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ESCos, Round Two: Fighting for Market Share

Fortnightly Magazine - September 1 1996

to the PCUC's December 1995 restructuring decision, which broad-brushed a two-track energy-efficiency services market: 1) a private market operating without incentives, and 2) a market boosted by a nonbypassable public goods charge (PGC). The transformation, of course, will come about via the second route.

The amount of the PGC was heavily debated by the Working Group, according to early drafts of the report. One point, however, became clear. "We have great consensus within our group that the charge is appropriate and that it should be collected on a nonbypassable basis," says Richard Sperberg, president of Onsite Energy of Carlsbad, CA, and a member of the Group. "We have very strong arguments that energy efficiency should be funded and there still are market barriers to cost-effective energy efficiency." Although the CPUC will endorse the charge and set the amount, the Group recommends that the surcharge form 1 to 3 percent of utility revenues (em potentially $235 to $705 million annually.

To overcome barriers and increase demand for technologies and services, the report suggests 13 principles, including:

. An independent administrative structure for California and all utility distribution company (UDC) service territories affected by the PGC

. Maximum access to PGC funds for companies that deliver eligible energy-efficiency services

. Separation between the entity administering PGC funds and those competing to receive them

. Guidelines to address market power and self-dealing abuses

. A mechanism to hold UDCs harmless from lost sales.

The PGC administrator would eliminate the inefficient DSM bidding of the past, the report notes. Funds would be disbursed on a standard-contract basis, using single or multiple prices determined by the administrator.

Since all three of California's investor-owned utilities (IOUs) have formed energy-service subsidiaries, the Group expressed concerned over market dominance.

"There are obviously sensitives in terms of potential market abuses, but at the same time the utility affiliates can be effective providers of these services," Sperberg explained. "So what we're trying to do is create a balance."

He says the Group also discussed guidelines to prevent improper interaction between regulated UDCs and unregulated affiliates. "And we're also talking about potential handicaps to allow the market to develop on a more level playing field." For their part, the IOUs have made it known that they want UDCs to play a role in the market-oversight mechanism.

The CPUC will have to act on the report quickly; restructuring kicks in January 1, 1998.

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