II. Summary of Decision

This decision adopts the following general policies and principles for cost-benefit methods used to analyze DG facilities:

· DG projects should be analyzed using a societal test, a non-participant test and a participant test;

· The variables adopted for each of the three tests include Commission-approved avoided costs, values included in utility tariffs and certain estimates for various utility administrative costs;

· The participant test should be used to reduce subsidies to "free riders," that is, those DG projects that might be constructed and operated without the incentives offered for DG development;

· The adopted cost-benefit approach should be employed as soon as possible using existing data and information, which may be subject to change as a result of changing circumstances or the findings in R.04-04-025;

· The avoided costs presented by E3 and adopted in D.05-04-025 for energy efficiency projects should be applied to DG projects, with some modifications, until the Commission has adopted avoided costs for DG facilities in that proceeding;

· The "physical assurance" requirement is retained for the purpose of estimating the value of DG projects to avoided T&D costs;

· The impacts of DG projects on market prices should be included as a benefit in the societal model;

· All relevant environmental benefits should be included in the cost-benefit models, whether or not their impacts result from regulation or compliance with state or federal law;

· Tax incentives, standby charge exemptions, and Self-Generation Incentive Program (SGIP) incentives should be considered benefits to DG projects in the participant test and costs in non-participant tests;

· The value of DG projects in terms of "market transformation" should be considered in R.04-04-025;

· The utilities shall grant priority SGIP funding to those projects that are most cost-effective and may not provide funding to those projects that do not require SGIP subsidies in order to be cost-effective to the participant.

We direct the utilities to reassess the state's DG program overall using the models and model specifications adopted today. The utilities should conduct this analysis and file the results of the analysis in this proceeding.

Finally, we state our intent to explore other specific applications of the cost-benefit models and model specifications we adopt today.