Further Guidance to Program Administrators

The comments on the March 21, 2006 ruling indicate that a general level of confusion and uncertainty exists surrounding implementation of the first trigger reduction in solar incentive levels. In some cases, parties have vastly different views concerning the appropriate method for applying the trigger. The confusion is understandable given this is the first time the trigger has been activated and the activation has occurred much sooner than anticipated.

Decision 06-01-024 adopted an automatic mechanism to reduce incentive payments if demand exceeds specific targets proposed by Staff of the Commission and the California Energy Commission (CEC). The decision further delegated authority to the Administrative Law Judge (ALJ) to reduce incentives upon written justification provided by Staff. In light of that authorization, this ruling is necessary to clarify the process for implementing the automatic trigger reduction that was adopted in D.06-01-024. In response to the comments and suggestions of the parties, I provide the following guidance:

1. The implementation of the automatic trigger as set forth in of the March 21, 2006 ruling is unchanged. The program administrators shall ensure that the rebate level is reduced to $2.50/watt for reservations exceeding 50 MW.

The 50 MW trigger shall be based on "conditional reservations" issued by the program administrators, and the 50 MW shall be proportionately allocated across utilities based on their CSI budget allocations.2 This interpretation of the trigger in D.06-01-024 is supported by the language of that order which states the Commission's intent to automatically reduce incentive payment levels each year by 10% or more if demand exceeds the targets proposed by staff. (D.06-012-024, mimeo., at 25.)

The Commission established the trigger mechanism in D.06-01-024 to preserve program funds over the 11 year term of the CSI. In that order, the Commission authorized annual budgets for the utilities and a mechanism to borrow up to 15% of future years funds. While parties urge the Commission to ignore the triggers for 2006 and maintain the $2.80/watt incentive level for this entire year, that desire ignores the intent of D.06-01-024 to balance program demand with the supply of ratepayer funds over the entire term of the CSI to ensure optimal funding. The Commission established automatic incentive reductions and delegated to the assigned Administrative Law Judge (ALJ) the ability to make further incentive reductions upon the advice of CEC and Commission staff.

I acknowledge that sudden changes in incentive levels, particularly after a participant has submitted an application, may initially cause confusion. However, the Commission gave notice in D.06-01-024 that such charges could occur. The Commission clearly adopted an "automatic trigger" and, absent a further order of the Commission, the trigger reduction process shall continue. Parties urge the Commission to make the trigger mechanism more sensitive to market conditions. This issue should be considered in Phase I of this rulemaking. I will address this in the scoping memo to be issued jointly with Commissioner Peevey.

A key point of confusion regarding the automatic trigger is whether the 50 MW threshold should be based on project applications, on the initial application screening and payment of the application fee (i.e. "conditional reservation"), or on final screening and execution of a signed contract for solar installation (i.e. "confirmed reservation"). PV Now and ASPv recommend that the Commission should base the 50 MW trigger on confirmed reservations because confirmed reservations represent projects that have progressed through the necessary steps and are ready to be completed. These parties propose that the Commission should not lower incentive payments until program administrators have received signed contracts for 50 MW of solar PV installations.

The drawback to this method, however, is that customers would have to sign contracts without knowing the exact level of their incentive payment. This is a critical flaw and could seriously dampen program participation. Instead, I find it more reasonable to base the trigger on the first 50 MW "conditionally reserved." The program administrators must determine which applications are the first 50 MW to meet the conditional reservation criteria. If they have sent letters conditionally reserving more than their allocation of the 50 MW, they must use either the time of application received or a lottery method to reduce their conditional reservations to the authorized MW level. Then, the PAs must notify those applicants who may have received a conditional reservation prematurely that they are not among the first 50 MW and the incentive level for their application is now $2.50/watt. To ensure this situation is clearly explained to applicants, I direct the administrators to draft a notification letter for such instances, to be reviewed and approved in advance by ED staff. In the future, the PAs should carefully monitor the statewide total MW of applications reaching the conditional reservation stage and avoid sending conditional reservation letters beyond the next trigger cutoff. Future communications with project applicants should make clear that there is no guarantee of a particular incentive level until a conditional reservation is issued, and then only if the project meets all other SGIP or CSI guidelines as it proceeds toward completion.

Several commentors maintain the Commission should provide advance notice to program participants prior to reducing incentive levels. They contend that all applications received up to the date of the March 21, 2006 ruling should receive the higher incentive of $2.80/watt and the Commission should not "retroactively" reduce incentives for those applications already received. I can appreciate parties' concerns. However, the Commission must ensure prudent incentive levels and sufficient funding to meet the long term goals set forth in the CSI decision. The Commission was clear in D.06-01-024 that incentives would be reduced when 50 MW had been reserved under the CSI, and the 2006 SGIP is the vehicle for the CSI program in 2006. With 91 MW in applications within the first month of the 2006 program, it is impossible to give advance notice. Essentially, the launch of the 2006 program created a "run on the bank" and the program administrators continued to send conditional reservations letters past the 50 MW threshold without waiting for guidance from the Commission.

The Commission has stated that its primary objective in establishing a trigger mechanism is to preserve program funding over the 11 years of the CSI program. The market participants themselves ultimately control activation of the triggers and corresponding incentive reductions. The fact that applications surged in and quickly exceeded the automatic trigger, and that the Commission became aware of this only after the fact, does not mean that any incentive reduction is retroactive. Regrettably, the PAs continued to process applications and send out conditional reservations beyond the 50 MW cap. The first and subsequent trigger points were clearly stated in advance. It was only PA's communication to the Commission that the trigger had been reached that occurred after the fact.

As guidance for future implementation of the automatic trigger mechanism, the PAs shall coordinate and carefully monitor the level of conditional reservation letters they process on a statewide basis, and post this information as described below on their individual public websites for all interested stakeholders to observe. They should notify the Commission, by letter to the assigned ALJ, when the next statewide trigger is met and automatically impose the incentive reduction when conditional reservations meet the triggers adopted in D.06-01-024, unless a further Commission order or ALJ ruling provides new direction. Thus, the PAs should cease processing conditional reservations at a given incentive when the MW cap is reached for that incentive level. The assigned ALJ will notify the parties by ruling that a trigger reduction has occurred. D.06-01-024 limits the number of incentive reductions in one calendar year to two,3 so PAs will not be expected to implement a third trigger during 2006. If the second trigger amount is reached, PAs should notify the Assigned ALJ and Energy Division staff, but continue to process applications at the applicable incentive level (if any budget remains for the calendar year).

2. Incentive levels will remain consistent statewide, and not vary by utility service area.

The PAs suggest that when applications in one utility service territory reach that utility's portion of the MW trigger (based on budget allocation), the incentive in that territory would reduce, but remain at the higher level in other utility service territories. SDG&E/SoCalGas and SDREO contend the reduction in incentive levels should be consistent statewide. In reviewing the trigger mechanism set forth in D.06-01-024, I find no indication the Commission intended for separate triggers by utility service area. The trigger mechanism supports a uniform statewide rebate level and implementation of the trigger should maintain this. Therefore, when future MW trigger levels are reached based on a statewide assessment of conditional reservations, the statewide rebate level should be adjusted downwards.

3. The trigger applies to the new 2006 SGIP applications.

Several parties interpreted the trigger reduction mechanism in D.06-01-024 to begin in 2007 and not apply to 2006 SGIP applications. D.06-01-024 clearly indicates that the 2006 budget for SGIP is part of the 11-year total budget for the CSI. (D.06-01-024, Table 1, p. 6.) Thus, the SGIP in 2006 uses CSI funds and the trigger applies. This is further supported by the table in Appendix A of D.06-01-024 specifying that the rebate level will decline on 1/1/07 or when 50 MW in reservations are reached. (Id., Appendix A, pp. 14-15.) It does not make sense for the table to describe the earlier of 1/1/07 or a specific MW level if it could not take effect before 1/1/07.

As noted in the March 21, 2006 ruling, SGIP applications on the waiting list as of December 15, 2005, will receive $3.00/watt, pursuant to D.05-12-044.

4. The incentive reduction does not apply to projects less than 30 kW funded through the CEC ERP program.

The CEC's ERP program uses a different funding source than the SGIP/CSI program, therefore, the incentive reduction to $2.50/watt does not apply to projects funded through ERP in 2006.

5. The PAs should develop a web-based communication system to provide better data to program participants regarding the level of applications processed and reserved.

Most parties commented that program participants need better real-time information regarding the level of applications so they can have advance notice that a trigger reduction is looming. I agree. This is particularly critical because the next trigger occurs at 70 MW of additional conditionally reserved applications. As of March 9, 2006, 41 MW in applications had been received that could become conditional reservations toward this next trigger. The program participants need access to the level of applications and conditional reservations to gauge the likelihood of obtaining a given incentive level.

Each PA currently posts utility territory-specific data regarding the number of applications received and megawatts reserved, and the levels of available funding on the PAs' individual websites. This ruling directs the PAs to establish a statewide posting format which provides a weekly or more frequent update of the project applications that have reached the conditional reservation stage statewide.

6. The Commission will consider improvements to the trigger mechanism, including differential incentives by project size or customer class, in the course of this rulemaking. Changes to the application fee will be considered as well.

Several parties suggest that the trigger adopted in D.06-01-024 needs further refinement to be responsive to market conditions. Similar comments were made at the prehearing conference on March 23, 2006 to set the scope of this case. In both D.05-12-044 and D.06-01-024, the Commission recognized the need for additional analysis and record development on market factors that could influence optimal incentive levels, such as the federal tax credit. As I consult with President Peevey on the proper scope and schedule for this case, I will delineate this issue as a top priority for consideration in Phase I, with a decision target during the summer of 2006. It is not possible to adjust the factors affecting the trigger metric any sooner, without further record development and a Commission order.

Moreover, the PAs contend that the application fee should be raised because as incentive levels fall, so does the application fee. Parties with this viewpoint may offer their proposals along with refinements to the trigger mechanism as they comment on incentive level proposals in Phase I.

Therefore, IT IS RULED that:

1. This ruling confirms the prior ruling of March 21, 2006 ordering the program administrators for the Self-Generation Incentive Program (SGIP), in coordination with Energy Division Staff, to ensure that incentive payment levels for solar photovoltaic (PV) projects are reduced from $2.80/watt to $2.50/watt for all 2006 program applications that exceed 50 MW in conditional reservation status. This ruling also provides additional guidance on the implementation of incentive reductions through automatic triggers.

2. For the first incentive reduction, the program administrators shall ensure that the 50 MW cap is allocated proportionately across the utilities based on the CSI budget allocations adopted in D.06-01-024, using either the time of application or a lottery method to reduce each utility's conditional reservation quantity to the appropriate level. Future trigger reductions will be based on a statewide assessment of conditional reservation levels, informed by the tracking of applications and reservations in each utility's territory.

3. The program administrators shall inform applicants for solar incentives who may have received a conditional reservation prematurely that they will now receive an incentive level of $2.50/watt if their application is not among the first 50 MW received. The administrators shall obtain advance review and approval by the Energy Division staff of the language in such notification letters.

4. In order to implement future incentive adjustments, the program administrators are directed to coordinate and carefully monitor the level of conditional reservations processed on a statewide basis to avoid sending conditional reservation letters beyond the next trigger, and to notify the assigned ALJ by letter when the next trigger is met.

5. The program administrators shall automatically impose the incentive reduction when the triggers in D.06-01-024 are met, up to twice per calendar year, unless directed differently by further Commission order or ruling.

6. Within 15 days of this ruling, the program administrators are directed to post on each of their public websites application and reservation information,

including a statewide cumulative total of the MW capacity of incentives applied for and conditionally reserved. This website should be updated on a weekly or more frequent basis.

Dated April 24, 2006, at San Francisco, California.

CERTIFICATE OF SERVICE

I certify that I have by mail this day served a true copy of the original attached Administrative Law Judge's Ruling Confirming Reduction in Solar Photovoltaic Incentive Payments on all parties of record in this proceeding or their attorneys of record.

Dated April 24, 2006, at San Francisco, California.

NOTICE

Parties should notify the Process Office, Public Utilities Commission, 505 Van Ness Avenue, Room 2000, San Francisco, CA 94102, of any change of address to insure that they continue to receive documents. You must indicate the proceeding number on the service list on which your name appears.

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The Commission's policy is to schedule hearings (meetings, workshops, etc.) in locations that are accessible to people with disabilities. To verify that a particular location is accessible, call: Calendar Clerk (415) 703-1203.

If specialized accommodations for the disabled are needed, e.g., sign language interpreters, those making the arrangements must call the Public Advisor at (415) 703-2074,

TTY 1-866-836-7825 or (415) 703-5282 at least three working days in advance of the event.

(End of Appendix A)

D0605025 Appendix B

2 CSI program funds are allocated 44% to PG&E, 34% to SCE, 13% to SDG&E and 9% to SoCalGas. (D.06-01-024, Table 2, p. 7.) Therefore, the 50 MW cap is allocated 22 MW to PG&E, 17 MW to SCE, 6.5 MW to SDG&E and 4.5 MW to SoCalGas.

3 D.06-01-024, Appendix A, p. 16.

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