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PIER 1998 Annual Report Cover

1998 Annual Report
Concerning the
Public Interest Energy Research (PIER) Program

Publication Number: P500-99-004
Date Released: March 1999

The executive summary of this report is available below. This publication can be downloaded in its entirety as an Adobe Acrobat Portable Document Format file. In order to download, navigate and print this PDF file, you will need a copy of the free Acrobat Reader software installed in and configured for your computer. The software can be downloaded from Adobe Systems Incorporated's Web Site.


I. Background Regarding the PIER Program

Before the restructuring of California's electricity industry in 1996, ratepayer-funded energy-related research, development and demonstration (RD&D) projects were primarily conducted by the state's regulated utilities, and energy-related public interest RD&D was a key component of the rate structure mandated by the California Public Utilities Commission (CPUC) for the investor-owned utilities (IOUs). During this period, California led the nation in developing and deploying a wide range of innovative energy technologies and services that were environmentally sound and saved ratepayers billions of dollars through improved generation and/or end- use efficiencies.

In 1996, California significantly restructured the electricity services industry in this state through the enactment of Assembly Bill (AB) 1890. In AB 1890 the Legislature expressly determined that those RD&D activities which serve a broader public interest "should not be lost in the transition to a more competitive environment." To ensure continued funding for energy- related public interest RD&D, the Legislature authorized the collection of a non-bypassable surcharge on the retail sale of electricity of at least $62.5 million annually to provide for these "public goods" efforts.

Recognizing the California Energy Commission's longstanding and widely acknowledged leadership role in energy-related RD&D activities, the Legislature further directed the CPUC to transfer to the Energy Commission specified surcharge funds for this public interest energy research (PIER) program. In accordance with these directives, in 1997 the CPUC determined that from January 1, 1998 through December 31, 2001, at least $61.8 million annually will be transferred to the Energy Commission's PIER Program Trust Account. These funds will be used to support those public interest RD&D activities that would not otherwise be adequately funded by the competitive or regulated markets.

To effectively implement its responsibilities for public interest research, the Energy Commission determined that an RD&D Strategic Plan should be developed for the PIER Program. After conducting a series of statewide collaborative public hearings and workshops to gather input from various stakeholders and interest groups, the Commission adopted its RD&D Strategic Plan in 1997. This provided the framework for one of the nation's leading public interest energy research programs, and other states are now actively looking at the PIER Program as a model for continuing public interest research in a restructured electric services industry.

In October of 1997 Senate Bill 90 (Sher, Chapter 905) was enacted into law. This legislation further defined the PIER Program by identifying the key subject areas for funding and by providing specific administrative and expenditure criteria for the PIER Program.

II. Current Status of the PIER Program

A. Policy and Planning

AB 1890, SB 90 and the Commission's RD&D Strategic Plan set forth the key policies and public benefits which the PIER Program is intended to provide. The mission of the PIER Program is to conduct public interest energy research that seeks to improve the quality of life for California's citizens by providing "environmentally sound, safe, reliable and affordable energy services and products." Funding is restricted by law to those public interest RD&D projects which the Commission determines "are not adequately provided for by competitive or regulated markets." In addition, the Commission is required to develop a "balanced portfolio╔[of RD&D projects that includes] the relevant core subject areas of environmental enhancements, end-use efficiency, environmentally- preferred advanced generation technologies, renewable technologies, and other strategic energy research, including public interest system reliability╔not adequately addressed by the Public Utilities Commission." Thus, the Commission is responsible for ensuring that energy-related public interest research will continue in a deregulated energy environment.

In 1998, the Commission established six talented interdivisional teams led by staff experts for each of the PIER Program areas listed above. (Note: Because of the broad nature of the end-use energy efficiency subject area, the Commission decided to disaggregate this particular PIER Program subject area into two separate subprogram areas of "Buildings" and "Industrial/Agricultural/Water" end-use energy efficiency.) Each team is responsible for planning and implementing the RD&D activities needed to meet specific PIER goals and deliver results in the program areas in question.

B. Projects Funded in 1998

In 1998, the Energy Commission awarded approximately $56 million in PIER funds to 83 outstanding energy research projects and two important energy research programs. Specifically, the Commission successfully completed three competitive solicitations which provided approximately $49 million in PIER funds for 83 projects in five identified subject areas. In addition, in 1998 the Commission entered into two Interagency Agreements and one sole-source contract which provided approximately $7 million for other important energy- related public interest research efforts. All of the projects and programs funded in 1998 address the mission and objectives of the PIER Program as set forth in AB 1890, SB 90, and the Commission's RD&D Strategic Plan.

1. Individual PIER Project Awards

In 1998, three competitive funding solicitations were completed and approximately $49 million in PIER funds were awarded to 83 individual projects. These competitive awards will leverage approximately $71 million in matching funds and other in-kind contributions, and nearly 40 percent of these competitive awards went to small businesses.

Specifically, the Commission awarded approximately $17 million to 39 separate "transition" RD&D projects covering the five PIER subject areas. These projects are expected to preserve the benefits of the most promising ongoing public interest RD&D efforts conducted by investor-owned utilities, under the CPUC's oversight, prior to the onset of electricity restructuring.

The First General Solicitation sought projects in the areas of renewable energy generation, environmentally preferred advanced generation, and energy-related environmental research. Approximately $18.3 million was awarded to the 20 projects that were selected for funding. The Second General Solicitation sought projects in the areas of end-use energy efficiency and strategic energy research. Approximately $13.6 million was awarded to the 24 projects that were selected for funding.

Each of these 83 projects is described in further detail in Appendix A.

2. Energy Innovations Small Grants Program

In 1998, the Commission developed an Energy Innovations Small Grants Program to assist certain innovative "proof of concept" research efforts that might not otherwise be able to obtain PIER funding. The maximum amount of any individual grant will be $75,000, and total funding for this program is limited to $5 million over the next two years. The primary responsibility for administering this program has been assigned through an Interagency Agreement to the California State University Institute, but the Commission retains oversight and final approval for all funding awards.

3. Electric Power Research Institute Program

In 1998, the Commission also approved a one-year trial membership with the Electric Power Research Institute (EPRI) in order to allow the Commission to participate in the nationally funded electricity RD&D efforts which EPRI conducts. The $1.5 million membership fee will help fund seven public interest programs in energy efficiency, distributed generation and system reliability. This PIER- funded membership will leverage $12 million in matching funds from other EPRI members.

C. PIER Program Administration

An important objective in the Commission's RD&D Strategic Plan is to ensure that the PIER Program is administered in an efficient and effective manner. In 1998, the Commission successfully undertook several important steps to ensure that this objective is achieved through internal reorganization and contract streamlining. In addition, the Commission successfully sought ways to streamline its existing contract reporting, invoicing and auditing procedures.

Public Resources Code Section 25620.9(a) directed the Energy Commission (by January 1,1999) to designate a panel of independent experts to conduct a comprehensive evaluation of the PIER Program. The panel is required to submit its preliminary PIER evaluation report to the Governor and the Legislature by March 31, 2000, and a final report (including additional findings and recommen- dations) is due by March 31, 2001. In 1998, following extensive statewide and national contacts, the Energy Commission designated nine respected individuals to serve on the Independent PIER Evaluation Panel. The Commission added three additional members to the panel during the first quarter of 1999. The panel held its first meeting on February 8, 1999.

The Commission has completed and timely-filed with the Legislature all statutorily-required PIER Quarterly Reports and this 1998 PIER Annual Report.

III. Future Program Directions

In 1999, the Commission intends to build on its successful launch of the PIER Program and to maximize the public value of the program by 1) more sharply focusing future PIER funding awards on those areas of public interest energy research that are of the highest priority and greatest benefit to California's citizens; 2) increasing the "purchasing power" of available PIER funds by selectively entering into major co-funded RD&D efforts with the federal government and with other states; 3) improving the PIER project-selection process by adding a new "competitive negotiation" method to current selection methods; 4) carefully and efficiently managing all existing PIER contracts to ensure that ratepayer funds are well spent and that maximum public value is obtained from these contracts; and 5) actively initiating steps to effectively transfer into the market the results of the various PIER- funded RD&D efforts.

IV. Conclusion

1998 was an exciting, challenging and successful commencement year for the PIER Program. The Energy Commission fully expects that this program will continue to provide significant public benefits in the years ahead and will continue to serve as a leading model for public interest energy research throughout the nation and the world.

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