2. Background

Over the past several years, this Commission has made a substantial effort to stimulate development of DG projects and technologies by providing financial incentives to project developers and exemptions from standby rates and the California Department of Water Resources cost responsibility surcharges. This rulemaking evolves from and builds on the work we began in four previous proceedings, R.98-12-015, R.99-10-025, R.04-03-017, and R.06-03-004. These previous rulemaking orders describe our fundamental view of DG and its role in providing the state with clean, reliable energy resources and remain useful as background documents guiding our work here. The joint agency Energy Action Plan II, the Integrated Energy Policy Report issued by the CEC, and our own orders emphasize the state's commitment to DG development. Although we have performed an enormous amount of work in our four prior rulemakings to develop policies and implement the SGIP and CSI incentive programs, we must continue our work to resolve certain issues as set forth in this new rulemaking.

In an earlier DG rulemaking (R.04-03-017), the Commission refined SGIP rules and incentive levels, adopted new interconnection rules, conducted an inquiry into cost-benefit methodologies and stated our intent to fund a new DG program specific to solar, namely the CSI. In Decision (D.) 06-01-024, we committed $2.5 billion to CSI over 10 years, established broad program principles, and set forth a number of program issues that require our additional attention.

The Commission continued these efforts in our most recent DG and CSI rulemaking, R.06-03-004. Significant decisions in the rulemaking included D.06-08-028, in which the Commission's adopted performance-based solar incentives, an incentive reduction mechanism, metering requirements, and an administrative structure for the CSI program. Following passage of Senate Bill (SB) 1 by the Legislature in August 2006, the Commission issued D.06-12-033 to conform the CSI program to the new legislation. Most notably, the decision adjusted the CSI budget to $2.16 billion through 2016, in accordance with SB 1. Within this rulemaking the Commission also addressed treatment of renewable energy credits (RECs) (D.07-01-018), time of use requirements for solar incentive recipients (D.07-06-014), a $50 million CSI research, development and demonstration (RD&D) program (D.07-09-042), and solar incentives for low-income homeowners (D.07-11-045).

This proceeding will continue the Commission's policymaking and implementation surrounding DG and solar incentives by addressing the following broad categories of issues:

· Further development of policies and program rules in support of the CSI;

· Consideration of DG policy issues generally and ongoing management of the SGIP; and

· Resolution of the cost-benefit methodologies initially explored in R.04-03-017.

We describe each of these in more detail below. We hope to resolve these issues expeditiously in order to assure the continued operation of comprehensive, efficient, and effective CSI and SGIP.