COM/MP1/sid Date of Issuance 8/21/2009
Decision 09-08-026 August 20, 2009
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking Regarding Policies, Procedures and Rules for the California Solar Initiative, the Self-Generation Incentive Program and Other Distributed Generation Issues. |
Rulemaking 08-03-008 (Filed March 13, 2008) |
DECISION ADOPTING COST-BENEFIT METHODOLOGY
FOR DISTRIBUTED GENERATION
TABLE OF CONTENTS
Title Page
DECISION ADOPTING COST-BENEFIT METHODOLOGY
FOR DISTRIBUTED GENERATION 2
1. Summary of Decision 2
2. Procedural Background 5
3. Background on Issues and Policy 7
3.1. Overview of Cost-Benefit Approaches 7
3.2. Development of Avoided Costs in R.04-04-025 14
3.3. Defining DG for Purposes of Modeling Costs and Benefits 17
3.4. Assigning Specific Values to Adopted Variables 19
4. Developing Cost-Benefit Models According to Perspective 22
4.1. Participant Test 23
4.2. The Ratepayer Impact Measure (RIM) Test 24
4.3. Total Resource Cost (TRC) Test and Societal Test 26
4.4. Program Administrator (PA) Cost Test 29
5. Variables of Cost-Benefit Models 30
5.1. Utility and Program Administrator Costs 31
5.2. Line Losses 32
5.3. T&D Investment Deferrals 33
5.4. Electricity Market Price Impacts 36
5.5. Reliability Impacts 37
5.6. Employment and Tax Revenue Effects 40
5.7. Market Transformation Effects 40
5.8. Reduced T&D and Commodity Revenues 45
5.9. DG Project Costs 47
5.10. Environmental Values-CO2, NOx, and PM 10 Emissions 47
5.11. Combined Heat and Power Applications 50
5.12. Standby Charges 51
5.13. Electric and Natural Gas Avoided Costs 52
5.14. Net Metering 53
5.15. Exemptions from the Cost Responsibility Surcharge 54
5.16. SGIP and CSI Incentives 55
5.17. Tax Incentives 55
6. Program Monitoring, Measurement, and Evaluation 56
7. Comments on Proposed Decision 59
8. Assignment of Proceeding 61
Findings of Fact 61
Conclusions of Law 64
ORDER.. 68
ATTACHMENT A
Table 1: Distributed Generation Cost-Benefit Methodology Inputs
Table 2: Participant Test
Table 3: Ratepayer Impact Measure (RIM) Test
Table 4: Total Resource Cost Test
Table 5: Societal Test (Variant of the TRC Test)
ATTACHMENT B - Statutory Definitions of Distributed Energy Resources and Solar Energy System
DECISION ADOPTING COST-BENEFIT METHODOLOGY
1. Summary of Decision
This decision adopts a methodology for assessing the costs and benefits of distributed generation (DG). DG includes customer-owned generation facilities such as solar photovoltaics, wind turbines, biogas, fuel cells, microturbines, small gas turbines, internal combustion engines, and combined heat and power cogeneration plants.
The primary purpose of this inquiry into cost-benefit methodologies is to assure that the state's support for DG projects, such as those funded through the Commission's Self-Generation Incentive Program (SGIP)1 and the California Solar Initiative (CSI), is evaluated in an economically sound manner. Both CSI and SGIP provide incentives up to 1 or 3 megawatts (MWs), respectively, depending on facility type, but eligible DG facilities can be sized up to 5 MW. Today's decision directs that the adopted methodology be used immediately to assess ratepayer supported DG programs, i.e., SGIP and CSI, which support projects as large as 5 MW. This will assure that state programs, which promote DG facilities as high-priority energy resources, are properly informed by a sound measure of those programs' costs and benefits. Given that many of the initiatives supporting DG in California are fundamentally market transformation programs, a robust cost-benefit analysis is critical in assessing progress toward the over-arching goal of reducing the cost of DG to the point where DG is competitive with incumbent technologies. A cost-benefit analysis is not the only measure of a policy or program's worth, but it is an essential input when deciding to continue, modify, or cancel a particular effort.
The methodology we adopt today is designed to reflect the costs and benefits of DG facilities from various perspectives and employs currently available data as inputs. These inputs can be modified in the future with the development of more precise economic values for some variables.
This decision adopts the following general policies and principles for cost-benefit methods used to analyze DG:
· DG projects and programs should be analyzed using three tests described in the Standard Practice Manual, namely, the Participant Test, the Total Resource Cost Test (including its variant, the Societal Test), and the Program Administrator Cost Test;
· The variables for each of the three adopted tests are summarized in Attachment A of this decision and include Commission-approved avoided costs, values included in utility tariffs and actual program data as reported by the program administrators;
· The DG cost-benefit tests should use the avoided cost methodology developed by Energy and Environmental Economics Inc. (E3) and adopted in Decision (D.) 05-04-024, and later updated in D.06-06-063. The inputs to this E3 avoided cost methodology should be consistent with those used in Commission directed evaluation of energy efficiency programs. Any modifications to adapt these avoided costs to DG facilities shall be thoroughly documented and justified by the entity performing the cost-benefit analysis;
· The "physical assurance" requirement that a DG facility will not ever require utility service over deferred utility investment, as set forth in D.03-02-068, should continue to apply to DG facilities that contract with a utility for transmission and distribution capacity deferrals. Nevertheless, the method used by Itron in its SGIP Year 6 Impact Report should be used to determine the collective transmission and distribution investment deferrals of all DG facilities;
· All relevant environmental benefits currently used in evaluation of energy efficiency programs should be included in the cost-benefit models, whether or not their impacts result from regulation or compliance with state or federal law;
· The cost-benefit analysis of DG programs, such as SGIP and CSI, should include a qualitative analysis of the market transformation effects of these DG programs; and
· Bill credits under net metering and energy exported to the grid by DG facilities should be included as costs and benefits of net metering in the cost-benefit tests, where appropriate.
We direct the Commission's Energy Division to oversee the application of this methodology by hiring an independent entity to perform a cost-benefit analysis for the SGIP and CSI programs using the methodology adopted in this decision. The work should be funded by the administrative budgets for SGIP and CSI, respectively. Further, we direct the utilities and SGIP and CSI program administrators to obtain, facilitate the obtainment of, or supply all program data, participant (or DG customer) data, or other relevant information requested by Energy Division, or its contractor, for this analysis. Energy Division should initiate work to retain a contractor for cost-benefit analysis within 30 days from the date of this order. The Energy Division should oversee this analysis work to ensure the appropriate application of the methodology described herein. Once the work is complete, the assigned Administrative Law Judge (ALJ) shall provide parties an opportunity to comment on the final report as part of the Commission's commitment to consider ongoing refinements to this methodology.
Since the time that we began this effort in 2004, DG has expanded and evolved. For example, our SGIP now provides incentives to advanced energy storage technologies that accompany DG facilities. The term DG is no longer limited to customer-owned facilities, as the facilities may be owned by a third party, and may refer to generation that is either on the "customer-side" of the meter, with occasional export to the grid, or generation that is on the utility, or "system-side" of the meter, with occasional customer use, but expressly designed to net export. System-side DG can also be thought of as wholesale DG. The methodology we adopt today may have applicability to these other forms of DG, which may be larger than 5 MW, and the Commission may, at a future date or in another proceeding, choose to explore application of this methodology to other forms of DG.
1 Effective January 1, 2008, Pub. Util. Code § 379.6 limits SGIP eligibility to wind and fuel cell technologies. The cost-benefit methodology adopted in this order will apply to all technologies that may have received incentives under SGIP prior to 2008, such as solar photovoltaics, microturbines, internal combustion engines, and combined heat and power plants.
