IV. Program Administration
The fundamental debate concerning CSI administration is whether to expand the role of the existing SGIP administrators into solar program areas they do not currently handle, or direct the utilities to contract with an independent, non-profit administrator for some portion of the CSI program, and if so, for which portions of the program. An explanation of the current circumstances may clarify this.
Currently, administration of solar incentives depends on project size. Solar incentives for facilities above 30 kW are handled through the Commission's SGIP, which is currently administered by four entities -- PG&E, SCE, SoCalGas and SDREO. SDREO is a private non-profit corporation that has experience administering a variety of energy programs in the San Diego area. Solar incentives for facilities less than 30 kW are currently handled by the CEC. Beginning in 2007, this size distinction will no longer be relevant because the CEC's focus will shift to solar incentives solely for residential new construction and it will no longer handle incentives for any solar retrofit projects less than 30 kW. Incentives for projects of this size, which are predominantly residential projects, will need to shift to a new administrative structure.
Aware of the impending administrative question, the Commission found in D.06-01-024 that third-party administration of the residential retrofit portion of the CSI by one or more non-profit organizations, was most likely to accomplish the Commission's solar objectives. Specifically, the Commission stated:
The residential retrofit portion of the CSI program is one that is well-suited to third-party administration. It is an area where, in the past, the administration has been done by the CEC and not the utilities. Thus, a new administrative structure will need to be developed in any case. We expect to explore, over the next year, a pilot approach using third-party administration initially only for the residential retrofit portion of the program.
For the commercial and industrial sector, we find it prudent to continue the status quo with existing program administrators, including SDREO. (Page 35.)
In its April 2006 Staff Proposal, the Staff expanded upon the Commission's suggestion to explore non-profit administration for residential retrofit projects by recommending non-profit administration for all projects less than 100 kW. Essentially, the Staff proposed separate administration for large and small systems to correspond to the Staff Proposal for two incentive structures. For systems 100 kW and larger that receive incentives based on measured performance, the current SGIP administrators would continue their work. For systems below 100 kW that receive an up front EPBB payment, Staff proposed that PG&E should conduct a competitive bidding process to select and contract with a non-profit administrator. Significantly, the utilities would, by necessity, remain in fiscal control of the contract. An advisory panel would consult with PG&E on administrator selection, and PG&E would make the final selection in consultation with the advisory panel.25
Staff supported its proposal by reasoning that if the utilities could contract with a non-profit administrator with a demonstrated commitment to promoting solar development and innovation, that non-profit would be committed to the long-term success and sustainability of the CSI program. Further, a non-profit could ensure marketing and outreach to all ratepayers without perceived or inherent conflicts that might discourage solar installations. Staff reasoned that expanding non-profit administration to all projects less than 100 kW would achieve economies of scale in administrative costs by consolidating large numbers of homogenous transactions within a single entity. The Staff Proposal claimed that existing program administrators, with the exception of SDREO, have neither the experience nor the infrastructure to handle large numbers of applications for small solar system incentives. Despite its proposal for non-profit administration, Staff stated it remained an unresolved issue whether the Internal Revenue Service (IRS) would determine that a program administered by a non-profit under contract to one or more utilities would be able to offer non-taxable residential incentives. Based on this alleged uncertainty, Staff requested comment on whether administration by a non-utility entity could jeopardize or restrict a residential participant's ability to take advantage of solar tax credits under IRS rules.
A. Parties' Comments
Numerous commenting parties, including the Joint Solar Parties, the utilities, DRA, Michael Kyes, Solargenix, TURN, and Sun Light, voiced support for the current SGIP administrators continuing in their role for the CSI. These parties expressed concern there is insufficient time available for a new administrative structure to be in place for the January 2007 CSI starting date without market disruption. Additionally, these commentors argued in favor of continuing with the current SGIP administrators based on their past performance as administrators and a belief that the utilities are best positioned to meet their customers' overall energy needs. PG&E defended its experience and proven infrastructure to handle a high volume of transactions based on its expertise delivering energy efficiency and low-income programs over many years. PG&E also contended it has demonstrated its commitment to solar power through its many voluntary reallocations of budgets from non-renewable programs to fund solar projects from 2001 through 2005. According to PG&E, utility administration of CSI programs can provide numerous "one stop shopping" advantages due to the utilities' continuing role in interconnection, billing, new service connections, energy efficiency audits, and other programs.
Several commentors, notably the utilities and DRA, noted the Commission recently rejected the concept of independent administration for energy efficiency programs in D.05-01-055, in part over concerns with the Commission's ability to exercise control over an independent administrative entity. The Commission also determined there were benefits from the utilities' role in administration given their role in integrated resource planning. These parties generally allege there is no reason for the Commission to revisit the concept of non-utility administration for CSI when the concept was rejected for energy efficiency programs.
In contrast, a number of parties, namely; ASPv, Clean Power Markets Inc., CFC, Golden Sierra, NorCal Solar Energy Association, and SDREO, argued the CSI would be better served by an independent administrator for small systems based on an alleged lack of utility commitment to promoting solar development and potential conflicts of interest with other utility goals. SDREO described the benefits of an independent administrator more closely aligned to customer needs and the state's sustainable energy goals, rather than a profit motive. It further noted the positive relationships and local alliances a non-profit entity can foster with community stakeholders and other non-profits to maximize education, outreach and program service delivery. Parties also expressed the view that independent administration would have lower overhead costs than the current administrative structure for SGIP.
Many parties expressed the view that before moving to a non-profit administrative structure, the Commission should first obtain an IRS ruling on whether non-utility administration would jeopardize the ability of a residential applicant to take advantage of federal tax credits.
B. Discussion
The key debate is whether to expand the role of the existing administrators into program areas they do not currently handle, or direct the utilities to contract with a non-profit administrator for some portion of the CSI program, and if so, which portion.
The utilities and SDREO already administer solar incentives through the SGIP for all projects above 30 kW and many argue they are well situated to take on CSI administration and provide one-stop shopping for energy efficiency, solar and interconnection purposes. Staff had proposed keeping the existing SGIP administrators only for commercial projects over 100 kW, while expanding non-profit administration to all projects under 100 kW, both residential and commercial. If we adopted the Staff Proposal, we would actually reduce the administration role of the utilities and SDREO by handing administration for all projects between 30 kW and 100 kW to a non-profit administrator.
We find it more reasonable to define CSI administration in terms of customer sector, i.e., residential or non-residential, than by project size distinctions. A size distinction worked in the past when size was the dividing line between CEC and Commission programs. Now that the Commission will oversee residential solar retrofits of any size, it is more meaningful to discuss administration options based on residential and non-residential distinctions.
With that as a framework, we find it reasonable to allow the existing SGIP administrators to continue in their roles and administer the CSI in 2007 and beyond for the non-residential sector. This will allow all non-residential projects, regardless of size, to be handled essentially in the manner they are handled today. Although the Staff had proposed reducing the role of the existing administrators by limiting them to projects above 100 kW, we disagree with this suggestion. The comments persuade us that if we limited the existing administrators to solar projects above 100 kW, they would be left with very few projects to administer, as the majority of applications are for projects below 100 kW. The Staff Proposal would transfer responsibility for programs that the utilities and SDREO have experience administering to a new entity. We see no reason to reduce the role of the existing administrators at this time. This would place even more pressure on a new administrator to take over the majority of the CSI program in a very short time. There is no obvious reason to reduce the role of the existing administrators to such a great extent at this time and jeopardize the smooth transition from SGIP to CSI.
We must now determine whether to pursue non-profit administration for the residential retrofit portion of the CSI. For now, we will shift the residential retrofit solar programs from the CEC's single statewide administration to the existing SGIP administrators as well, i.e., PG&E, SCE, SoCalGas, and SDREO. Although we strongly endorsed the concept of non-profit administration for residential retrofit CSI programs in D.06-01-024, and we still support the concept, we find there simply is not enough time between now and January 2007 to ensure this move is done well and without disrupting the residential solar market. We are more concerned with ensuring a smooth and timely transition from CEC administration to experienced administrators and preventing any gaps in the provision of solar incentives to the residential retrofit market. Essentially, we agree with the concerns expressed by many parties that there may not be one or more candidates for non-profit administration that could be competitively selected and fully operational on a statewide basis by January 2007.
We reiterate that we still endorse the concept of non-profit administration for the residential retrofit portion of CSI. Although we make the choice to shift these programs from the CEC to the existing SGIP administrators for now, we make this choice for expediency and to ensure program continuity over the next few months. In the longer term, there are still very good reasons to consider non-profit administration for this portion of CSI. The residential retrofit programs have been handled by one entity, the CEC, on a statewide basis until now. A future hand-off to one statewide entity may still prove the best long-term option. The rationale articulated by the parties resonate with us, particularly that a non-profit administrator might achieve economies of scale by consolidating residential retrofit programs statewide, exhibit lower overhead costs, and be driven by a mission to promote solar development. We agree with SDREO that a single non-profit entity with strong community alliances might be best positioned to maximize education, outreach and program delivery.
We will explore in Phase II of this rulemaking whether to direct the administrators to contract with a single statewide entity for marketing and outreach of CSI programs. If we find that a reasonable option, and we direct the administrators to contract with one entity for statewide marketing and outreach, we might also consider directing the administrators to expand that statewide contract at some future date to include the actual administration of residential retrofit programs altogether. We also may look in the future at alternate administrative approaches for a single region or utility service area if it appears that one region lags others in solar penetration, ease of interconnection, or administrative performance and cost. In the near term, we discuss at the end of this section the development of one statewide on-line application system. This concept of a single portal for solar incentive applications from residential customers could allow a smooth transition, at a later date, to a single statewide administrator for residential programs.
Turning to the issue of whether program administration affects the tax status of incentive payments, we find that IRS taxation issues do not impact our decision between existing administration or transfer of administrative duties to a non-profit entity. Almost all parties commenting on CSI administration questioned whether residential solar incentives, or subsidies, would be taxable if administered by a non-utility administrator and whether it is desirable to obtain a ruling on this issue from the IRS. Under Section 136 of the Internal Revenue Code, a taxpayer does not receive taxable income when he receives a "subsidy provided (directly or indirectly) by a public utility for the purchase or installation of any energy conservation measure." No question has been raised as to whether the subsidies here would be "for the purchase or installation of an . . . energy conservation measure." Rather, some have questioned whether the subsidies would be "provided (directly or indirectly) by a public utility" if the Commission requires the utility to enter into a contract with a third-party administrator to administer the subsidy program. However, the clear language of Section 136 includes a subsidy provided by a public utility, even if the utility contracts with a third-party administrator to administer the subsidy program, where the money comes from utility rates and is issued in the form of a check payable from one of the utility's checking accounts.26 Indeed, the legislative history of this language shows that the purpose of Section 136 is to "provide tax-free treatment for the receipt of subsidies relating to energy conservation measures in order to encourage customers of public utilities to participate in energy conservation programs sponsored by the utilities (emphasis added)." (H.R. Rep. No. 102-474(VI) 2nd, Sess., p. 2247 (1992).) The subsidies to be provided here will be "sponsored by the utilities" whether or not the utilities use a third-party administrator to handle the administration of the subsidies.27
Parties have expressed concern whether an IRS Private Letter Ruling (8530004 (April 30, 1985)) calls this conclusion into question. We believe that that Private Letter Ruling does not. In the first place that private letter ruling deals with a different section of the Internal Revenue Code and different language. The language being interpreted there was "financing provided under a Federal, State, or local program . . ." as opposed to the language at issue here which is "subsidy provided by a public utility" (emphasis added). Furthermore, the portion of the private letter ruling that has caused these concerns is dicta, is not supported by citation to any authority, and seems directly contradictory to a prior Revenue Ruling (Revenue Ruling 83-145). Moreover, a Private Letter Ruling cannot be cited as precedent, whereas a Revenue Ruling can be cited as precedent. Accordingly, we see no reason for the Commission to seek a ruling from the IRS on this issue.
In its January CSI decision, the Commission stated the intent to "encourage web-based administrative options to facilitate quick and transparent transactions for applications and other activities" noting that "a single interactive database would allow applicants, evaluators and administrators to readily access statewide project information." (D.06-01-024, p. 35.)
Several parties expressed support for this idea, and recommended creation of an Internet accessible, online application tool and uniform statewide database to streamline the CSI application process as well as administration and data collection activities. As SDREO noted in its comments, CSI applicants could use this online tool to download and submit program documents (such as the program handbook and incentive application forms), while administrators could use the database for project management, monthly reporting, data collection, and possibly program tracking of system performance. Similarly, ASPv emphasized the immediate need for such an online application tool and data accumulation system.
We remain convinced that a statewide online application system will enhance the ability of customers to take advantage of our solar programs. In addition, a single database of project information would provide a valuable tool for ongoing program assessment. Therefore, we direct the administrators to coordinate hiring an entity to create a statewide application process and program database as soon as possible. The program administrators should designate one administrator to handle the competitive bidding process and contract with the entity selected to create the online application and database. We understand that even if this effort is begun immediately, the end-result of a uniform statewide on-line application system may not be ready for implementation on January 1, 2007. Nevertheless, we hope the program administrators can make every effort to get this statewide application system operational as soon as possible after the first of the year. The program administrators should report back with their progress on this statewide application project through a letter to the Director of the Energy Division, copied to the service list for this proceeding, no later than December 31, 2006.
Once the program database is established as described above, the data it contains should initially be accessible only to the program administrators and CEC and Commission staff. We will direct the CSI Program Forum, which we discuss below, to address broad access to non-confidential information in the database and consumer-oriented summary statistics, so the general public can monitor program details.28
The program administrators, solar industry, and participating customers need a handbook to facilitate program implementation. In D.06-01-024, the Commission stated its intent to use the existing SGIP manual as the foundation for the CSI Program Handbook. (D.06-01-024, p. 35.) It may also prove useful to build on the existing handbook from the CEC's ERP program.
This decision confirms the process laid out in the Scoping Memo for this proceeding that the work related to the CSI Program Handbook should begin immediately following adoption of today's order. We direct Energy Division to convene a workshop within 15 days of the effective date of this order to discuss handbook revisions and create subgroups to work on various sections of the handbook. The workshop efforts should produce one draft CSI Handbook that Energy Division will forward to the ALJ no later than 60 days following the workshop. The ALJ will issue a ruling, attaching the proposed CSI Handbook, and requesting comments from all interested parties. Depending on the proposed Handbook and the comments, the Commission shall either issue a decision or the assigned ALJ shall consult with the Assigned Commissioner to review and approve the final CSI Handbook through a ruling. The table below indicates the anticipated timeline for handbook development. The Assigned Commissioner or ALJ may modify these dates or events by ruling.
Table 7: Program Handbook Schedule
Workshop and initiation of subsequent working group activities to propose Handbook revisions |
15 days after Phase I decision adopted by Commission |
Energy Division forwards draft CSI Handbook to ALJ and ALJ issues ruling with proposed revisions for comment |
45-60 days after workshop |
Written Comments on Proposed Revisions |
15 days after ruling |
Reply Comments |
10 days after comments |
Ruling or Draft Decision Adopting Handbook |
No later than 60 days after reply comments (possibly sooner if approved by ruling) |
In establishing the CSI in January 2006, the Commission stated that Staff should convene "regular and public meetings of the utilities, program administrator(s) and any parties interested in articulating and solving administrative or implementation problems and identifying program opportunities." (D.06-01-024, p. 35.) In comments on the Staff Proposal, the Joint Solar Parties and ASPv reiterated support for creation of an industry group, with broader participation than the current SGIP Working Group, to tackle ongoing CSI program implementation issues.
Consistent with our statements in D.06-01-042, we will create a CSI Program Forum, which will provide a public venue for interested parties to identify and discuss ongoing issues related to CSI administration and implementation. The purpose of forum meetings is to provide the opportunity for CSI stakeholders to fashion consensus-based revisions to the CSI Program Handbook. If the group achieves consensus, it may designate one of its members to file a proposed Handbook revision by Advice Letter with the Energy Division, which should be served on the service list of this or any successor rulemaking. If the group achieves consensus for more substantive program modifications that go beyond the level of the Program Handbook, it may designate a member to file a petition to modify a Commission order relating to CSI.
We expect participants in the Forum to include utilities, solar manufacturers, solar installers and other interested parties. The program administrators should convene the first public meeting of the CSI Program Forum in the first quarter of 2007, after the CSI Program Handbook has been developed through the process described in the section above and the incentives and other program features discussed in this order have taken effect. Energy Division staff should facilitate this initial meeting. The program administrators will then arrange future public meetings of the CSI Program Forum, provide notice of all meetings to the service list for this proceeding, and work with Energy Division staff to provide meeting notices on the Commission's Daily Calendar. The program administrators shall also maintain meeting minutes and post them on the CSI portion of the Commission's website, with the assistance of Energy Division. We expect Energy Division staff to make reasonable efforts to attend or monitor all meetings of the CSI Program Forum.
25 This element of the Staff Proposal was clarified in an ALJ ruling of May 9, 2006.
26 There are other facts present here that further support our conclusion that these would be subsidies provided by a public utility. These include the following: the source of the funds are utility rates (not including Public Goods Charge (PGC) funds); the funds never pass through the hands of a governmental entity; the third-party administrator is hired pursuant to a contract with the utility; while the Commission may advise about the selection of the administrator, the administrator is selected by the utility.
27 Thus, even if it should prove necessary to have the check that is issued to the consumer bear the name of the third-party administrator, it would seem that the subsidies are still "sponsored by" the utility and thus are still eligible for Section 136 treatment. Of course, it will be important to have sufficient accounting controls to ensure that the monies paid to the consumer are those provided by the utility.
28 Rulemaking 05-06-040 is examining confidentiality generally. Parties may wish to refer to the first decision in that proceeding, D.06-06-066, for guidance on how to treat information relevant to CSI.
