7. The Adopted Solar Energy Project
As stated earlier, we believe the proposal to support smaller scale wholesale distributed solar generation, at its core, does have merit and is in the interest of ratepayers. Therefore, we modify the proposed Solar Energy Project and incorporate additional safeguards that limit ratepayer exposure to encourage the development of small-scale PV facilities while ensuring that ratepayers are protected against unreasonable or uncontrollable costs. Below, we discuss the various components of the adopted Solar Energy Project.
7.1. Program Structure: Utility Ownership and Private Investment through Competitive Procurement
A major criticism of the proposed Solar Energy Project is that it does not provide for competitive solicitation of projects. DRA provides a comparison of solicited projects under the RPS program with SDG&E's proposed project and contends that SDG&E's proposal is not cost effective when compared to such alternatives. UCAN also questions utility ownership of projects and asserts that SDG&E should demonstrate that utility ownership is a better choice for customers than ownership, operation and maintenance by hosts or third-party investors.21 WPTF concurs with UCAN and further contends "competition results in greater options, lower prices and more innovative services."22
Therefore, WPTF recommends that the Commission mandate a competitive RFO and compare the results to SDG&E's proposal.
The Commission has articulated its interest in supporting utility-owned clean and renewable distributed generation and has repeatedly encouraged utilities to consider development of renewable generation to meet RPS goals.23 The Commission has also established a general policy that favors market competition for the procurement of energy resources.
We note that the primary goal of the Solar Energy Project is to promote the installation of new small-scale PV facilities to help the state achieve its RPS and GHG emission reduction goals. Whether those facilities are owned by the utility or another party is irrelevant to achieving this goal. Consistent with this principle, and given the Commission's preference for programs that rely on competitive options, and parties' recommendations to embrace market competition, we modify the Solar Energy Project to include both a UOG and a competitive, non-UOG component. We direct SDG&E to solicit PPAs with third party solar developers. The use of a competitive bidding process to procure renewable energy from third party solar developers will enable SDG&E to take advantage of least-cost procurement options to the benefit of ratepayers. Further, allowing independent developers to participate in the Solar Energy Project will encourage additional sources of investment in PV facilities, which could play an important role in supporting the development of solar PV in general. We clarify that turn-key projects are a variety of UOG and will be counted as part of the UOG portion of the Solar Energy Project.
Consistent with PG&E's and SCE's programs, to assure that a potential project location has a high probability of achieving a successful interconnection to the SDG&E system, we require SDG&E to provide information to potential bidders in the solicitation indicating preferred locations to interconnect. This information could assist project developers to secure suitable locations to minimize the risk of facing unforeseen interconnection costs. In providing this information, SDG&E should identify preferred locations on the grid where the deployment of DG could help address anticipated peak load growth or help congestion in addition to the available capacity at these preferred locations to the extent feasible.
UCAN favors phasing in projects based on property ownership starting with UOG turnkey projects. UCAN proposes a $50 million cap on UOG projects and believes this will allow SDG&E to gain experience and information about PV project costs and technology before any PPA is executed.
Although in rebuttal SDG&E agrees with the approach to initially focus on utility-owned projects, it contends a cap is unnecessary since each project will be submitted to the Commission for approval on an individual basis.
We decline to adopt UCAN's proposal. We want to encourage investments and create viable opportunities for independent power producers to pursue PV development. UCAN's proposal would essentially delay development of PV facilities by third party developers. Precluding PPAs from participating in the Solar Energy Project until the UOG component has been completed would only discourage third party development of PV facilities. Furthermore, implementing a multi-phase program may be complex and administratively difficult. We prefer a program that is simple and easy to implement. Accordingly, similar to the adopted programs for SCE and PG&E, SDG&E should solicit bids for PPAs at the same time it pursues UOG development.
We also do not adopt UCAN's proposal to examine PV projects utilizing storage systems as a source of emergency power or on-grid peaking power to mitigate fire risks outages. These types of innovative applications would be more appropriately addressed in a separate application. The principal purpose of this program is to facilitate the expeditious deployment of solar resources to help meet the state's renewable obligation. These other goals are tangential to the core intent of this program. In the followings sections we describe the individual elements of the UOG and PPA portions of the Solar Energy Project. We direct SDG&E to submit, within 60 days of the effective date of this decision, a Tier 2 advice letter specifying the implementation and administration details of the UOG portion of the Solar Energy Project as set forth in Appendix A, and as described in more details in Section 7.10.
We also direct SDG&E to submit, within 60 days of the effective date of this decision, a Tier 3 advice letter specifying the implementation and administration details of the PPA portion of the Solar Energy Project as set forth in Appendix A, and as described in Section 7.10.
7.2. Program Capacity
SDG&E proposes to develop 52 MW of PV projects under the proposed Solar Energy Project. One of DRA's recommendations, if we were to adopt the proposed Solar Energy Project, is to reduce the scale of the program by implementing a 1-2 year pilot program and imposing a cost cap of $25 million. UCAN also advocates a smaller program focusing initially only on projects on utility-owned property and imposing a cost cap of $50 million.
As discussed above, we have modified the proposed Solar Energy Project to include UOG and private investments through PPAs. In the PD, we required the entire program capacity be capped at 52 MW with each of the UOG and the PPA portion of the program limited to 26 MW. In comments on the PD, SDG&E, UCAN and The Solar Alliance recommend we increase the program size. SDG&E requests that the PPA portion be increased to 90 MW to make the Solar Energy Program proportional to PG&E's and SCE's programs relative to load. UCAN also recommends we increase the PPA portion to 74 MW, so that in terms of revenues and customer numbers, the Solar Energy Program is proportional to PG&E's and SCE's solar programs. The Solar Alliance argues that the program size should be increased to 300 MW (150 MW of UOG and 150 MW of PPAs) in order to achieve the average cost target of $3.50/watt. If the program size is not increased, the Solar Alliance recommends the PPA part of the program be shortened to three years. DRA recommends against increasing the size of the program. DRA argues that several other viable options such as the RPS solicitation, the Feed-in Tariff programs, utility standards contracts and the CSI for commercial installations are available for solar projects that cannot participate in the Solar Energy Program.
While we agree that the Commission is considering expanding the opportunities for contracting options for similar projects in the future, we are generally convinced that the program size should be increased to provide equity between the three utilities' solar programs and make it proportional to PG&E's and SCE's solar programs. SDG&E and UCAN propose two different methodologies to achieve this, but neither provides a reasonable explanation for their proposal. Nonetheless, the two methodologies result in very little difference. We adopt UCAN's methodology for this purpose as it results in a total program size that is approximately proportionate to SCE's based on the utilities' retail sale, and consistent with the method to calculate utilities' RPS requirement. Accordingly, the PPA portion of the Solar Energy Program is increased to 74 MW.
7.3. Individual Project Size
The proposed Solar Energy Project proposes to develop projects between 1-2 MW. CARE argues the 1-2 MW tracking projects are expensive. CARE recommends SDG&E focuses on larger wholesale PV projects, comparable to the 10 MW First Solar project for Sempra Energy in Nevada.24 Although SDG&E states that it intends to evaluate opportunities for larger scale PV projects, it argues that its proposal is designed for projects of 1-2 MW to complement the existing CSI and large-sized RPS projects.25
We believe that the scope of the Solar Energy Project should not include PV projects that can effectively participate in the RPS solicitation. While as a technical matter, projects larger than 2 MW can participate in RPS solicitation, as a practical matter, the boundary for projects that can effectively compete in RPS may be beyond 2 MW. We hope and expect the program will result in multiple installations rather than a few larger projects. The program may be subject to substantial risk if a small number of large projects subscribe to most of the program MW capacity, but fail to materialize. However, we are persuaded by comments on the PD that we should allow some flexibility in project size so that we do not unnecessarily restrict opportunities or economies of scale. In D.09-06-049, we allowed some flexibility in project size and required SCE to procure primarily 1-2 MW projects, but also allowed SCE to pursue installations larger than 2 MW.26 A similar provision is warranted here. We also concur with SDG&E that the upper bound of individual project size should be a function of the ability of existing distribution system to absorb new capacity without requiring significant upgrades. However, for reasons stated below we decline to adopt SDG&E's proposal of 10 MW as the upper limit for project size. Instead, we adopt 5 MW as the upper limit for projects under the Solar Energy Project. First, the record does not support a limit higher than 5 MW. SDG&E's testimony indicates 5 MW as the upper limit for interconnection to the distribution system without notable upgrades.27 Second, given the capacity of the Solar Energy Project, a 5 MW limit offers greater economies of scale while allowing opportunities for development of multiple smaller projects. Therefore, we authorize SDG&E to procure projects primarily in the 1-2 MW, but projects of up to 5 MW are also allowed as long as those projects do not require major distribution modifications or upgrades.
SDG&E further states that it foresees building UOG projects of less than 1 MW on its land and requests that we allow such projects to participate in Solar Energy Project similar to what we adopted for PG&E in D.10-04-052.28 In D.10-04-052, we allowed the construction of projects of less than 1 MW but such projects should constitute less than 5% of the total capacity of PG&E's solar PV UOG program. Because SDG&E is not eligible for CSI subsidies, smaller than 1 MW UOG projects constructed under the Solar Energy Project will not conflict with the CSI. Therefore, it is reasonable to allow SDG&E to construct projects smaller than 1 MW.
7.4. Project Technology
SDG&E proposes to use single-axis tracking technology for projects that will be located in open areas and parking lots, such as shopping malls.29 Parties generally are opposed to limiting the Solar Energy Project to tracking technology because of its cost. UCAN contends that "tracking PV is a fully commercial and expensive form of PV technology" and building a limited number of 1-2 MW tracking PV facilities will not advance PV technology.30 In addition to the higher cost, UCAN argues that tracking PV requires more complex strategy and spacing than fixed thin film systems. UCAN recommends allowing thin film fixed PV as well as tracking systems to ensure the most cost effective alternatives.31
The difference in technology between fixed and tracking systems is that in fixed installations, panels have a constant orientation and do not track the sun, while tracking installations follow the path of the sun and can be either single or dual axis. Furthermore, as parties have noted, non-tracking systems may be less costly. We agree with UCAN that tracking systems may not be appropriate for all projects, especially given the costs. Each project should be evaluated for the specific site and matched with the appropriate technology for optimum benefits. Thus, depending on the project location and the surroundings, non-tracking technology may be a preferable option.
It would make no sense to confine projects to tracking systems only, where other options may provide more benefits per unit of cost.32 As UCAN notes, competitive solicitations may reveal which technology is more cost-effective, but there is no basis for favoring one technology or mounting configuration, or excluding qualified and viable technologies from participating in the Solar Energy Project as long as a specific project meets the requirement of the competitive procurement process, including commercial viability. Furthermore, allowing all viable PV technologies to compete will increase the number of competitors and bids, and maximize program participation. We therefore allow all commercially viable PV technologies to participate in the Solar Energy Project.
7.5. Program Cost
SDG&E seeks Commission authorization to spend up to $250 million to build, own, maintain, and operate up to 52 MW of utility-owned solar PV facilities of approximately 1-2 MW. SDG&E states that it is not asking for immediate funding of $250 million for Solar Energy Project. Rather, the $250 million represents a cap on costs for the Solar Energy Project.33 SDG&E states that it will seek Commission approval for each solar PV project through a Tier 3 advice letter.
The $250 million estimate includes capital cost for developing all 52 MW solar PV facilities at $ 7,000/kW, although SDG&E estimates the installed capital cost of projects will be in the range of $4,000/kW to $7,000/kW.34 The $250 million estimate also includes incremental labor and non-labor costs, but not lease payments, operations and maintenance (O&M) costs, and post installation costs such as inverter replacement costs. SDG&E estimates system O&M to be about $25/kW-year and program administration and preliminary development cost to be about $8.5 million for the duration of the program.
Parties generally argue that the proposed Solar Energy Project is too expensive. UCAN and CARE specifically express concerns over the staffing, program development and administration costs.
CARE argues that SDG&E's administrative cost could be reduced if SDG&E employs outside services instead of full time employees to perform tasks, such as cleaning PV panels that are needed occasionally.
UCAN questions the salaries for the seven full-time employees (FTEs) and the reasonableness of SDG&E's assumption that all seven positions receive the same compensation. In addition, UCAN points out that it is not clear how staffing level is reduced from seven to two at the end of the program. In UCAN's view, the lack of specificity in the estimated salaries for the seven FTEs represents unrealistic assumptions on program administration costs.35
We are persuaded by the above arguments that the estimated staffing and administrative costs of the proposed Solar Energy Project have not been fully analyzed by SDG&E and lack sufficient detail to determine if they are reasonable. First, we agree it is not realistic to assume the same salaries for all positions, including administrative support, technical support and project management. Further, we agree with UCAN that SDG&E has not sufficiently justified the need for the number of requested positions. SDG&E claims that the requested number of employees is "reflective" of the effort needed to implement and manage the Solar Energy Project, and in response to the criticism to its staffing plan, it states that "at its next GRC, it commits to review the staffing needs and modify as needed..."36 It is not clear whether the current staffing level is insufficient to fulfill the anticipated responsibilities.37 Accordingly, we reject SDG&E's request for seven FTEs, but allow for one position (5 FTE-yrs) to staff program development and management of the new program. In comments on the PD, SDG&E recommends we increase the program funding to allow for activities related to permitting and engineering interconnection, and the UOG and PPA procurement. SDG&E recommends 16 FTE-yrs and $725,000 for consultant expenses for the UOG and PPA procurement function and 4 FTE-yrs and $3 million for permitting and interconnection engineering functions. SDG&E states that the consultant would serve as a technical advisor, and review and validate the solicitation process and the bids. These functions appear to be the same as those proposed in the SA for a Solar Evaluation Engineer. However, during hearings SDG&E clarified that a Solar Evaluation Engineer would not be needed if the IE has the appropriate qualifications and thus able to perform the same functions.38 In Section 7.7 we authorize the use of an IE with specific knowledge and skills in PV technology to oversee bid design and evaluation. Therefore, it would be duplicative and unreasonable to authorize a consultant to perform the same functions. We deny SDG&E's funding request for a consultant.
We also reject SDG&E's request for $3 million of upfront funding to secure necessary permits and initiate interconnection engineering for its existing PV eligible properties prior to bid solicitation. Costs associated with securing permits for UOG projects should not be funded separately because such costs are part of the capital cost of the entire program. To the extent the program cost, which is calculated by dividing the capital cost of the entire program over the installed capacity, is below the adopted cost cap, then all capital costs, including permitting and environmental review costs are recoverable under the program. Likewise, permitting costs for PPAs is reflected in the PPA bid cost cap and must be assumed by the developers for individual projects. Ratepayers should not have to assume these costs.
We agree with DRA that given SDG&E currently receives and evaluates bids as part of the RPS solicitation, SDG&E's requested level of staffing to solicit bids for Solar Energy Project is excessive. Furthermore, some of the functions referred by SDG&E to be part of the UOG and PPA procurement were originally identified by SDG&E as part of SDG&E's existing operations. Nonetheless, it is reasonable to assume that implementation of the Solar Energy Project would require additional staffing for engineering and interconnection-related activities. We revise the PD to allow for two additional FTEs for these functions. We also clarify that the adopted O&M covers 2 FTE (10 FTE-yrs).39 These new FTEs will enable SDG&E to implement the Solar Energy Project and support other renewable development and procurement activities.
With respect to the capital cost, we adopt a different estimate than proposed by SDG&E. The original estimates were based on using tracking technology. As noted by parties, tracking technology and non-tracking technology can have significantly different costs. Because the adopted program allows for technologies other than tracking systems to participate, we believe the original estimates no longer represent a meaningful cap for the types of projects under the adopted Solar Energy Project. However, the Solar Energy Project, and the adopted PV programs for SCE and PG&E serve similar policy objectives using the same core technology. Given this, we find it reasonable to assume the costs for the Solar Energy Project not to be significantly different from estimates used in the context of SCE's and PG&E's PV programs. It is also reasonable to assume that the cost for the Solar Energy Project would be closer to SCE's PV program, because SCE's program targets the same size PV projects. Therefore, as adopted in D.09-06-049, we adopt $3.50/W as the cost cap for the UOG portion of the adopted Solar Energy Project with a 10% contingency.
For the PPA portion of the Solar Energy Project, consistent with D.09-06-049 and in order to ensure price protection for ratepayers, we apply the levelized cost of energy (LCOE) derived from UOG projects calculated at $235/MWh as the cap for the PPA solicitation.40 In comments on the PD, SDG&E recommends a different cost cap. SDG&E claims the cost cap adopted for PG&E's solar program ($3.92/watt) is more appropriate as a starting point for Solar Energy Project, because both programs target ground-mounted projects. SDG&E further asserts that the PD's proposed price cap is too low for tracking technologies and is concerned that tracking projects will not be able to compete in the solicitation of the UOG projects at that cost cap. Therefore, SDG&E proposes the cost cap for fixed tilt systems be increased by 25% to reflect the incremental energy of tracking systems. Additionally, SDG&E seeks a $0.31/watt adder to account for the incremental capacity value of tracking systems. Thus, SDG&E requests for a total UOG cost cap of $5.21/watt for tracking systems. Similarly, SDG&E recommends we adopt a cost cap of $262/MWh and $5.21/MWh for tracking and non-tracking PPAs.
DRA also recommends a different cost cap. DRA proposes we base the UOG cost cap on the weighted average cost of SCE's and PG&E's completed UOG solar PV projects, because they represent a more accurate estimate of the cost of 1-2 MW UOG solar PV facility.41 Similarly, DRA recommends the PPA cost cap be based on the LCOE of the operating UOG projects.
Although DRA's proposal represents a reasonable approach for estimating the cost of future facilities, we believe information from only three existing projects does not provide adequate data for developing an accurate estimate for a range of potential projects.
We are also not convinced by SDG&E's argument that different cost caps should be adopted for fixed and tracking systems. First, SDG&E's claim that the cost cap should be adjusted to reflect system capacity value for tracking systems is flawed. While there may be capacity benefits from tracking systems, projects eligible under this program ( 1-5 MW) generally do not count towards a utility's resource adequacy requirement according to the California Independent System Operator's (CAISO) small generator interconnection procedures.42 Therefore, ratepayers do not receive any quantifiable benefits purported by SDG&E. Second, the adopted cost cap is an average value that assumes declining costs over the five-year program, which allows SDG&E the flexibility to consider projects that may be above the cap in the initial program years. Finally, SDG&E's witness stated that single access tracking technology is not necessarily more expensive than fixed systems; rather, the cost is site specific.43 For the reasons explained above, we believe the cost cap proposed in the PD affords SDG&E reasonable flexibility to consider projects of different size and technology and should not be adjusted.
With respect to O&M costs, we adopt SDG&E's estimate of $25/kW-yr as a cap for individual projects. This estimate is for a 1 MW, single axis PV facility44 and is a reasonable estimate for the projects under the UOG portion of the Solar Energy Project. SDG&E is authorized to recover actual O&M costs for projects under the Solar Energy Project up to the adopted $25/kW-yr. As noted later in the decision, the O&M costs will be reviewed in SDG&E's GRC. SDG&E has proposed a 3% escalation factor for the O&M cost cap. While we agree that the O&M cost cap should be adjusted to account for inflation, there is no justification in the record for the proposed escalation factor. We prefer to adopt the index for all urban consumers in the west, specifically the consumer price index (CPI) published by the U.S. Bureau of Labor Statistics with the series ID CUUR0400SA0 for this purpose.45
7.6. Performance and Reporting Requirement
The performance of SDG&E's facilities is an important consideration in our review of the O&M costs. We believe SDG&E is already well-motivated to maximize system performance because of the contribution UOG facilities are expected to make to SDG&E's RPS goals. Under the RPS, compliance is assessed on the basis of energy deliveries. Thus, the value of these facilities in helping SDG&E meet its RPS goal is directly related to these facilities' output. We will, however, consider additional performance review to ensure these facilities perform as expected. SDG&E shall provide the expected output for each facility in the advice letter it files. This data should be verified by the independent evaluator as discussed in Section 7.7. Should SDG&E's facilities on average produce less than 80% of their expected generation on an annual basis, a reasonableness review will be considered to determine the level of disallowance or refund to ratepayers that may be justified. To enable a thorough evaluation of these costs, we require SDG&E in each advice letter filed seeking approval of a UOG project to provide the expected generation for each project, and in its GRC filing to separately identify the capital and O&M costs associated with this program. SDG&E should provide sufficiently granular information for parties to understand the nature of the O&M expenses incurred by activity area (e.g., costs associated with panel cleaning, maintenance, vegetation management, security costs, etc.).
SDG&E shall also file annual compliance reports with the Energy Division to report on the progress of the UOG and the PPA portions of the Solar Energy Project. The first compliance report is due twelve months after the start date of the Solar Energy Project. SDG&E shall consult with Energy Division to develop the format and content of the report. The annual report prepared by SDG&E shall include, at a minimum, the following information:
Reporting on the PPA portion of the Solar Energy Project
· Documentation of all solicitations issued for PPA projects;
· A description of all bids received from the PPA solicitations, including the name of bidder, location of project, bid price, and description of proposed facility (generating capacity, type of technology, annual average expected generation, interconnection point), and identification of winning bids;
· The total electrical output for all systems under PPAs that are currently selling electricity to SDG&E, for each month of the previous year; and
· A description of the project specific distribution and network upgrades, including their costs needed to facilitate the PPA portion of Solar Energy Project.
Reporting on the UOG portion of the PV Program
· Documentation of all solicitations issued for UOG projects, including the criteria SDG&E established to evaluate bids; a description of the short list of bids, including name of the bidder and final price in the agreement, a description of offer/facility (generating capacity, type of technology, annual average expected generation, interconnection point), and identification of winning bids;
· A description of all UOG facilities for which work has been initiated or completed in the previous year, including: capital costs, and operations and maintenance expenses, generating capacity, type of technology, annual average expected generation, description of the site (existing SDG&E-owned land or newly acquired/leased, land/lease cost, proximity to substation), and progress toward completion;
· Quantification of the UOG capacity that came online in each program year;
· A calculation of the LCOE for each UOG facility that is completed and interconnected to the grid. This calculation shall include work papers showing actual amounts for all cost and electrical output entries used to calculate the LCOE;
· Electrical output by month for the previous year for each SDG&E-owned UOG facility that is completed and interconnected to the grid; and
· A description of the project specific distribution and network upgrades and distribution and network upgrades generally needed to facilitate the PV PPA Program; the known or projected costs of those upgrades, associated with interconnecting each UOG facility, including all distribution and network upgrades; a listing of the UOG projects identified as triggering the need for network upgrades; and identification of the UOG projects implemented notwithstanding the need for network upgrades, and the cost of those network upgrades.
7.7. Use of an Independent Evaluator
Although SDG&E's proposed Solar Energy Project does not include hiring an independent evaluator (IE), in order to ensure that the competitive solicitations are administered properly, and to verify the expected performance data of the individual projects, SDG&E shall use an IE consistent with and pursuant to the requirements established in D.07-12-052, as modified by D.08-11-008.
D.07-12-052 ordered the IOUs to develop a pool of at least three IEs to use for all long-term solicitations that involve affiliate transactions or utility-owned or utility-turnkey bids, and for all competitive RFOs. D.08-11-008 modified the circumstances under which an IOU must retain the services of an IE.
Consistent with the directives of D.07-12-0452, the Commission in D.10-04-052 required an IE to oversee the UOG solicitations and RFO process for PG&E's solar PV program and provide a report on the result of PG&E's solicitation. We believe this requirement is sufficient to ensure a fair and transparent of solicitation process for both the UOG and the PPA portions of the Solar Energy Project program and direct SDG&E to hire an IE for the adopted Solar Energy Project. IE expenses shall be recorded in SDG&E's Independent Evaluator Memorandum Account (IEMA) consistent with the treatment of IE expenses related to other renewable procurement activities. SDG&E shall provide the IE's reports regarding project solicitations in its annual program compliance report to the Commission.
In addition, we require SDG&E to submit the expected performance data for each UOG project to the IE for verification and include the IE's evaluation of the data in the advice letter for each UOG project.
7.8. Projects with CSI Addition
SDG&E asserts that the proposed Solar Energy Project will create opportunities for customers to co-construct up to 26 MW of CSI eligible solar facilities. DRA takes this idea one step further and recommends limiting the Solar Energy Project only to projects that provide two-thirds UOG and one-third CSI.
Although SDG&E believes that DRA's approach may not be the most cost efficient way of delivering projects, it proposes to give projects that offer a CSI addition preferential consideration.46
While aspects of DRA's proposal are appealing, requiring all UOG projects to be combined with a CSI project could unnecessarily limit the program. Such a requirement may exclude projects that do not have on-site load but otherwise could participate in the Solar Energy Project. Additionally, to the extent co-locating with CSI projects offers any economic advantage, that should be reflected in the bid prices submitted for turn-key UOG projects or PPAs.
7.9. Project Operational Deadline
In order to avoid unnecessary delay of project development, a deadline for the time between when an executed contract receives Commission approval and the date the project becomes operational should be required, or else the success of the program may be jeopardized. Accordingly, we require that all PPA projects achieve commercial operation within 18 months of Commission approval. MW capacity associated with any PPA projects that do not achieve commercial operation within the required 18 months shall be added to the next PPA solicitation. This approach is consistent with PG&E's PV program and will ensure timely deployment of all projects developed under the Solar Energy Project.47
7.10. Approval Process for Individual Projects and Cost Recovery
SDG&E states that it will bring each solar PV project for Commission approval through a Tier 3 advice letter. Each advice letter, among other things, will seek authorization for project cost, site, technology, and revenue requirement. DRA supports the advice letter process and recommends SDG&E submit individual projects or small groups of projects for Commission approval through a Tier 3 advice letter before committing ratepayer funds.48
SDG&E proposes to recover the revenue requirement associated with the administration and preliminary development expenses, as well as revenue requirement for approved Solar Energy Project facilities through rates in its Non-fuel Generation Balancing Account (NGBA). In addition, SDG&E proposes to establish a new balancing account, the Solar Energy Project Balancing Account (SEPBA), to record the difference between the authorized Solar Energy Project revenue requirement and the actual O&M and capital related expenses for solar PV facilities. Finally, upon Commission approval of a specific solar PV facility, SDG&E proposes that all capital costs associated with that facility and O&M expenses will be recorded in SEPBA.
Although the individual advice letter filings will provide an opportunity for the Commission to evaluate each project or set of projects based on the specific information for that project, we agree with UCAN that such a process could create a potential for contested filings and burden Commission's limited resources. 49 Instead, we prefer to have pre-established and measurable criteria to facilitate and simplify the review process of UOG projects. Accordingly, we direct SDG&E to submit a Tier 2 advice letter within 60 days of the effective date of this decision proposing criteria for the solicitation and selection of UOG projects including:
_ Solicitation process and protocols, eligibility, and timeline for projects bidding into the UOG solicitations;
_ Criteria for evaluating conforming bids in the UOG solicitations; and
_ Process for identifying preferred locations of UOG project development to optimize the locational value of project sites.
_ Methodologies for calculating the expected generation output of individual utility-owned facilities.
Once the advice letter is approved, SDG&E shall use the adopted criteria and guidelines to solicit and select individual UOG projects. Upon selection of a UOG project, SDG&E shall submit a Tier 2 advice letter to obtain Commission approval of the executed contracts for selected projects and the corresponding revenue requirement recorded in appropriate accounts as adopted in this decision. This advice letter shall include information regarding the expected generation for each project and the independent evaluator's verification of that information. We note that in pursuing the individual solar projects authorized in this decision, SDG&E must adhere to all relevant permitting requirements including any review required under the California Environmental Quality Act.
Additionally, within 60 days of the effective date of this decision, SDG&E shall file a Tier 3 advice letter specifying the Solar Energy Project implementation and administration details needed to implement the PPA portion of the program as set forth in Appendix A, including:
_ 20-year standard power purchase agreement contract;
_ Competitive solicitation process and protocols, eligibility, and timeline for the power purchase solicitations;
_ Criteria for evaluating conforming bids;
_ Process for identifying preferred locations for project development to optimize the locational value of project sites as well as the provision of information regarding the available capacity at these preferred locations;
_ Generation system interconnection application process and protocols; and
_ Confidentiality protocols to ensure that information given by developers to SDG&E through the interconnection or bidding process is not shared with SDG&E's staff working on the UOG portion of the Solar Energy Project.
7.11. Treatment of Debt Equivalence for PPAs
UCAN suggests that SDG&E's interpretation of the application of debt equivalence may have resulted in SDG&E ignoring PPAs as an alternative to UOG.50 In UCAN's view, "If bids for customer-owned or municipal-owned sites are exclusively PPAs, debt equivalence adders can be recognized in the bid evaluation process."51 Thus, UCAN recommends considering debt equivalence if PPAs are considered as part of the Solar Energy Project.
The SA also raised the issue of debt equivalence and Financial Accounting Standards Board Interpretation Number FIN 46(R), as discussed above. The SA requests to allow "recovery of additional incremental revenues necessary to cover equity re-balancing of the capital structure associated with the recognition of debt-equivalence or consolidation requirement per Financial Accounting Standards Board Interpretation Number FIN 46(R) resulting from delivery under PPAs."52
Although we are not adopting the SA, we wish to address both issues here.
In some cases, the Commission has allowed consideration of debt equivalence adder in solicitations. Specifically, Ordering Paragraph 1 of D.08-11-008 authorizes IOUs to recognize the effects of debt equivalence when comparing PPAs against PPAs in their bid evaluation. However, as stated in D.08-11-008, the Commission considers the potential impacts of debt equivalence associated with the PPAs on IOUs' credit ratings in the IOUs' cost of capital proceeding. Thus, there is an established process for treatment of debt equivalence. While SDG&E is authorized to recognize the effect of debt equivalence in its bid evaluation process per D.07-12-052, as modified by D.08-11-008, allowing recovery of debt equivalence as part of the PPA solicitation process would be inappropriate and inconsistent with Commission policy with respect to treatment of debt equivalence. Further, as SDG&E's witness testified, no RPS project has ever received such a treatment.53
The FIN 46 (R) approach also conflicts with existing precedent and contradicts the Commission's treatment of similar requests. D.06-09-021 involved an option for SDG&E to purchase a facility with the requirement for consolidation of the financial statement of that facility with SDG&E's. Under that circumstance, D.06-09-021 allowed consideration of FIN 46 (R). No such transaction is envisioned here for projects under the adopted Solar Energy Project to justify similar treatment.
21 Exhibit 501 at 8.
22 Exhibit 600 at 5.
23 See D.07-02-011 at 25 and D.08-02-088 at 32.
24 Exhibit 300 at 10-11.
25 Exhibit 10-a at 5.
26 D.09-06-049 at 32.
27 Exhibit 11 at 2.
28 SDG&E's comments on the PD at 8.
29 Although in rebuttal, SDG&E clarifies that it will not preclude other tracking and non-tracking technologies from participating in the Solar Energy Project, single axis technology appears to be the main technology for the proposed program.
30 Exhibit 500 at 2.
31 Exhibit 501 at 8.
32 Exhibit 501 at 47.
33 SDG&E brief at 2.
34 According to SDG&E's testimony, the $4000/kW is based on the SCE's Solar Photovoltaic Program (SPVP) and the $7000/kW is based on CSI installations.
35 Exhibit 501 at 59.
36 Exhibit 10 a at 20.
37 Exhibit 501 at 57. SDG&E's response to UCAN's question regarding whether the seven FTES would be new hires or existing indicates that "SDG&E has not contemplated the origination of the new FTEs."
38 Reporter's Transcripts at 51.
39 Exhibit 4 at III-2.
40 The adopted cost cap was calculated assuming the following inputs: Capital Cost of $3.50/watt; a dc to ac conversion factor of 90%; O&M costs of $25/kW-yr; no additional rate of return. This cap reflects a time-of-delivery (TOD) adjusted price.
41 DRA comments on the PD at 3.
42 The CAISO tariff concerning small generator interconnection procedures is available at: http://www.caiso.com/27af/27afe14d36650.pdf.
43 Recorder's Transcripts at 26.
44 Exhibit 3 at II-25, footnote 39.
45 http://data.bls.gov/cgi-bin/srgate.
46 Exhibit 10-a at 16.
47 See D.10-04-052.
48 Exhibit 200 at 16.
49 Exhibit 501 at 43.
50 Exhibit 501 at 31.
51 Id.
52 Exhibit 14 at 5.
53 Reporter's Transcripts, Volume 2 at 43.
