II. Background

In recent 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 DWR cost responsibility surcharges. This rulemaking evolves from and builds on the work we began in three previous proceedings, Rulemaking (R.) 98-12-015, R. 99-10-025, and R.04-03-017. 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 California Energy Commission and our own orders also emphasize the state's commitment to DG development. As we stated in R.04-03-017, we have much to learn regarding the true costs and benefits of adding DG to the electrical system; about the proper levels of incentives for various DG technologies; and about the extent to which DG can and should be incorporated into utility long-term resource planning and procurement.

The prior DG rulemaking (R.03-04-017) 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 solar DG program, the California Solar Initiative (CSI). D.05-12-044 provided a total of $342 million for solar incentives in 2006 for the CSI. D.06-01-024 committed $2.5 billion to CSI over ten years, established broad program principles and set forth a number of program issues that require our additional attention. We also expressed our interest in refining the existing program in several ways and an intent to investigate them over the coming year or so.

This proceeding will address the following broad categories of issues:

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

· Ongoing management of the SGIP;

· Further development of program rules and policies for the CSI;

· Analysis of subsidies for renewable DG and measurement of renewable DG output for purposes of counting renewable DG output toward the renewables portfolio standard (RPS) requirements of utilities.

We describe each of these in more detail below.