Discussion

We will grant the portion of the motion requesting an extension of the pilot's duration beyond 18 months, but we will deny the remainder of the petition.

We will allow CCSE to continue the pilot program beyond the currently scheduled end-date of December 31, 2008, because applications for solar water heating incentives under the pilot have been lower than anticipated. The low participation rate thus far indicates the program budget of $2.59 million has not been exhausted. An extension of time for the pilot will allow CCSE and its independent program evaluator to obtain additional data for program review. Therefore, CCSE may extend the pilot until December 31, 2009, or until the pilot program budget is exhausted, whichever occurs first.

We deny Petitioners' request to expand the geographic reach of the pilot based on Section 2867.2, which prohibits use of CSI funds for solar water heating incentives that displace natural gas usage except under the pilot program in San Diego. Given this statute, we cannot allow CCSE to use CSI funds to provide incentives for solar water heating to displace natural gas usage to customers of SCE and PG&E. While AB 1470 allows the Commission to design a statewide solar water heating incentive program, Section 2863(a) clearly states the Commission must first evaluate the pilot program and determine that a solar water heating program is cost effective for ratepayers and in the public interest before it can design a statewide solar water heating program, funded by a surcharge on gas customers.

We agree with PG&E that it will be quicker to begin program design, as contemplated under AB 1470, if we can gather performance data on the pilot thus far and proceed to determining the cost-effectiveness to ratepayers and public interest of the program, as required by Section 2863. Therefore, we direct our Energy Division to continue to closely monitor the workplan for the interim and final pilot evaluation already underway by CCSE and its independent evaluator, to ensure the evaluation provides the necessary information for the Commission determinations required by Section 2863. CCSE's current evaluation budget is $200,000, as set forth in the February 2007 ruling approving implementation of the pilot. Energy Division may authorize changes to the evaluation budget, following written request by CCSE, if it determines additional funds are required to ensure a comprehensive and useful evaluation to inform statewide program design considerations. If a budget change is required, CCSE should submit a letter to the Director of Energy Division, with a copy to the service list. Any such request will be resolved by letter from the Energy Division Director, copied to the service list. If the evaluation budget is augmented, the total pilot program budget must remain at or below the $3 million authorized in D.06-12-033. We also direct Energy Division to hold a workshop on the pilot program evaluation plan, within 60 days of this order, to allow interested parties an opportunity to understand existing plans for program evaluation as well as provide feedback and suggestions for this evaluation.

We appreciate Petitioners' initiative in suggesting pilot program modifications, which are designed to ensure the Commission has adequate information to make the findings required by AB 1470 prior to designing a statewide solar water heating incentive program. Although the statute bars us from expanding the pilot at this time, we note that CCSE can supplement the information it obtains from systems installed under the pilot with additional research into the market barriers and other economic or technical factors affecting the solar water heating market. Unspent funds from the pilot can fund this additional research. We encourage CCSE, and other interested parties, to work with Energy Division as described above to augment the pilot evaluation with additional research into what type of market interventions are needed to drive greater adoption of solar water heating systems in California.

All other requests in the petition are denied. Among other requests, Petitioners want authorization to increase incentive levels and obtain additional funds for administration. In our view, the increase to incentives was not adequately supported and incentive level changes in the middle of the pilot would complicate evaluation efforts. Additional funds for administration are unnecessary given our denial of the pilot expansion beyond SDG&E's territory. In comments on the proposed decision, Petitioners request to implement a two-tiered, streamlined incentive structure even without increased incentives. We prefer to leave pilot program details of this nature to Energy Division to resolve. CCSE may request to modify its program plan by letter to Energy Division. Program details such as this were not set by Commission order, and modification of a decision is not required to allow minor changes to the program plan.