On a 3-1 vote, the California Public Utilities Commission adopted its regulatory iteration of the twice-defeated Million Solar bill. The regulators' version, called the California Solar Initiative, provides up to $2.5 billion in subsidies. It is expected to create up to 3,000 MW of new solar-powered generation in the state from 2007 to 2017. "This is the time to assert California's leadership in solar energy," said commission president Mike Peevey January 12. Peevey, CPUC member Dian Grueneich, and the newest commissioner, Rachelle Chong, voted for the measure. Commissioner John Bohn recused himself because of his investments in Chevron and GE. Commissioner Geoffrey Brown opposed the solar initiative. "The groundwork is not yet finished" and the $3 billion matter should have been decided by the Legislature, Brown told Circuit. In addition, he said the technology and program are not cost-effective, and ratepayers already bear the additional costs of the new resource-adequacy requirements and pricey nuclear plant replacements at Diablo and San Onofre. He conceded, however, that "nonutility programs get more financial scrutiny than utility ones." "It appears I arrived in the nick of time," Chong said before casting her defining vote. She invoked the problem of volatile gas prices and said there's a need to wean the state away from fossil fuels. Total subsidies under this program are $3.2 billion, after adding in earmarked funds. In addition to the $2.5 billion in incentives for commercial buildings and existing homes, $350 million in public-goods money will fund the California Energy Commission's program offering rebates for solar projects on new residential construction. Also, last month, the CPUC approved a $300 million infusion into its popular Self-Generation Incentive Program to cover 2006 solar incentives. The key changes in the just-approved CPUC program include increasing the size of systems that can tap into the rebate - from 1 MW to 5 MW. Another facet is that, at the program's initialization, investor-owned utilities cannot tap into the subsidy. The commission decision leaves that door open for utilities at a later stage. Investments in large solar projects, such as the solar thermal projects involving Stirling Energy Solutions, are "recoverable in rates," the decision reasons. Also now eligible for the incentives are hot water systems to lessen natural gas demand, in addition to photovoltaic and solar thermal systems. However, incentives to those who install hot water systems will be tracked closely. According to the commission, earlier rebates for that technology drove the price of the system up, creating a "windfall profit" for sellers. Peevey acknowledged that there were a number of unresolved issues that must be hashed out this year to complete the program. Those include development of performance-based standards and assessing whether subsidies for existing-building solar projects should be contingent on energy-efficiency retrofits. Also still to be worked out are the analytical framework for measuring the solar projects' cost-effectiveness, allocation of program costs among customer classes, and whether the subsidized solar power should count toward the investor-owned utility renewables portfolio standard. In order to address concerns about program cost-effectiveness, the commission agreed to link subsidies to solar project output and develop performance-based standards. Workshops will be held over the next few months to set the parameters for these standards that will replace a capacity-based rebate. The commission decision notes that the originally planned consolidation of the CPUC's and Energy Commission's buy-down programs is not possible without legislative approval. Also, the decision notes that this initiative will be managed separately from the CPUC's Self-Generation Incentive Program for photovoltaic installations of 30 kW or more. As commissioner Brown noted, investor-owned utilities will collect the revenue from ratepayers to fund the program. The CPUC retains the authority to audit and review the spending and accounting for the solar rebates. Critics warned against the program's high cost, noting that it was more expensive than its failed legislative version, SB 1. That proposed law would have cost $1.8 billion. According to commission staff, however, the CPUC program and SB 1 are on par financially. That is because the regulated program, unlike SB 1, extends the rebate to electricity customers of public power agencies whose gas is supplied by investor-owned utilities. The solar initiative also does the following: \u00b7\tReduces the capacity subsidy to stretch the funding. It is $2.80\/kW, down from $3.80\/kW, and the rebate will drop at least 10 percent a year. \u00b7\tEarmarks 10 percent of the $2.8 billion of rebates for low-income residential customers and affordable housing projects. Because of the arcane nature of affordable housing financing, low-interest loans should replace the incentive, according to Mary Luevano, legislative director of Global Green USA. Otherwise, affordable housing tax incentives would be reduced by the amount of the subsidy, making solar installations less likely, she warned. \u00b7\tSets aside 5 percent of the program's annual funds for solar technology research and development. Legislation will be needed this year to allow the solar initiative to go forward. New law is needed to address an expansion of the net-metering cap in Pacific Gas & Electric territory. Last year, legislation was passed to expand the ceiling to 1.5 percent of electricity sales in San Diego Gas & Electric territory. In addition, the thorny issue of prevailing wages - when and which projects to apply it to - is also expected to be reconsidered by lawmakers. Getting requisite bills passed "is not going to be easy if the solar program is not well designed," said Edward Randolph, an Assembly energy committee consultant.