3. Discussion
3.1. Is the proposed investment authorized by
Pub. Util. Code §§ 740 and 740.1?
Pub. Util. Code § 740 authorizes utilities to charge ratepayers for "expenses for research and development." However, the statute does not define what constitutes an R&D expense. To assist our analysis of this issue, we adopt the definition of "research and development" from the federal Office of Management and Budget guidelines:
Basic research is defined as systematic study directed toward fuller knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific application toward processes or products in mind.
Applied research is defined as systematic study to gain knowledge or understanding necessary to determine the means by which a recognized and specific need may be met.
Development is defined as systematic application of knowledge or understanding, directed toward the production of useful materials, devices, and systems or methods, including design, development, and improvement of prototypes and new processes that meet specific requirements.4
To determine whether work done at the PV MDF falls within this definition, we look to the application and the supporting documentation including this description of the PV MDF in the SVTC grant proposal to DOE:
A fabrication facility that 20-30 PV companies could use simultaneously to do pilot manufacturing on a fee for service basis. It would have baseline manufacturing equipment, plus specialized equipment bays and private locked bays for each company's unique technological process.5
In simple terms, the PV MDF is a facility housing a collection of basic manufacturing equipment for making solar panels, either alone or together with specialized tools owned by the users and stored at the facility. It is effectively a test lab in which solar panel fabrication companies can evaluate alternative product designs and manufacturing processes. The companies can rent the PV MDF rather than build their own test facilities, thereby shortening the time and lowering the cost of bringing solar panels to market.
From the short description given above, it should be clear that users of the PV MDF would not be doing either basic or applied research. Nor would the users be developing manufacturing technologies at the PV MD; they would be testing products and processes developed elsewhere. On the other hand, the definition of "development" from the Office of Management and Budget (OMB) Guidelines, if read broadly, appears to cover this facility since testing of products and processes is part of developing them.
Turning from the general language of § 740 to the detailed requirements of § 740.1, it appears that the PV MDF supports "environmental improvement" as mandated by § 740.1(e)(1) and the development of "renewable resources" as mandated by § 740.1(e)(4), but does not offer a reasonable prospect of providing benefits to ratepayers (§ 740.1(a), and duplicates work that would be done elsewhere (§ 740.1(d)). Weighing these outcomes we conclude that the project overall does not satisfy the requirements of the statute.
In its original application, PG&E argued that the utility's financial stake in the project would "provide the potential for full reimbursement to PG&E's customers over the long term."6 More specifically, it would "provide an opportunity for reimbursement of PG&E's customers after five years."7 Perhaps recognizing that this potential ratepayer benefit is speculative and remote, PG&E has minimized economic return on the invested funds in its amended application and its briefs, choosing instead to emphasize the potential for lower cost solar energy as the principal ratepayer benefit:
PG&E has never claimed that its investment in the MDF would be the source of benefits for the RD&D Project. Instead the primary benefit of the project is the RD&D potential for improved solar manufacturing processes and lower PV product costs and prices.8
PG&E has wisely replaced its emphasis on "the potential for full reimbursement" with more general potential benefits because there is no reasonable assurance that ratepayers will ever recover any of the money invested in the PV MDF.
DRA and TURN, respectively, have placed in the record news reports of rapidly falling prices for solar panels, a trend expected to continue for years,9 and the reduction of the US solar panel industry in the face of Chinese competition.10 The relatively high cost of manufacturing solar panels in California versus other parts of the world, the projected rapid price erosion and the current uncompetitive state of the American solar panel industry taken together cast substantial doubt on the long-term viability of this project.
Even if we assume, as PG&E asks us to do, that the major ratepayer benefit from the project is the "potential for improved solar manufacturing processes and lower PV product costs and prices" it is difficult to see how this benefit rewards the ratepayers for their investment. All customers of California-based solar panel manufacturers, whether located in PG&E's service territory, elsewhere in California, or outside of California, would potentially benefit equally from lower prices for solar panels.
Finally, as SVTC itself noted in its DOE application, the focus of the PV MDF is on commercialization of solar panel manufacturing technology. Every solar panel manufacturer may be assumed to be focused on commercialization. While the existence of the PV MDF might marginally accelerate that process, it almost certainly duplicates the efforts of existing and future manufacturers.
For these reasons, we conclude that investment of ratepayer funds in this project is not authorized by Pub. Util. Code §§ 740 and 740.1.
3.2. Is the proposed investment authorized by
Pub. Util. Code § 2775.5?
This section broadly authorizes gas and electric utilities to invest ratepayer funds in solar energy systems, provided that the Commission finds that the investment is in the ratepayers' interest, will accelerate the use of solar energy systems in California, and will not adversely impact the market for solar energy systems.
PG&E argues that the PV MDF meets all three requirements.11
We note this section's requirement that any investment of ratepayer funds in solar energy systems should be "in the ratepayers' interest." We interpret Section 2775.5 to mean that an investment in a solar energy system is in the ratepayers' interest only if some benefits to ratepayers are separate from benefits to the public at large. The potential lowering of solar panel costs, the creation of California-based jobs, and the other alleged benefits of the project all accrue either to the public at large or to groups other than PG&E ratepayers, for example, employees of SVTC or the PV MDF. We have already determined that the likelihood of ratepayers receiving a monetary return on their investment is too remote and inadequate to constitute a ratepayer benefit. Accordingly, we find that the proposed investment does not create a ratepayer benefit that is separate from the benefits to the public at large and fails to meet the requirement of § 2775.5(f) that it be in the ratepayers' interest.
Since a proposed investment in a solar system has to meet all the enumerated requirements to qualify under Section 2775.5, we need not discuss whether this investment meets the other requirements.
3.3. Should we approve this use of ratepayer funds
in the absence of specific statutory authorization?
PG&E argues that we should approve this investment of ratepayer funds using the broad general regulatory authority conferred on us by Pub. Util. Code § 701,12 even if it does not meet the specific requirements of § 740 or § 2775.5, PG&E states the investment will bring millions of otherwise foregone federal dollars into California during a difficult economic time, has the support of the governor, and is an appropriate complement to the state's programs of encouraging alternatives to fossil fuel burning.13 In effect, the utility argues that we should not turn down millions of dollars of federal grant money, with their associated positive impact on jobs and the environment, simply because the investment does not fit neatly into the sections of the Public Utilities Code that deal with investment of ratepayer funds in solar systems and related matters.
As all parties have pointed out in their briefs, we regularly consider whether to permit the use of ratepayer funds for activities that do not directly lower the cost or increase the reliability of utility service. We consider each such proposal on its merits and weigh the amount of public good, the cost to ratepayers, and the availability of alternative financing vehicles, among other things, in determining whether or not to authorize such investments. After weighing those various interests, we conclude that funding for this project is more appropriately sought from private sources.
4 http://www.nsf.gov/statistics/randdef/fedgov.cfm.
5 SVTC Technologies' PV MDF Application for funding from DOE PV Manufacturing Initiative (DE-FOA-000237).
6 Application of Pacific Gas and Electric Company for Authority to Increase Electric Rates and Charges to Recover Costs Relating to California Solar Photovoltaic Manufacturing Development Facility, dated November 1, 2010 at 1.
7 Ibid. at 3.
8 Reply Brief of Pacific Gas and Electric Company dated December 6, 2011, at 5.
9 "Solar Generation of Electricity at Grid Parity A Reality in Selected Geographies And 16% Per Year Cost Decline for Next 5 Years Implies Major Markets Are Next: Exclusive Interview With Industry Expert." The Wall Street Transcript, March 4, 2011 cited in Opening Brief of Division of Ratepayer Advocates dated November 21, 2011, at 10.
10 Opening Brief of The Utility Reform Network dated November 21, 2011, Attachment 1: News Articles.
11 Opening Brief of Pacific Gas and Electric Company dated November 21, 2011, at 4-8.
12 The commission may supervise and regulate every public utility in the State and may do all things, whether specifically designated in this part or in addition thereto which are necessary and convenient in the exercise of such power and jurisdiction.
13 PG&E Application.
