BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 327 (Perea) - Electricity: natural gas: rates: net energy metering: California Renewables Portfolio Standard Program. Amended: August 21, 2013 Policy Vote: EU&C 10-1 Urgency: No Mandate: Yes (see staff comment) Hearing Date: August 26, 2013 Consultant: Marie Liu SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: AB 327 would restructure the rate design for residential electric customers, create a new net energy metering program, and specify that California Public Utilities Commission (CPUC) may require the procurement of eligible renewable energy resources in amounts greater than what is required in statute. Fiscal Impact (as proposed to be amended): Annual costs of approximately $116,000 from the Public Utilities Reimbursement Account (special) for the workload involved in conducting a triennial assessment of the needs of low-income electricity and gas customers. Cost pressures in the millions to tens of millions of dollars to the General Fund and various special funds to the state as a ratepayer should the CPUC exercise the authority in this bill to raise renewable energy procurement requirements. One-time costs of at least $120,000 from the Public Utilities Reimbursement Account for the development of a new NEM standard contact and tariff, a transition period for existing NEM customers, and the eligible period for a fuel-cell standard tariff. One-time costs of at least $120,000 and ongoing costs of up to $120,000 from the Public Utilities Reimbursement Account to review distribution resource plans and to establish criteria on evaluating the success of investments made pursuant to such a plan. Cost pressures in the hundreds of thousands of dollars to the General Fund and various special funds to the state as a ratepayer to the extent that the distribution resources plan proposals lead to necessary infrastructure spending that will be paid by the ratepayers. AB 327 (Perea) Page 1 Background: Residential Electric Rates - Residential electric rates in the territories of the three largest electric corporations are generally designed in a four or five-tiered structure based on the customer's quantity of electricity usage. Within prescribed usage tiers, the amount of electricity consumed is priced at increasing per-unit rates. Tier 1 is baseline usage and tier 2 is 130% of baseline. In response to the energy crisis, the Legislature froze rates for tiers 1 and 2 in 2001. While rates to customers were frozen, utilities continued to experience increased costs for generation, distribution, transmission and new programs created by the Legislature and the CPUC. These costs have been disproportionally borne by customers whose electricity usage falls in the upper tiers (3, 4, and 5). In 2009, the Legislature passed SB 695 (Kehoe) Chapter 337/2009, which allowed the tiers 1 and 2 rates to gradually increase until 2018 at which time the freeze would be completely lifted. These rate adjustments, overall, were revenue neutral to the IOUs as increases in tiers 1 and 2 resulted in commensurate decreases in rate for tiers 3, 4, and 5. CARE Program- Existing law requires the California Public Utilities Commission (CPUC) to establish the California Alternative Rates for Energy or CARE program, which provides assistance to low-income electric and gas customers with annual household incomes less than 200% of federal poverty guideline levels. The cost of this program is spread across multiple classes of customers. CARE rates cannot exceed 80% of rates for non-CARE residential customer and is exempted from certain charges, including the charge to support CARE and the California Solar Initiative (CSI). CARE rates were also frozen in response to the energy crisis, but SB 695 allowed the rates to be increased at the same rate as increases in benefits under CalWorks, not to exceed 3% through 2018. However, due to budget impacts on the CalWorks program, there have been no increases in benefits, thus effectively maintaining the freeze of CARE rates at 2001 levels. Existing law requires the CPUC to conduct an assessment of the needs of low-income electricity and gas ratepayers with the assistance of the Low-Income Oversight Board beginning in 2002. To date, the CPUC has done conducted a comprehensive assessment AB 327 (Perea) Page 2 twice and a narrowly targeted assessment once. Time-of-use (TOU) pricing - SB 695 also prohibited the CPUC from permitting a utility to employ mandatory or default TOU pricing for any residential customer prior to January 1, 2014. However, mandatory or default TOU pricing can be authorized as early as January 1, 2013 if the utility caps the customer's bill at the level it would have been had the customer not changed his rate schedule to TOU pricing. Mandatory or default real-time pricing may be permitted as early as January 1, 2020. Beginning January 1, 2014, the CPUC may approve TOU pricing in a manner consistent with the Public Utilities Act if the customer has the option not to be subject to TOU pricing and that option can be exercised without charge. Net metering - Existing law requires electric utilities to credit all electricity generated by a customer-owned renewable energy system against the customer's usage of electricity sold by the utility, a procedure known as "net energy metering" (NEM). Under the CSI, customers who install solar system receive "full retail NEM" where the customer is exempt from paying transmission and distribution costs on electricity provided by the utility (the electricity from the grid that the customer uses when his or her solar panels are not producing, like at night). Every electric utility is required to develop a NEM tariff to provide for net energy metering, which is available to customers on a first-come-first-serve basis until the total generating capacity exceeds five percent of the utilities' aggregate customer peak demand. As transmission and distribution costs are typically one-half to two-thirds of a residential customer's billing, full retail NEM offers a substantial subsidy to NEM customers with the costs being shifted to non-NEM customers. Given that rooftop solar now generates 1,173MW in the IOU territories, the cost of full retail NEM comes at a cost of approximately $60 million to non-NEM customers across the state. The Legislature has in the past justified this subsidy as it stimulates the solar industry, helps the state reach its renewable energy goals, and provides other external benefits. Renewable Portfolio Standard - California's Renewable Portfolio Standard (RPS) requires investor-owned utilities (IOUs), electric service providers, and community choice aggregators to AB 327 (Perea) Page 3 increase procurement from eligible renewable energy resources along a statutorily determined schedule. Proposed Law: Regarding residential rate design - This bill would delete all existing restrictions on rate increases. This bill would allow the CPUC to adopt a fixed charge up to $10 per month or $5 per month for CARE customers for the purpose of collecting a reasonable portion of the fixed costs of providing residential electric service. The fixed charge must reasonably reflect the different costs of serving small and large customers, not unreasonably impair conservation and energy efficiency incentives, and not overburden low-income customers. Beginning January 1, 2016, the maximum fixed charge may be adjusted annually to the Consumer Price Index. The CPUC would be able to consider whether minimum bills are appropriate as a substitute for fixed charge. This bill would delete the current restrictions on TOU pricing and instead allow the CPUC, beginning January 1, 2018, to require or authorize an IOU to use default time-of-use pricing for residential customers. The TOU pricing would be subject to specified conditions, including that it not cause unreasonable hardship for senior citizens or economically vulnerable customers in hot climate zones, that the customer be provided with interval usage data before being subject to the TOU rates, and that residential customers have the option to not receive TOU rates without being subject to additional charges. Certain residential customers, such as those receiving a medical baseline allowance, would be exempt from any default time-of-use pricing. This bill would direct the CPUC to establish rates for the CARE program and delete the existing requirements on the CARE tiers and rate increase limitations. For customers of the large IOUs, the set rates must effectively give a discount between 30% and 35% to eligible customers. The discount would include any charges that are not paid by CARE customers such as payments to the California Solar Initiative and any discount in a fixed charge. If an IOU is currently providing a benefit greater than 35%, it cannot reduce that benefit more than is "reasonable." This bill would specify that the assessment of the needs of low-income electricity and gas customers be done at least every AB 327 (Perea) Page 4 three years. Regarding RPS - This bill would explicitly allow the CPUC to require the procurement of renewable energy resources in excess than the statutorily required amounts. Regarding Net Metering - This bill would specify the NEM cap for the large IOUs is 607 MW for customers of San Diego Gas and Electric Company, 2,240 MW for Southern California Edison customers, and 2,409 MW for Pacific Gas and Electric customers. This provision codifies the CPUC's current interpretation of the NEM cap defined as five percent of the utilities' aggregate customer peak demand. The CPUC would be required to develop a new standard contract or tariff for new NEM customers of the large IOUs by July 1, 2015 that must be used beginning January 1, 2017 or earlier if the NEM cap has been reached. The CPUC would be required to ensure that the new standard contract or tariff for rates, terms of service, and billing rules is based on the electrical system costs and benefits received by nonparticipating customers and prevents a cost shift to non-NEM customers. Existing NEM customers may continue to receive service under the existing tariff until December 31, 2020, though the tariff cannot be transferred with a change in customer or ownership of the renewable electrical generation facility after January 1, 2017. Staff Comments: Regarding residential rate design - In 2012, the CPUC opened a proceeding in response to SB 695 to examine current residential electric rate design to identify a system that is both equitable and affordable for the foreseeable future. The proceeding is examining whether the current rate structure is meeting the CPUC's five guiding principles on rate design that rates should: (1) Be based on marginal cost, (2) Be based on cost-causation principles, (3) Encourage conservation and reduce peak demand, (4) Provide stability, simplicity, and customer service, and (5) Encourage economically efficient decision-making. AB 327 (Perea) Page 5 The scope of this proceeding largely, if not entirely, encompasses the changes to residential rate design required by this bill. As such, the costs of enacting the residential rate design portions of the bill are absorbable into the CPUC's existing activities. As these rate design changes only affect residential customers, this portion of the bill does not affect the state as a ratepayer. This bill would establish a minimum frequency in which the CPUC would have to complete a needs assessment of low-income electricity and gas customers. By specifying a frequency, the CPUC will likely need one dedicated PY for this responsibility at a cost of $116,000 annually. Regarding RPS - This bill does not in it of itself increase the procurement requirements of renewable energy resources. However, it does make it explicit that the CPUC can increase the RPS requirements without Legislation. Should the CPUC exercise this ability, there would be costs to the state as an electric customer. Both the Public Utilities Commission and the Air Resources Board have conducted studies on the ratepayer impacts of various 33 percent Renewables Portfolio Standard scenarios. According to those studies, in 2020, average retail electricity rates (in current dollars) are projected to be between $0.006 and $0.011 per kilowatt-hour higher than they otherwise would be under current law (including the existing 20 percent Renewables Portfolio Standard). The cost to the state would depend on the amount which the CPUC increases the procurement requirements and on what schedule, but could total in the millions and tens of millions of dollars. Regarding Net Metering -This bill would require the CPUC to develop a new standard contract or tariff for NEM that prevents a cost shift to non-NEM customers. This requirement will require a proceeding to be conducted at a one-time cost of at least $120,000. Regarding the bill's state mandate - This bill would impose a state mandate on publicly owned utilities, which are local government agencies. However, because publicly owned utilities are able to pass any implementation costs along to their customers, the bill does not impose a reimbursable state mandate. AB 327 (Perea) Page 6 This bill would also impose a state mandate by changing the definition of a crime as any violation of the Public Utilities Act or any order, decision, rule, or requirement of the CPUC is a crime. This bill does both. However, these costs are not reimbursable. Proposed Author Amendments: Amends would: Regarding distribution resources: Require IOUs to submit to the CPUC a distribution resources plan proposal to identify optimal locations for the deployment of preferred resources and specify information that must be included in that proposal. Any necessary spending on distribution infrastructure to accomplish the distribution resources plan shall be considered as part of the next general rate case for that IOU. Require the CPUC to review and consider approval of each distribution resources plan proposal Require the CPUC to adopt criteria to evaluate the success of any investment made pursuant to a distribution resources plan. Regarding net metering: Codifies the method on which "aggregate customer peak demand" is to be calculated for the purpose of determining an IOU's NEM program cap and specifies that the MW caps in the bill are minimum caps under this calculation. Require that the CPUC develop a new standard contract or tariff for new NEM customers by December 31, 2015 (instead of July 1, 2015). Expand the requirements for the new NEM program including requiring that the new standard contract or tariff must allow projects to be built to the size of the onsite load, even if it is greater than one MW, if there is not a significant impact on the distribution grid and the project is subject to reasonable interconnection charges under the CPUC's rules. Instead of grandfathering existing NEM customers until December 31, 2020, allow the CPUC to establish the transition period. The CPUC would be required to consider a reasonable expected payback period. Explicitly prohibit a limitation on the amount of generating capacity or the number of customer-generators eligible for the new standard contract or tariff after July 1, 2017. AB 327 (Perea) Page 7 Regarding fuel-cells : Delete the January 1, 2015 sunset date on existing law that requires IOUs to offer a standard tariff for net energy metering for eligible fuel cell customer-generators (gen-to-gen NEM) that is currently being used by fuel cells powered by natural gas. Allow the fuel cell customer-generator to be eligible for the tariff for a period of time determined by the CPUC,