Discussion

We find that GRID's petition should be granted for several reasons. We agree with GRID that the restriction in D.07-11-045, while well intentioned, only allows payment of incentives to homeowners, and does not allow incentive assignment to entities other than the homeowner, in an attempt to prevent third-party ownership arrangements. If we modify the decision and allow incentive recipients under the LISF Program to assign their incentive payments to a third party for solar system installation, we can overcome the potential barriers to program participation that GRID points out. We agree with GRID that allowing homeowners to assign their incentive payments is not the same as transferring ownership of the system third parties. Thus, while we retain the restriction in D.07-11-045 to not allow third-party ownership arrangements in the LISF program at this time, we will modify the original order to allow assignment of incentive payments, as long as system ownership remains with the low-income homeowner. We will not require the Program Manager to maintain a list of approved third parties that provide solar equipment, installation or financing. We agree with PG&E that maintaining such a list is an unnecessary administrative burden given that there are no similar restrictions in the general market CSI program.

We disagree with SCE's suggestion that we wait to gather more information before considering this petition. GRID has provided sufficient justification, based on its experience in the general market CSI program, that the language in D.07-11-045 precluding incentive assignment could impede the successful operation of our LISF Program. To maximize the success of the LISF Program, we will act now.

At the same time, we agree with CSD that clarification is required regarding the potential for the Program Manager to act as installer, and thus receive assignment of incentives. We agree with CSD and SCE that this situation could create a conflict of interest between the Program Manager's interest in recovering installation costs and its role in ensuring responsible use of program funds. We will not adopt the strict solution suggested by CSD and SCE, namely that we prohibit the assignment of incentives to the Program Manager. The broad restriction they suggest could inhibit innovative organizational models designed to bring solar energy to low-income families. As Mackie from GRID attests in her declaration, GRID's non-profit business model, which uses volunteer labor combined with solar manufacturer discounts, has enabled it to install solar energy systems at a lower cost per watt than other entities.

We conclude that the potential benefits of GRID's non-profit model, which facilitate the provision of solar energy systems to low-income homeowners and help fulfill the goals of our LISF program, warrant a deviation from the Program Manager model we use in the general market CSI program. In the general market CSI program, we do not allow the Program Administrators to perform system installation or receive incentives through assignment. Despite that restriction, we find that we can make an exception for the LISF program and allow the LISF Program Manager to perform the dual function of installer and Program Manager because the $108 million LISF program is a small subset of the total $2.16 billion CSI program, and the Program Manager will be subject to the monitoring and oversight set forth below.

We will allow the dual role only for the LISF program and only as long as all the guidelines we previously adopted in D.07-11-045 are met and the Program Manager's contract contains provisions for third-party monitoring and oversight. In D.07-11-045 we established strict guidelines for the LISF program, namely that "incentives shall be paid only after the Program Manager verifies that system installation is complete and the solar energy system is operable." (D.07-11-045, Appendix A, p. 2.) We now clarify that because the Program Manager may perform the dual role of installer, a third party must perform this verification function. This ensures the Program Manager does not verify its own installations. Energy Division should ensure the Program Manager coordinates with the CSI program administrators to consider using existing arrangements for verification and inspection services. Any third-party monitoring work should be compensated from the LISF budget, whether it is performed by the utilities or other entities.

In D.07-11-045, we further required the Program Manager to "submit to an annual audit of program expenditures...to ensure program funds are paid to legitimate and verified installations of solar energy systems on qualifying homes and that administrative funds are spent in a reasonable and appropriate manner." (Id., p. 9.) We now clarify that this audit must be performed by an independent entity. As long as these conditions are met and adequately reflected in the Program Manager's contract, we are satisfied that we can allow GRID, as Program Manager, to receive assignment of incentives.

We disagree with SCE and CSD that third party monitoring and oversight of incentive payments will increase program administration costs. The requirements we set forth in D.07-11-045 were already stricter than those in the general market CSI program, and monitoring and oversight of incentive payments was already contemplated when we adopted this program. The fact that the auditing and verification must now be done by a third party as opposed to the Program Manager does not necessarily increase costs, as the function would have been performed either way.

Therefore, to mitigate potential conflicts in the Program Manager's role, we direct the Commission's Energy Division to ensure that the contract with the Program Manager fulfills the requirements in D.07-11-045 for independent auditing and verification and provides for third-party monitoring and oversight of incentive payments.

In conclusion, D.07-11-045 should be modified as follows (new text is underlined):

Conclusion of Law (COL) 15: Energy Division should ensure the Program Manager's contract includes an agreement to submit to an annual independent audit of program expenditures.

COL 17: The Program Manager may only pay low-income incentives to a qualifying low-income homeowner who is also the system owner and occupant of the home, but a qualifying homeowner may assign his or her right to receive the incentive payment to a third party that provides the solar equipment, installation, or financing for such equipment or installation costs, as long as the homeowner continues to own the solar energy system.

COL 18: Incentives shall only be paid after third-party verification of system installation and operability.

Comments on Proposed Decision

The proposed decision of President Michael R. Peevey in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on October 14, 2008, by the Commission's Division of Ratepayer Advocates (DRA), GRID, PG&E and SCE. Reply comments were filed on October 20, 2008, by GRID and SCE. The comments generally support the proposed decision, but request minor clarifications or changes.

GRID comments that the decision's requirement that incentives only be paid after third-party verification of system installation and operability implies that every solar system installed under the LISF program must be reviewed by a third party monitor. GRID requests the decision be revised to permit the Energy Division to determine the appropriate level of third-party verification and inspection, which could include random spot-checks of a sample of installations. We will not alter the decision as GRID requests. The decision discusses the inherent conflict of interest in a single entity performing installations and acting as Program Manager and paying incentives. For this reason, this decision heightens the verification requirement to require it be performed by an independent entity other than the Program Manager. Given the inherent conflict in the Program Manager performing the dual role of installer, we will not modify the requirement set forth in D.07-11-045 that all systems receive verification before incentive funds are paid under LISF. The Commission may consider future petitions to scale back this verification process after there is some experience with successful program operation.

PG&E and SCE both comment that given their expertise with CSI program administration, they could each perform the function of third-party monitor as required by this decision. PG&E requests it be assigned that duty, and allowed to recover its costs for performing this function. SCE suggests the Commission require the LISF Program Manager to work with the CSI program administrators to leverage existing auditing and verification services already available for CSI. We agree that the utilities may be well-positioned to perform or coordinate third-party monitoring and it may be wise to use existing monitoring and verification services. The order has been revised to direct Energy Division to ensure the Program Manager coordinates with the CSI program administrators to consider using existing arrangements for these services, although the Program Manager is not required to use the utilities. Any third-party monitoring work should be compensated from the LISF budget, whether it is performed by the utilities or other entities.

DRA requests the decision be revised to define the process for selecting both an independent auditor and third-party monitors. DRA also suggests the addition of two specific criteria to assess the Program Manager's performance in the dual role of program administrator and system installer. We decline to make the changes DRA requests. The decision already delegates to Energy Division to ensure that the contract with the Program Manager contains adequate selection of an independent auditor and third-party monitors. As for assessment of the Program Manager's performance, the Commission can, at any time, revisit the decision to allow the Program Manager to perform solar installations if any problems arise in administration of the program, either operational or budgetary. Moreover, other solar installers are not precluded from participating in the program. We will not adopt the specific criteria DRA suggests.