; measure and evaluate energy-efficiency programs by performance; and evaluate whether the goals of individual programs and portfolios have been achieved. The commission prescribed that environmental adders and other nonprice components of avoided costs be included in tests of the cost-effectiveness of energy-efficiency programs. ?We view energy efficiency in today?s policy environment as a viable resource alternative to more expensive supply-side investments,? the commission stated. The CPUC clarified that solar water heaters will be eligible for energy-efficiency funding beginning in 2006, with the caveat that they must be cost-effective on a stand-alone basis and not simply bundled with other cost-effective energy- efficiency measures. In other words, energy-efficiency funds should not be used to encourage deployment of non-cost- effective technologies and measures. The CPUC adopted a recommendation by the Natural Resources Defense Council and the Office of Ratepayer Advocates that any incentives or performance awards to program administrators be based on portfolio performance rather than on individual program performance to encourage innovation and allow for some risk taking on pilot programs. Moreover, EM&V costs should be considered on a total portfolio basis rather than by individual program, the CPUC concluded. Based on past EM&V expenditures by the utilities, the commission set a planning figure of 8 percent of total energy-efficiency program funding for EM&V for the 2006-08 program cycle. In other action, the CPUC slashed an intervenor compensation award to The Utility Reform Network by more than $750,000. TURN participated in the federal district court proceedings in which PG&E and Edison challenged the CPUC?s jurisdiction to limit the utilities? recovery of wholesale procurement costs during the state?s electricity crisis. The commission rejected an administrative law judge?s proposed decision that TURN be compensated $1 million for its litigation costs from challenging the CPUC?s settlement with Edison in the Ninth Circuit Court of Appeals. However, while praising TURN for its stalwart role as a consumer watchdog, commissioner Geoffrey Brown disputed that the consumer advocate was entitled to compensation for its failed lawsuit challenging the CPUC?s settlement with Edison. ?TURN can?t turn its non-contribution into a contribution,? he said. Brown authored an alternate decision limiting TURN?s compensation to $288,402. Commissioner Dian Grueneich disagreed with Brown and said that TURN had contributed substantially to the judicial proceedings and was thus entitled to be fully compensated for its legal costs. Moreover, Brown?s alternate decision deviated from the standard the CPUC has used in the past to compensate intervenors, she said. Grueneich, who voted alone to award TURN its full compensation, stressed that the CPUC needs to review its intervenor compensation rules to ensure that the same standards will be applied equitably to all intervenors.