5. Contested Program Features

5.1. Initial Incentive Rate and Rate of Incentive Decline

Pacificorp and DRA agree the starting point for incentives should be as low as possible while motivating participation, but they disagree on the proper starting point and they disagree on the rate at which incentives decline.

Pacificorp initially proposed a starting incentive level of $2.80 per watt, that would decline seven percent as the program reached seven pre-determined capacity targets, resulting in a final rate of $1.80 per watt. According to Pacificorp, it performed an internal rate of return (IRR) analysis based on average solar installations costs of $8.07 per watt in counties neighboring its service territory. Pacificorp calculates an IRR of 8.8 percent for commercial customers and a payback period of 14 years if incentives begin at $2.80 per watt. For residential customers, the IRR and payback period is approximately 9.5 percent and 13 years, respectively, based on Pacificorp's assumptions from a sample of solar energy systems. Pacificorp contends that lower incentives, such as the rates proposed by DRA, negatively impact the IRR and payback periods and may be too low an incentive level for customers to make a solar investment. In addition, Pacificorp argues that because its retail rates are lower than rates in other California utilities' territories, a higher incentive level is necessary to provide Pacificorp's customers with a reasonable payback period.

In response to DRA's opposition discussed below, Pacificorp offered a compromise starting incentive level of $2.00 per watt that would decline
17 percent for each of seven steps, resulting in a Step 7 incentive of $0.65/watt. Pacificorp explains that according to its analysis, a $2.00 per watt starting rate yields payback periods of 15 years for residential customers and 16 years for commercial customers. Moreover, Pacificorp suggests that if these rates are not attracting sufficient program interest, it could be allowed to file an advice letter to increase rates by $0.25 per watt. Pacificorp continues to assert that incentives higher than those in the CSI program and higher than those proposed by DRA are needed in its remote Northern California location where the solar industry is not yet developed.

The Siskiyou Parties support Pacificorp's proposal for a starting incentive level of $2.80 per watt. Further, they contend that because incomes are lower in Siskiyou County, a higher incentive is needed to induce customer investment. The Siskiyou Parties maintain that a reduced incentive level could significantly reduce the program benefits to the local economy.

DRA recommends a starting incentive level of $1.75 per watt that would decline by 25 percent for each of the seven steps, resulting in a final incentive rate of $0.31 per watt. DRA opposes Pacificorp's proposals, both the initial proposal and the lower compromise proposal, because they are significantly higher than those currently offered in the CSI program. DRA contends that lower incentive levels may be sufficient given strong participation in the statewide CSI program despite sharply declining incentives in the past year. Further, DRA maintains it is reasonable to start incentives at a lower level and allow Pacificorp to seek an increase if program participation is low. DRA notes that other pending proceedings, such as Pacificorp's general rate case, may increase the utility's rates. DRA recommends that the Commission consider the total effect of these increases on ratepayers when setting the solar program budget and incentive levels.

The various proposals are shown in Table 2 below:

Table 2: Parties' Incentive Proposals

(Dollars per watt)

Step	Pacificorp's Initial Proposal	DRA's Proposal	Pacificorp's Compromise Proposal
1	$2.80	$1.75	$2.00
2	2.60	1.31	1.66
3	2.42	0.98	1.38
4	2.25	0.74	1.14
5	2.09	0.55	0.95
6	1.94	0.42	0.79
7	1.80	0.31	0.65

In adopting incentive levels, we want to maximize the program budget by setting incentives as low as possible, but at the same time, we want to insure the incentives stimulate participation in the program. We agree with DRA that the incentive levels in the Pacificorp territory should not be significantly higher than those offered in the rest of the state to customers of PG&E, SCE and SDG&E. On the other hand, the IRR analysis indicates that because of Pacificorp's lower electric rates relative to the other investor-owned utilities (IOUs) in California, there is justification to set incentives at a higher level. In addition, as Pacificorp notes, the solar industry is not yet developed in this portion of the state.

We will adopt Pacificorp's compromise proposal which involves a starting rate of $2.00, with incentives declining in seven steps as capacity allocations for residential and non-residential customers are achieved (as discussed further in Section 5.2 below). The incentives we adopt will decline at the faster 25% rate proposed by DRA, so that after the initial steps, Pacificorp's incentives will be more in line with the rest of the state's CSI incentive levels. The rates we adopt are as follows:

Table 3: Adopted Incentives

(Dollars per watt)

Step	Residential/Commercial Incentives	Tax-Exempt Incentives
1	$2.00	$2.75
2	1.50	2.25
3	1.13	1.88
4	0.84	1.59
5	0.63	1.38
6	0.47	1.22
7	0.36	1.11

We will allow Pacificorp to submit a Tier 2 advice letter, no sooner than
180 days after the start of the program, to increase Step 1 residential and commercial customer starting incentive rates by as much as 25 cents per watt if participation is low after the first six months of the program. Pacificorp's advice letter must explain the efforts it took to successfully launch the program with adequate staffing and marketing as set forth in Appendix A of this decision. The new rates, if adopted by the Commission, would then decrease at 25% per step, per the table below. Pacificorp may not request to increase tax-exempt incentives.

Table 4: Maximum Incentives if Increase Approved after Six Months

(Dollars per watt)

Step	Residential/Commercial Incentives
1	$2.25
2	1.69
3	1.27
4	0.95
5	0.71
6	0.53
7	0.40

We will consider participation low if, after six months, Pacificorp has received applications that total less than one-quarter of the 300 kW capacity for commercial and tax-exempt incentives in step 1 (i.e., less than 75 kW), or less than one-quarter of the 148kW capacity for residential incentives (i.e., less than
37 kW). In reviewing the advice letter, the Commission may consider whether to limit increased incentives to residential customers only. Pacificorp's advice letter filing requesting increased incentives shall contain detailed information on the applications received including the number of applications, customer type, system size, system cost, incentive sought, and any other information requested by the Commission's Energy Division. The filing shall also include a revised program budget and revised tariffs with surcharge adjustments to collect the requested incentive increase. If Pacificorp requests higher incentives, and they are approved, the higher rates will apply to all applications received from the start of the program.

Finally, if the program as adopted in this decision fails to attract sufficient interest at every step level, Pacificorp or any other party may petition to modify this decision and seek to alter aspects of program design beyond the 25 cent per watt increase discussed above. Per Commission Rule 16.4, any petition must concisely state the justification for the requested relief, and allegations of new or changed facts must be supported. The Commission will strive to act on any such petitions promptly to avoid stalling solar interest in Pacificorp's California territory.

5.2. Capacity Allocation

Pacificorp and DRA agree that 33 percent of the program capacity should be allocated to residential customers and 67 percent allocated to commercial and tax exempt facilities. Based on the Pacificorp and DRA stipulation, this translates into capacity allocations of 1088 kW for residential customers and 2212 kW for commercial and tax-exempt customers.

The Siskiyou Parties disagree with this approach, preferring Pacificorp's initially proposed program capacity and corresponding budget, which was allocated 20 percent to residential customers and 80 percent to commercial and tax-exempt facilities. The Siskiyou Parties claim that increasing funding and capacity for residential systems will reduce the total amount of solar the program is likely to achieve and will reduce the net benefits to the community as a whole.

DRA opposes the Siskiyou Parties' position, noting that residential customers account for 48 percent of Pacificorp's kWh sales in its 2011 forecast. DRA contends it is reasonable for residential customers to receive the benefit of 33 percent of the program capacity relative to their share of electricity sales.

We agree with DRA that because residential customers are a large percentage of Pacificorp's total sales, it is reasonable to allocate a larger percentage of the program capacity to residential customers. Therefore, we will require Pacificorp to reserve 33 percent of its solar program capacity for residential customers. Moreover, this matches our CSI program for the state's three largest utilities, where we have allocated the program capacity based on a split of 33 percent residential and 67 percent non-residential.

We will modify the total program capacity upwards slightly because our experience with the CSI program in the service areas of the three large investor-owned utilities tells us that program dropouts, particularly in the early stages, will rapidly deplete the early program steps. Therefore, we will increase the capacity in the first three program steps, which leads to program capacity levels as follows:

Table 5: Adopted Capacity Allocations per Step

Step	Total kW Installed	Residential kW (33%)	Commercial kW (67%)
1	448	148	300
2	483	160	323
3	520	172	348
4	467	154	313
5	501	165	336
6	540	178	362
7	583	192	391
Total	3542 kW	1169 kW	2373 kW

5.3. Incentive Cap

Pacificorp and DRA agree commercial incentives should be capped at
250 kW. Unfortunately, the parties did not specify whether this cap is per customer, per system or per site. The Siskiyou Parties oppose a 250 kW cap on commercial and tax-exempt systems. Rather, they support Pacificorp's initial proposal to cap incentives for commercial and tax-exempt systems at 1 MW. The Siskiyou Parties contend that projects with a higher capacity are more cost-effective because they have lower installation and overhead costs on a per kW basis than smaller projects. Moreover, they note that the College of the Siskiyous (COS) is considering a 1 MW solar project to serve its campus electricity requirements and provide job training opportunities for COS students. They contend a 250 kW incentive cap might hinder this project's development.

DRA opposes increasing the incentive cap to 1 MW because the higher cap would significantly limit the number of commercial installations that could receive incentives.

We agree with DRA and Pacificorp that we should cap commercial incentives at 250 kW and we will clarify that this cap is 250 kW per site. This will permit at least nine installations at the commercial incentive rate based upon 2373 kW available to non-residential customers. A higher incentive cap would seriously limit the number of commercial or tax-exempt systems that could be installed.

5.4. Program Duration, Budget, and Cost Recovery

Pacificorp and DRA agree on a four year program rather than the
seven-year program initially proposed by Pacificorp. Therefore, they recommend the program budget should be recovered through a surcharge on all ratepayers over a four-year period, with the surcharge designed to collect one-fourth of the budget in each year.

Although Pacificorp and DRA agree on program duration, they do not agree on incentive levels, or the total program budget amount. Pacificorp's starting incentive rate of $2.00 per watt results in a total budget of $4,688,327. DRA's starting incentive level of $1.75 per watt results in a total budget of $3,784,494.

The Siskiyou Parties disagree with a four-year program, and recommend the seven year budget of $8.48 million initially proposed by Pacificorp. They contend that a shorter program reduces the predictability and potential benefits of the program and sends the wrong message to those interested in solar energy development. Further, they claim than a total budget of $8.48 million is modest and should be adopted.

We will authorize the four-year incentive program, as proposed by Pacificorp and DRA, with the option that the program can be extended in Pacificorp's next general rate case (GRC), as described below. The total budget amount that we authorize in this order varies from what either Pacificorp or DRA proposed because it is dependent on the starting incentive level and rate of decline. We also adopt a starting budget and a slightly higher budget cap should Pacificorp seek to increase incentives 25 cents/watt as allowed by this decision.

Given that we have adopted a starting incentive of $2.00 per watt which declines over seven steps based on capacity installed, and an additional incentive of $0.75 per watt for tax-exempt entities for up to 10% of non-residential capacity, the total four-year program budget we will authorize is $4.3 million, as shown in the table below.

Table 6: Adopted Budget

Step	Total kW Installed	Commercial and Residential Incentive ($/watt)	Tax-Exempt Incentive ($/watt)	Incentive Budget	Administrative Budget4	Total Budget
1	448	$2.00	$2.75	$917,692	$201,9005	$1,119,592
2	483	1.50	2.25	749,701	164,250	913,951
3	520	1.13	1.88	611,258	164,250	775,508
4	467	0.84	1.59	417,498	164,250	581,748
5	501	0.63	1.38	342,214	0	342,214
6	540	0.47	1.22	283,424	0	283,424
7	583	0.36	1.11	236,819	0	236,819
Total	3542			$3,558,606	$694,650	$4,253,256

If Pacificorp seeks to increase incentives by up to 25 cents per watt and the Commission approves this increase, the maximum budget for the Pacificorp incentive program that we authorize today is $4.65 million.

If the program capacity is not fully subscribed within the first four years, Pacificorp and DRA agree that Pacificorp may request continued funding of the solar incentive program in its next GRC application. If Pacificorp's four-year authority granted in this decision runs out before its future GRC application is resolved by the Commission, meaning the four years have passed and funds remain from the budget approved in this decision, Pacificorp may request interim authority for authorization to continue the program with the budget approved in this decision until its GRC is finalized. Pacificorp may file a Tier 2 advice letter requesting authority to continue the program until the Commission decision resolving the next GRC.

If Pacificorp seeks continuation of the program in its GRC application, Pacificorp should conduct a program evaluation, or "lessons learned" exercise, to provide information outlining the status of the initial program along with suggestions for improvements, additions, or alterations to the program. We find this proposal reasonable and will adopt it.

Pacificorp and DRA agree that Pacificorp should establish a balancing account to track collections and expenditures under the program. Collections in the balancing account would be capped at the approved annual program costs, and unspent collections would be rolled over annually for the first four years. If there is a positive balance remaining at the end of four years, the Commission may order the disposition of any remaining balance, including that it be returned to customers. We agree with this recommendation and will adopt it.

5.5. Program Administration and Workforce Development

As Pacificorp indicated in its initial application, it issued an RFP and contracted with CCSE to administer the program. Nevertheless, Pacificorp and DRA agree on transitioning the administration of the program to an entity within Pacificorp's California service territory, "to the extent such administration is available and cost-effective."⁶

The Siskiyou Parties disagree and recommend the Commission condition approval of the application on Pacificorp identifying and selecting a qualified entity or entities in Siskiyou County to administer the program within five months from the date of the decision and complete the transition within 12 months from the date the program is implemented.

Pacificorp opposes the prescriptive approach proposed by the Siskiyou Parties, arguing it could result in higher costs for Pacificorp ratepayers. Pacificorp reiterates that it should be given flexibility to transition administration to a local entity if it is available and cost-effective. Pacificorp also notes that it serves several northern California counties and there is no reason to limit a potential administrator to an entity in Siskiyou County alone. Rather, Pacificorp is willing to commit to issuance of an RFP seeking a local administrator within
12 months of approval of the program.

We agree with Pacificorp. We will not impose a requirement to transition to local administration as this could increase program costs. We accept Pacificorp's proposal that it will issue an RFP soliciting a local entity within
12 months of the date of this order so it can consider competing proposals for local administration. Pacificorp should transition to local administration if a qualified and cost-effective local entity is identified through this RFP process.

⁴ The Administrative Budget is an annual figure for the four years authorized in this decision.

⁵ The Step 1 Administrative Budget is comprised of $164,250 for administration plus $37,650 for one-time program development costs.

⁶ Stipulation of Pacificorp and DRA, 8/2/10 at 8.