3. Discussion

Rule 21 is part of each investor-owned utility's tariff. As adopted in D.00-11-001, Rule 21 contains eight sections and one appendix. Section 1 governs applicability, followed by the general rules and obligations of both the distributed generation customer and the utility (Section 2). The key elements of the Rule are contained in Sections 3 and 4, which describe the non-technical and technical considerations for completing an interconnection agreement. Specific technical details on the screening procedures are detailed in the Appendix. Ownership and operational considerations, as well as procedures for settling disputes, are addressed in Sections 5-7. The rule ends with a common set of definitions to ensure consistency in the rule language. The appendix lays out a schematic and procedures for determining whether an application is eligible for simplified interconnection.

The Supplemental Recommendation builds on the current Rule 21. A new appendix dealing with type testing and pre-certification has been developed, as well as an interconnection application and agreement. In addition, modifications have been made to the language adopted in D.00-11-001 as a result of further work by the parties. We commend the Energy Commission and all of the parties who participated in the process for their efforts to develop and refine these rules. The Supplemental Recommendation summarized the major areas of controversy and proposed how to resolve each issue.

3.1 Standard Interconnection Application and Agreement

3.1.1 Interconnection Application

Development of a comprehensive and user-friendly application form was a major goal of the Energy Commission and all parties involved in this process. An application must supply sufficient information to allow the utility to accurately evaluate the interconnection requirements for the facility but not be burdensome so as to serve as a barrier to entry. The application has been designed to ensure that the applicant for interconnection understands what information is required for the application to be processed without the utility having to request additional information. Various parties made suggested changes to the application form throughout the process and the Energy Commission has made modifications in response to those suggestions. The Energy Commission points out that it is concerned "whether the level of detail in (the) application form will create a barrier to market entry... On the other hand, we recognize that much of the information is required in order for the Electrical Corporation to promptly evaluate an application." (Supplemental Recommendation, p. 22.) The Energy Commission recommends that the application form be adopted, but that it be monitored through a post-implementation working group to determine if additional changes are required. We concur with this recommendation.

3.1.2 Interconnection Agreement

While not part of Rule 21, approval of an Interconnection Agreement is a critical component to the success of Rule 21. During the first half of this year, parties began developing a proposed Interconnection Agreement for Energy Commission consideration. The primary areas of controversy are how the agreement should handle indemnity, liability, and insurance coverage.

Parties identified three options for indemnification: mutual, unilateral, and no indemnity. As described by the Energy Commission:

Under an agreement with mutual indemnity language, each party is held harmless from any damages, losses, and liabilities resulting from the other party's performance under the contract, except in the case of gross negligence or intentional

misconduct. Unilateral indemnity extends the same protections from one party to the actions of the second party, but does not apply in reverse. A third alternative, no indemnity, eliminates the need for an indemnity clause in the agreement. (Supplemental Recommendation, p. 15.)

The utilities supported unilateral indemnification, arguing that distributed generation does not benefit ratepayers, and therefore, the utility and its ratepayers should be indemnified from installation of distributed generation. Manufacturers supported mutual indemnity, arguing that distributed generators provide substantial benefits to the utility and its ratepayers, and both parties should have equal rights and representation under the law. All parties agreed that if their respective positions are not adopted, no indemnity clause should be included in the agreement and it should be replaced with a limitation of liability clause. The Energy Commission recommends, and we concur, that we should adopt a limitation of liability clause in lieu of an indemnity provision such that:

Each Party's liability to the other Party for any loss, cost, claim, injury, liability, or expense, including reasonable attorney's fees, relating to or arising from any act or omission in its performance of this agreement, shall be limited to the amount of direct damage actually incurred. In no event shall either Party be liable to the other Party for any indirect, special, consequential, or punitive damages of any kind whatsoever. (Supplemental Recommendation, p. 18.)

In comments on the draft decision, SCE argues that the phrase "including reasonable attorney's fees" is inconsistent with its goal that liability be limited only to direct damages, which SCE argues does not include attorney fees. We support the Energy Commission's recommendation on this issue as a balanced resolution of conflicting positions. This is an issue that is appropriate to revisit in the Rule 21 review group after additional experience is gained with the Interconnection Agreement.

Another issue was the appropriate minimum level of liability insurance required of the party seeking interconnection. This Commission last addressed proper insurance levels in D.83-10-093, which established insurance requirements for Qualifying Facilities (QFs) seeking to interconnect. The parties agreed, and the Energy Commission recommends, that the minimum liability insurance carried by facilities larger than 100 kilowatts (kW) should be increased from $1,000,000 to $2,000,000. For facilities greater than 20 kW but less than or equal to 100 kW, the parties agreed that the minimum liability insurance carried should be increased from $500,000 to $1,000,000. For facilities 20 kW or less, the insurance requirements differ depending on whether the customer takes residential service, or belongs to another customer class. By increasing the minimum liability insurance that must be carried, we do not intend to create a barrier to entry. Rather, we feel that these increases are reasonable based on reasonable assumptions regarding inflation since 1983 and in comparison to levels of insurance carried by homeowners, as reported by the Energy Commission in its Supplemental Recommendation.

We approve the Interconnection Agreement as recommended by the Energy Commission without change, except as described in Section 3.6 below. The proposed agreement is limited in its applicability and does not apply to QFs or parties seeking to export loads. Our ultimate goal is to see the parties, under Energy Commission guidance, develop a family of standardized agreements that would accommodate export and non-export arrangements. We agree that other agreements should be developed during the post-implementation phase of this proceeding as further discussed below.

3.2 Testing and Certification Procedures

In its initial recommendation, the Energy Commission endorsed the development of an initial review process to create a path for quickly considering applications not requiring an Interconnection Study. The third screen in the initial review process assesses whether specific interconnection equipment is deemed certified for use without further testing. Certification and testing work was the subject of considerable effort during the past few months, resulting in the Testing and Certification appendices to Rule 21. The recommended procedures rely heavily on those developed by Underwriter's Laboratories (UL), the Institute of Electrical and Electronics Engineers (IEEE), and the International Electrotechnical Commission (IEC). The Energy Commission closely relied on the technical expertise of the parties in its support of the proposed certification language. We fully endorse the certification language recommended in Appendix B of the Supplemental Recommendation.

3.3 Refinement of Initial Review Process

Completion of the testing and certification procedures required caused the parties to evaluate whether any of the screens in the initial review process should be revised. The Energy Commission recommends two notable changes. First, the Energy Commission recommends removal of the Net Metering screen. The parties agree that the screen is unnecessary, since each utility already has an established procedure for processing net-metered systems. This action has no impact on the technical evaluation of a DG Application. Second, a new technical screen would be added to address utility concerns over customer power quality. This "Starting Voltage Drop" screen addresses potential voltage fluctuation problems caused by generators that start using utility motor power. These modifications were noncontroversial and we adopt them.

3.4 Fees

The Supplemental Recommendation addressed the complex issue of the calculation of fees for the initial and supplemental review process. The parties identified the types of activities and amount of time required to conduct an initial and supplemental review and a billing rate for these activities. The parties agreed that the initial review process should be completed in eight hours, bringing the total initial cost to $800, assuming the application is approved and processed. In the event the application is rejected, half of that amount ($400) would be returned, based on account and customer service activities that would not be incurred by the Applicant. The Supplemental Recommendation also addressed the maximum charge for supplemental review of the interconnection application. Supplemental review is designed to allow the Electrical Corporation an opportunity to resolve issues identified in the initial review before requiring a more extensive Interconnection Study. Parties suggest that a maximum of six additional hours will provide a firm understanding whether a more extensive study would be needed before an application would be processed. Thus, the total cost of the initial and supplemental review would not exceed $1,400.

The likelihood of passing initial or supplemental review, and thus being eligible for simplified interconnection without an additional interconnection study, is inversely related to the size of the project. Any project has the option of bypassing initial and supplemental review and moving directly to an interconnection study. In that case, the minimum fee for the interconnection study would be $1,400.

The parties did not discuss whether these costs are already part of the utility's everyday operations or whether all of the costs are new costs. Allocation of these costs to existing and new functions was explicitly reserved for this Commission to determine. Assuming the Commission finds that some costs are part of the utility's everyday operations, parties agree that the fees would be adjusted accordingly.

At this time, we will adopt the fees recommended by the Energy Commission as maximum fees for applicants qualifying for initial and supplemental review. Phase 2 testimony has already been completed and does not address the specifics of how to allocate these costs. We recognize that the recommended fees represent a compromise among the parties and that adjustments to the fees will likely be required at some point. After additional experience is gained with the adopted Rule 21, we will revisit whether to adjust the fees. If we adopt an adjustment to the fees in the future, such adjustment will be applied prospectively to interconnections initiated following the effective date of the fee revision. Applicants for interconnection must submit the full fees associated with initial and supplemental review consistent with Rule 21.

3.5 Uniqueness of Utility Tariffs

SDG&E and SCE support standardized Rule 21 language for all utilities. PG&E recommended that specific language be added to reference PG&E's operating and communication protocols. The Energy Commission reviewed PG&E's proposal, as well as comments submitted by SDG&E, CMTA, and Honeywell. Like the Energy Commission, we are committed to the goal of standardized rule language. PG&E did not demonstrate a compelling reason to modify standardized language at this time. PG&E's concern about future utility system alterations is addressed by Section 5.2.2 of the recommended Rule 21. Section 2.4 of the recommended Rule 21 provides uniform assurance that an Electricity Producer will comply with all utility operating practices.

While rejecting the PG&E proposals at this time, the Energy Commission believes that the working groups, in its post-implementation work, should consider whether stronger language is needed in Rule 21 to mitigate the concerns of PG&E and the other utilities. After additional debate by the working groups, we will consider the issue again if the group believes it will improve the quality of the Rule 21 language.

3.6 Interconnection Database

The purpose of establishing a DG interconnection database is to provide a readily accessible inventory of distributed generators in California. This information was first requested by the California Independent System Operator (ISO) to help in the planning and operating functions of the electrical transmission system. The ISO requested operational information on generating facilities above one megawatt (MW) and general information for units below one megawatt.

The Energy Commission has adopted data collection regulations that address these requirements in Docket 97-DC&CR-1. The Energy Commission's data collection regulations require the utilities to submit basic information about each interconnected generating facility, regardless of size. Therefore, the Energy Commission believes no additional orders are required in order to collect information for the database. In comments PG&E raises concerns that certain interconnection information is confidential customer information that cannot be released without written customer authorization pursuant to D.97-10-031. To resolve this issue, PG&E recommends inserting the following language into the Interconnection Agreement: "EP authorizes EC to release the California Energy Commission (CEC) information regarding EP's facility, including customer name, location, size, and operational characteristics of the unit, as requested from time to time pursuant to the CEC's rules and regulations." This language is sufficient to address PG&E's concern that it receive written authorization to release such information to the CEC, and we adopt it.

3.7 Summary

The development of testing and certification procedures, a screening process that promotes simplified interconnection, and standardized interconnection applications and agreements helps us facilitate interconnection of new, small scale generating facilities. By adopting this revised Rule 21 and the Interconnection Agreement and Application as set forth in Attachments A through C, we take further steps towards fulfilling the Assembly Bill (AB) 970 (Chap. 329, Stats. 2000) goals of promoting investment in new, environmentally superior electricity generation, and relieving California's electricity supply constraints.

PG&E, SCE, and SDG&E are directed to file compliance advice letters to replace their existing Rule 21 with the Model Tariff, Interconnection Application Form and Agreement within 15 days of the effective date of this order. It is our goal that Rule 21 be adopted on a statewide basis; however, there may be compelling reasons why smaller utilities, or those with limited California operations, may not be able to comply with this standard. Therefore, within 40 days of the effective date of this order, Sierra, Pacificorp, Mountain Utilities, and Bear Valley Electric are directed to either file a compliance advice letter adopting the Model Tariff, Interconnection Application Form and Agreement or a compliance filing in this docket demonstrating compelling reasons why the adopted rule should not apply to them.