XX. Assignment of Proceeding

Michael R. Peevey is the Assigned Commissioner and Kim Malcolm is the assigned ALJ in this proceeding.

Findings of Fact

1. Development of solar technologies is consistent with state policy and will provide California with a clean and reliable source of disbursed energy. Because the industry and related markets are still not well-developed, an incentive payment program, such as the one envisioned by SB 1, the Governor and the staff report attached in Appendix A, will benefit California.

2. The existing CEC and Commission solar incentive programs, the ERP and the SGIP, are similar except that they provide incentives to different-sized projects and are funded by different utility rate components.

3. There is no reason to continue the implementation of all or part of the solar incentives in the SGIP if the Commission adopts a CSI program.

4. A 10-year commitment by the state to provide incentives for solar installations may provide a signal to manufacturers and other industry participants that encourages innovation and development.

5. All solar energy technologies have the potential to reduce demand for fossil fuels and investments in more traditional energy resources and provide environmental benefits.

6. SDREO has proposed a way to implement a solar water heating rebate program in our energy efficiency docket and has extensive experience administering the SGIP in the San Diego region.

7. Federal tax credits may affect solar energy investments that may obviate the need for a full CSI rebate for some projects. The record should be augmented to provide adequate information about the likely impact of federal tax credits on decisions to invest in solar projects.

8. Low-income customers are the least likely to be beneficiaries of the CSI program because they are least likely to make investments in solar projects and because solar technology appears to be less cost-effective than other energy resource options.

9. Performance-based incentives should motivate better investments in and maintenance of solar projects than capacity-based incentives, although the record in this proceeding should be developed to design a sensible performance-based incentive program.

10. The Commission's method for changing incentive levels under the SGIP has not been consistently responsive to changing markets.

11. The SGIP has consistently received more applications for rebates than there has been funding available at its previous incentive levels and at the 2005 level of $3.50 per watt.

12. Where the demand for rebates exceeds supply, it is reasonable to assume the incentive levels are higher than they need to be to motivate investment.

13. Application fees may reduce the number of project applications that are ultimately not pursued, and thereby reduce administrative costs and the waiting lists for project rebates.

14. Some projects may need smaller rebates or none if they are provided with financing at low cost or no cost. The record of this proceeding, however, does not yet provide adequate information about whether financing is needed and how a financing program should be designed.

15. Motivating solar investments in affordable housing and by low-income customers may require higher incentive payments than those adopted for other types of customers.

16. Energy efficiency improvements tend to be more cost-effective than solar installations. The record in this proceeding is not adequate to adopt a rule that would require energy efficiency retrofits as a condition of receiving solar incentive payments.

17. Making an energy efficiency audit a condition of receiving incentive payments for solar projects installed on existing buildings may motivate some energy efficiency improvements at those sites.

18. Additional metering requirements for solar installations may permit rate design that improves cost-effectiveness and appropriately recognizes the value of solar electricity production. The record in this proceeding does not permit the adoption of additional metering requirements at this time.

19. Education, marketing and outreach will improve the number and nature of solar investments in California.

20. Program evaluation and monitoring for the CSI program, including the pilot solar water heating program, should be overseen by the Commission staff and/or CEC staff. The utilities shall issue a request for proposal (RFP) for program evaluation consulting and should contract with consultants selected by the CEC and/or Commission staff, who will be responsible for all other contract decision-making and management.

21. The SGIP Working Group would not be an appropriate agent for overseeing the CSI.

22. The SGIP manual provides a reasonable foundation for articulating the rules and requirements of the CSI program.

23. RD&D may assist in tailoring the CSI to promote the development of a robust, self-sustaining solar industry.

Conclusions of Law

24. The Commission has no authority to delegate program decision-making to the CEC.

25. The CSI should provide incentives to all types and sizes of qualifying solar installations. The CSI program should be separate from the SGIP and all solar elements of the existing SGIP should be incorporated into the CSI.

26. The CSI should offer incentives to any solar technology with a capacity rating of less than 5 MW. Solar water heating incentives should be provided only as part of a closely monitored pilot program as set forth herein.

27. SDG&E should be ordered to invite SDREO to administer a pilot program providing rebates for investments in solar water heating in SDG&E's territory, as set forth herein.

28. Allocation of CSI program costs should be decided in ratemaking proceedings that resolve cost allocation issues.

29. Initial CSI incentive levels for solar PV and concentrated solar should be set at $2.80 per watt in 2006, and should be scheduled to be reduced every 12 months or when certain MW targets are met, consistent with the recommendations in Appendix A.

30. The ALJ, in consultation with the Assigned Commissioner and staff, should have the authority to modify incentive payments by up to 10% a year and to bifurcate rebate levels according to project size and type following a showing by CEC and/or Commission staff to justify such changes, as set forth herein.

31. In cases where funding is or would be exhausted before the end of the funding cycle and following consultation with the CEC and Commission staff, the ALJ, in consultation with the Assigned Commissioner, should have the authority to order the utilities to fund the CSI in the current period with up to 15% of the budget allocated to the subsequent funding period.

32. To motivate solar investments by low-income customers and affordable housing projects, 10% of the annual funding should be set aside for their use. The Commission should also consider augmented incentives for such projects.

33. Incentive payments for solar installations in new structures should be contingent on the builder having participated in utility new construction programs. The Commission should also consider augmented incentives for structures with energy efficiency metrics that exceed levels for the basic program, to be determined later in this proceeding.

34. Incentive payments for solar installations in existing structures should be contingent on the completion of an energy efficiency audit.

35. The Commission staff and the CEC staff should oversee the development of a CSI program manual that is based on the SGIP manual with the program modifications we adopt herein.

36. The assigned ALJ and the staff of the Commission and the CEC should work cooperatively to develop a record on the outstanding program issues identified in Appendix A.

37. The Commission should allocate up to 5% of total annual program budgets to RD&D.

INTERIM ORDER

IT IS ORDERED that:

38. The staff report attached as Appendix A to this decision is adopted as set forth herein.

39. Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Gas Company (SoCalGas), and Southern California Edison Company (SCE) shall implement the program described in the staff report and adopted herein.

40. The assigned administrative law judge, in consultation with the Assigned Commissioner, shall proceed to develop a record and propose resolution of all outstanding issues identified in the staff report in Appendix A.

41. PG&E, SCE, SDG&E, and SoCalGas shall allocate the funds adopted herein to the California Solar Initiative and collect those funds in distribution rates in appropriate ratemaking proceedings.

This order is effective today.

Dated January 12, 2006, at San Francisco, California.

Comr. John A. Bohn recused himself
from this agenda item and was not
part of the quorum in its consideration.

Dissent of Commissioner Geoffrey F. Brown

SOLAR INITIATIVE

          The California Solar Initiative is a bold initiative to jumpstart the solar power industry, to diversify our electricity supply, to vault California into a leadership position in solar energy, and to provide a catalyst to bring down prices for solar power offers the promise of benefits for the state, nation and the world.  I appreciate President Peevey's leadership on this issue, as I do the positive and persuasive role of Governor Schwarzenegger in bringing this initiative to the Commission.

          I support the broad vision presented in the Initiative.  At the same time, I feel the need to express certain concerns about the specific order.  Regrettably, the totality of my concerns did not allow me to cast an affirmative vote on this item. 

          First, I believe we are undertaking what is more properly a legislative exercise.  The California Solar Initiative is unabashedly a subsidy program, and a multi-billion dollar one at that.  Unlike programs such as Baseline, CARE or ULTS (all of which have statutory underpinnings), overall rate levels will be higher due to this program.  Unlike energy efficiency expenditures, no one is claiming this program is cost-effective.  The Legislature has plenary power to act in the public interest, and has had ample opportunity to consider the Governor's Million Solar Roofs program.  It failed to enact it.  I am uncomfortable with the notion that we are the substitute for the Legislature on energy policy issues, and that we are the proper body to impose what is effectively a tax.

         

Second, and related, our jurisdiction is broad but not all-encompassing.  Like the Legislature, we also have broad authority to act in the public interest, but a program of this magnitude with such far-reaching impacts is better decided by the entity that is directly responsible to all citizens of the state.  We cannot impose the costs of this program on customers of municipal utilities.  The benefits of the program - environment and economic development - are expected to accrue to all citizens of California.  If the program is in the public interest, all citizens should bear the costs.  I am especially concerned that it is unfair to require investor-owned electric utility customers to pay for solar electric programs for municipal utility customers.  That strikes me as bad policy. A municipal utility electricity customer who takes gas from PG&E will be permitted to obtain the subsidy for solar panels that will be paid for by PG&E electricity customers, even though the municipal utility customer does not pay into the PG&E electric subsidy pot and the PG&E electricity customers pay rates unrelated to the provision of their service.  

 

Third, I analyze this program in the context of high and increasing electric rates.  The California Solar Initiative is advertised as a $2.8 billion program, but PG&E points out that the actual costs for those ratepayers who do not participate in the program may be as high as $9.5 billion, including net metering costs.  Regardless, this is a huge new burden on ratepayers.

California's rates are again among the highest in the nation.  Edison's system average rate is now over 15 c/kwh.  Just this month, new PUC-approved electric rate increases of about $3 billion go into effect.  These stem from higher prices for natural gas used to make electricity, higher costs related to long-term DWR contracts, and increases in subsidy programs aside from the Solar Initiative.  This doesn't include likely billion-dollar-plus increases expected to result from our new resource adequacy rules and from new metering programs.  At what point are rates simply too high to add a new multi-billion dollar subsidy program, no matter how meritorious? 

         

 Fourth, there is no indication in the decision - nor is there any analysis that I am aware of - that shows that this technology is likely to be viable in the future without significant subsidies.  The decision is predicated upon the notion that massive subsidies will substantially lower production costs.  I understand that the declining subsidy structure is intended to push toward this objective.  I certainly hope that costs do come down, but it is a leap of faith to assume this will happen. For now, we are talking about subsidizing a technology that costs several times any other reasonable alternative. 

          Fifth, even assuming that huge new subsidies are appropriate right now, is this the best use of the money?  According to the Commission's Energy Action Plan, energy efficiency is the first priority in the loading order.  I supported the increases in energy efficiency programs last year because they were cost-effective; I have no doubt that the state will not exhaust itself of useful projects with that money.

 

What about other renewables?  We have the Renewable Portfolio Standard, but I'm sure developers of wind, biomass and other renewable technologies would love to an extra couple of billion in subsidies - no doubt costs would come down as well for these power sources, some of which are already at or near market levels.  Why not target the money where we can get the most bang for the buck?  Even with solar technologies, we could simply buy hundreds or thousands of megawatts of Sterling technology which is already potentially at or near market price levels.

Finally, assuming this program is appropriate despite the above objections, I am concerned that we are committing to spend at least $3 billion, but many of the rules and safeguards are not yet developed.  We need performance standards to ensure that subsidies go to installations that actually work.  We need eligibility and installation standards.  We need to spell out the relationship between incentives and standards.  We need to build-in reviews and potential off-ramps if the program is not working as we hope. 

 

          I understand that there are many workshops planned to address all of these issues.  I appreciate the hard work and good faith inherent in this process.  We have put our enthusiasm before our prudence.  Because we believe that solar energy is promising, we have committed ourselves to spend enormous amounts of money with the hope that it will succeed.  I believe we should have proceeded carefully, held workshops, and analyzed rigorously the costs and benefits before we moved forward.   

          Dated January 12, 2006, at San Francisco, California.

                                                                   ___/s/ GEOFFREY F. BROWN _

      

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