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Analysis of the 2005-06 Budget BillLegislative Analyst's Office
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The Energy Resources Conservation and Development Commission (commonly referred to as the California Energy Commission, or CEC) is responsible for forecasting energy supply and demand, developing and implementing energy conservation measures, conducting energy-related research and development programs, and permitting major power plant construction projects.
Proposed Funding. The budget proposes CEC expenditures of $317 million from various state and federal funds in 2005-06. This is $62.7 million, or 17 percent, less than current-year estimated expenditures. The change represents a baseline reduction of almost $68 million based on reduced availability of renewable energy program funds, as well as an increase of $15 million for a new natural gas research program and $10 million in additional public interest energy research program expenditures.
The budget proposes adding seven new positions and augmenting project funding on a one-time basis ($10 million) in the Public Interest Energy Research (PIER) program. While we recommend approval of these changes, we also recommend the enactment of legislation requiring the commission to devise a long-term staffing plan for the PIER program, reflecting an evaluation of the appropriate mix of contract consultants and state employees.
Budget Proposal for PIER Program. The PIER program provides grant funds to public and private entities for research, development, and demonstration of electricity-related technologies. The budget proposes to add seven permanent positions (and $629,000) to manage CEC's PIER program. These new positions will enhance CEC's management of new and existing PIER research projects. The proposal follows recommendations made by a legislatively mandated independent review panel, which among other things recommended that CEC improve its research and development efforts by increasing project management positions.
The budget also proposes a one-time augmentation of $10 million to fund additional energy efficiency research and development projects in 2005-06, using funds from the repayment of a special fund loan made to the General Fund in a previous year. The total proposed budget for the PIER program in 2005-06 is $80.1 million, funded from the Public Interest Research, Development, and Demonstration Fund.
History of the PIER Program. In 1996, the Legislature authorized CEC to establish the PIER program in order to fund research, development, and demonstration projects (Chapter 854, Statutes of 1996 [AB 1890, Brulte]). The PIER program receives $62.5 million per year, through the Public Interest Research, Development, and Demonstration Fund to fund new projects. This fund is supported through a surcharge on electricity consumption. Because many of the projects funded through PIER take more than one year to complete, the number of projects managed annually by PIER staff has increased, from 344 projects in 2000-01 to an estimated 627 projects in 2004-05. The CEC projects that PIER staff will manage 719 projects in 2005-06. The PIER staff have increased from 47.4 budgeted positions in 2000-01 to 52.1 budgeted positions in 2004-05. The budget proposes an additional seven positions for a total of 59.1 positions for the PIER program in 2005-06.
Chapter 515, Statutes of 2002 (SB 1038, Sher), directed CEC to establish an independent panel to evaluate the PIER program. The resulting panel produced a draft report in March 2004, with the final report anticipated in June 2005. The draft report identified a lack of research expertise in CEC staff as the most pressing issue facing the PIER program. According to the report, this problem resulted from the elimination of vacant positions, staff reductions, and layoffs of contract employees. The draft report recommends that CEC supplement state employees with contract staff, as a near-term solution to the problem.
In addition to its state staff, CEC uses technical consultants on contract to augment its internal project management expertise. Based on projected program requirements, the Executive Director of CEC has authorized the use of up to $2 million in 2004-05 program funds to hire 12 to 14 technical consultants on contract to expedite PIER project selection and management. Even with the additional seven staff proposed for the PIER program in the budget year, CEC estimates that additional technical consultants on contract will be required in 2005-06 and future years.
Recommend Development of a Long-Term Staffing Plan. While we think that the proposed increase in the staffing for the PIER program and the one-time augmentation in funding are justified, the independent review panel has found that there remain requirements for additional technical and management staff to adequately select and manage the large and growing project caseload. Since the PIER program is authorized to operate through 2011, we think it is important for CEC to develop a plan to ensure that these staffing requirements are addressed over the long term. The plan should specifically address the appropriate mix of state employees and contract consultants that will allow CEC to manage the PIER program with the requisite expertise at the least cost.
We note that in some cases, it may be more efficient to use short-term, contract consultants to perform technical or specialized tasks, rather than hiring state staff. This is often the case in situations where a program or project has a limited lifespan, or consultants have skills that are not well covered by civil service classifications. On the other hand, contract consultants can cost more than state employees performing equivalent functions. Therefore, in developing its staffing plan, the commission should consider opportunities to create savings by shifting from contract consultants to state employees or vice versa, provided the requisite level of expertise is maintained.
Therefore, we recommend the enactment legislation requiring CEC to develop a long-term staffing plan for the PIER program. This plan should (1) identify staffing requirements to adequately manage the projected caseload through 2011 and (2) evaluate and recommend the appropriate mix of contract consultants and state employees, considering required technical expertise and overall costs.
It is important to remember that the Legislature has authorized a particular funding level ($62.5 million annually) and dedicated a funding source for the PIER program through 2011. Accordingly, we think it important that the project workload in the program be managed adequately and efficiently, and that potential savings in how the workload is managed be identified. Any cost savings from shifting from contract consultants to state staff can be reinvested in funding additional projects, which would further the Legislature's goals for this program.