BILL ANALYSIS                                                                                                                                                                                                              1
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                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          AB 51 -  Blakeslee                           Hearing Date:  June  
          29, 2010              A
          As Amended:         May 17, 2010                  FISCAL       B

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                                      DESCRIPTION
           
           Current law  establishes the California Solar Initiative (CSI), a  
          $3.3 billion program to subsidize the installation of  
          photovoltaic (PV) systems for customers of the states  
          investor-owned utilities (IOUs) and publicly owned utilities  
          (POUs).

           Current law requires IOUs, POUs (except the Los Angeles  
          Department of Water and Power), or any other entity offering  
          retail electric service, to credit all electricity generated by  
          a customer-owned solar or wind system against the customer's  
          usage of electricity sold by the utility, on a kilowatt hour  
          basis (kWh), a procedure known as "net energy metering" (NEM).   
          Participation by all utilities is capped at 5 percent of each  
          utility's aggregate peak electricity demand.

          This bill  permits an agricultural customer, who uses solar or  
          wind generation to offset the customer's own electrical needs,  
          to aggregate the electricity use of properties adjacent or  
          contiguous to the generator that are under the same ownership,  
          to its full electricity usage over a 12 month cycle at the  
          retail rate.


                                      BACKGROUND
           
          California Solar Initiative (CSI) - The CSI calls for the  
          installation of 3,000 megawatts (MW) of new, solar-produced  
          electricity by 2016 to be installed on the customer's side of  
          the meter. Targeted expenditures under the CSI, funded by a  











          surcharge on all ratepayers, are $3.3 billion over ten years,  
          distributed among three distinct program components:  
          investor-owned utilities (IOUs) ($2.167 million/1940 MW); New  
          Solar Homes Partnership ($400 million/360 MW); and publicly  
          owned utility programs ($700 million/700 MW).

          California now has over 736 MW of solar PV in the IOU  
          territories at over 43,000 residential, commercial and  
          governmental sites.  This includes installed generation and  
          pending applications.  The POUs have installed 26 MW of  
          generation at 7,712 sites and the NHSP reports 7.8 MW of solar  
          PV at 3,002 sites.  

          All CSI programs combined, California has approximately  
          installed 770 MW of solar generation on the customer's side of  
          the meter - 27% of goal.

          Net Energy Metering - The primary benefit of CSI program is  
          derived from the solar customer's eligibility for NEM which is  
          authorized under state law separately from the CSI program.  
          Utility customers that generate power from a wind or solar  
          system are eligible for NEM under which the electricity  
          purchases of the customer are netted against the electricity  
          generated by the customer's own solar or wind electric system.   
          When the sun is shining or the wind is blowing, the generated  
          electricity spins the meter backward, making it financially  
          equivalent to using less electricity for the customer with the  
          same effect as the electric utility paying the customer the full  
          retail price for the electricity.  When the sun stops shining  
          and the wind stops blowing, the customer draws electricity from  
          the grid and their meter spins forward using the credit on the  
          meter.  In theory, depending on weather patterns, system size  
          and customer behavior, the customer will have a zero energy bill  
          at the end of a 12-month cycle.

          The full retail price of electricity includes the utility's cost  
          of generating, distributing and transmitting the power, public  
          goods programs (e.g. energy efficiency), low-income customer  
          assistance (e.g. CARE), energy crisis costs and other charges  
          not related to generation. By compensating the solar or wind  
          customer at the full retail rate, the utility is using ratepayer  
          funds to pay the solar or wind customer at a rate well above the  
          value of the generated power, which is about one-third of the  
          total cost of a typical residential customer's bill.  The solar  










          or wind customer does not pay transmission or distribution costs  
          even though they are still connected to the electrical grid and  
          use it for all their generation needs when the sun isn't shining  
          and the wind isn't blowing (approximately 18 hours a day).   
          Consequently, those unpaid transmission and distribution costs  
          and public goods charges are a subsidy, the cost of which is  
          ultimately shifted to all other ratepayers in the class. All  
          customer classes are eligible for NEM.

          NEM Cost Shift - The fundamental affect of NEM is that the  
          participating customer avoids the costs of transmission,  
          distribution and public goods charges which fund programs such  
          as the CARE and energy efficiency.  Because those costs are  
          fixed, if one class of ratepayers is excluded from paying those  
          costs, then those costs are shifted to the remaining ratepayers.  
           Transmission and distribution costs typically comprise one-half  
          to two-thirds of a customer's billing.

          The CPUC released a report earlier this year evaluating the  
          impacts of NEM.<1>  Although a small fraction of the annual  
          electricity revenue (less than one-tenth of one percent) in  
          California, the CPUC reported that, based on 2008 solar  
          installations of 386 MW, the costs of NEM to ratepayers was $20  
          million per year.  When the CSI program is fully subscribed in  
          the IOU territories (2,550 MW by 2017) the annual cost to  
          ratepayers is estimated to be $137 million per year.  


                                       COMMENTS
           
              1)   Author's Purpose  .  The purpose of this bill is to allow  
               agricultural customers to combine electrical needs from  
               each of the meters on their properties, to be netted  
               against the amount of electricity produced.  Agricultural  
               customers are a potentially large source of new renewable  
               energy generation.  Farms in sunny areas of the state have  
               the potential to generate significant amounts of peak  
               summertime solar power, offsetting their own off-peak use,  
               and thereby benefiting other ratepayers by reducing peak  
               demand.  
             --------------------------
          <1> Because the vast majority of NEM generators and NEM  
          generation is solar, the evaluation did not include wind.












               A typical farmer may operate a dozen or more different  
               irrigation pumps, an equipment shop, and perhaps a packing  
               or refrigeration facility, all located on contiguous  
               property.  Currently, each of these locations is metered  
               separately and is considered an individual "account."   
               Electricity generated by a central facility to meet a  
               farm's average overall need currently cannot be credited  
               against  the customer's total energy consumed and does not  
               reflect the true amount of "net" electricity provided back  
               to the utility.  

              2)   Aggregate Net Metering: aka Wheeling  .  Larger electrical  
               users such as agricultural customers often have multiple  
               facilities which are each separately metered and separately  
               connected to the distribution system.  When self-generation  
               resources such as solar or wind are installed to offset the  
               customer's load, the generation is directly wired to the  
               customer's side of the meter.  For larger properties this  
               means that each separately-metered facility has to have its  
               own renewable generation or each facility has to be  
               re-wired to run through one meter to obtain the benefits of  
               solar.

               To avoid the expense of re-wiring a property, the intent of  
               this bill is to allow an agricultural customer to credit  
               the excess generation from one renewable facility against  
               all other separately metered service so that, on paper,  
               they receive the benefits associated with renewable  
               generation and the NEM tariff for all metered service. This  
               is also referred to as the wheeling power because the  
               customer's load at the separately metered sites is still  
               fully serviced by the utility but the customer is exempt  
               from charges for that service to the extent that the load  
               is offset, on paper, by the renewable generation.  The  
               result is that from the NEM are exacerbated and the  
               shifting of the costs of exempting that customer's service  
               from transmission and distribution are shifted to other  
               customers.

               Solar customer generators in every rate class have been  
               specifically excluded from aggregating usage going back to  
               the time of the first solar net-metering subsidy in 1995.   
               Conceptually the subsidy was structured to act like energy  










               efficiency incentives and to reduce the use of electricity  
               at the location at which it is generated.  Aggregation  
               conflicts with that goal.

              3)   Customer Options .  Other programs are available to meet  
               the customer's needs in this situation.  First, under the  
               provisions of AB 920 (Huffman, 2010) currently being  
               implemented by the CPUC, the customer can now choose to be  
               paid for generation in excess of the customer's usage of  
               the solar generation.  The committee heard from several  
               wineries during the deliberations on this bill and a  
               related bill (SB 7, Wiggins), that this program  
               modification for the NEM was important to their operations.

               Another option for customer-generators is the  
               feed-in-tariff.  This standardized contract allows small,  
               renewable generators to sell power to a utility at  
               predefined terms and conditions, without contract  
               negotiations.  The customer is allowed to offset their load  
               when the renewable facility is generating power and be  
               compensated for generation not used and fed back to the  
               grid.  When no generation is available to the customer they  
               draw and pay for power as a regular utility customer.  This  
               program is more equitable in its application because the  
               renewable generation, power drawn from the grid, and  
               transmission and distribution usage, more accurately match  
               the true costs and use of service from the utility.   
               Customers prefer NEM because they are exempted from  
               transmission and distribution costs even through they  
               benefit from the grid.

              4)   Oversizing Renewable Generation  .  In order for the  
               customer to have sufficient renewable power to offset the  
               load of separately metered facilities, the central  
               generator must be sized to generate enough power for the  
               customer's load at the renewable site as well as the remote  
               load.  This bill does not expand the requirement under the  
               most-utilized program - the CSI - to allow an agricultural  
               customer to over-size a CSI installation but does create  
               pressure for a change in that limit.  A customer is  
               currently allowed to roll-over excess generation or receive  
               compensation.

              5)   Ratepayer Impacts  .  Small scale solar PV remains the  










               most expensive means of generating electricity. The  
               Legislature recognized this factor when it adopted the CSI  
               but intended to subsidize installations through a limited  
               program in an effort to stimulate the market and bring down  
               prices. In the meantime the program is heavily subsidized  
               through ratepayer subsidies for installations (CSI)  
               (roughly 20% buy down), taxpayer subsidies (30% federal tax  
               credit), waived interconnection fees, and NEM.  Allowing a  
               customer to avoid transmission and distribution costs of  
               separately metered facilities will exacerbate the cost  
               shifts of the NEM and create additional burdens on managing  
               and funding a distribution system that was not designed to  
               accommodate all the new opportunities for greening the  
               grid.

               Additionally, the value of self-generation and excess  
               electricity sent to the grid as a result of that generation  
               such as roof top solar is misunderstood.  In real time, the  
               utility does not know how much electricity is going onto  
               the grid - the customer gets the power first - and their  
               usage can fluctuate along with weather patterns that affect  
               generation.  Consequently, the utilities cannot and do not  
               count or value excess generation coming back onto the grid  
               as delivered energy to other customers.  Moreover, excess  
               generation on an aging distribution system and "dumb grid"  
               can actually have adverse impacts.  Where the impacts of  
               self-generation are valued and measured is over-time and in  
               hindsight.  When the utility evaluates its resource needs  
               in a given area, the self-generation will reduce its needs  
               over time.

              6)   Related Legislation  .  The following bills in the current  
               session also modify the NEM program.

                     AB 228 (Huffman) - increases the NEM cap from 5 to  
                 6% with 1% reserved for installations of large customers  
                 and increases the size of solar and wind generation  
                 eligible for the NEM to 5 MW.  Status:  Set in the Senate  
                 Energy, Utilities and Communications Committee June 29,  
                 2010.
                     AB 510 (Skinner) - Increased the NEM cap from 2.5%  
                 to 5% of the each utility's aggregate peak electricity  
                 demand.  Status:  Chapter 6, Statutes of 2010.
                     AB 560 (Skinner) - Proposed to lift the NEM cap to  










                 ten percent.  Status: held in Senate Business &  
                 Professions Committee.
                     AB 920 (Huffman) - Requires utilities to allow NEM  
                 customers to roll over excess generation not used in a  
                 12-month billing cycle, on a kWh basis, or to compensate  
                 customers for any generation in excess of their usage  
                 over a 12-month billing cycle at a rate to be determined  
                 by the CPUC.  Status: Chapter 376, Statutes of 2009.
                     SB 7 (Wiggins) - Requires that NEM customers be  
                 permitted to roll over excess NEM generation to two  
                 subsequent 12-month cycles.  Status:  Assembly Inactive  
                 File.


                                    ASSEMBLY VOTES
           
          Not relevant.

                                       POSITIONS
           
           Sponsor:
           
          Wine Institute

           Support:
           
          California Association of Realtors
          California Farm Bureau
          Clean Power Campaign
          Mainstream Energy

           Oppose:
           
          California Public Utilities Commission (unless amended)
          Pacific Gas & Electric Company
          San Diego Gas & Electric Company
          Southern California Edison


          Kellie Smith 
          AB 51 Analysis
          Hearing Date:  June 29, 2010