State lawmakers are mulling over whether to divert to private utility coffers hundreds of millions of ratepayer dollars sent to the California Energy Commission to advance renewables, energy efficiency, and greenhouse gas reductions. At issue for legislators is how to measure the program’s success. More than $62 million has been sent annually to the Energy Commission the last 15 years. Legislative reauthorization is needed this session to avoid a program interruption. The Energy Commission effort—known as the Public Interest Energy Research program (PIER)—is not without its problems. Yet, utility energy savings performance, also funded by ratepayers, is far from a success story. The ongoing dissatisfaction with utility energy efficiency programs has been the subject of much debate at the California Public Utilities Commission. Many inside and outside the CPUC have found the utilities to be far more talk than action on the savings front (Current, Dec. 17, 2010). While listening to testimony at the Legislature last week in support of redirecting the PIER funds to investor-owned utilities I wondered where’s the guilt? That point was driven home this week when covering the update on the state’s $2 billion solar incentive program. The utilities admitted they’re well below their solar goals, but have used up most of the 10-year programs’ ratepayer approved funds. In spite of unresolved debates over how to evaluate and prove whether investor-owned utilities are achieving energy savings through programs funded by their customers, regulators have continually lowered the bar for rewarding the companies. To keep the CPUC content today, utilities need only meet as little as 60 percent of the energy efficiency targets set by regulators to win guilt-free rewards for their shareholders. The utilities’ efficiency programs were never mentioned during the March 1 Senate Energy, Utilities, & Communications Committee hearing on whether to reauthorize the Energy Commission’s PIER program. Senator Rod Wright (D-Los Angeles), known in the past for his pro-utility stance, was the only lawmaker to warn about the pitfalls of diverting the $62.5 million in annual PIER funding to Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. “Money has the potential to corrupt a lot of people,” Wright said. He pointed out, for example, that Edison “got busted” for lying about the results of a customer satisfaction survey it conducted with ratepayer money. However, the Legislative Analyst avoided criticizing the utilities. Written testimony by the LAO did note that taking the money from the Energy Commission and giving it to the private utilities would result in the CPUC being “the sole arbiter on behalf of the IOU research investments.” In essence, PIER would join the ranks of the many heavily-veiled utility programs overseen by the CPUC. This alone would mark quite a departure from past practice. That’s because PIER is fairly transparent, with the grants—both the amounts and recipients—announced at public meetings. Specifically at issue during the debate over PIER reauthorization were the program’s research parameters, how to define “success,” and how to improve the program. “You have to be cautious when talking about research,” said Wright, who authored a bill to extend PIER funding to 2022. He noted Viagra was developed as a heart medication, but proved far more effective at curing another ailment elsewhere. Senator Michael Rubio (D-Bakersfield) noted that when Thomas Edison was asked about his hundreds of failed attempts at devising the light bulb, the inventor replied that he discovered 700 ways not to make one. Since the PIER funding authorization began under the 1996 deregulation law, the Energy Commission has spent $700 million on alternative energy and efficiency research. For the program to continue, two-thirds of legislators must reauthorize it. The Energy Commission’s handling of PIER has been criticized for years, particularly the high administrative overhead of third-party contracts. The overhead on deals handled by the University of California, for example, were on average 30 percent of project costs. The Energy Commission’s overhead was 10 percent. Another key issue is who reaps the financial benefits of publicly-funded projects that are commercially successful? Few answers were provided at the recent hearing, but I was able to get some information and numbers from the Energy Commission—more than I can usually extract from CPUC hearings on issues often involving countless murky funds. Royalties collected over the program’s 15-year history amount to $4.7 million, according to Susanne Garfield, Energy Commission spokesperson. When asked about the small level in comparison to the millions funded through the years, she said the program wasn’t geared toward royalties. “There were many other projects that were not widget production and would not have royalties associated with them,” she noted. Ten projects produced returns for the commission investment. The ratio of PIER funds to royalties the commission received varied widely. PowerLight and a green building web program, Autodesk, produced almost $3 million in commission royalties. Four PowerLight projects to increase solar manufacturing capacity produced $1.2 million in PIER royalties on $5.1 million in commission funding. Nearly a $2 million return was collected by the Energy Commission from three Autodesk projects that received $993,100 from PIER. Commission royalties are returned to the PIER funding pot to be awarded again, Garfield said. Lawmakers should reauthorize the annual funding for another decade but also tighten program parameters to improve accountability. That should include making transparent the Energy Commission’s formula for deciding how much of a commercially-successful project constitutes public property, the commensurate share of public royalties, and how the proceeds are used. Research aims should be clarified, with benchmarks established to measure project success. A benchmark is needed too that’s on par with measurement of success of similar ratepayer-funded efforts in the private sector. Reauthorization also should entail restricting the amount of overhead contracting parties charge to ensure more funds go to project development. Finally, PIER reauthorization should mandate development of a long-term investment plan with investment status reports, as recommended last November by the PIER Advisory Board. Ultimately, lawmakers must act to solve any PIER dysfunction, rather than just transferring the program. In short, its time for lawmakers and utilities to have that “Viagra conversation,” to ensure a solid performance, instead of just changing the channel when the commercials run.
