BILL ANALYSIS Ó
AB 2514
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Date of Hearing: April 16, 2012
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2514 (Bradford) - As Amended: February 24, 2012
SUBJECT : Net energy metering.
SUMMARY : Requires the California Public Utilities Commission
(PUC) to complete a study on the cost of net energy metering
(NEM) to ratepayers. Specifically, this bill :
1)Requires the PUC to complete a study by June 30, 2013, to
determine the extent to which each class of ratepayers
receiving service under the net energy metering tariff is
paying the full cost of the services provided to them by the
investor owned utilities.
2)Requires the PUC to report on the extent to which customers
receiving net metering pay their share of the costs of public
purpose programs.
3)The bill would require the commission to report the results of
the study to the Legislature within 30 days of its completion.
EXISTING LAW
1)Requires nearly every utility in California to provide a net
metering rate to customers connecting renewable energy
projects to utility service equipment until the total
renewable capacity equals no more than 5% of each utilities'
aggregated peak electricity demand.
2)Requires payment for excess electricity generation to be
credited to the customer's utility account at the retail rate
of electricity based on the customer's applicable tariff.
3)Exempts net metered utility customer from payment some of
otherwise nonbypassable utility service charges.
4)Requires nearly every utility in California to provide a
connection to the electricity grid within 30 business days.
FISCAL EFFECT : Unknown
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COMMENTS :
1)Statement of Need. Net metering is a popular program that has
helped build an active solar photovoltaic industry in
California. When net metering was first authorized by the
Legislature 14 years ago, we recognized that net metering had
costs associated with it but that those costs were worth it
because we would be bringing jobs, economic opportunity, and
ratepayer benefits through this policy. Clearly a lot has
changed. Photovoltaic (PV) modules are selling below $1 per
watt, installed costs have dropped to historic lows, the
California Solar Initiative is on track to meet its goals by
2016, and utility solar generation contracts are coming in at
less than nine cents per kilowatthour while some NEM customers
are getting more than 4 times that amount. It is time to take
a look at where we are and see if there is a way to make sure
that NEM can be a sustainable program. Some suggest the best
answer is to make it a generation-only rate, others suggest
full retail and nothing else, and there are variations in
between. With so much progress, it is logical to consider
reforming the NEM subsidies. But to understand how to reform
NEM it is important to understand of the costs and benefits of
NEM. Until then, changing NEM, raising project size caps and
total capacity caps, adding charges cannot be done without
risking ratepayer backlash because of the cost or stymieing
the growth of this in-state industry.
2)Backgroun d. Under net-metering, the electric utility is
required to "buy back" all electricity generated by a
customer-owned generator that is not consumed by the customer
on-site. The price is set by the applicable retail rate under
the customer's existing contract. When the customer generates
electricity, he/she uses most of it for his or her own
facility. At the end of each 12-month NEM period, the
electric corporation calculates the amount of electricity
distributed to the grid by the customer and reduces the
customer's annual bill by the amount of electricity generated
by the customer. If the customer consumes more electricity
than their facility generates the utility calculates a bill
based on the net consumption of utility delivered
kilowatthours.
This NEM statute allows the credit at the customer's retail
price - a price that is much higher than the generation costs
because the retail price includes non-generation charges,
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including but not limited to transmission and distribution
service, the California Rates for Energy (CARE) subsidy,
public good charges, and service charges for billing and
customer service (Note that transmission and distribution
service charges include, among other things funding for the
California Public Utilities Commission (PUC) and California
Independent System Operator (CAISO), and utility return on
investment). If the customer-generator is being paid the
retail price, the non-generation costs are shifted to the
utilities' other ratepayers. There is another NEM statute for
Fuel Cell projects that provides a similar credit based on the
generation only rate. The Fuel Cell NEM customers using this
statute pay their service charges and there is no cost shift
to other ratepayers). Some commercial customers, but not all,
will pay demand charges, irrespective of the NEM credits. The
demand charges may be assessed during periods when the
renewable project is operating, thereby offsetting these
charges.
NEM is available to all utility customers, including
residential, commercial, industrial, agricultural, and
government.
3)NEM customers are not 'off the grid.' They are connected to
the utility services and use utility services at any time the
on-site generation facility is not operating. For customers
with solar generation, these will be nighttime, during
inclement weather, or when the generation facility is out of
service.
4)Fixed costs and variable costs. The PUC determines the rates
to be assessed all customers served by investor owned
utilities (IOU). These rates include fixed and variable costs.
Fixed charges include public purpose programs, transmission
and distribution services, funding for the PUC and the CAISO,
local utility user taxes, low income subsidy programs, and
other charges. The extent to which a NEM customer has avoided
fixed costs of utility services, while still using utility
services means that those costs must be shifted to another
ratepayer.
Fixed costs are applied as a volumetric charge assessed on
each kilowatthour of energy used by the customer. With NEM,
the customer is billed for net kilowatthour usage, that is,
those kilowatthours provided by the utility after deducting
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excess kilowatthours generated by the customer. This reduces
the fixed charges that would have otherwise been paid for by
the NEM customer.
In addition to this subsidy by non-NEM customers, non-NEM
customers also pay for the cost of utility safety inspections
and any electricity distribution upgrades that may be
necessary to ensure safety and reliability because of the
total generation added to the distribution system.
5)The expected cost-shift to other ratepayers is not currently
quantified for all ratepayers . The most recent study by the
PUC, published in 2010, estimated that "PV generation on NEM
tariffs (386 megawatts (MW) installed through 2008) will
result in a net present value cost to ratepayers of
approximately $230 million over the next 20 years." Since
then, the total MWs interconnected has more than tripled and
electricity rates have changed. The PUC study did not estimate
cost differences between different classes of customers, i.e.,
commercial and residential customers nor did it quantify the
cost of interconnection inspections.
While this bill does not apply to the Publicly Owned
Utilities, it is useful to point out that no study of cost
shifting has been done for Publicly Owned Utilities (POUs).
Note that the NEM statute applies to every POU except LADWP.
6)Quantifying the benefits. Since the last PUC NEM study the PUC
has also done extensive research on distributed generation
(for both the Feed in Tariff and Reverse Auction programs).
Two recent studies show that location and local electricity
demand are, among other things, important considerations as to
whether a self-generation facility benefits other ratepayers.
The studies also show potential cost impacts as well. The PUC
should include this kind of data and analysis in this NEM
study.
The PUC has also identified other benefits of self-generation,
including displacement of electricity demand during periods of
peak electricity demand, when cost of electricity is typically
highest. Most people think of peak demand in the summer, when
reliance on air conditioning is at its highest. Peak demand is
not uniform throughout the state and in some areas, peak
demand occurs in the winter. For example, a study by the
California Energy Commission found that the Alameda Power (a
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POU located near Berkeley) is a winter-peaking utility, when
cost of electricity is typically low. Some regions served by
IOUs may also have winter peaks. Summing all of the NEM
generation and assigning a value that is based on summer peak
electricity pricing may not be providing an accurate
assessment of costs and benefits. The PUC maintains an
extensive database on the performance and location of solar
projects receiving solar rebates. This database can provide
meaningful information that can be disaggregated regionally to
help provide insights into where most projects are being
placed and whether those locations are in areas that the PUC's
studies on distributed generation (DG) have identified as
being valuable to the grid.
7)Can the electrons flow out from one project and provide
electricity to another customer? NEM projects are equipped
with bi-directional meters that count the flow of
kilowatthours to and from a utility customer. With respect to
where electricity that flows 'back to the grid,' there is no
way to know where that electricity was discharged. It cannot
be said with certainty that the power flowed to the neighbor
because one cannot say whether the neighbor was drawing any
power at the moment the electricity became available. In any
case, the transformers and substations are not bi-directional
so any electricity that flows onto the grid from a
customer-generator will be limited to a confined area. On
weekends, electricity demand is typically substantially lower
than on weekdays, so that extra electricity may have little or
no value. In any case, the PUC should quantify the extent to
which excess electricity from a NEM customer is reducing cost
of electricity that would otherwise be purchased by the
utility to provide to both non-NEM and NEM customers.
8)NEM Capacity Cap . The PUC is currently considering revising
the method that has been used to calculate the cap. Solar
industry organizations have asked that the method to calculate
the cap be revised to allow more capacity to be installed
under the current cap. Their proposal would more than double
the subsidy. In 2009 the Legislature approved AB 510
(Skinner), which raised the maximum NEM cap to 5% so that all
of the projects authorized by SB 1 (Murray, 2006) to receive
ratepayer-funded incentives can also receive NEM. The purpose
of the cap was to ensure that there are limits on the amount
of cost-shifting to non-NEM customers.
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In order to ensure that the NEM subsidy does not increase
beyond its current levels and that all electric utilities are
calculating the cap consistently by using the peak demand
reported in the utility's Form 1 filing with the Federal
Energy Regulatory Commission (FERC) and the sum of the
individual NEM customer capacity is based on the CEC-AC
rating. (Both of these values are generally accepted by
utility and renewable energy industries and are publicly
available.)
The current PUC action to double the allowed capacity under
the current cap does not comport with the Legislature's
consistent interest in controlling the costs for NEM. The
appropriate method for adjusting the capacity would have been
to seek Legislative approval. The current capacity of
installed and pending solar projects is substantially below
the current cap, thus there is no pressing urgency for raising
the cap administratively without Legislative consideration.
SUGGESTED AMENDMENTS: The author may wish to amend the bill:
a) to direct the PUC to study the costs and benefits of
NEM in a balanced manner and break these costs and
benefits down by region as well as customer class; and
b) specify that the NEM cap shall be calculated in the
following manner to ensure that the NEM subsidy does not
increase beyond its current levels and that all electric
utilities are calculating the cap consistently by using
the peak demand reported in the utility's Form 1 filing
with the Federal Energy Regulatory Commission (FERC) and
the sum of the individual NEM customer capacity is based
on the CEC-AC rating.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce (CalChamber)
PacifiCorp
San Diego Gas & Electric (SDG&E)
Southern California Edison (SCE)
Natural Resources Defense Council (NRDC) (if amended)
Opposition
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None on file.
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083