Incentive Reduction

On March 20, 2006, the assigned ALJ received notice from the Commission's Energy Division staff that 2006 solar PV project applications for CSI funds have exceeded the 50 MW trigger set forth in D.06-01-024. (See Attachment A to this ruling for a copy of the Energy Division notice.) The total applications in hand as of March 9, 2006 total 91 MW.² Indeed, the Energy Division memo indicates that new program applications as of March 9, 2006 are already an additional 41 MW into the second trigger point of 70 MW of incremental demand (or 120 MW cumulative). The Commission has previously stated, "Where demand for rebates exceeds supply, it is reasonable to assume the incentive levels are higher than they need to be to motivate investment."
(D.06-01-024, mimeo, Conclusion of Law 12, p. 39.)

Thus, this ruling provides notice to the parties that the 50 MW trigger has been reached and all applications in excess of the 50 MW threshold, up to the next trigger at 70 MW, will automatically receive the lower incentive payment of $2.50/watt. We are aware that not all applications may proceed to the reservation stage, and then onward to completion. The program administrators should work with the Energy Division and California Energy Commission (CEC) Staff to ensure equitable application of the incentive level of $2.80 per watt under the first 50 MW cap for applications received thus far. Consideration should be given to such factors as the order of application receipt, payment of the application fee, completeness of the application, amounts requested across administrators, and/or other relevant factors.

If any party objects to the implementation of the automatic trigger mechanism as set forth in this ruling, that party may file comments within seven days from the date of this ruling. A further ruling or order of the Commission will be issued if there is any need to modify this ruling and/or respond to objections.

Therefore, IT IS RULED that:

1. The program administrators for the Self-Generation Incentive Program (SGIP), in coordination with Energy Division Staff, shall ensure that incentive payment levels for solar photovoltaic (PV) projects are reduced from $2.80/watt to $2.50/watt for all 2006 program applications exceeding the 50 MW threshold, unless modified by further ruling of the Commission.

2. Parties may comment on this ruling within seven days from the date of this ruling.

Dated March 21, 2006, at San Francisco, California.

		/s/ DOROTHY J. DUDA
		Dorothy J. Duda Administrative Law Judge

State of California
M e m o r a n d u m
Date:	March 20, 2006
To:	ALJ Duda
From:	Energy Division
Subject:	Energy Division Staff Proposal to Lower the Self-Generation Incentive Program Solar Rebate Amount for 2006.

I. Summary Recommendation

As of March 9, 2006, the Self-Generation Incentive Program (SGIP) program administrators (PAs) have collectively received solar incentive applications in excess of 91 MW. In Decision (D.) 06-01-024, the Commission adopted a mechanism to automatically reduce incentives in order to preserve program funding (see Appendix 1). Energy Division recommends that the assigned Administrative Law Judge implement this mechanism to decrease the current solar rebate amount of $2.80/watt to $2.50/watt effective immediately for 2006 SGIP solar applications.

II. Background

On December 15, 2005, the Commission approved a $300 million increase to the SGIP solar budget which brought total 2006 solar funding to $342 million. The allocation of the additional $300 million for solar incentives in the SGIP was an interim measure taken toward meeting the CPUC's broader efforts to establish the California Solar Initiative described in D.06-01-024 and adopted by the CPUC on January 12, 2006.

The SGIP program has often been oversubscribed since 2004. The program administrators instituted a wait list to accommodate applications received during periods when funding is exhausted.

The Commission and the PAs have utilized various methods to maximize program funding. Effective January 1, 2006, the Commission reorganized technology funding levels to create a category solely for solar projects, which allocates more funding for solar projects, and mitigates competition for limited funding among other SGIP renewable technologies.³ The PAs reallocated funding several times in 2004 and 2005 from other technology categories to solar projects, typically from technologies that have historically low program participation rates, or from other non-renewable technologies, as permitted by D.01-03-073.⁴ More recently, the PAs implemented an application fee to discourage non-viable projects which reserve program funding but never materialize. Phantom projects result in high drop-out rates and delayed funding for more mature projects waiting for SGIP funding.

III. Current Program Status

On February 10, 2006 the SGIP began accepting applications for new projects at $2.80/watt, to be funded under the additional $300 million authorized via the CSI program decision. By March 9, the PAs received incentive applications from new 2006 projects which equal approximately 91 MW. If all 91 MW were paid an incentive of $2.80/watt, this would exhaust approximately $255 million in 2006 program funds.

2006 SGIP Solar Application Status

In addition to the SGIP accepting new applications after a long wait-list period, another factor that may have contributed to high solar participation rates is a recent change in the federal tax code allowing credits of up to 30% of installed costs for commercial systems in place between January 1, 2006 and December 31, 2007. We recognize that not all project applications proceed to completion. Historically, some applicants drop out of the program for various reasons, which releases funding for other solar projects. However, given the magnitude of the federal tax credit in 2006, and the promise of declining incentive levels, we believe it is unlikely that these cancellations will reduce reserved capacity to less than 50 MW, the first trigger identified in Appendix 1.

IV. Energy Division Staff Recommendation

After reviewing the SGIP solar application data, Energy Division recommends that the Assigned ALJ decrease the solar rebate immediately from $2.80/watt to $2.50/watt to preserve program funding, utilizing the process adopted in D.06-01-024.

As described in D.06-01-024, "One of two events could trigger an incentive reduction...the first 50 MW reserved under the CSI, or the end of one calendar year, whichever occurs first." Solar applications for 2006 have already exceeded 50 MW.

Appendix 1 provides the schedule of declining rebates adopted in
D.06-01-024. The first decline occurs when applications exceed 50 MW. A second decline occurs when the first of two events occur: applications increase incrementally by an additional 70 MW (cumulative to 120 MW), or on January 1, 2007.

APPENDIX 1

Rebates would change at the earliest of reaching either:			Starting at $2.80/watt equivalent in 2006
"Bin" or Year	Date	Incremental MW Applications	Bin ($/watt)	Total Incentive $ Committed (million $)
0	1/1/06		2.8
1	1/1/07	50	2.5	125.0
2	1/1/08	70	2.25	157.5
3	1/1/09	100	2.0	200.0
4	1/1/10	130	1.75	227.5
5	1/1/11	170	1.5	255.0
6	1/1/12	230	1.25	287.5
7	1/1/13	300	1.0	300.0
8	1/1/14	400	0.75	300.0
9	1/1/15	500	0.5	250.0
10	1/1/16	650	0.25	162.5
Totals:		2600MW5		$2.3 billion
(END OF APPENDIX 1) (END OF ATTACHMENT)

CERTIFICATE OF SERVICE

I certify that I have by mail this day served a true copy of the original attached Administrative Law Judge's Ruling Reducing Solar Photovoltaic Incentive Payments on all parties of record in this proceeding or their attorneys of record.

Dated March 21, 2006, at San Francisco, California.

/s/ ELIZABETH LEWIS

Elizabeth Lewis

NOTICE

Parties should notify the Process Office, Public Utilities Commission, 505 Van Ness Avenue, Room 2000, San Francisco, CA 94102, of any change of address to insure that they continue to receive documents. You must indicate the proceeding number on the service list on which your name appears.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

The Commission's policy is to schedule hearings (meetings, workshops, etc.) in locations that are accessible to people with disabilities. To verify that a particular location is accessible, call: Calendar Clerk (415) 703-1203.

If specialized accommodations for the disabled are needed, e.g., sign language interpreters, those making the arrangements must call the Public Advisor at (415) 703-2074, TTY 1-866-836-7825 or
(415) 703-5282 at least three working days in advance of the event.

² This total does not include 2005 solar project applications received on or before December 15, 2005, which will be paid an incentive of $3.00/watt as ordered by Ordering Paragraph 3 of D.05-12-044.

³ Currently SGIP rebates are paid up to five MW for systems over 30 KW of solar, wind, fuel cells, renewable micro-turbines, IC engines, small and large gas turbines running on renewable fuels, and non-renewable fuel cells, micro-turbines, IC engines, and small and large non-renewable gas turbines.

⁴ D.01-03-073, p. 21; "Although the utilities may exercise full discretion in moving funds from non-renewable self-generation categories to the renewable category...The utilities shall not unreasonably withhold funds that could be used to deploy a greater amount of renewable self-generation."

⁵ Note: The MW total reflected is corrected from table that was included in D.06-01-024.