BILL ANALYSIS AB 1947 Page 1 Date of Hearing: April 5, 2010 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Steven Bradford, Chair AB 1947 (Fong) - As Amended: March 25, 2010 SUBJECT : Solar energy. SUMMARY : Permits a publicly owned utility (POU) to implement a solar program that allows customers to offset part or all of their electricity demand, with a solar energy system not located on the premises of the consumer. EXISTING LAW 1)Requires each POU to establish a nonbypassable charge to promote energy efficiency and conservation, new investment in renewable energy technology, research, and services for low-income electricity customers. 2)Requires each POU to annually report to the California Energy Commission (CEC) the amount of funds collected and expended for renewable energy resource development and the utility's status in implementing the Renewable Portfolio Standard (RPS), which requires all electric utilities to procure at least 20% of their generating capacity from renewable energy generating sources by 2010. 3)Requires a POU to offer monetary incentives for the installation of solar energy systems. 4)Establishes the California Solar Initiative (CSI), which sets a goal for investor-owned utilities (IOUs) and POUs to install 3,000 megawatts of photovoltaic (PV) solar energy in California within 10 years. 5)Requires POUs to initiate a public proceeding by January 1, 2008, to fund a solar energy program to support the goal established by the CSI. 6)Establishes criteria for a POU's solar energy program, including that the solar energy system be located on the same premises of the end-use consumer where the consumer's own electricity demand is located, and is intended to offset part or all of that customer's demand. 7)Establishes a statewide expenditure goal for POUs' solar programs at $784 million. AB 1947 Page 2 8)Requires all investor-owned utilities and POUs that offer net-metering to purchase all electricity produced from the customer's wind or solar generator at a rate set by the California Public Utilities Commission (CPUC) or POU. The rate shall be set to provide the customer-generator "just and reasonable" compensation for the surplus energy sales, leave all other ratepayers indifferent, and shall not result in any cost shifting to non-customer generators. FISCAL EFFECT : Unknown. COMMENTS : The purpose of this bill is to assist a POU with achieving its CSI goals. In the IOU territories, because of deregulation and the energy crisis, rates are high enough to provide individual customers incentive to invest in solar PV panels to offset their own load. This takes a substantial investment of about $16,000-$20,000 for an average single-family home and the payback period is usually about 5 years or less. Because the Sacramento Municipal Utility District (SMUD) and other POUs' retail prices can be substantially less, it takes longer for the investment to pay off and customers are less likely to invest in solar PV for financial reasons if they have to install it on their own premises. SMUD has created an alternative program that would enable those customers who choose to contribute toward solar PV generation to participate without having to make the substantial up-front investment with such a lengthy pay-back period. Current law precludes SMUD from implementing it because the law requires that the solar energy system be located on the same premises of the end-use customer where the customer's own electricity demand is located. 1) Background : AB 1890 (Brulte) Chapter 864, Statutes of 1996, required electricity providers to divest from its own generation and provided POUs a 4-year grace period and many did not "deregulate" immediately. Most POUs didn't divest from their own municipally owned generation and purchase all generation from the now defunct Power Exchange (PX), as AB 1890 required. While private generators and power brokers severely manipulated the PX and increased the IOUs' costs for wholesale generation, some POUs that retained their own generation avoided the manipulated market and the skyrocketing wholesale prices. As a result, PG&E's highest tiered residential rate is 50 per kWh š and Sacrament Municipal Utility District's highest tiered residential rate is 14.1 per kWh. š AB 1947 Page 3 2) The California Solar Initiative : SB 1 (Murray) Chapter 132, Statutes of 2006, created the CSI which required the electric utilities to collect and invest about $3.3 billion over a ten-year period for a declining rebate program with a goal of installing 3,000 MW of solar PV on California roofs. To be eligible for the CSI rebates the system must still be sized to actual or projected load of the customer-generator at the time the solar energy system is installed. Customers cannot intentionally oversize a solar energy system and receive a CSI rebate. If the customer's future electricity usage is less than the usage at the time of installation the customer will be under a net-metered tariff that gives the customer a bill credit valued at the retail rate of electricity for any excess the customer produces during the year, but at the end of the year if bill credits exceed the total electricity the customer consumed from the utility the customer will be a net surplus producer and the utility would owe the customer a credit for the net surplus electricity. For an IOU customer, the net surplus electricity would be valued at a rate set by the CPUC at a "just and reasonable" rate that ensures no cost shifting. This rate is likely less than the value associated with retail rate for the electricity credited against their bill. POUs are not regulated by the CPUC and instead are governed by either an elected board or the municipality. As such, the CSI requires each local publicly owned electric utility to offer monetary incentives for the installation of solar energy systems of at least $2.80 per installed watt, or for the electricity produced by the solar energy system as determined by the governing board. In addition, POUs are required to report to the CEC the number of watts installed, number of applicants, the amount of incentives awarded, and the contribution toward the program. The POUs are prohibited from redirecting funds from low-income ratepayers or energy efficiency programs. As such, they must collect a surcharge or an amount embedded in rates. 3) SMUD's program : As directed by the CSI, SMUD has been collecting the CSI but because of its lower rates, many ratepayers who are paying the solar surcharge remain unable or unwilling to install solar on their rooftops. To more widely distribute the benefits of the CSI collections, SMUD created a Solar Shares pilot program. Customers who choose to participate in the Solar Shares program pay a monthly fee in exchange for a portion of their electricity to come from locally sourced solar. Those customers also receive a monthly credit on AB 1947 Page 4 their electricity bill based on their proportion of the solar energy system's expected output. SMUD's customers who choose to participate in the Solar Shares program pay an additional monthly charge of $6 and SMUD will meet 100% of that customer's electricity needs with power from renewable resources. For $3 per month, 50% of that customer's electricity will be met with renewable resources. Commercial customers can choose to pay an additional monthly charge of $20 and SMUD will meet up to 2,000 kWh per month of the business' electricity needs from renewable generation; the amount used by the average small business. According to SMUD, by requiring on-site solar panels, many ratepayers who pay for the CSI cannot take advantage of it. SMUD lists a number of situations where rooftop solar PV doesn't work. Renters or businesses that lease commercial space will not install solar panels on someone else's property. Some roofs may not generate the optimal output of the solar panels because they are either shaded, steeply pitched, or facing north or east. 4) What about the self-sustaining industry : SB 1 provided that the CSI was to encourage and facilitate a self-sustaining solar energy market that after 10 years. SB 1 intended to gradually reduce the subsidies as the market became more robust. Upon attaining a competitive industry (assumed after 3,000 MW of installed solar PV), no additional subsidies would be needed. One way to encourage a self-sustaining market was to require many roof-top installations. Numerous small installations were intended to spawn competitive manufacturing and installation industries, thus, using market forces to keep prices as low as they can be. Some are concerned that SMUD's Solar Shares program, by allowing customers to purchase "shares" or a proportion of a solar energy system, the solar energy system will be a few large ones and not the many individual systems initially envisioned by SB 1. SMUD believes that this bill will not thwart the efforts of SB 1 with regard to spawning a self-sustaining industry. AB 1947 will limit the amount of the Solar Shares capacity to 20% of the proportionate amount for the POU of the overall 3,000 megawatt state goal. In addition, SMUD responds that this bill will retain the maximum capacity of the IOUs, which does not allow rebates for systems greater than 5 MW. REGISTERED SUPPORT / OPPOSITION : Support AB 1947 Page 5 California Municipal Utilities Association (CMUA) Sierra Club California Sacramento Municipal Utility District (SMUD) Opposition None on file. Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083