Members of the Senate Energy, Utilities and Communications Committee,
Members of the Senate Budget and Fiscal Review Committee,
Members of the Senate Appropriations Committee,
Members of the Assembly Utilities and Commerce Committee,
Members of the Assembly Budget Committee,
Members of the Assembly Appropriations Committee,
California Legislative Analyst Office,
California State Capitol Building
Sacramento, California 95814

Re: California Energy Commission's Quarterly Report

Concerning The Public Interest Energy Research Program

To All Recipients:

In accordance with Public Resources Code Section 25620.5(h), the California Energy Commission (Commission) hereby transmits its Quarterly Report for the Public Interest Energy Research (PIER) Program, for the period April 1 through June 30, 1998. The attached report provides the required "evaluation of the progress and a status of the [PIER Program's] implementation" for this quarter. It also provides preliminary input for the Commission's more detailed PIER Program Annual Report (required pursuant to PRC Section 25620.8) which, in turn, will provide project-specific information and recommendations for program improvement. The 1998 Annual PIER Report will be submitted during the first quarter of 1999.

As reflected in the attached Quarterly Report, the Commission has made substantial progress in implementing the PIER Program to date. By delivering outstanding results for California's electricity ratepayers, we expect this program to become a national model for preserving public benefits in a deregulated electric industry. Should you have questions or comments concerning this report, please feel free to contact Traci Stevens, Commission Director of Governmental Affairs, at 654-4942.

Respectfully submitted,

_____//signed//_____
DAVID A. ROHY, Ph.D.
Vice Chair and Presiding Member
RD&D Committee

_____//signed//_____
ROBERT A. LAURIE
Commissioner and Associate Member
RD&D Committee

California Energy Commission's
Quarterly Report Concerning The
Public Interest Energy Research Program
(April 1 through June 30, 1998)

California Energy Commission
Attn: Governmental Affairs Office
1516 Ninth Street, MS-30
Sacramento, California 95814
(916) 654-4942

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In accordance with Public Resources Code Section 25620.5(h), this document hereby constitutes the California Energy Commission's (Energy Commission or Commission) Quarterly Report for the Public Interest Energy Research (PIER) Program covering the period from April 1 through June 30, 1998. This report provides the required "evaluation of the progress and a status of the [PIER program's] implementation" for this past quarter. It also provides input for the Commission's more detailed PIER Program Annual Report (required pursuant to PRC Section 25620.8) which, in turn, will provide project-specific information and recommendations for program improvement. The 1998 Annual PIER Report will be submitted during the first quarter of 1999.

Overview of the PIER Program

In accordance with the provisions of SB 90, the primary mission of the PIER Program is to "improve the quality of life of this state's citizens...[by funding] public interest energy research, development and demonstration [RD&D] projects that are not adequately provided for by competitive and regulated energy markets." Funds for this program come from the electricity ratepayers of specified investor-owned utilities and are held in the PIER Program's Trust Fund Account.

For fiscal year (FY) 1997/98 the Legislature authorized the Energy Commission to encumber up to $25.75 million for the PIER Program. The Commission is pleased to report that as of the quarter ending June 30, 1998, all funds authorized for FY 97/98 have been fully encumbered through RD&D awards made pursuant to two separate PIER Program competitive solicitations conducted by this Commission, i.e. the Transition Solicitation and the First General Solicitation.

In addition, during this past quarter the Commission also made significant progress in developing a comprehensive approach for implementing and evaluating the PIER Program in the years ahead, and the Commission received extensive public input regarding the program through numerous public workshops, a full RD&D Committee hearing, and the first meeting of the PIER Policy Advisory Council.

Further details concerning the activities for this past quarter are provided below.

Transition Funding Solicitation

In 1998 the Commission awarded approximately $17 million to 39 separate "transition" RD&D projects covering the five PIER subject areas of renewable generation, environmentally preferred advanced generation, end use energy efficiency, energy-related environmental research, and strategic energy research. These one year funding awards (which will be funded partially with FY 97/98 authorizations and partially with FY 98/99 authorizations) are expected to preserve the benefits of the most promising ongoing public interest RD&D efforts conducted by investor-owned utilities, under California Public Utlities Commission oversight, prior to the onset of electric industry restructuring.

During this past quarter, the Commission approved the final 9 of these 39 projects, and activities have now commenced on all of these RD&D projects. The Commission also initiated its oversight responsibilities for these 39 transition projects to insure that the terms of the contracts are met.

First General Solicitation

In February of 1998, the Commission released its First General Solicitation concerning three of the five PIER Program subject areas in SB 90, namely renewable generation, environmentally referred advanced generation, and energy-related environmental research. On March 30 the Commission received 180 proposals, requesting approximately $150 million in PIER funds, in response to this solicitation.

During this past quarter the Commission, its staff and consultants have carefully evaluated all of the 180 proposals in accordance with the procedures and criteria contained in the solicitation. On June 24, 1998, the full Commission publicly reviewed the results of this evaluation effort and awarded approximately $18.3 million in funding to the 20 most meritorious RD&D proposals submitted in response to the solicitation. It is important to note that the $18.3 million in PIER Program funds will be leveraged with more than $48 million in other cash and in-kind matching funds, thus providing more than $66 million in total funding for public interest energy RD&D through this solicitation. The awards are distributed over the three specified subject areas as follows:

• $6.5 million was awarded to 10 renewable generation projects.

• $6.1 million was awarded to seven environmentally-preferred advanced generation projects.

• $5.7 million was awarded to three energy-related environmental research projects.

The Commission finds that these awards are well balanced across subject areas and technologies, and is pleased to note that 12 of the 20 selected projects will be conducted by small businesses. In the upcoming quarter the Commission expects contracts to be signed with these awardees, and work to commence on the RD&D projects themselves.

Second General Solicitation

During this past quarter the Commission also initiated its Second General Solicitation for public interest RD&D projects covering the other two SB 90 subject areas of end use energy efficiency and strategic energy research. On June 1, 1998, 169 proposals seeking $126 million in PIER Program funds were received by the Commission in response to this Second General Solicitation, i.e. 93 in the end-use energy efficiency area and 76 in the strategic energy research area. All proposals are now being carefully reviewed and evaluated in accordance with the procedures and criteria contained in the solicitation, and awards are tentatively scheduled to be made by the full Commission during the final quarter of 1998.

Other PIER Program Funding Opportunities

During this past quarter the Commission also developed and received public input on an "Energy Innovations Small Grants" effort which will provide modest funding to help recipients better evaluate the concept feasibility of innovative energy research ideas. This PIER Program effort is intended to provide a simplified process for funding such research, thereby encouraging RD&D innovations that might not otherwise be successfully pursued. The maximum grant will be $75,000, and funding for the entire effort will be limited to $2.5 million annually. The Commission hopes to implement this part of the PIER Program during the third quarter of 1998.

During this past quarter substantial time and effort has also been devoted to comprehensively analyzing, identifying and selecting the best opportunities for a major PIER Program "targeting" effort that the Commission hopes to initiate during the fourth quarter of 1998. This targeting effort is expected to provide substantial funds for those energy technologies and/or energy-related RD&D issues that are of particular importance to California, thereby focusing limited PIER Program resources on those RD&D projects and programs that are most likely to provide the greatest benefits to California citizens.

PIER Program Planning Efforts and Public Participation

During this past quarter the Commission has provided various opportunities for the public to provide input concerning the PIER Program, thereby ensuring that limited PIER Program funds are invested in those RD&D projects most likely to improve the quality of life for California citizens. These public input opportunities have all built upon the policy guidance provided in AB 1890 and SB 90, and include:

1. Numerous focus group meetings held with both RD&D providers and electricity users.

2. A full RD&D Committee hearing to receive public input on program planning efforts to date.

3. A productive first meeting of the PIER Program's Policy Advisory Council, which is expected to provide ongoing expert input and independent advice on planning, implementing and evaluating the PIER Program.

The Commission remains fully committed to administering the PIER program in an efficient and effective manner that ensures public input and accountability. To accomplish this goal, the Commission has, among other things, sought extensive public input when developing its streamlined contract terms and conditions for the PIER Program solicitations.

The PIER section on the Energy Commisison's Web Site is one of the most effective means of communicating with stakeholders and the public. Since January 1998, documents pertaining to the First and Second General Solicitations were downloaded more than 19,000 times from the Energy Commission Web Site. The Energy Commission also hopes to have a PIER Program brochure available for use in Legislators' offices by January 1, 1999.

Conclusion

In summary, the California Energy Commission is continuing to successfully develop and implement the PIER Program, in accordance with the directives contained in AB 1890 and SB 90. This completes the Commission's Quarterly Report for the PIER Program for April 1 through June 30, 1998. Should you have questions or comments, please feel free to contact Traci Stevens, Director of Governmental Affairs at 654-4942.