Enron is gone, but home-grown foxes still game the energy system

Cities have one last hope for effective energy-efficiency programs

Who has the worst conflict of interest about saving energy? Who has controlled the state's energy-efficiency programs for decades, and was just picked to run them for the next ten years?

These two questions have the same answer: California's big investor-owned utilities, which raise their profits and stock value by selling more energy, have monopolized the state's energy-efficiency programs since the 1970s, except for the last three years, and the California Public Utilities Commission (CPUC) has just put them back in the driver's seat.

State energy-efficiency funds come from a special Public Goods Charge on all utility bills. They are supposed to finance a wide variety of energy-saving technology and activities for homes and businesses. In the right hands, energy efficiency can be the cheapest and cleanest of all ways to extend our energy resources.

The Public Goods Charge raises $250 million each year for energy efficiency in the territories of California's big investor-owned utilities - PG&E, Southern California Edison, Southern California Gas, and San Diego Gas & Electric. (The utilities recently added another $150 million/year from their "procurement" [power purchase] funds, for a total of $400 million.) The CPUC forced the utilities to create a special fund for energy efficiency during the first energy crisis in the 1970s. Since then, the utilities have made almost all the decisions on what to do with the money - designing the programs and hiring and firing all contractors as well as consultants who measure how much energy was saved.

At the start of the recent "energy crisis", however, Loretta Lynch, then president of the CPUC, found that utilities had not even bothered to spend some $70 million of the Public Goods Charge funds, although they claimed they were too broke to buy energy supplies. She decided to set some money aside for non-utility energy-efficiency providers (including cities, non-profits, and independent businesses) to see what they could do.

In 2001 Lynch began a CPUC rulemaking to reconsider all aspects of energy efficiency, and promptly bid out 20% of the funds ($50 million per year) for independent, non-utility programs. She also hired six energy-efficiency staff (previously the PUC had none!) to oversee the programs, and tightened up reporting requirements on how the funds were used and how much energy was saved. Then she ordered the first-ever audit in 30 years of the utilities' energy-efficiency programs.

The audit recently revealed that during the four years studied, 1998 - 2002, the utilities did not conduct fair competitive bidding, charged outrageous administrative costs, and could not verify substantial amounts of energy savings.

The organization I founded, Women's Energy Matters, is a formal public-interest representative in the energy-efficiency rulemaking at the CPUC. We analyzed the utility-controlled energy-efficiency measurement system (which the audit did not address) and discovered that the utilities are claiming wildly exaggerated energy savings. One flagrant example is compact fluorescent lights, which account for 60% of the utilities' claims of energy savings in their small-business programs and much of their residential and large-business programs too. Women's Energy Matters has documented that the utilities have exaggerated these savings by 600%. The overestimates of savings just from compact fluorescents amount to nearly a billion dollars in higher energy bills since 2000. Utilities' failure to produce the energy savings that we paid for made the 2000 - 2001 "energy crisis" worse, and allowed more power-plant pollution and climate-change emissions.

Furthermore, as Women's Energy Matters charged in a recent legal complaint, the utilities' fraudulent claims enabled them to stamp out competition and regain control of the energy-efficiency system.

Late in 2002 then-Gov. Davis, furious at Loretta Lynch for sometimes favoring consumers over his big contributors, the utilities, took the unprecedented step of demoting Lynch from her post as CPUC president and appointed Michael Peevey, a former vice president of Southern California Edison, to replace her. This happened just as the non-utility energy-efficiency programs were finally getting started after nearly a year of lawsuits and dirty tricks by utilities trying to kill them. In early 2003 Peevey reassigned the energy-efficiency rulemaking to another new appointee, Susan Kennedy, who immediately started trying to return control of energy efficiency to utilities.

Fortunately, Richard Esteves of Sesco, a non-utility energy-efficiency provider, analyzed the mid-year 2003 reports and showed that almost all non-utility residential programs were more "cost-effective" - delivering more savings per dollar - than the programs of the investor-owned utilities (IOUs). His "Myth of IOU Cost-Effectiveness", filed Aug. 1, 2003, helped convince the swing vote, Commissioner Geoff Brown, to endorse another round of non-utility programs for 2004 - 05.

This Jan. 27, however, the CPUC voted to pull the plug on independent non-utility programs in the future. This was the result of heavy pressure by the utilities and Commissioner Kennedy, who also managed to delay the crucial vote until after Lynch and Carl Wood's terms had ended, but before Gov. Schwarzenegger's new appointees were seated. Her decision called Sesco's analysis "irrelevant", completely ignored the audit, and justified ending competitive non-utility energy-efficiency programs because of the state's bad experience with competitive companies like Enron manipulating the energy system. The decision paid no attention to the evidence that the utilities are manipulating the energy-efficiency system; instead it accepted the utilities' arguments that they alone could provide "certainty" to meet the state's energy-savings goals.

The CPUC's decision did leave one escape route: "We may revisit the issue of allocating energy-efficiency funds to Community Choice Aggregators." The decision envisioned utilities running those programs also, but admitted, "we may ultimately find that Community Choice Aggregators are appropriately independent agencies that should have considerable deference to use [Public Goods Charge] funds." Women's Energy Matters has filed a legal challenge to the CPUC's decision, with the aim of forcing an accommodation to cities' rights.

Utilities are moving rapidly to lock up funds for three-year energy-efficiency programs for 2006 through 2008. Rules that ensured fair competitive programs and equitable allocation of money to residential and small-business customers are being gutted and rewritten by utilities.

The utilities are wasting public money on expensive advertising that portrays them as caring about lowering our bills and saving the planet, at the same time that they are pretending to deliver far more energy savings than they really are. They are shoveling out ever-higher rebates to keep their big-business friends happy, while shortchanging moderate- and lower-income residential customers. All the while they are pushing forward with a bonanza of projects to increase energy production and transmission facilities. This is shaping up as a tragic failure to provide the drastic cuts in power-plant emissions needed to address climate change.

The one bright hope for energy efficiency in California is Community Choice Aggregation. Women's Energy Matters believes that the key to the CPUC freeing up money for independent energy-efficiency programs under Community Choice is for cities and counties to stand up to the CPUC and demand their money. Cities need to act soon, before the utilities lock up all the funds in three-year programs beginning in 2006. We must encourage our local officials and state legislators to insist that the CPUC follow up on its opening and allocate to aggregators all energy-efficiency funds collected in their territories. This would be approximately $70 million a year in the Bay Area. Independent energy-efficiency programs run by Community Choice Aggregators would provide greater bill reductions, releasing money that can be spent in the local economy. They would also provide more economic development and jobs at all skill levels, as well as cleaner air and water, especially in poor communities where power plants are located.

Barbara George