ALJ/KLM/hkr DRAFT Agenda ID #4897

Quasi-Legislative

11/18/2005 Item 33

Decision PROPOSED DECISION OF ALJ MALCOLM (Mailed 9/6/2005)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Regarding Policies, Procedures and Incentives for Distributed Generation and Distributed Energy Resources.

Rulemaking 04-03-017
(Filed March 16, 2004)

(See Attachment B for Appearances.)

INTERIM OPINION ADOPTING COST-BENEFIT METHODOLOGY
FOR DISTRIBUTED GENERATION

TABLE OF CONTENTS

Title Page

INTERIM OPINION ADOPTING COST-BENEFIT METHODOLOGY
FOR DISTRIBUTED GENERATION 1 1

I. Procedural Background 1 1

II. Summary of Decision 1 1

III. Background on Issues and Policy 1 1

A. Overview of Cost-Benefit Methodologies 1 1

B. Development of Avoided Costs in R.04-04-025 1 1

C. Defining DG for Purposes of Modeling Costs and Benefits 1 1

D. Assigning Specific Values to Adopted Variables 1 1

IV. Developing Cost-Benefit Models According to Perspective 1 1

A. The Non-Participant Test or Ratepayer Impact Measure (RIM) 1 1

B. Societal Test or Total Resource Cost (TRC) Test 1 1

C. Participant Test 1 1

V. Variables of Cost-Benefit Models 1 1

A. Utility Administrative Costs 1 1

B. Line Losses 1 1

C. T&D Investment Deferrals 1 1

D. Market Price Impacts 1 1

E. Reliability Impacts 1 1

F. Employment Effects 1 1

G. Market Transformation Effects 1 1

H. Reduced T&D Revenues 1 1

I. DG Project Costs 1 1

J. Environmental Values-CO2, NOx, and PM 10 Emissions 1 1

K. Combined Heat and Power Applications 1 1

L. Standby Charges 1 1

M. Electric and Natural Gas Avoided Costs 1 1

N. Net Metering 1 1

O. Exemptions From CRS Liabilities 1 1

P. SGIP Subsidies 1 1

Q. Tax Incentives 1 1

VI. Program Monitoring, Measurement, and Evaluation 1 1

VII. Assignment of Proceeding 1 1

VIII. Comments on Proposed Decision 1 1

Findings of Fact 1 1

TABLE OF CONTENTS

(Continued)

Title Page

Conclusions of Law 1 1

INTERIM ORDER 1 1

INTERIM OPINION ADOPTING COST-BENEFIT METHODOLOGIES
FOR DISTRIBUTED GENERATION

This order adopts a methodology for assessing the costs and benefits of distributed generation (DG). The purpose of this inquiry into cost-benefit methodologies is to assure that the state's support for DG projects is economically sound and to assure that state policies promote as much DG as is cost-effective, consistent with our general policy to include DG facilities as high-priority energy resources. The methodology we adopt today is designed to reflect the costs and benefits of DG facilities from various perspectives and employs existing data immediately, which will be modified in the future with the development of more precise economic values for some variables.

I. Procedural Background

Public Utilities Code Section 353.9 requires the Commission to develop a cost-benefit methodology for DG projects. The statute became effective May 22, 2001. The statute states the purpose of this analytical tool is to create a "firewall" that would assure net costs of DG projects are recovered from each customer class in proportion to the projects that are, in effect, subsidized by that customer class.¹

We have also stated our intent to use cost-benefit analyses to compare resource options as part of utility resource planning, to determine how to choose among candidate DG technologies and projects for incentives and other funding, to assess project alternatives as part of utility power procurement, and to assist in measuring and evaluating the effectiveness of DG incentive programs. There may be other uses for a rigorous cost-benefit test in the future.

As part of this rulemaking, which considers a number of policy and program issues related to DG resources in California, we stated our intention to adopt cost-benefit models. We embarked on this effort collaboratively with the California Energy Commission (CEC) by conducting a workshop on May 5, 2004. The workshop focused on identifying specific types of costs, benefits, and potential methodologies to quantify them. Parties filed comments in response to the workshop. The Commission conducted hearings in this proceeding on cost-benefit methodologies from May 11-13, 2005. The matter was submitted on July 12, 2005 with the receipt of reply briefs. Active parties in this proceeding represented regulated energy utilities (Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company/Southern California Gas Company (SDG&E/SCG), and DG developers, customers and their associations (California Clean DG Coalition, First Solar, California Clean DG Coalition (CCDC), Cogeneration Association of California and the Energy Producers and Users Association (CAC/EPUC), PV Now, the City of San Diego and Americans for Solar Power (ASPv). We refer to these non-utility parties collectively in some places as "DG Proponents."

We proceed to consider cost-benefit methods applying the principles we articulated for related issues in our previous DG Rulemaking, (R.) 99-10-025. In that proceeding, we issued Decision (D.) 03-04-060, which we use as a foundation for our inquiry here.

¹ The language of Section 353.9 is as follows: "In establishing the rates required under this article, the commission shall create a firewall that segregates distribution cost recovery so that any net costs, taking into account the actual costs and benefits of distributed energy resources, proportional to each customer class, as determined by the commission, resulting from the tariff modifications granted to members of each customer class may be recovered only from that class."