6. Budget Issues

6.1. General Market Administrative Budget²⁵

In D.06-08-028, the Commission allocated 10% of the total CSI budget for administrative expenses, which includes general market program administrative activities, application processing, marketing and outreach (M&O) and M&E. ²⁶ The PAs were directed to spend only half of the 10% allocated (or 5% of total program budget) until the Commission provided further direction on spending for M&O and M&E.²⁷

The Staff Proposal reviewed CSI administrative expenses incurred by each PA since the start of CSI in 2007. The analysis indicates that for the three years 2007 through 2009, all three PAs spent more than the amount they had budgeted for general market program administration. The Staff Proposal raises the concern that as the volume of CSI applications increases in later years of the program, administrative expenses may also rise. Staff is concerned that if administrative spending is already over budget, a budget shortfall could occur in later program years. Staff also notes that on occasion, there are administrative expenses that span all of the programs such as processing contracts and other paperwork for research, development and demonstration and the low-income incentive programs.

In D.10-09-046, the Commission shifted $40 million from the program administration budget into the incentive budget. (See D.10-09-046 at 32, and Appendix Table 1.) As a consequence, the CSI general market administrative budget is now as follows:

Table 2: Adopted CSI General Market Administrative Budget

The Staff Proposal makes several recommendations regarding the CSI program administration budget. These recommendations include setting parameters for the exclusion of certain costs from administration, establishing guidelines for acceptable spending levels, streamlining of application processing, and allowing the PAs to charge administrative expenses related to miscellaneous (or cross-cutting) functions to the CSI general market program administrative budget. In addition, staff also proposes the Commission direct the PAs to reserve funds for post-2016 program administration tasks²⁸ from the total CSI administrative budget. Finally, staff suggests that if the PAs exceed their allocated administrative budgets, cost overruns will come from shareholder dollars.

The Joint Solar Parties comment that the administrative budget for CSI is too small and should be increased by taking funds from M&O and M&E budgets.

The PAs agree with the Staff Proposal that administration costs will most likely go up in the second half of the program, as more applications are handled in each step. They ask the Commission to grant them flexibility to move funding around within the entire 10% allocated to Administration, including moving funds allocated for M&E and M&O purposes. To avoid exceeding budgets, the PAs ask the Commission to work closely with them to avoid this outcome rather than assess penalties.

Discussion. Many of the recommendations in the Staff Proposal are moot because they were made prior to D.10-09-046 which moved $40 million from the administrative budget to the incentive budget. In light of the newly revised administrative budget numbers, we now clarify several items.

First, the PAs are authorized to spend administrative funds up to the full budget amounts adopted in D.10-09-046. (See D.10-09-046, Table 6, and Appendix Table 1.) The previous cap on spending in D.06-08-028 which restricted the PAs to spending only half of the administrative budget is now lifted.

Second, the PAs need to reserve funds to cover post-2016 expenses. The table above shows $6.9 million in unallocated funds. The PAs should reserve these unallocated funds to cover administrative costs they could incur processing applications and making PBI payments after 2016. CSI will cease to accept applications on December 31, 2016, and rate collections to fund CSI will also stop at that point, but the PAs need to have funds reserved to cover post-2016 administrative activities. If any PA forecasts that it will need more than its share of the unallocated $6.9 million, as shown in Table 6 of D.10-09-046, the PA should submit its forecast of the amount it will reserve for post-2016 expenses to Energy Division in its next semi-annual CSI expense report.

Third, we agree with the Staff Proposal recommendation that we should allow the PAs to charge administrative expenses related to miscellaneous functions that pertain to multiple sub-programs of CSI (i.e. SASH, MASH, RD&D, and CSI Thermal) to the general market administrative budget, if funds allow. We urge administrative simplicity and will not require the PAs to allocate every marketing or program evaluation dollar to the many CSI sub-programs. Of course, each of these sub-programs has its own administrative budget, so whenever possible, administrative expenses should be charged to the relevant program. But if allocation of activities that benefit all of the programs is not feasible, or expenditures are de minimis, we will allow the general market administrative budget to absorb these costs.

Finally, we caution the PAs that they may not exceed the budget set forth in D.10-09-046 for administrative expenses. We will disallow administrative cost overruns should they occur.

The Joint Solar Parties propose shifting funds from M&E and M&O to general administration. The PAs ask for flexibility to move funds between the various administrative functions. This mirrors requests made recently in this same rulemaking and addressed in D.10-09-046. We will not repeat the discussion in that decision. As we stated in D.10-09-046, the PAs may not shift administrative funds between administrative budget subcategories on their own. Rather, the assigned Commissioner may shift administrative budget dollars between administration subcategories after appropriate notice to the parties and an opportunity for them to comment. (See D.10-09-046 at 25 and Ordering Paragraph 9.) Alternatively, if the PAs want to shift funds between administrative subcategories, they may file a petition for modification of D.10-09-046.

6.2. M&O Budget²⁹

As stated above, the Commission reduced the administrative budget for the CSI Program in D.10-09-046. The decision specifies that the total M&O budget is $21.25 million, with $15 million allocated for general market CSI M&O and $6.25 million allocated for M&O related to the electric-displacing portion of the CSI-Thermal program. In D.10-09-046, the Commission specified that the $15 million general market CSI M&O budget would be split equally among the three PAs until further order of the Commission, and would not follow the spending allocation percentages used for other aspects of the CSI program. (See D.10-09-046, Table 6, n. 16.) The decision warned that the M&O budget could be adjusted further. This decision clarifies that the budget shall remain as adopted in D.10-09-046. We reaffirm that the $15 million budgeted for M&O shall be split equally among the three PAs, which provides each PA with $5 million for M&O activities. The table below summarizes the M&O adopted budget.

Table 3: Adopted CSI M&O Budget

PA	M&O Budget for General Market CSI	M&O Budget for Electric-displacing CSI-Thermal	Total PA M&O Budget
CCSE	$1,545,000.00	$643,750.00	$2,188,750.00
PG&E	$6,555,000.00	$2,731,250.00	$9,286,250.007,731,250
SCE	$6,900,000.00	$2,875,000.00	$9,775,000.007,875,000
Total	$15,000,000.00	$6,250,000.00	$22,856,250.014

6.3. M&E Budget³⁰

In July 2008, an Assigned Commissioner's Ruling in R.08-03-008 (the predecessor docket to the current CSI/DG Rulemaking) established a CSI program evaluation plan and total budget of $46.7 million for general market CSI M&E. Later decisions for SASH, MASH, and CSI Thermal have set aside funds for M&E applicable to those smaller programs. Commission staff has jointly coordinated all of these M&E efforts, and an M&E project coordinator is funded from general market M&E funds. In D.10-09-046, the Commission reduced the general market M&E budget to $26.7 million.

The Staff Proposal recommends the Commission affirm that M&E studies that pertain to multiple programs should be funded by the general market M&E budget.

The PAs express concern with the recommendation that the general market M&E budget should fund studies that benefit other smaller programs like SASH, MASH and CSI Thermal, particularly given the recent M&E budget reduction to $26.7 million. The Joint Solar Parties suggest that since M&E funds are short, M&E work should focus on program achievements and market transformation.

Discussion. We affirm that the PAs should coordinate and jointly manage all M&E activities across the CSI program areas, even though certain studies only pertain to one program component. If an M&E study pertains to multiple CSI programs (such as general market, MASH and SASH), it can be charged in whole or part to the general market program M&E budget. We clarify that the PAs should follow Energy Division directives on how to allocate M&E studies when the study pertains to multiple CSI program areas.

In summary, the various M&E budgets for all portions of the CSI program are shown in the table below:

Table 4: Authorized M&E budgets for CSI Program Components

Program Area	Authorized Budget ($ in millions)	Authorizing Decision
CSI General Market	$25.45	D.10-09-046
SASH	$1.08	D.07-11-045
MASH	$1.08	D.08-10-036
RD&D	$1.5	D.07-09-042
CSI Thermal	$6.2531	D.10-01-022
Total	$35.36

6.4. CSI Revenue Requirement³²

The Commission established the initial CSI revenue requirement in D.06-01-024, and it has been adjusted several times since.³³ The Commission's most recent adjustment to the revenue requirement was set forth in D.10-04-017. The Staff Proposal reviewed and analyzed the status of the revenue collections by PG&E, SCE and SDG&E to support the CSI program.

The Staff Proposal concludes that all three utilities have positive balances in their CSI balancing accounts, meaning they have collected more from ratepayers than they have actually spent to date. On the other hand, if pending incentive reservations are considered, the balancing accounts of all three utilities can be considered undercollected, meaning obligations are greater than rate collections to date. (See Staff Proposal, Section 7.1, Table 24.) The Staff Proposal calculates that potential undercollections for PG&E, SCE, and SDG&E are approximately $44 million, $72 million, and $25 million, respectively. (Id.) At the same time, the Staff Proposal concludes that these potential undercollections are not a significant concern because many applications with pending reservations may never actually be installed and paid.

In response to the Staff Proposal, the Joint Solar Parties suggest that given CSI budget constraints, the Commission should seek statutory amendments to increase the overall CSI budget. CCSE requests that the Commission increase rate collection amounts in the next two years because it expects a budget shortfall based on estimates of PBI system overproduction. PG&E requests that the Commission allow an advice letter process to adjust the CSI revenue requirement as needed, because this process may be faster than a petition for modification of the applicable decision. SCE requests clarification that interest collected on funds in the CSI balancing account, as well as forfeited application fees, can be used to reduce rate collections.

Discussion. Following release of the Staff Proposal, the Commission adopted a revised CSI Budget in D.10-09-046. The revised budget in Table 6 of that decision notes that the revised budget differs slightly from the CSI revenue requirement by utility set forth in D.10-04-017. (See D.10-09-046, n. 18 at 23; and D.10-04-017, Table 3 at 8.) Given this minor discrepancy, we need to make a minor adjustment to the CSI revenue requirement at this time so that the total CSI budget numbers match the collections by PG&E, SCE and SDG&E.

Upon review of the information in the Staff Proposal and the parties' comments on this topic, we are not persuaded that any adjustments to the current revenue requirement for CSI are necessary, other than a minor adjustment so that the revenue requirement matches the budget adopted in D.10-09-046. The current revenue requirement collection schedule ensures that all funds for CSI will be collected by 2016, even if program expenditures occur after that date. We will adjust it slightly by modifying collections in 2016 for all three utilities so that total collections match the CSI budget adopted in D.10-09-016. The revised CSI Revenue Requirement is as follows:

Table 5: Revised Annual CSI Revenue Requirements

(In Millions of Dollars)

Moreover, the Staff Proposal notes that the three utilities have significant combined forfeited application fees and interest. Staff now estimates this combined amount for all three PAs at $31.4 million through the first quarter of 2011. As recommended in the Staff Proposal, we clarify that these forfeited fees and interest reduce the amount of ratepayer collections as previously set by the Commission. Energy Division should continue to monitor the status of CSI collections and total spending and may recommend that the assigned Commissioner and Administrative Law Judge consider revenue requirement adjustments, if warranted, at any time.

PG&E requests the Commission allow the utilities to seek revenue requirement adjustments by advice letter so that any revenue modifications can occur quickly. SCE and SDG&E made a similar proposal in 2008, which the Commission declined to adopt. The Commission stated it preferred to consider revenue requirement changes through the petition for modification and decision process. (D.08-12-004 at 10.) For the same reasons discussed in that decision, we decline PG&E's proposal.

²⁵ See Staff Proposal Section 3.6.

²⁶ Other portions of CSI such as RD&D, SASH and MASH have separate administrative budgets, and are not included in the 10% reserved for the general market administrative budget.

²⁷ Interim guidance on M&O was provided in D.07-05-047. An Assigned Commissioner's Ruling, dated July 29, 2008 in R.08-03-008 set an M&E budget of $46.7 million.

²⁸ Post-2016 costs may occur if an incentive application is received on December 31, 2016. Under normal circumstances, the project may take up to 12 months after the application submittal to receive its incentive. If extensions are granted, the incentive may not be paid for three years from the application date, or December 2019. If the project occurs and is eligible for an incentive, the PAs will incur administrative costs to pay the incentive. If the project is eligible for PBI payments, there may be administrative costs for up to five years after project completion.

²⁹ See Staff Proposal Section 5.4.

³⁰ See Staff Proposal Section 4.2.

³¹ Per D.10-01-022 (at 66), the CSI Thermal M&E budget is composed of $5 million from the gas-displacing budget, and $1.25 million from the general market CSI administration budget.

³² See Staff Proposal Section 7.1.

³³ See D.06-12-033 and D.08-12-004.