VII. Recent Commission Decisions Impacting DG

As noted above, the Commission held in D.04-01-050, the "Long-Term Plan" decision, that further detail was required in the IOU long-term plans regarding the treatment of DG. In their next long-term plan filings, the IOUs are to provide the following: a line item entry identifying distributed generation separate and apart from other entries such as energy efficiency and demand response; the energy (GWh) and demand (MW) reduction attributed to distributed generation; and a description of the technologies the utility includes in its definition of distributed generation as well as a statement noting whether its forecast includes utility-side distributed generation, such as QFs. Consideration of parties' proposal for a set-aside for DG was also referred to this new proceeding; parties are invited to re-submit this proposal here.

In order to fulfill on an interim basis the requirements of Pub.Util. Code § 353.13(a), the Commission in D.03-04-060, the "Standby Charge Exemption" decision, extended a legislatively-enacted waiver of standby charges for the following two DG categories sized 5 MW or smaller: renewable and combined heat and power DG⁸, installed between May 2001 and December 31, 2004, and ultra-clean DG⁹ units, installed between January 1, 2003 and December 31, 2005. This extension allows the DG market to continue to grow while the Commission implements appropriate standby rates in the IOUs' general rate cases.

In establishing the applicability of Cost Responsibility Surcharges (CRS) to DG, the Commission in D.03-04-030, the "Cost Responsibility" decision, rejected a proposed Settlement Agreement, finding that it was

"inconsistent with Legislative direction contained in several bills...which indicated a policy preference for customer generation in general, as well as clean Customer Generation in particular. Further, we believe giving customers preferential access to ultra-clean and low-emission generation serves the public interest in general, and not just the particular interests of the individuals who choose to install customer generation" (D.03-04-030 at p.42).

Presently, all technologies 1 MW or less and eligible for SGIP funding are also eligible for CRS exemption. Assembly Bill 1685 establishes new efficiency and emissions eligibility requirements combustion technologies must meet in order to receive incentives. When evaluating SGIP eligibility we will be careful to consider the implications for CRS exemption, and to guard against any unjustified CRS cost-shifting that may result if SGIP eligibility expands to include other technologies.

In D.03-02-068, the "DG Integration" decision, the Commission reached a number of conclusions regarding the potential of DG to benefit the distribution system, and gave some direction regarding issues to be taken up in this new Rulemaking.

The decision found that DG can serve to forestall distribution system upgrades, and should be valued as such, but found these benefits to be limited in time, as load continues to grow and distribution upgrades become unavoidable. The Commission directed the IOUs to incorporate DG into grid-side system planning and procurement in the following way:

· The IOUs will establish performance criteria to determine when a DG installation can function as an alternative to new distribution;

· The DG community will be made aware of these criteria, and contacted in advance regarding specific locations where the IOU is considering a DG installation;

· Once the IOU determines that a DG solution is viable, procurement of DG will commence, with the selection process following a documented and defensible decision path;

· The grid-side DG solution can be owned by the IOU or provided by a third party, although we discourage IOUs from owning on a long-term basis DG systems that forestall distribution upgrades, and direct the IOUs to evaluate these temporary installations in their long-term planning and procurement processes;

· In cases of IOU ownership, the value of the distribution deferral should be credited to the utility from the distribution budget, while payment to third-party grid-side DG owners should be no greater than the amount calculated for the deferral of a planned distribution addition;

· Physical assurance in the form of control and dispatch of the grid-side DG unit by the IOU is required in all cases.

The utilities provided implementation proposals to the Energy Division in September 2003. We direct the utilities to update these proposals as necessary, and to file the proposals in this docket within two weeks of the issuance of this order.

Regarding customer-side DG installations, D.03-02-068 reached the following conclusions:

· Customer-side DG has the potential to meet peak demand in areas experiencing load growth;

· IOU ownership of customer-side DG is neither prohibited nor encouraged;

· IOU-owned customer-side DG should be treated as a generation asset, with revenues offsetting IOU costs of operation;

· Outstanding issues such as they exist regarding standby charges, interconnection processes, and net metering should be taken up in this new Rulemaking.

The decision found that the Commission should consider a valuation system for the environmental benefits of renewable DG in designing future procurement policies. DG can serve peak load and provide resulting system-level benefits, and while a valuation of these benefits is unnecessary, consideration of them should be incorporated into IOU long-term planning and procurement. The decision found that the extent to which these benefits should offset departing load charges assessed to installers of DG systems should be considered in this new DG Rulemaking.

We intend to examine in this proceeding any outstanding issues identified in D.03-02-068 regarding standby charges, interconnection processes and net metering, and to emphasize the general task of establishing a cost-benefit test to address the concerns raised in that decision. We do not intend to revisit CRS exemption here, however, as the issue was resolved subsequent to this Decision in D.03-04-030, with one exception as stipulated above: when considering the addition of new DG categories to the SGIP program, we will carefully evaluate the impact of shifting the CRS burden to IOU ratepayers.

In giving direction to the utilities on issues to consider when developing their long-term resource plans, the Commission in D.02-10-062, the "Regulatory Framework" decision, expressed a preference that DG be given serious consideration, finding that "the utilities should explicitly include provision for distributed generation and self-generation resources in the procurement plans...In addition to providing capacity and energy benefits, (DG resources) can offer transmission and grid-support benefits that should be included in the utilities' procurement plans." (Decision at p.27)

In response to AB 970, in D.01-03-073, the "Load Control and DG Initiatives" decision, the Commission established the Self-Generation Incentive Program. D. 01-03-073 provides up to $125 million in annual incentives for certain DG technologies through 2004, differentiating by DG technologies to give preference to cleaner forms of generation. AB1685 (Statutes of 2003) extends the program through the end of 2007 and calls for more specific program modifications. Given that the program was originally set to expire at the end of 2004, we will need to, in this proceeding, evaluate changes that should be made in a Commission decision before the end of 2004.

Lastly, the Interconnection Standards (Commission-authorized tariff Rule 21) adopted in D.00-11-012 and D.00-12-037 (the "Rule 21" decision) "pre-certify, standardize and track the performance of distributed generation, which...may make (DG) an increasingly attractive option to enhance reliability on the distribution system." This proceeding should attempt to learn from the data that has been collected so far in this process, and assess whether further study or changes to the Commission-authorized tariff Rule 21 interconnection process are warranted. Appendix A contains a report from the CEC on Commission-authorized tariff Rule 21 issues, and we will continue to rely extensively on the expertise of the CEC in this area of DG policy.