BILL ANALYSIS 1 1 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 5 1 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