AK AL AR AZ CA CO CT DE FL GA HI IA ID IL IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY DC USA
Here it is, the long awaited long term contracts for the SRECs! STATE OF NEW JERSEY Board of Public

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

TAGS:
New JerseySREC