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Here it is, the long awaited long term contracts for the SRECs!
STATE OF NEW JERSEY
Board of Public Utilities
Two Gateway Center
Newark, NJ 07102
www.nj.gov/bpu
DIVISION OF ENERGY
IN THE MATTER OF THE PETITION OF PUBLIC ) DECISION AND ORDER
SERVICE ELECTRIC AND GAS COMPANY FOR ) APPROVING SETTLEMENT
APPROVAL OF A SOLAR ENERGY PROGRAM AND )
AN ASSOCIATED COST RECOVERY MECHANISM ) DOCKET NO. EO07040278
(SERVICE LIST ATTACHED)
BY THE BOARD1:
By this Decision and Order, the New Jersey Board of Public Utilities (Board or BPU) considers a
Settlement executed by Public Service Electric and Gas Company (PSE&G or Company), the
Department of the Public Advocate, Division of Rate Counsel (Rate Counsel), Board Staff, the
Mid Atlantic Solar Energy Industries Association (MSEIA), New Jersey Natural Gas Company
(NJNG), and South Jersey Gas Company (SJG), by which the parties to the Settlement propose
a resolution of the above-captioned matter and request that the Board issue an Order approving
the Settlement. The remaining parties to this matter, Rockland Electric Company (RECO),
Jersey Central Power and Light Company (JCP&L), the Retail Energy Supply Association
(RESA), and the New Jersey Large Energy Users Coalition (NJLEUC), did not execute the
Settlement, but informed the Board that they neither support nor oppose it. NJLEUC also
submitted comments with regard to the proposed Settlement, which the Board considers and
addresses herein in connection with consideration of the Settlement.
BACKGROUND AND PROCEDURAL HISTORY
On April 19, 2007, PSE&G filed with the Board a Petition and exhibits requesting Board
approval to implement phase I of a solar photovoltaic (PV) development program within its
electric service territory across all customer classes, with segments for residential, residential
low-income, municipal/public entities, and commercial/industrial and not-for-profit customers.
Additionally, PSE&G requested recovery through its electric Societal Benefits Charge (SBC) of
the costs of the proposed program, including an incentive return and the foregone electric
distribution fixed cost contribution, also referred to as “make whole payments,” for foregone
revenues until such cost contribution is reflected in base rates. The Company also sought
1 Commissioner Christine V. Bator recused herself on this matter due to a potential conflict of interest.
approval of a model loan agreement. Subsequently, on June 1, 2007, the Company filed
supporting direct testimonies and schedules of Ralph A. LaRossa, President and Chief
Operating Officer, PSE&G; Frederick A. Lynk, Manager, Demand Side Marketing, PSE&G; and
Gerald W. Schirra, Director – Rates and Regulation, PSE&G, which also included a modification
to the proposed cost recovery mechanism.
The Company’s proposal, as originally submitted, was for a phase I program by which PSE&G
would offer loans to provide funding for up to 30 MW of solar photovoltaic systems, which would
generate solar energy. PSE&G anticipated that its investment in the 30 MW phase I would be
approximately $100 million and it estimated incremental administrative costs would be
approximately $3 million per year. According to the Petition, 30 MW would, represent
approximately one-half of the renewable portfolio standards (RPS) requirements2 in PSE&G’s
service territory in the 2008-2010 time frame. The Petition also asserted that the proposed
program would help New Jersey in meeting its goals of acquiring 20% of its electricity from
renewable resources by 2020 and reducing greenhouse gas emissions by approximately 20%
by 2020. As the program was proposed, PSE&G would provide loans to solar photovoltaic
developers, commercial and industrial (C&I) customers, or other qualifying entities, for a portion
of a project’s cost. The program would be open for two years or until the entire 30 MW program
is allocated, whichever comes first.
The Company proposed that 40% of its loans would be made to the C&I/not-for-profit segment,
30% to the municipal segment, and 30% to the residential segment (20% for the residential-
2 The Board’s Renewable Portfolio Standards regulations, N.J.A.C. 14:8-2.1 et seq., implement provisions
of the Electric Discount and Energy Competition Act (EDECA), N.J.S.A. 48:3-49 et seq. The RPS
regulations require electric power suppliers and basic generation service (BGS) providers to include
minimum percentages of qualified renewable energy in the electricity they sell; those minimum
percentages increase over time. The rules specify separate minimum percentages for solar electricity
generation, for class I renewable energy, and for class II renewable energy, as each of these categories
of renewable energy is defined by N.J.A.C. 14:8-1.2. Currently, the rules require that solar electric
generation be the source of at least 0.0817% of the electricity sold in New Jersey; by the reporting year
beginning June 1, 2020, that requirement will increase to 2.12%.
To comply with the solar electric generation portion of the RPS, suppliers and providers obtain and use
Solar Renewable Energy Certificates (Solar RECs or SRECs). A Solar REC represents the
environmental benefits or attributes of one megawatt-hour (MWh) of solar electric generation. A supplier
who holds too few Solar RECs to meet the RPS can make up for the shortfall by paying a Solar
Alternative Compliance Payment (SACP). N.J.A.C. 14:8-2.3(e); N.J.A.C. 14:8-2.10.
During the pendency of the Petition in the within matter, the Board, following a public stakeholder
process, by Decision and Order Regarding Solar Electric Generation in In the Matter of the Renewable
Energy Portfolio Standards-Alternative Compliance Payments and Solar Alternative Compliance
Payments, Docket No. EO06100744 (December 6, 2007), approved a plan for transitioning the solar
renewable energy market from rebates to market-based incentives, while maintaining rebates for smaller
solar systems for Reporting Year 2008, with the continuation of rebates for Reporting Years 2009-2012 to
be addressed in the ongoing Comprehensive Resource Analysis proceeding (Docket No. EO07030203).
To facilitate the change in emphasis from rebates to SRECs, the Board ordered an increase in the SACP
in reporting year 2009 and a multi-year schedule for SACPs extending out eight years. Among other
things, the Board also found that a capping mechanism on the cost of SRECs should be triggered if
estimated solar incentive costs exceed 2% of estimated retail electricity costs, such freeze to remain in
effect until costs drop below the 2% threshold. The Board also directed rulemakings and the
development of more detail on certain issues, including the cap mechanism and exploration of the need
for additional securitization of the SREC value stream beyond the extension of the SACP in a multi-year
schedule.
2 BPU Docket No. EO07040278
general segment and 10% to the residential low-income segment). Under the proposed
program, the market allocations could change after the first year, depending on the response to
the program and market conditions. The Company proposed that the loans be repaid over a 15-
year period by the resulting SRECs being provided to PSE&G or by cash payments. If the
market value of the SRECs exceeded an established floor, estimated in the Petition to be $475,
loans could be repaid sooner. PSE&G proposed to allocate, at no cost, the SRECs for the
benefit of its electric customers to the load serving entities (LSE) serving retail load in PSE&G’s
service territory. If PSE&G received cash payments, it would purchase SRECs to be allocated
in the same manner.
PSE&G originally proposed to recover all of the costs of the solar energy program from its
electric distribution ratepayers through the energy efficiency and renewable energy program
component of the electric SBC, including the actual costs of the loans, interest on the loans, the
costs of metering equipment, all administrative costs of the program, and foregone electric
distribution fixed cost contribution. The Petition requested that PSE&G’s solar energy program
costs be recognized in the calculation of the Company’s overall funding level for renewable
energy programs. In testimony of its witness Gerald W. Schirra, this request was modified so as
to propose that the solar energy program costs be considered as incremental costs to be
recovered through the SBC and thus, be in addition to the Company’s Board-mandated funding
level for other Clean Energy Program initiatives.
On July 12, 2007, a prehearing conference was held at the Board’s Newark offices, for the
purpose of establishing a procedural schedule for this matter. On September 12, 2007, the
Board issued a Prehearing Order setting out, among other matters, requirements for the holding
of public hearings, the conduct of discovery, the filing of testimony, and evidentiary hearings, to
be presided over by President Jeanne M. Fox, on or after December 10, 2007. By the
Prehearing Order, the Board also granted requests for intervention by NJLEUC, NJNG, RECO,
MSEIA, RESA, and SJG, and a request by JCP&L for participant status.
On August 31, 2007, notice of the April 19, 2007 Petition was published in newspapers with
circulation within the Company’s electric territory. Public hearings were held on September 24,
2007, September 25, 2007, September 26, 2007, and September 27, 2007, in New Brunswick,
Hackensack, Newark, and Mt. Holly, respectively.
On September 21, 2007, Rate Counsel filed the direct testimony of six witnesses: Andrea
Crane, Vice President, Columbia Group; Dian Callaghan, Senior Consultant, McFadden
Consulting; Dr. David Dismukes, Consulting Economist, Acadian Consulting Group; Robert
Fagan, Senior Associate, Synapse Energy Economics, Inc.; Brian Kalcic, Economist, Excel
Consulting; and Matthew I. Kahal, Independent Consultant. MSEIA also filed direct testimony of
Thomas Leyden, President, MEISA, on September 21, 2007.
On October 26, 2007, PSE&G filed the rebuttal testimony of Frederick A. Lynk, Gerald W.
Schirra, and Morton A. Plawner, Vice President and Treasurer, PSE&G. On November 30,
2007, Rate Counsel filed the surrebuttal testimony of its six witnesses. No surrebuttal testimony
was submitted by MSEIA.
3 BPU Docket No. EO07040278
PROPOSED SETTLEMENT
By letter dated March 19, 2008 from counsel for PSE&G, a Settlement executed by the
Company, Board Staff, and Rate Counsel was submitted for filing with the Board. By copy of
the letter, the Service List was informed that other parties may either sign the Settlement or
submit letters to the Board by March 24, 2008. Thereafter, NJNG, SJG and MSEIA also signed
the Settlement, a copy of which, including the attachments thereto, is annexed hereto.
Submissions to the Board by non-signatories are discussed below.
The Settlement3 provides the following:
1. The Parties agree that PSE&G shall implement the Program as described and set forth
in the Settlement and the referenced attachments. Therefore, the Parties request that
the Board issue an Order approving the Settlement without modification.
Program Description
1. The Program is a distributed photovoltaic solar initiative in which solar photovoltaic
systems will be installed on customers’ premises “behind the meter,” using PSE&G as
an essential source of capital. The Program is intended to reduce the overall cost of
project development, installation, financing and maintenance, while providing the best
solar energy value for all stakeholders.
2. The Program is a distributed photovoltaic solar initiative in which solar photovoltaic
systems will be installed on customers’ premises “behind the meter,” using PSE&G as
an essential source of capital. The Program is intended to reduce the overall cost of
project development, installation, financing and maintenance, while providing the best
solar energy value for all stakeholders.
3. The Program is for a 30 megawatt Phase 1, designed to fulfill approximately one-half of
the Board’s estimated 57 MW Renewable Portfolio Standard requirements for load
served in the PSE&G service territory during the energy years 2009 and 2010. The
Company has not proposed additional phases of the Program at this time. Any
additional phases shall require a Petition, Public Notice, Public Hearings and Board
approval.
4. PSE&G will provide loans to solar photovoltaic developers or customers for a portion of
a project’s cost. The Project Owner will repay the loan over a 15-year period by
providing Solar Renewable Energy Certificates (or an equivalent amount of cash) to
PSE&G. For consumer loans the repayment period will be 10 years.
5. The Program will be open for applications for 2 years from the date of Board approval.
Projects will be accepted on a first-come, first served basis until 30 MW of projects have
been developed or 2 years pass, whichever comes first.
3 Although the Settlement is set out at some length herein, the full Settlement document controls, subject
to the Board’s findings and conclusions contained herein.
4 BPU Docket No. EO07040278
6. There will be a cap of 25% on any single developer/customer of the total Program
amount (i.e., 30MW). In addition, there will be a cap on any single developer/customer
of 25% (of the total segment size) within any one segment. The caps will apply to all
affiliated entities (e.g., if developer “A” has an affiliate “B,” A and B together may not
exceed 25% of any segment or 25% of the total 30 MW Program).
7. For the first year of the Program there will be hard caps of 9 MW (30%) for the
Municipal/Not-for Profit segment, 9 MW (30%) for the Residential segment and the Multi-
Family/Affordable Housing segment combined, and 12MW (40%) for the C&I segment.
Based on market conditions and the status of projects accepted into each segment
during the initial year, PSE&G reserves the right to convert these percentages into “soft”
caps starting in the second year of the Program.
8. The Program will have soft caps of 6MW (20%) of the total 30 MW block for the
Residential segment, and 3MW (10%) for the Multi-family/Affordable Housing segment.
9. Program Rules – PSE&G will administer the Program following the “Program Rules and
Application Process,” a copy of which is attached to the Settlement as Attachment A.
Generic Program Issues
1. The Program will have four segments – Commercial & Industrial (C&I), Residential, Multifamily/
Affordable Housing, and Municipal/Not-For-Profit.
2. PSE&G will provide loans to solar photovoltaic system developers, large commercial or
industrial customers, or other qualifying entities, and directly to residential customers to
assist in the financing of qualified solar photovoltaic systems.
3. The PSE&G loans will provide financing for part of the expected project cost; an equity
partner or the customer would provide the remaining financing.
4. Standard Loan and Security Agreements developed by PSE&G, accepted by the
Parties, and filed with the BPU will be used for the Program. Any terms used in the
settlement agreement relating to terms contained in the loan documents will be fully
defined in those documents and such definitions shall apply in the Settlement.
5. Commitments for approved loans will be issued via letter within 15 days of the receipt of
the following:
a. All required documentation and information
b. Credit approval
c. NJ Interconnection Application Net Metering Systems Approval
d. System output meter request approval.
15. The borrower will fully repay the loans made by the Company by providing PSE&G with
Solar Renewable Energy Certificates or cash, to repay principal and interest.
5 BPU Docket No. EO07040278
16. For any cash loan payments it receives, PSE&G will use the cash to repay the loan,
thereby reducing revenue requirements through a credit to the Solar Pilot Recovery Charge
(SPRC). In addition, if the borrower elects to sell the SRECs to a third party rather than
using them to repay the loan, the borrower must notify the lender in writing of his/her
intent to sell SRECs to that third party, and shall include in that written notification the
quantity of SRECs to be sold and the price for such quantity of SRECs. In addition, the
borrower must utilize the entire sale price paid by that third party first towards the
payment of all accrued interest on the loan; then the remainder of the sale price will be
applied to the loan principal in the month the borrower receives the proceeds of the sale
to a third party.
17. The SRECs, for purposes of this Program, will have an established floor value, which will
be $475, for the loan repayment period. For purposes of loan repayment, the SREC
market value (Market Value) means the average monthly cumulative weighted price of
SRECs as published on the New Jersey Clean Energy Program (NJCEP) website bulletin
board during the calendar month preceding the month of repayment of the current balance
due on the loan and accrued interest. If no price is published on the website for the
relevant month, the Market Value will be the average of quotes received from three
independent brokers. The higher of the $475 floor price or the Market Value at the time the
SREC is transferred to PSE&G will be applied toward loan repayment.
18. If the Market Value of the SRECs is above the floor price, the loan may be repaid sooner
than its 10 or 15-year term.
19. If loans are paid off early, PSE&G retains the right to purchase SRECs through a call
option. The call option price is 75% of the then current Market Value of SRECs. The
Parties agree that the call option provides benefits to ratepayers after the loan has been
repaid. The price will be determined at the time the Company seeks to exercise the call
option.
20. If the call option is used, the SRECs purchased via the call option will be disposed of in the
same manner as other Program SRECs. PSE&G will calculate the net proceeds (as that
term is defined in Paragraph 45 of the Settlement) realized from the purchase and sale of
the SRECs pursuant to the call option, and credit the net proceeds from the sale to the
SPRC upon receipt of the proceeds, to offset the revenue requirements of the Program.
21. Customers will either: (a) own the solar PV system and receive the benefit of the solar
power directly; or (b) enter into an agreement (Customer Agreement) with the
owner/developer to purchase the energy at a negotiated rate.
22. The Board’s net metering rules will apply to any excess electricity delivered to the PSE&G
distribution system.
23. Customers host and potentially own the system. In some cases, the systems will be owned
by an equity partner that can take advantage of the Federal Investment Tax Credit.
24. All PV system installations will be sized to meet no more than the customer’s annual
electric usage.
6 BPU Docket No. EO07040278
25. All systems must: (1) be eligible for net metering, pursuant to the BPU’s net metering
regulations and under the terms and conditions of PSE&G’s Tariff, (2) create SRECs, and
(3) be located in PSE&G’s electric distribution service territory.
26. All projects will be metered and must register with the BPU’s SREC administrator.
27. PSE&G will provide financing to the Project Owner in the form of a loan secured, at a
minimum, by the project equipment and related agreements. There will be a loan
agreement between PSE&G and the Project Owner that addresses the conditions pursuant
to which the financing is made, including repayment, security/collateral, and maintenance
on the project.
28. Borrowers will repay the loan by providing PSE&G with all of the project’s SRECs (or cash)
over a term of 15 years (10 years for consumer loans) or until the loan is repaid in full. After
the loan obligation has been fully repaid, the system owner will retain title to the SRECs;
however, if the loan is repaid prior to the 15-year term (10 years for consumer loans),
PSE&G will have the option to call on the SRECs produced by the project at a predetermined
price (as described in Paragraph 19), over the remaining time left in the original
loan term (but not thereafter).
29. PSE&G will not provide loans for construction purposes. PSE&G will close the loan and
make payment within 30 days after all Program requirements are satisfied. PSE&G has no
legal or financial obligation regarding the customer/homeowner contract with the solar
developer for the project.
30. The project developer, if different than the customer, will enter into an agreement with the
customer regarding the electricity the solar PV system produces.
31. PSE&G will not offer billing services for any power purchase agreements (PPAs) between
solar developers/installers and customers in any segment during this phase of the
Program.
32. PVWATTS1 assumes that the overall DC to AC default value of 0.77 will provide a
reasonable estimate for modeling the energy production. However, the derate factor can
be modified by either inputting another overall value or by modifying the component
defaults to calculate an installation specific derate factor. PSE&G’s Program will require
that the calculated system output must meet the Office of Clean Energy’s standards, which
currently require that the calculated system output be at least 80% of the default output
calculated by PVWATTS and that the calculated output of all series strings of modules
must be at least 70% of the default output for each string calculated by PVWATTS.
33. PSE&G will require that all developers/system owners provide proof that the installed
system has passed the Board’s Office of Clean Energy’s (OCE) CORE Program
inspection.
34. PSE&G will close the loan and make payment within 30 days after all Program
requirements are satisfied.
7 BPU Docket No. EO07040278
35. Metering and related issues.
a. All projects will have a separate meter, installed at the customer’s expense, to
measure solar system output. PSE&G will install, own, and read (or telemeter)
the meter (there may be exceptions under unusual circumstances, which will be
dealt with on a case-specific basis). The currently estimated installed cost of a
watthour meter is $195 plus tax. If a remote meter reading device is required,
the currently estimated cost is an additional $110 plus tax, and a monthly fee of
$1.00 for single phase service; the currently estimated cost is an additional $190
plus tax and a monthly fee of $2.00 for three-phase service. PSE&G will charge
the actual, current costs for these items at the time they are installed. For
ratemaking purposes, PSE&G will treat the cost of the meter as a contribution in
aid of construction. The BPU’s regulations concerning electric meters will apply
to all PSE&G-owned meters.
b. PSE&G will provide system output data to the system owner or borrower (i.e., the
entity responsible for providing SRECs for loan repayment). The method and
format of the data flow are in development.
c. Under PSE&G’s revised metering proposal no electronic communications will be
necessary for all residential and non-hourly metered commercial customers.
Hourly customers have existing interval meters with communications and the
solar system meter will also have communications installed. Remote meter
reading devices will be required for customers that currently have their meters
read remotely and for those projects for which PSE&G determines that remote
meter reading is necessary. PSE&G will be responsible for telephone line
maintenance over the life of the loan. PSE&G will work with the developer and
customer to find a reliable and cost effective metering solution. The first 100 feet
of communications wire will be provided at no charge (except for atypical
conditions). The developer is responsible for any additional cost (i.e., for
installations over 100 feet and/or atypical conditions).
36. A true up of the loan payment/amount, as described in more detail in the loan
documents, will be calculated annually based on the system’s energy year. In addition,
PSE&G will provide periodic, but at least quarterly amortization statements to borrowers
that will include but not be limited to the amount paid in cash and SRECs, the amount
due, and the cumulative difference.
37. PSE&G will attempt to resolve disputes with its customers informally in the first instance.
The Parties agree that consumers under any segment within the Program reserve all
legal rights and remedies involving disputes concerning the loan agreement and/or
monetary claims or civil damages. Disputes under any customer segment within the
Program that involve the loan agreement and/or monetary claims or civil damages will
be resolved in an appropriate court of law. Disputes that involve PSE&G’s
administration of the Program that cannot be resolved informally will be resolved through
the BPU’s existing process for customer complaints within the appropriate BPU Division.
38. Solar shingles, as well as any other building-integrated solar technology that becomes
part of the building structure and therefore cannot be used as collateral for a personal
property loan, will not be eligible in this phase of the PSE&G Solar Program.
8 BPU Docket No. EO07040278
39. Removal of the solar system is the last option for a loan that goes into default. If it is
necessary to remove the solar system, PSE&G will sell the collateral and credit the net
proceeds against the regulatory asset (i.e., the regulatory asset that PSE&G is
recovering through the Solar Pilot Recovery Charge). Contemporaneous with the
removal of the solar equipment, PSE&G will stabilize the section of the roof affected by
the equipment removal to prevent leakage. Within seven days of equipment removal,
PSE&G will restore the roof of the property in a workman like fashion to ensure that the
stabilized area of the roof reflects the general condition of the portions of the roof not
affected by the equipment removal.
40. In situations where a solar project is installed on a site where the borrower is someone
other than the site owner, the owner (host site) must consent to the project being
installed on their property. Where the project is being developed, constructed and
owned by the developer, this agreement can be incorporated into the installation
agreement between the developer and the customer. In instances where the host site is
leased from a party who is not part of the installation, a suitable form of consent must be
supplied.
41. Customers may choose a developer to work with or, may apply to the Program directly.
PSE&G will not develop a separate listing of qualified developers for the Program, but
will refer customers to the OCE list of solar distributors and installers as an information
source to assist consumers in finding solar vendors and making informed choices.
PSE&G will link its customer information materials directly to the vendor listing provided
by the OCE. Since the OCE listing is not intended to be an all-inclusive list of qualified
renewable energy systems installers, it will not be necessary for a renewable energy
system installer to appear on this list in order for a system purchaser to qualify for a
PSE&G solar Program loan. However, all systems will be required to pass the Office of
Clean Energy’s inspection process.
42. PSE&G will require that the borrower confirm that the system will be maintained in good
operating condition by providing one of the following:
1. Copy of executed Maintenance Agreement;
2. Copy of Extended Warranty; or
3. Statement from borrower that the system will be self-maintained.
PSE&G will retain the right to monitor system performance and, in the event of a decline
in system output, may require that the borrower perform corrective action.
43. The Parties acknowledge that PSE&G makes no representations concerning any federal
or state tax consequences that may result from participation in the Program. Moreover,
the Parties agree that nothing in this Settlement or in any of PSE&G’s filings with the
BPU in this matter shall be construed as containing advice concerning federal or state
tax matters. PSE&G encourages all potential participants in the Program to seek advice
from their own tax advisor on any federal or state tax consequences that may result from
participation in the Program.
44. PSE&G agrees to report data regarding the Program to BPU Staff with copies to the
Division of Rate Counsel, on a semi-annual basis for statistical purposes. Such reports
shall include the following information:
9 BPU Docket No. EO07040278
• The number of defaults by each segment that have occurred to date.
• The number of removals by each segment that have occurred to date.
• Monthly revenues from the sales of SRECs in the market.
• The number of loans by each segment initiated monthly.
• The number of consumer disputes and the nature of each dispute occurring
monthly.
• The number of solar projects by segment that were denied loans based on 1.
Credit Scores; 2. liens on property; 3. bankruptcy; 4. PSE&G’s bill payment
standings; 5. other.
• % of 30 MW by segment that have been installed and provided loans to date.
• The dollar amount of loans for each segment to date.
• The monthly revenues from cash payments for each segment to date.
• Prices realized for SRECs sold through the auction.
• Number of SRECs transferred to PSE&G and number of SRECs sold.
45. Instead of PSE&G allocating all SRECs it receives pursuant to the Program to Load
Serving Entities (LSEs) as proposed in the Petition, the Parties agree that there should
be periodic auctions of the Program’s SRECs. Thus, the Program’s SRECs will be sold
in the open market by a third-party auction expert at least annually. PSE&G will credit
the net proceeds of all Program SRECs sold to the SPRC, to offset the revenue
requirements of the Program. For the purpose of this paragraph, “net proceeds” of the
Program SRECs sold means the value realized from the sale less all transaction costs.
If the SREC is acquired through exercising the call option, the cost to purchase the
SREC is a component of the transaction cost. The Parties further agree to form a group,
which began meeting in February 2008, to develop the auction details by working with
the auction experts to develop an auction mechanism. A compliance filing detailing this
process will be filed with the Board Secretary upon completion of this process.
Attachment B to the Settlement provides initial process parameters for the Program’s
SREC auction process.
Customer Segment Details
Residential Segment (20%) – 6MW
46. A customer/owner will learn about the Program through PSE&G or directly from a solar
developer.
47. The developer/contractor will work with the customer to design a suitable solar system
application.
48. Upon finalization of the solar system design, it is input into PV WATTS to determine system
performance characteristics.
49. Customer/owner applies to the PSE&G Program with application information, including
PVWATTS performance characteristics.
50. The customer/owner may also apply for applicable rebates, other subsidies and tax credits,
as appropriate.
51. Upon application approval, and obtaining other necessary capital the developer/contractor
procures and implements installation.
10 BPU Docket No. EO07040278
52. The Board of Public Utilities will establish the rebate level available for 2009 residential
solar installations under the Clean Energy Program. No set asides have been provided for
the PSE&G Program. Developers/residential customers may apply for OCE rebates in the
normal course of their sales to residential customers. Participation in the PSE&G Program
will not impact eligibility for the Office of Clean Energy’s rebate Program, subject to future
decisions by the BPU.
53. PSE&G Initial Responsibilities Regarding Residential Segment
i. PSE&G will form a subsidiary (subject to the caveat in subsection
53 iii. below) company to provide loans for residential, C&I,
municipal, and affordable multi-family projects for the PSE&G
Solar Energy Program. The PSE&G subsidiary will originate and
close all loans under the Program.
ii. The PSE&G subsidiary would be structured as a Delaware limited
liability company.
iii. Counsel for PSE&G has determined that in order to receive a
timely determination from the New Jersey Department of Banking
and Insurance (DOBI) it is necessary to have a Board approved
program. Once the BPU has approved the Solar Program, PSE&G
will apply to the DOBI to determine if an exemption would be
appropriate for consumer lending under the terms of the Board
approved Program. PSE&G (either directly or through the
subsidiary) will perform all aspects and responsibilities of the Solar
Loan Program, including compliance with all applicable
regulations with respect to consumer lending in New Jersey, Truth
in Lending and Plain Language requirements, including any and
all requirements and determinations of the DOBI. If PSE&G
applies for and receives a finding from DOBI that the Solar Loan
Program does not constitute a Consumer Loan, PSE&G would not
form a subsidiary. If PSE&G is unable to obtain either an
exemption from DOBI licensure or a declaratory ruling that its
proposed treatment of the equal monthly payment requirement is
acceptable, and the Call Option does not constitute a prepayment
penalty, the Company agrees to discuss with the other Parties
suitable alternatives for the Residential Segment.
iv. The subsidiary will be the entity that utilizes the capital provided
by PSE&G to issue the loans under the Program.
v. Section 17:11C-16 of the banking regulations requires that an
applicant for a consumer lending license have a net worth of at
least $100,000 and liquid assets of at least $100,000 to make
loans.
vi. The subsidiary will have no employees. There will be service
agreements between PSE&G and the subsidiary in connection
with the administration of the loan Program.
11 BPU Docket No. EO07040278
vii. The limited liability structure of the PSE&G subsidiary should
ensure that there are no adverse New Jersey State or federal tax
consequences.
54. Loan Particulars – Residential Segment
i. Term of Loan – 10 years
ii. Interest Rate on Loans to Residential Borrowers – 6.5%
iii. Repayment – Cash or SRECs generated by solar system during
the loan term. For purposes of repayment of the loan, SRECs will
be valued at the SREC Floor Price of $475 or the market price if
higher.
iv. Collateral security for the loan will be the project equipment.
v. Amount loaned for a project will be dictated by the installed cost
per watt, the loan amortization period and the interest rate on the
loan. Assuming a 10-year loan at 6.5% and an installed cost of
$6.50 per watt, the loan would be about 50% of the project cost.
vi. If the loan is paid off early, PSE&G subsidiary will retain the call
option through the end of the 10th year.
vii. At the end of the 10 year loan period, the owner will have all rights
to the remaining 5 years of SREC qualification life.
viii. A PSE&G meter will measure system output and will be installed
at the customer’s expense.
ix. Commitments for loans will be issued via letter within 15 days of
the receipt of the following:
1. All required documentation and information;
2. Credit approval;
3. Interconnection application; and
4. Net metering application and system output meter request
approval.
55. Credit Criteria to be used for residential customers in lending decision
i. Applicant must submit to a credit check.
ii. Residential customers must have an Experian FICO score of at
least 720. Minimum credit score must be maintained between
approval and loan closing.
iii. Customer must be in good standing with respect to payment of
energy bills (PSE&G bill payment credit assessment code of 1 or
2).
1.Score of 1 means pays promptly, no delinquency.
2.Score of 2 means fewer than 6 delinquencies in past 12
months or delinquent less than ½ of months a customer
and no notice.
iv. There must be no liens, other than mortgages or home equity
loans, on the property where the solar equipment will be installed,
so that PSE&G will have a first lien on the solar equipment.
v. Customer will be asked to disclose the existence of any liens in
the application process.
vi. A search for liens will be conducted immediately prior to closing.
vii. No bankruptcy filing within the last three years.
viii. PSE&G will collect the information necessary to determine the
12 BPU Docket No. EO07040278
number of residential Program applicants rejected due to credit
score, PSE&G bill payment credit assessment, or other credit
reasons specified. Credit scores and bill payment credit
assessment codes will be tracked to determine whether a different
credit screen should be used. Low Income Home Energy
Assistance Program (LIHEAP) recipients’ credit acceptance/
rejection information will be tracked separately. This information
will be included in PSE&G’s reporting data referenced in
paragraph 44 of the Settlement.
56. The Parties agree to form a separate group to develop appropriate education materials
for distribution to residential customers participating in the Program. For example, this
group will develop a number of Frequently Asked Questions and answers and PSE&G
will provide them to residential loan applicants. The Parties will work with Rate
Counsel’s consultants to produce Program Documents for a compliance filing to be
made to the Board Secretary upon completion of this process.
57. The Parties agree to form a separate group to work with Rate Counsel’s experts and
Board Staff to develop appropriate residential loan documents for use in this Program.
Upon completion of this process, a compliance filing will be made with the Board
Secretary of the agreed upon Program residential loan documents. In addition, this
group will help to develop a Terms and Conditions sheet that will explain in plain
language the residential customer’s rights, obligations, and liabilities in the event of a
default, sale of the customer’s home, solar energy system failure, assumption of the loan
by PSE&G, disposition of the SRECs, etc. PSE&G will provide the Term and Conditions
sheet to residential Program applicants.
C&I Segment (40%) – 12MW
58. The project owner is a solar developer or customer.
59. For projects in which a developer is involved, the host customer receives the energy
through an agreement with the developer.
60. If the customer is the project owner, it will own the system and receive the solar energy
directly, under the Board’s net metering rules.
61. The loan interest rate for the C&I segment will be 11.11%
62. If the loan is paid off early, PSE&G (or its subsidiary) will retain the call option through the
end of the 15th year.
Multi-family/Affordable Housing Segment (10%) – 3MW
63. The Multi-family/Affordable Housing segment will target existing multi-family, new
construction and single family homes.
64. PSE&G will originate loans for the Multi-Family/Affordable Housing segment based on
income guidelines established in the NJHMFA funding programs for multi-family
affordable housing projects. NJHMFA’s multi-family affordable housing income limits
13 BPU Docket No. EO07040278
vary based on household size and housing type. The most recent data available from
the NJHMFA is presented in a chart set forth in the attached Settlement.
65. The interest rate for loans in the Multi-family/Affordable Housing segment will be 11.11%.
66. The repayment term will be 15 years.
67. If the loan is paid off early, PSE&G (or its subsidiary) will retain the call option through the
end of the 15th year.
Municipal Segment/Not-for-Profit Segment (30%) – 9MW
68. This segment is similar to the C&I segment.
69. PSE&G will provide financing to the project owner, which would likely be an equity partner.
70. The participating municipal entity would benefit from receiving solar electricity that the PV
system generates under an agreement with the project owner.
71. The interest rate for loans in the Municipal/Not-for-Profit segment will be 11.11%.
72. The repayment term will be 15 years.
73. If the loan is paid off early, PSE&G (or its subsidiary) will retain the call option through the
end of the 15th year.
74. Credit Criteria to be used for all segments other than residential single family:
i. Applicant must submit to a credit check.
ii. Commercial/industrial customers must have an Experian
Commercial Intelliscore or an Experian Small Business Intelliscore
of 70 or higher. Minimum credit score must be maintained
between approval and loan closing.
iii. Customer must be in good standing with respect to payment of
energy bills (PSE&G bill payment credit assessment code of 1 or
2)
• Score of 1 means pays promptly, no delinquency.
• Score of 2 means fewer than 6 delinquencies in past 12
months or delinquent less than ½ of months a customer
and no notice.
iv. There must be no liens on the property where the solar equipment
will be installed that will interfere with PSE&G’s ability to obtain a
first lien on the solar equipment.
v. Customer will be asked to disclose the existence of any liens in the
application process.
vi. A search for liens will be conducted immediately prior to closing.
viii. No bankruptcy filing within the last three years.
14 BPU Docket No. EO07040278
Cost Recovery and Related Issues
75. The parties agree that PSE&G will recover the net monthly revenue requirements
associated with this Program through a new charge of the Company’s electric tariff
called the SPRC. The SPRC will be a new charge in the Company’s electric tariff,
applicable to all electric Rate Schedules on an equal cents per kilowatthour. The SPRC
rates will not be implemented at this time. PSE&G will defer costs and net monthly
revenue requirements it incurs for the Program to the SPRC for future recovery,
consistent with the terms of the Settlement Agreement. Interest on the deferred SPRC
balance (both on under- and over-recovered balances) will be calculated at the same
rate and methodology as PSE&G currently uses for the electric Societal Benefits
Charge. PSE&G will implement the SPRC rates through a future filing it will make with
the Board. The Parties agree that the SPRC filings shall be filed annually by PSE&G.
Each future SPRC filing will include estimated costs to be incurred under the Program in
the upcoming period, along with the amortization of any prior period over or under
recovery, with the resulting SPRC rate being either positive (a charge to customers),
negative (a credit to customers) or zero. Attachment C to the Settlement provides a
proposed SPRC tariff sheet showing the SPRC structure with the initial value of the new
component set at zero, as well as additional tariff language that will be added to each
electric Rate Schedule.
The net monthly revenue requirements would be calculated and deferred as follows:
Net Monthly Revenue Requirements = (Cost of Capital * Net Plant) + Amortization +
recoverable Administrative Costs – net proceeds from the sale of SRECs – cash
payments received in lieu of SRECs.
The amortization of each loan shall occur when an SREC or a cash payment is received
by the Company from the borrower, after deducting accrued interest expense. Any loan
amortization accumulated in a month will be booked as Amortization expense to the
SPRC. If an SREC is received, the SPRC will be credited when the SREC is sold. If a
cash payment is received, the SPRC will be credited in the month that the cash payment
is received.
76. The parties agree that the Cost of Capital for this Program is 11.11%, including a return
on Common Equity of 9.75%, which is the most recent Return On Equity established by
the Board for PSE&G electric in Docket No, ER02050303, and including income tax
effects. The resulting monthly Cost of Capital used for calculating the Net Monthly
Revenue Requirements is 0.92583%. Net Plant equals the original loan amounts booked
less the accumulated amortization through the SPRC. The Amortization is equal to the
sum of the amortizations of all of the outstanding loans for each month until the total
amount is recovered (Net Plant equals zero). Any cash payments received by PSE&G
from the Project Owner for early termination of a contract will be credited against the Net
Plant for the specific project. The Company agrees that it will not seek collection of make
whole payments (lost revenue) resulting from Phase I of the Solar Program through the
SPRC.
77. PSE&G agrees that it shall recover 50% of the administrative costs of the Solar Program
through the SPRC, based on the annual grand total amounts set forth in Attachment D to
the Settlement. Administrative costs are defined as reasonable and incremental costs
incurred by the Company to implement the Program. The maximum administrative cost
recovery through the SPRC in any year is $1.0 million.
15 BPU Docket No. EO07040278
78. Because of the changes in the interest rate for residential loans and other changes
agreed to in the Settlement, the total amount of PSE&G’s loans under this phase of the
Program will be approximately $105 million.
79. The Parties agree that the cost recovery mechanism as set forth in the Settlement
Agreement is reasonable. The Parties also agree that PSE&G, as a public utility, will be
engaging in and administering the Program as a regulated service. The Parties further
agree that the Program is a pilot program that is separate and apart from the renewable
energy programs administered by the Office of Clean Energy for budgetary and cost
recovery purposes. Each Party agrees that it shall not seek to modify the cost recovery
methodology for Phase I of the PSE&G Solar Program for any reason.
Other Issues
80. PSE&G will use its best efforts to develop a solar energy program that provides sufficient
incentives and subsidies to low-income, single-family homeowners so that they can
benefit from participation. The Company will work with Rate Counsel, BPU Staff, private
nonprofit organizations such as New Jersey Shares, and others to develop this Program,
and present it to the Parties and the Board within one year after Board approval of this
Solar Energy Program.
81. The Parties agree that the Settlement is being entered into exclusively for the purpose of
resolving the issues in this matter.
82. The Parties agree that this Settlement was negotiated and agreed to in its entirety with
each section being mutually dependent on approval of all other sections. Therefore, if
the Board modifies any of the terms of the Settlement, each Party is given the option,
before implementation of any different terms in this case, to accept the change or to
resume the proceeding as if no agreement had been reached. If these proceedings are
resumed, each Party is given the right to return to the position it was in before the
Settlement was executed.
83. The Parties agree that the Settlement has been made exclusively for the purpose of this
proceeding and that the Settlement, in total or by specific item, is in no way binding upon
them in any other proceeding, except to enforce the terms of the Settlement.
84. Nothing in the Settlement of this Program is intended in any way to bind any
determination made by the DOBI.
85. PSE&G will fully comply with all requirements and determinations of the DOBI.
COMMENTS OF OTHER PARTIES
On March 21, 2008, JCP&L filed a letter with the Board stating that JCP&L would not be signing
the Settlement and takes no position in support of or opposition to the Settlement. Similar
letters were filed by RECO and RESA on March 27, 2008.
16 BPU Docket No. EO07040278
By letter dated March 24, 2008, NJLEUC submitted comments indicating that it would not sign
the Settlement and would not formally support or oppose it. Noting that the parties’ settlement
efforts had improved upon the solar pilot program originally proposed by PSE&G, which
NJLEUC states it would have actively opposed, NJLEUC enumerates the improvements as
including: administrative costs to be passed onto ratepayers are capped at a specific dollar
amount per year; a reduced return on common equity; a separate mechanism, the SPRC, rather
than the SBC, to recoup program costs not otherwise recovered through the SREC auction or
other loan payments; ratepayers receive direct monetary benefits from SREC auction proceeds;
elimination of “make whole” payments; and clearly labeling the program as a one-time, pilot
effort without binding effect. NJLEUC indicates that in light of these improvements, it does not
affirmatively oppose the proposed Settlement.
While not affirmatively opposing the proposed Settlement, NJLEUC raises five primary concerns
about the proposed Settlement, which it states cause it to not affirmatively support it. NJLEUC
takes the position that: 1) the cost of capital (11.11%) and return on equity (9.75%) remain too
high for what it refers to as a risk free investment; 2) the allocation of the costs among ratepayer
classes on a per-kWh basis is unfair to high load factor customers like its members; 3)
interclass subsidies are created due to the 6.5% interest rate for consumer program loans made
to residential ratepayers as opposed to the 11.11% interest rate for commercial, industrial, nonprofit,
and government participants; 4) the proposed Settlement has language which could be
construed as an effort to place the pilot program outside the reach of the Board’s recently
adopted 2% cap on ratepayer subsidies to solar initiatives and the Board should make the
proposed Settlement subject to the outcome in the Board’s ongoing separate consideration
regarding implementation of the cap; and 5) the Board should not view the proposed Settlement
in isolation, but in the broader context of the State’s evolving energy policies as a whole.
Specifically, NJLEUC argues that the return on equity provided for the pilot program remains too
generous. NJLEUC states that the settling parties selected the 9.75% settlement figure
because it “is the most recent Return on Equity established by the Board for PSE&G electric in
Docket No. ER02050303.”4 NJLEUC asserts that in a rate case, PSE&G receives nothing more
than the opportunity to recover its cost of service; PSE&G assumes the risk of doing business
and the rate case return on equity reflects the assumption of that risk. NJLEUC contends that
conversely, in the proposed pilot program, PSE&G is generally guaranteed to recover its entire
program investment making the investment risk free. NJLEUC requests that the program’s
return on common equity be reduced to eliminate the risk-related portion of the 9.75% return on
equity approved in the last PSE&G electric base rate case. Alternatively, NJLEUC states that if
the Board were to eliminate any recovery through the SPRC, then including the risk component
in PSE&G’s Settlement return on equity would be appropriate.
Additionally, NJLEUC states that it remains concerned with the allocation of the costs among
ratepayer classes that underlies the SPRC. As spelled out in the Settlement, the SPRC would
spread pilot program costs among ratepayers on a per kWh basis. NJLEUC argues that the
program is intended to foster capacity investment and opposes the allocation of capacity related
costs on a per kWh basis because it asserts that it is systematically unfair to high load factor
customers like its members. NJLEUC maintains that any program costs recovered via the
4 Final Order, In the Matter of the Petition of Public Service Electric and Gas Company for Approval of
Changes in Electric Rates, for Changes in the Tariff for Electric Service, B.P.U.N.J. No. 14, Electric,
Pursuant to N.J.S.A. 48:2-21 & 48:2-21.1; for Changes in its Electric Depreciation Rates Pursuant to
N.J.S.A. 48:2-18; and for Other Relief, Docket No. ER02050303 (April 22, 2004).
17 BPU Docket No. EO07040278
SPRC should be allocated among rate classes on a coincident peak demand basis, rather than
a per kWh basis.
According to NJLEUC, the Settlement as proposed would create a new interclass subsidy to be
paid by non-residential ratepayers based on the disparate treatment afforded those who apply
for pilot program loans from PSE&G. As proposed, the pilot program would lend to participants
from commercial, industrial, non-profit, and governmental sectors at an 11.11% interest rate.
For residential participants, PSE&G would charge a 6.5% interest rate. NJLEUC argues that to
alleviate this concern, the Board could raise the interest rate for residential participants to
11.11%, lower the interest rate for all program loans to 6.5%, or direct that only residential
ratepayers subsidize PSE&G’s reduced-rate loans to residential pilot participants.
NJLEUC further argues that language in paragraph 79 that the “pilot program is separate and
apart from the renewable energy programs administered by the Office of Clean Energy for
budgetary and cost recovery purposes” could be construed as an effort to have the pilot
program be outside the reach of the Board’s recently adopted 2% cap on ratepayers’ subsidies
to solar power initiatives. NJLEUC requests that the Board make the proposed Settlement
subject to the outcome in the Board’s ongoing separate consideration of how to best implement
the 2% cap.5
NJLEUC also urges the Board to not view the proposed Settlement in isolation, but rather in the
broader context of the State’s evolving energy policies as a whole. NJLEUC notes that since
the filing of the pilot program much has transpired that should be considered in any assessment
of the proposed Settlement. NJLEUC believes the wiser course of action would be to hold in
abeyance any final action on the proposed Settlement pending greater clarity with respect to
other aspects of the State’s energy policy debate.
DISCUSSION AND FINDINGS
The Board has carefully reviewed the record in this matter, including the Petition, comments
from the public hearings, the Settlement, and the comments submitted by NJLEUC and
submissions by the other non-signatories. As discussed below, the Board finds that the
Settlement represents a fair and reasonable resolution of this matter and is in the public interest.
In reaching its determination herein, the Board notes that during the pendency of this matter, L.
2007, c. 340 was enacted into law on January 13, 2008. The statute contains provisions
relevant to the Regional Greenhouse Gas Initiative, or RGGI, which is a cooperative effort bystates to reduce carbon dioxide emissions from power plants in a 10-state region that includes
all of New England, New York, Delaware, Maryland, and New Jersey. The statute authorizes
the auction or other sale of greenhouse gas emissions allowances; establishes a “Global
Warming Solutions Fund” to receive the revenues from the sale of allowances and such other
moneys as may be appropriated by the Legislature and designates uses for those revenues;
directs the Board to adopt a greenhouse gas emissions portfolio standard or other regulatory
mechanism to mitigate leakage; and authorizes participation by the Department of
Environmental Protection Commissioner and Board President, or their designees, in
agreements or arrangements with representatives of other states. In enacting the statute, the
Legislature declared that energy efficiency (EE) and conservation measures and increased use
of renewable energy (RE) resources must be essential elements of the State’s energy future
and that greater reliance on EE, conservation, and RE resources will provide significant benefits
5 See n.2 regarding the cap referenced by NJLEUC.
18 BPU Docket No. EO07040278
to New Jersey citizens. L. 2007, c. 340, §1; N.J.S.A. 26:2C-45. The Legislature further found
that public utility involvement and competition in the RE, conservation and EE industries are
essential to maximize efficiencies and the use of RE and the provisions of the statute should be
implemented to further competition. Ibid. To that end, the statute provides that an electric or
gas public utility may invest in class I RE resources or offer class I RE programs on a regulated
basis in accordance with the statute; provides similar authorization with regard to EE and
conservation programs; and authorizes program cost recovery as determined by the Board. L.
2007, c. 340, §13(a); N.J.S.A. 48:3-98.1(a). Ratemaking treatment may “include placing
appropriate technology and program cost investments in the respective utility’s rate base, or
recovering the utility’s technology and program costs through another ratemaking methodology
approved by the board, including, but not limited to, the societal benefits charge.” L. 2007 c.
340, §13(b); N.J.S.A. 48:3-98.1(b).
Turning to the proposed Settlement, the Board FINDS that the proposed pilot program, by which
PSE&G will offer a class I renewable energy program in its service territory on a regulated basis
and with ratemaking treatment for certain program costs as set forth in the proposed Settlement
through the SPRC, is in accordance with the law as set out by L. 2007 c. 340.6 Furthermore,
while the Board has carefully considered NJLEUC’s comments regarding the proposed
Settlement, the Board FINDS that the proposed Settlement represents a fair and reasonable
resolution of this matter and is in the public interest. The pilot program whereby PSE&G will
provide upfront capital to install up to 30MW of solar capacity for its customers, will further the
State’s and this Board’s goals and commitment to foster clean renewable energy in the State.
Specifically, pursuant to the Board’s RPS regulations, the State will have 20% of electricity used
in the State come from class I renewable energy sources, with 2.120% from solar, in the
reporting year ending May 31, 2021. In addition, Governor Corzine’s Executive Order No. 54
and the Global Warming Response Act, L. 2007, c. 112, N.J.S.A. 26:2C-37 et seq., call for
reducing New Jersey’s greenhouse gas emissions to a level at or below 1990 levels by 2020,
and to a level 80% below 2006 levels by 2050.
NJLEUC requests that the Board view the proposed Settlement as an interlocking part of a longterm
energy strategy and await final action on the proposed Settlement pending greater clarity
with respect to aspects of the State’s energy policy debate. Although the State’s Energy Master
Plan is currently being updated, the Board has sufficient information about the relevant aspects
of the State’s energy policy to proceed with final action on the proposed Settlement.
Specifically, Executive Order No. 54, the Global Warming Response Act, and L. 2007, c. 340,
as well as the Board’s 2006 adoption of the solar renewable portfolio standard through May 31,
2021, which was left unchanged by all of those subsequent actions, already express not only
the State’s commitment to reducing greenhouse gas emissions but also its commitment to
meeting more of our energy needs through the use of renewable sources, including solar. The
Board, therefore, finds that the pilot program, as set forth in the Settlement, is consistent with
and will help achieve those commitments. Accordingly, the Board concludes that Board action
on the Settlement should not be deferred.
6 L. 2007, c. 340 requires the Board to issue an order allowing electric public utilities and gas public
utilities to offer EE and conservation programs, to invest in class I RE resources, and to offer class I RE
programs in their respective service territories on a regulated basis. The order is to be issued within 120
days of the enactment of L. 2007, c. 340, or by May 12, 2008, and is to thereafter be reflected in
regulations. L. 2007, c. 340, §13(c); N.J.S.A. 48:3-98.1(c). Such an order will be forthcoming and will be
followed thereafter by a rulemaking. The within Decision and Order is limited to the particular matter and
the circumstances presented herein.
19 BPU Docket No. EO07040278
As to NJLEUC’s comment that language in paragraph 79 of the proposed Settlement that the
“pilot program is separate and apart from the renewable energy programs administered by the
Office of Clean Energy for budgetary and cost recovery purposes” could be construed as an
effort to have the pilot program be outside the reach of the Board’s recently adopted 2% cap on
ratepayers’ subsidies to solar power initiatives, the Board does not read the cited Settlement
provision as exempting the pilot program from consideration within the 2% solar cost cap in
connection with achieving the solar RPS requirements as set forth in the Board’s December 6,
2007 Order, Docket No. EO06100744. The net cost of the SPRC, which is the cost of the
SPRC minus the revenues of the SRECs, shall be considered in the ongoing regulatory
proposal to implement the 2% solar capping mechanism pursuant to the Board’s December 6,
2007 Order, Docket No. EO06100744.
The Board also has considered NJLEUC’s other comments on particular terms of the proposed
Settlement and pilot program. NJLEUC requested that the program’s return on common equity
be reduced to eliminate the risk-related portion of the 9.75% return on equity approved in the
last PSE&G electric rate case. The Board notes that PSE&G originally requested a return on
equity of 11.00%, as well as make whole payments. As reflected in the Settlement, the
Company has agreed to a lower ROE, and has agreed to forego its request for any make whole
payments associated with the pilot program, to cap the annual administrative costs to be borne
by ratepayers, and to bear a portion of the administrative costs. The Board also notes that this
is a pilot program for two years, or 30 MW of projects, whichever comes first, and any additional
phases will require a petition, public notice and hearing, and Board review and approval. The
issue of the appropriate return on equity on any program beyond the initial pilot will be
addressed in any such proceeding. Therefore, while the Board has carefully considered
NJLEUC’s comments with respect to the return on equity, given the entirety of the proposed
Settlement, the Board is not persuaded that the proposed Settlement should be modified in this
regard for the purposes of the pilot program.
With respect to NJLEUC’s concern regarding the allocation of SPRC charges on a per kWh
basis, the Board notes that the pilot program provides needed incentives for the installation of
solar photovoltaic systems to generate electricity. The benefits of the program are not specific
to one rate class, but to PSE&G’s service territory as a whole. Additionally, the Board notes that
under the terms of the proposed pilot program, the program will have four segments, with the
following hard caps in the first year, subject to possible conversion to “soft” caps in the
program’s second year depending on market conditions and the status of projects accepted into
each segment in the initial year: 9 MW (30%) for municipal/ not-for-profit segment, 9 MW (30%)
for residential and multi-family/affordable housing segments combined, and 12 MW (40%) for
the C&I segment. Thus, while the C&I class as large users may pay more, that segment will
constitute a larger part of the program than other customers. The C&I customers will benefit
proportionately more by any reduction in usage due to solar, both on a peak and annual basis.
Therefore, the Board finds the Settlement’s allocation of the pilot program costs on a per kWh
basis to be reasonable.
The Board also has considered NJLEUC’s concern regarding the potential interclass subsidies
created by the 6.5% interest rate for consumer program loans made to residential ratepayers as
opposed to the 11.11% interest rate for commercial, industrial, non-profit, and government
participants. With regard to the installation of solar photovoltaic systems, the market barrier
largely is with the residential segment. To reduce that barrier, the Board finds acceptable the
Settlement’s proposed differential in the incentive. Furthermore, in assessing the
reasonableness of the cost recovery, this particular individual pilot program cannot be viewed in
20 BPU Docket No. EO07040278
isolation. Different market barriers for different programs must be considered. Also to be
considered is that all ratepayers will benefit on the whole from an increase in solar generation.
In addition to having considered NJLEUC’s comments, the Board has carefully considered other
aspects of the proposed Settlement’s cost recovery mechanism. While there will not be a
change to the SPRC at this time, and hence there will be no immediate change in customers’
electricity distribution bills, the Board has considered whether the proposed cost recovery
mechanism will result in rates which are unjust or unreasonable. The Settlement attempts to
mitigate future rate impacts by requiring PSE&G to recover only 50% of the annual grand total
amounts of administrative costs through the SPRC and to cap the recovery of these costs
through the SPRC in any year. Although the exact amounts of any increase and the
subsequent impact on customers cannot precisely be quantified and known at this time due to
variations that may occur, including the number of loans issued and the value of SRECs sold by
PSE&G and credited to the SPRC, the Board is satisfied that the cost recovery mechanism
proposed is reasonable and should not cause rates to be unjust or unreasonable.
Accordingly, the Board HEREBY ADOPTS and APPROVES the attached Settlement as its
own, and incorporates its provisions herein, as if they were fully set forth herein, effective on the
date of this Decision and Order. PSE&G is HEREBY DIRECTED to file the appropriate tariff
sheets conforming to the terms and conditions of this Decision and Order within ten (10)
business days from the date of this Decision and Order.
In issuing this Decision and Order, the Board reiterates its commitment to the market structure
created in its December 6, 2007 Decision and Order Regarding Solar Electric Generation in In
the Matter of the Renewable Energy Portfolio Standards-Alternative Compliance Payments and
Solar Alternative Compliance Payments, Docket No. EO06100744. The implementation of the
PSE&G solar loan program, particularly the disposition of program SRECs, should be
undertaken, to the extent possible, so as to minimize the impact, if any, on the non-pilot
program SREC market. The Settlement provides for PSE&G to report data regarding the pilot
program on a semi-annual basis to Board Staff with copies to Rate Counsel. In reviewing the
data, the Board reserves its right to initiate an audit of the pilot program at any time it deems
appropriate to determine whether the program is consistent with this Decision and Order and
the Settlement and is achieving its intended objectives, as well as any relevant objectives set
forth in the forthcoming Energy Master Plan.
This Decision and Order and the Board’s approval herein is conditioned, as is the Settlement
pursuant to paragraph 85, upon PSE&G conducting the solar program in full compliance with
any and all requirements and determinations of the New Jersey Department of Banking and
Insurance as may be applicable. Nothing in this Decision and Order adopting and approving the
Settlement is intended in any way to bind any determination by the New Jersey Department of
Banking and Insurance. The Board HEREBY ORDERS PSE&G to report back to the Board and
all parties within 30 days regarding the status of the New Jersey Department of Banking and
Insurance’s determination per paragraph 53 of the Settlement and to provide copies to the
Board and all parties of all determinations and decisions by the New Jersey Department of
Banking and Insurance with respect to PSE&G’s Solar Program. If PSE&G is unable to obtain
either an exemption from New Jersey Department of Banking and Insurance licensure or a
declaratory ruling that its proposed treatment of the equal monthly payment requirement is
acceptable, and the Call Option does not constitute a prepayment penalty, PSE&G shall, within
60 days of the date of this Order, meet to discuss with the other parties suitable alternatives for
the residential segment or to discuss the status of any requests that remain pending at the New
Jersey Department of Banking and Insurance and report back to the Board and obtain any
21 BPU Docket No. EO07040278
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