4. Proposal to Change Incentive Structure
4.1. CALSEIA's Petition
CALSEIA proposes increasing the current Step 1 incentive level by 100% for single-family customers and by 30% for multifamily and commercial customers.3 Currently, both classes of customers receive the same incentive rate, but under CALSEIA's proposal single-family customers would receive a larger incentive rate than multifamily and commercial customers. The current step level for both classes of customers would be increased. To accomplish this increase within the program budget set in D.10-01-022, CALSEIA suggests that incentives in the later steps would be reduced. CALSEIA believes that this change will increase SWH adoption in the near term and thereby increase overall participation in the program.
According to CALSEIA, the California Energy Commission (CEC) took a similar approach when implementing the Emerging Renewables Buydown Program (ERBP). ERBP participation was initially slower than anticipated. In 2001, the CEC increased incentives by 50% -- from $3.00 to $4.50 per Watt. According to CALSEIA's review of CEC data, the number of system installations in calendar year 2001 increased 462% and the number of system installations continued to increase each year through 2004. (Petition at 3-4). CALSEIA believes that increasing incentives for early SWH adopters would produce a similar customer response.
CALSEIA bases its proposed 100% increase in the Step 1 incentive rate for single-family on the fact participating contractors have stated to CALSEIA that "current incentives are the main obstacle to customer willingness to participate." (Petition at 6.) The incentive is part of the financial value proposition outlined to potential customers during the sales presentation. (Id.)
Similarly, CALSEIA bases its proposed 30% increase in the Step 1 incentive rate for multifamily and commercial customers on the fact that participating contractors have stated that multifamily and commercial customers are "less impacted by the current incentive structure" than single-family customers, so a comparatively smaller increase of 30% should still result in a boost in participation. (Id.)
CALSEIA proposes no changes to the low-income SWH component of the program because this component is so new. The Commission issued D.11-10-015, outlining the components of the low-income SWH program, in October 2011. In compliance with that order, the PAs filed their advice letter amending the CSI Thermal Program Handbook to incorporate the low-income SWH component in January 2012. Energy Division staff approved the advice letter in March 2012. The CSI Thermal Low-Income Program began accepting applications on March 29, 2012.
4.2. Parties' Comments
The four CSI Thermal PAs filed a joint response to CALSEIA's petition and the Commission's Division of Ratepayer Advocates (DRA) filed a separate response.
The PAs support increasing the Step 1 rate for single-family customers, but clarify that, because there is no information supporting the amount of the requested increase, the PAs take no position on the size of the proposed increase. The PAs envision a modified incentive structure where Step 1 is split into two steps to avoid a sharp drop between the Step 1 rate and the Step 2 rate. The PAs also suggest that the program goals will need to be restructured, and that an increase in low-income incentive rates should be considered.
The PAs do not support an increase for multifamily and commercial at this time.
The PAs also state that changes to the incentive rates should not be made until after marketing and outreach plans are fully implemented and the success of statewide marketing initiative can be evaluated. The marketing and outreach plan launched in April 2012.
In contrast, DRA raises some of the same concerns about cost-effectiveness that it raised in the original proceeding. DRA recommends reviewing the cost-effectiveness of the SWH Incentive Program before considering any revisions to the structure of the incentive program. For example, DRA states that a different cost-effectiveness methodology should have been used initially, and that there were flaws in the cost-effectiveness studies prepared by Itron, Inc. (DRA Response at 2.) DRA also states that the assumptions and estimates used in the original evaluation should be updated. Notably, the original analysis used 2008 data on retail gas prices and projections to calculate avoided energy costs and DRA asserts that using current prices and forecasts would yield different results. (Id. at 4.) In addition, DRA notes that the cost-effectiveness analysis relied on achieving a 16% reduction in system cost. This amount was calculated based on bringing $6,500 system cost down to $5,450 by 2017. According to DRA, however, the average system cost reported is significantly higher than $6,500 ($8,197 for single-family natural gas-displacing systems and $7,388 single-family electric-displacing systems). Therefore, it is unlikely that the $5,450 price goal would be reached by 2017. Finally, DRA points out that there is no information on how additional incentives will transform the SWH market.
CALSEIA filed reply comments reiterating that, although it is impossible to predict the exact outcome of the proposed increase in incentives for early adopters, a similar change made by the CEC to ERBP led to an increase in adoption rates which in turn enhanced development of the distributed photovoltaic market. In addition, contractors have told CALSEIA that customers who are interested in SWH systems would be more likely to purchase a SWH system if there was an increased incentive amount.
CALSEIA also pointed out that the Commission made its findings and conclusions regarding the cost-effectiveness of the program in D.10-01-022, and there is no provision requiring the Commission to revisit that analysis. (CALSEIA Reply Comments at 5.)
3 CALSEIA describes the customer classes as "residential" and "commercial." To be consistent with the existing incentive structure, we have used the customer class definitions in D.10-01-022: (1) single-family residential, and (2) multifamily residential and commercial.
