BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 7 - Wiggins Hearing Date:
April 21, 2009 S
As Amended: April 13, 2009 FISCAL B
7
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 state's
investor-owned-utilities (IOUs) and publicly owned utilities
(POUs).
Current law requires that PV systems be sized to offset part or
all of the customer's electrical demand to be eligible for the
CSI installation subsidy.
This bill permits a customer to size a PV system larger than the
customer's load, at the customer's expense, and still qualify
for the CSI subsidy up to the customer's electrical load.
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, a procedure known as "net metering."
Current law requires the CPUC to determine a benchmark price for
electricity commonly referred to as the market price referent
(MPR). The contract price for renewable generation is measured
against the MPR as a test of reasonableness.
This bill requires those utilities to compensate customers that
use net metering for any generation in excess of their load or,
for customers on time of use rates any net dollar value, on an
annual basis, or to roll that excess generation over, on a
kilowatt hour basis, to the next 12-month cycle. The
compensation rate would be set by the CPUC at a rate not less
than the MPR.
BACKGROUND
California Solar Initiative (CSI) - The CSI calls for the
installation of 3,000 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, is $3.3 billion over 10 years, distributed
between three distinct program components: The CSI ($2.167
million/1940 MW); the New Solar Homes Partnership ($400
million/360 MW); and the Publicly Owned Utility Programs ($700
million/700 MW).
Homeowners, businesses, and government agencies in California's
IOU territories installed 158 MW of distributed solar
photovoltaics (PV) in 2008, doubling the 78 MW installed in IOU
territories in 2007. California now has a cumulative total of
441 MW of distributed solar PV systems, the highest level of
solar installations in the country.
Net Metering - The primary benefit of the CSI program is derived
from the solar customer's eligibility for "net-metering" 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 "net metering" 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.
The full retail price includes the utility's cost of generating,
distributing and transmitting the power as well as other charges
including the energy crisis bond costs and public-purpose
program charges. By compensating the solar customer at the full
retail rate, the utility is using ratepayer funds to pay the
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. By compensating the solar or wind
customer at the full retail price, they do not pay any
transmission or distribution costs even though they are still
connected to the system and use it for all their generation
needs when the sun isn't shining and the wind isn't blowing.
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 net metering.
Market Price Referent (MPR) - The MPR is calculated annually by
the CPUC and represents the cost of a long-term contract with a
combined cycle gas turbine facility, levelized into a
cent-per-kWh value. This price is used in two programs. First,
under the RPS, it is used in order to evaluate the
reasonableness of prices of long-term power purchase agreement
(PPAs) for RPS-eligible electric generation. Second, the CPUC
has a 1.5 MW feed-in-tariff program for renewables and the MPR
is used as the purchase price for the renewable energy output
produced by an eligible renewable generating facility.
COMMENTS
1. Super Size Me - A fundamental principle of the CSI
program is that the subsidized PV system will be sized to
offset part or all of the customer's electrical load. This
bill deviates from that principle and permits a CSI
applicant to go beyond the size needed to meet their
electricity needs. The cost of the hardware for the excess
capacity would be paid for entirely by the customer (but
would be eligible for federal tax credits of up to 30
percent of the installation costs). Since the installation
costs of the excess capacity are being paid for by the
customer there would seem to be nothing wrong with this
provision. However, the excess capacity creates an adverse
ripple effect on the grid and for other ratepayers as
explained below.
2. Grid Implications - The need for a "Smart Grid" for the
delivery of electricity is a top priority for policy
makers. Why? Because we have a "dumb grid" in the United
States. This is acutely felt at the distribution level
where the grid is still largely in the same form it was
decades ago when it was designed to move electrons from a
generator, to a transmission line, to a substation, to a
distribution line, to the customer's home when they flip
the lights on. The structure and technology of the
distribution grid is so ancient that the utilities still
have little or no ability to determine when the lights go
out and still largely rely on phone calls from customers to
pinpoint the outage.
Efforts to make the grid smarter are underway by the
smallest utilities all the way to the White House but until
that grid is developed, it is not in the shape necessary to
send any great amount of electricity backwards on the
distribution system as this bill proposes.
To the degree that solar and other distributed generation
relies on the "dumb" distribution system to put excess
power back out onto the grid, the excess generation can
contribute to congestion and grid failure. Local
distribution grids were designed to deliver electricity to
homes and businesses, not to collect power from the
customers. While buy-back programs that have been created
in California are small enough in scale that distribution
systems can adequately handle the unscheduled power, if the
programs grow larger and larger before the grid impacts are
known and the grid upgraded, there will be risk of local
grid failures. Sizing customer systems to the power needed
for their own generation mitigates future grid impacts.
Because this bill allows customers to over-size their
generation systems, it will exacerbate those grid impacts
while providing little or no ratepayer benefits.
This is one of the reasons why net-metering is limited in
law thus providing policy makers and the utilities the time
necessary to evaluate the impacts of excess generation back
onto the grid and to make the necessary improvements to
manage that excess.
Generation from local PV systems, when strategically
placed, can be valuable to the distribution grid. An
example would be an inland area with high heat and high air
conditioning use. PV can mitigate the peak load and reduce
the congestion. However, if not strategically placed, PV
systems in great quantity can have the reverse affect and
actually shut down the grid due to congestion. Because the
placement and size of the PV systems would be completely
under the customer's control in this bill, adverse grid
impacts could not be controlled for by the utility.
3. Customers as Generators - Advocates of this bill and
similar proposals argue that increasing the generation of
green power at any point on the grid is a great thing for
ratepayers and utilities and should be encouraged. Some CSI
customers that already generate excess power coincident
with fluctuating weather patterns or other factors think
that the utility is "making money off of them." This is not
the case. When a customer generates excess power at the end
of the distribution system, the utility generally doesn't
know it's there until the end of a billing cycle when they
see that there was excess generation recorded on the
manually read meter. In the meantime, the utility has
procured power from other centralized sources for that
service area in which the CSI system is installed and
delivered it accordingly. Additionally, because the
customer is not a traditional generator under contract with
the utility, it is under no obligation to deliver power to
customers providing no reliable source of electricity to
the utility or other ratepayers.
If a customer wants to be a generator there is a program
specifically designed for customers that install renewable
resources up to 1.5 megawatts capacity. The customer is
offered a standardized contract for delivery, priced at the
MPR, and interconnected to the utility. The customer is
then contractually bound to the utility to deliver power
and subject to other requirements that a CSI customer is
not. The customer can use power generated to offset their
own electrical load, but they are not eligible for CSI
rebates or net-metering.
4. Excess Generation - The author is also concerned about
perceived inequities in the current net-metering program
for CSI customers. She is aware of constituents who have
installed solar but are generating more electricity in a
12-month net-metering cycle than they can use.
Consequently, the customer sees unused electricity for
which they receive no compensation and feel that they
should be compensated for that excess generation.
The utilities and CPUC have reported that there is excess
generation occurring for some customers. According to the
CPUC, "there are a number of customers whose systems for a
wide range of reasons -- ranging from not understanding net
metering?to changing utility rates, installation of energy
savings measures and/or climatic variation in a given year
-- have produced more electricity than the customer has
consumed?Better public outreach by the utilities about
optimal system sizing, and how net metering actually works
is also necessary to educate customers."
The perception that the utility is receiving something of
value without compensating the customer ignores two
factors. First, that the utility cannot generally plan on
generation being available or track it as explained in
comment #3 above. Second, through net metering the
customer has not only received credit for electricity
generation but has been completely relieved of paying for
the costs of transmission, distribution, and public goods
charges which can add up to as much as 2/3 of the full
retail rate for electricity delivery. Because the
net-metered customer does not pay for their portion of the
transmission and distribution costs those costs are shifted
to ratepayers that do not have net metering or solar PV.
5. Time-of-Use Rates (TOU) - For the purposes of
net-metering, most residential customers are metered under
flat rates. However, most business customers have
net-metering in association with TOU rates for service.
For a customer on TOU the result is often a credit balance
in dollars for TOU but a deficit on an hourly basis. At
the end of the customer 12 month net metering cycle when
usage is "trued-up" the customer can think they are owed
money. This bill proposes that the customer receive
compensation from the utility that corresponds to the TOU
rates even though the customer was a net user of
electricity.
6. Ratepayer Impact - 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), taxpayer
subsidies (30% federal tax credit) and net metering. This
bill further subsidizes installations by compensating
customers for excess generation that floats out on to the
electricity distribution grid at ratepayer expense but with
the ratepayer receiving little or no benefit due to the
fact, as discussed in comment #3 above, that the utilities
have no ability to schedule or plan for the delivery of
these electrons to other customers. Consequently,
ratepayers would be paying for the generation of
electricity but receiving no reliable electrons in
exchange.
POSITIONS
Sponsor:
Recolte Energy
Sustainable Napa County
Support:
Dolce Winery
Family Winemakers of California
Far Niente Winery
Nickel & Nickel Winery
Oakland City Council
3 individuals
Oppose:
Pacific Gas & Electric (unless amended)
The Utility Reform Network (unless amended)
Kellie Smith
SB 7 Analysis
Hearing Date: April 21, 2009