II. Background

In D.06-01-024 (the "January CSI Decision"), the Commission collaborated with the CEC to jointly create the CSI, an 11-year $3.2 billion incentive program with the goal of ensuring that customers of California's investor-owned utilities install 3,000 MW of new solar facilities at their homes and businesses in California. The Commission will implement the CSI in partnership with the CEC, and the initiative runs from 2006 through 2016. The Commission portion of the CSI targets the installation of 2,600 MW of solar technologies, based on a budget of $2.8 billion derived from the distribution rates of PG&E, SCE, SoCalGas, and SDG&E. The CEC portion of the program targets 400 MW of solar installations in new home construction, using a budget of $350 million derived from renewable energy Public Goods Charge funds.

As the Commission stated in D.06-01-024, the objectives of the CSI are to add clean energy to peak demand resources, to reduce risk by diversifying the state's energy portfolio, and to reduce the need for transmission and distribution system additions. Through the CSI, the Commission and CEC endeavor to transform the existing energy market to make solar products cost-effective, with the goal of eliminating the need for incentive payments after 2016. (D.06-01-024, mimeo. at 4.)

In 2006, the first year of the CSI, incentives to solar projects are funded through the Commission's Self-Generation Incentive Program (SGIP) and the CEC's Emerging Renewables Program (ERP). The SGIP provides monetary incentives for customers to install distributed generation, including solar PV technologies with a capacity of 30 kW or more. Solar facilities of this size are generally installed by commercial and industrial customers. The ERP provides incentives for solar PV projects of less than 30 kW, most of which are installed by or for residential customers.

Beginning in 2007, the Commission will consolidate its implementation of all solar incentives into the CSI, while the ongoing SGIP will fund distributed generation projects that are non-solar. In addition, a portion of the CEC's current solar incentive program will transfer to Commission oversight, specifically solar projects that are less than 30 kW in capacity for existing homes and non-residential facilities. The CEC portion of the CSI will focus on solar incentives solely to the residential new construction market.

Following adoption of D.06-01-024, the Commission opened Rulemaking (R.) 06-03-004 (the "CSI/DG OIR") to develop program rules and policies for the CSI. In Phase I of this rulemaking, the Commission has explored whether to adopt performance-based incentives for PV facilities, whether to adjust incentives to account for federal tax credits, the proper incentive levels for solar technologies other than PV, and other issues regarding the structure and adjustment of these incentive payments. Phase I has also included an examination of the appropriate administrative structure for implementation of the CSI, and energy efficiency and metering requirements for CSI projects.

The key issue in Phase I is whether to amend the incentive levels the Commission adopted in D.06-01-024 in order to bring a performance dimension to incentive payments. The Energy Division staff held a workshop on March 16, 2006 on the topic of performance-based incentives. Following the workshop, Energy Division staff prepared a proposal for CSI Incentive Design and Administration that was circulated to all parties through an ALJ's Ruling on April 25, 2006.⁵ A further workshop was held on May 4, 2006 to allow parties to ask questions about the Staff Proposal. On May 9, 2006, the ALJ issued a ruling with one modification to the Staff Proposal related to administration of CSI. Interested parties filed opening and reply comments on the Staff Proposal on May 16 and May 25, 2006, respectively.

Comments were filed by Americans for Solar Power (ASPv), R. Thomas Beach, the California Farm Bureau Federation (Farm Bureau), Californians for Renewable Energy (CARE), jointly by the California Solar Energy Industries Association (Cal SEIA), PV Now and the Vote Solar Initiative (hereinafter "Joint Solar Parties"), City and County of San Francisco (CCSF), Clean Power Markets, Consumer Federation of California (CFC), the Commission's Division of Ratepayer Advocates (DRA), Energy Innovations Inc., Fat Spaniel Technologies Inc. (FST), Golden Sierra Power, Michael Kyes, PG&E, Pacific Power Management, NorCal Solar Energy Association, SCE, jointly by SDG&E and SoCalGas, San Diego Regional Energy Office (SDREO), Solargenix Energy Inc., Sun Light and Power Company (Sun Light), and The Utility Reform Network (TURN).⁶

Reply Comments were filed by ASPv, R. Thomas Beach, jointly by CalSEIA, Crossborder Energy, PV Now, Sunlight & Power and Vote Solar Initiative (Joint Solar Parties), CFC, DRA, Energy Producers and Users Coalition (EPUC), FST, Michael Kyes, PG&E, SCE, SDREO, SDG&E/SocalGas, Solargenix Sun Light, and TURN.

⁵ See "ALJ's Ruling Requesting Comment on Staff Proposal for Performance Based Incentives and Other Elements of the California Solar Initiative," April 25, 2006, (hereinafter "Staff Proposal").

⁶ The comments of Solargenix and Pacific Power Management were not filed formally, but were placed in this proceeding's correspondence file.