Background

The Commission adopted the SGIP on March 27, 2001, pursuant to AB 970. Under the program adopted in Decision (D.) 01-03-073 and modified in
D.02-09-051, certain entities qualify for financial incentives to install three different categories (or levels) of clean and renewable distributed generation used to serve some portion of a customer's onsite load:

Level 1: The lesser of 50% of project costs or $4.50/watt for photovoltaics, wind turbines, and fuel cells operating on renewable fuels;

Level 2: The lesser of 40% of project costs or $2.50/watt for fuel cells operating on non-renewable fuel and utilizing sufficient waste heat recovery,

Level 3

· 3-R: The lesser of 40% of projects costs or $1.50/watt for microturbines, internal combustion engines, and small gas turbines utilizing renewable fuel.

· 3-N: The lesser of 30% of project costs or $1.00/watt for the above combustion technologies operating on non-renewable fuel, utilizing sufficient waste heat recovery and meeting certain reliability criteria.

D.01-03-073 made these incentives available through December 31, 2004. It identified Pacific Gas & Electric Company (PG&E), Southern California Gas Company (SoCalGas), Southern California Edison Company (SCE) , and the SDREO to administer the statewide program in their respective service territories.¹ The Commission directed SoCalGas to facilitate a Working Group comprised of the administrators, San Diego Gas & Electric Company (SDG&E), and staff from the Energy Division, and the California Energy Commission (CEC) to develop appropriate program details to encourage self-generation. The Working Group meets monthly to ensure uniform implementation statewide.

In D.01-03-073, the Commission stated the SGIP would be evaluated at various intervals both during and after the program period. The program administrators were required to perform periodic program evaluations and load impact studies to verify energy production and system peak demand reductions, and conduct an independent analysis of the relative effectiveness of utility and non-utility program administrators. These activities were outsourced to Itron (formerly known as RER).

To date, Itron has submitted four reports which evaluate operational impacts, program administration, and the first and second year incentives process.

On October 12, 2003, AB 1685 was enacted into law. The legislation adopts emissions and efficiency eligibility requirements that fossil-fueled DG projects must meet in order to receive rebates from the SGIP, and extends the program through December 31, 2007. The new eligibility standards go into effect January 1, 2005.

On December 10, 2003, an ALJ ruling issued in R.99-10-025 requested comments to the evaluation reports prepared by Itron, as well as on other SGIP-related issues. The Commission received comments on January 30, 2004 from SCE, SDG&E, SDREO, SoCalGas, PG&E, Joint Parties Interested in Distributed Generation (JPIDG), California Solar Energy Industries Association (CALSEIA), Megawatt Energy Corporation (Megawatt), NECO Energy Corporation (NECO), Distributed Energy Strategies, Inc. (DES), SolarGen, the Sacramento Municipal Utility District, and the SGIP Working Group. Reply comments were received on February 16, 2004 from all the above entities except for SolarGen, Megawatt and NECO.

The Commission opened Order Instituting Rulemaking (R.) 04-03-017 on March 16, 2004, closed R.98-07-073, and transferred any remaining DG issues from R.99-10-025 and R.98-07-037 to the new proceeding.

CALSEIA subsequently filed a motion on March 26, 2004 reiterating its previously filed comments.

¹ SDREO administers the program in the SDG&E service territory.