The state's largest-ever solar program is backed by Gov. Arnold Schwarzenegger and similar to one he promoted in the Legislature last year to install panels on a million California homes and businesses.

The plan calls for rebates to decrease gradually over 11 years under an assumption that solar installation costs will decline with mass production. Customers of investor-owned utilities in California, such as Pacific Gas & Electric, will pay for the rebate pool through monthly surcharges.

In one of the plan's quirks, customers of municipal utilities, such as Sacramento Municipal Utility District and Roseville Electric, also will be able to take advantage of the PUC rebate plan even though they already have access to a different rebate program.

The solar initiative had been one of Schwarzenegger's chief 2005 priorities until Assembly Democrats inserted labor-friendly provisions into the plan.

Instead of pursuing the solar initiative in the Capitol again, Schwarzenegger turned to the PUC, which regulates the state's investor-owned utilities.

The plan is clearly Schwarzenegger's, and it received its third and decisive vote Thursday from Commissioner Rachelle Chong, whom the Republican governor appointed on Wednesday.

State Sen. Kevin Murray, D-Culver City, author of the bill that served as the framework for the PUC plan, supported the commission's action. He said Thursday that California needs to have more self-sustaining energy sources.

"It's something we know has universal use because any building with a roof facing south toward the sun can have solar," Murray said. "I think it's clear we've got to have some alternative. When oil hits $60 a barrel, we've got to do something about it."

The program will require an average rate increase of $1 per month for electric customers served by investor-owned utilities.

Those served by municipal utilities will not face hikes on their electric bills, though many already subsidize solar through rates. Those using PG&E or other private utilities for gas only will face an average monthly surcharge of 10 cents per month.

Municipal utility customers will be able to use the PUC rebate because of that gas surcharge, according to Julie Fitch, the commission's head of strategic planning. But the PUC lacks authority to impose a higher electric rate on those customers.

The starting PUC rebate will be $2.80 per watt on a solar installation - $7,000 on a standard 2.5-kilowatt system. SMUD has the same rebate for existing homes, though the utility offers a slightly higher rebate for new residential construction.

Jim Shetler, SMUD's assistant manager for energy supply, said the utility is still reviewing whether to adjust its rebate program in response to the PUC's action.

"Clearly we're not backing away from our commitment to solar," Shetler said. "We did endorse the million solar roofs proposal last year, but what we need to do now is understand what the PUC plan looks like and how to best integrate that in with ours."

PUC Commissioner Geoffrey Brown was the plan's lone opponent on Thursday, citing rising utility costs as one concern. He also criticized the fact that municipal utility customers would be able to take advantage of the state rebate plan without bearing much of its cost.

"That strikes me as bad policy, and potentially unlawful," Brown said in a statement provided by the PUC. "A SMUD electricity customer who takes gas from PG&E will be permitted to obtain the subsidy for solar panels that will be paid for by PG&E electricity customers."

The PUC last month approved a stopgap $300 million plan to continue solar rebates in 2006. With Thursday's action, the PUC has committed $3.2 billion toward the state's solar initiative.

The plan calls for incentives to decline by an average of 10 percent each year, dropping to 25 cents per watt in 2016 - or $625 on a 2.5-kilowatt system.

Proponents believe that the state's investment in solar will help reduce solar production costs in the future.

"This is a significant vote and a significant moment, but $3 billion is a drop in the bucket compared to what we spend on fossil fuels," said Bernadette Del Chiaro of Environment California. "Our goal is to get costs down so that solar ultimately eclipses fossil fuels."