VI. Program Monitoring, Measurement, and Evaluation
The Commission currently authorizes direct financial incentives, rate exemptions, and special rate discounts that impose a cost on utility ratepayers. Direct subsidies alone could amount to almost $1 billion in the next several years, all of which are supported by utility ratepayers.4 In many instances, these subsidies may be very worthwhile. In others, ratepayers may be paying more for DG development than it is worth. Although initial evaluations of DG facilities may support the provision of ratepayer subsidies, DG projects should be expected to conform to ongoing performance standards and program guidelines.
In August 2005, Itron published its 4th Year Impact Report, which assesses the state's DG installations using the cost-benefit models which formed the basis for the Itron report considered in this proceeding. Using those cost-benefit models and the avoided costs developed in the E3 Report, Itron's 4th Year Impact Report suggests that more than 70% of Level 3 SGIP projects fail the minimum efficiency requirements to participate in the SGIP program. It points out other problems with DG facilities with regard to reliability and capacity factors. These estimates may change with the methodological refinements we adopt today, but the fact remains that the value of some DG projects is in question, implicating the design of existing programs and tariffs.
One of the explicit purposes of the cost-benefit tests we adopt today is to evaluate the ongoing performance of projects that receive ratepayer support. We intend to use these tests immediately to determine which DG projects should qualify for SGIP funding where the level of funding requested by all applicants exceeds available SGIP funds. Currently, the utilities consistently receive many more requests for funding than SGIP budgets could support. Beginning immediately, the utilities should award SGIP funding to those DG projects on their waiting lists that are most cost-effective, ahead of other projects.
In addition, we direct the utilities to reassess the state's SGIP program overall using the models and variables adopted here and summarized in Attachment A. Because the E3 values adopted in D.05-04-024 are forecasts starting with the year 2006, the utilities should work with the Energy Division to determine whether and how the avoided costs should be modified to reflect gas prices for the periods between 2001 and 2005. The utilities are directed to file the results of the analysis in this proceeding within 45 days.
We also intend to use the cost-benefit models to immediate future in determining whether DG facilities qualify for other subsidies and rate exemptions. Accordingly, we herein direct the utilities and invite other parties to propose specific ways to apply the cost-benefit models we adopt in this order. On the basis of those proposals, we intend to modify our programs to improve their value to ratepayers and California generally in ways that are consistent with our policy to promote DG facilities. Specifically, we seek proposals for the following types of evaluations:
1. Ongoing subsidies to existing DG projects-how such projects should be monitored from a technical standpoint, the criteria for evaluating them and the impact on subsidy programs for projects not in compliance with program criteria;
2. Initial evaluation of DG projects for which subsidies are requested-how, if at all, the application of each of the three cost-benefit models should affect the grant of incentives, tariff discounts and exemptions, and other subsidies; and
3. Free ridership-how the Commission should use the participant test, if at all, to assure ratepayers are not subsidizing projects that would otherwise be viable for the DG customer.
4 Currently, the Commission has committed $875 million for the SGIP, which may be increased for the Solar Roofs Initiative, which is the subject of Senate Bill 1. In addition, the CEC awards about $100 million annually for small DG projects.
