I. Summary

This decision resolves the subsidy and measurement issues raised in Decision (D.) 05-05-011 and Rulemaking (R.) 06-03-004 for Distributed Generation (DG) facilities. We resolve these issues in the context of recently adopted Senate Bill (SB) 1, Stats. 2006, ch. 132, and our previously established policy to promote development of all renewable DG facilities in California. In taking the approach adopted herein, we also recognize our responsibility to achieve the goals of SB 1 without unduly burdening ratepayers.

SB 1 codified the state's commitment to the creation of a self-sustaining solar market, which we interpret to mean one in which ratepayer incentives are no longer necessary to promote installation of solar DG facilities. In D.06-08-028, the Commission adopted a rebate schedule under which the incentives offered to solar system owners and paid by ratepayers decline when certain capacity targets are met.1 Underlying this approach is the premise that the rebates offered should be calibrated to the realities of the market, such that they are sufficient to motivate installation of solar facilities and should be reduced as the economics of solar become more attractive.

We find that Renewable Energy Credits (RECs)2 are one among several factors that may affect the economics of solar and other renewable DG facilities, and as such may play an important role in driving the deployment of renewable DG in California and achieving the goals of California Renewables Portfolio Standard (RPS).3 In light of this finding, and to facilitate the goals of SB 1, we conclude that renewable DG facility owners should retain 100% of the RECs associated with their facilities. We also recognize that the value of RECs, combined with other market factors, may drive the deployment of solar DG in such a way that SB 1 objectives can be achieved with less ratepayer support than that authorized by the legislature. Thus, consistent with our obligation to protect ratepayers from undue expense, we will revisit the California Solar Initiative (CSI) incentives with an eye toward reducing them in light of the pace of market development. This assessment will be conducted as part of the CSI review process established in Phase 1 of this proceeding. Similarly, we will examine the level of incentives offered under the Self-Generation Incentive Program (SGIP) given the pace of deployment for other types of renewable DG.

Because we allow renewable DG system owners to retain 100% of their RECs, utilities will not be counting the output of renewable DG facilities that have received ratepayer incentives toward their RPS obligations at this time.4 Thus, we see no reason to impose specific metering requirements beyond those already established in previous decisions. If and when the Commission authorizes unbundled RECs to be applied toward the RPS, it may be necessary to revisit the metering requirements to ensure the number of RECs sold is an accurate reflection of renewable DG system output, consistent with the measurement requirements adopted for grid connected renewable facilities and the Western Renewable Energy Generation Information System (WREGIS) tracking system.5

1 The Commission has modified this decision to make specific conforming changes to reconcile the program as developed by the Commission with SB 1.

2 "A REC consists of the renewable and environmental attributes associated with the production of electricity from a renewable resource." D.03-06-071. Findings of Fact (F.O.F.) 2 and SB 107 (Stats. 2006, ch. 464), which codified and expanded the definition of RECs. Pub. Util. Code § 399.12(g)(2).

3 The California RPS was established pursuant to SB 1078, (Sher) which required procurement of at least 1% per year of renewable energy in California with a goal of reaching 20% renewable energy by 2017. It has recently been updated by SB 107 (Stats. 2006, ch. 464) which, among other things, advanced the 20% goal to 2010 (Pub. Util. Code § 399.15(b)(1)) and provided legislative definition of REC (Pub. Util. Code § 399.12(g).

4 Consistent with prior Commission decisions, nothing in this decision precludes the output of renewable DG facilities from being counted towards RPS goals, if and when the Commission authorizes unbundled RECs to be applied toward the RPS.

5 WREGIS is a regional renewable energy tracking and registry system. See http://www.energy.ca.gov/portfolio/wregis/index.html for more information.

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