BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 327
                                                                  Page A
          Date of Hearing:   September 11, 2012

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
                   AB 327 (Perea) - As Amended:  September 6, 2013
          
          SUBJECT  :   Electricity rates: net energy metering: California  
          Renewables Portfolio Standard Program.

           SUMMARY  :   Modifies statutory requirements specific to  
          residential rate design applicable to the customers of Investor  
          Owned Utilities (IOUs); modifies the provisions applicable to  
          Net Energy Metering, allows the California Public Utilities  
          Commission (PUC) to require procurement beyond the current 33%  
          renewable procurement mandate; requires IOUs to develop and  
          implement distributed generation resources plans.  Specifically,  
           this bill  :  

          a)Requires the California Public Utilities Commission (PUC),  
            when it approves changes to electric service rates charged to  
            residential customers, to determine that the changes are  
            reasonable, including that the changes are necessary in order  
            to ensure that the rates paid by residential customers are  
            fair, equitable, and reflect the costs to serve those  
            customers. 

          b)Requires PUC to consider specified principles in approving any  
            changes to electric service rates.

          c)Requires PUC to report to the Legislature its findings and  
            recommendations relating to tiered residential electric  
            service rates in a specified rulemaking by January 31, 2014. 

          d)Recasts and revises limitations on electric and natural gas  
            service rates of residential customers, including the rate  
            increase limitations applicable to electric service provided  
            to California Alternate Rates for Energy (CARE) customers. 

          e)Requires the IOUs to provide annual distributed energy  
            resource plans and for the PUC to approve those plans, if it  
            finds them reasonable, in each IOU General Rate Case.

          f)Revises the current Net Energy Metering (NEM) Statute to  
            specify the maximum program capacity for customers in IOU  
            service areas, require the PUC to develop a new NEM program by  









                                                                  AB 327
                                                                  Page B
            July 2015 and establish a transition to the new NEM program by  
            2017. The new NEM program is to be based on electrical system  
            costs and benefits to nonparticipating ratepayers and remove  
            both the total system capacity cap and the 1 Megawatt project  
            size limit. Existing NEM customers will be transitioned for a  
            length of time to be determined by the PUC by March 2014.

          g)Provides the PUC with authority to require IOUs to procure  
            renewable energy generation above that which is required in  
            the 33% Renewable Portfolio Standard.

          h)Authorizes the PUC to approved fixed monthly charges no  
            greater than $10 for residential customers and $5 for  
            low-income customers beginning in 2015 and may allow a cost of  
            living adjustment beginning in 2016.

          i)Specifies discounts for low-income customers are not to exceed  
            30% to 35% of the average non-low-income customer.

          j)Prohibits the CPUC until January 1, 2018 from authorizing or  
            imposing by the default rate schedule for residential  
            customers based on Time of Use and establishes provisions to  
            protect senior or other vulnerable customers, in hot climate  
            zones, from unreasonable hardship

          aa)Technical amendments to the provisions related to residential  
            electricity rate reform.

           EXISTING LAW  

          1)Requires the PUC to allocate a 'baseline quantity of  
            electricity based on 50% to 60% of average residential  
            electricity consumption for customers served with both gas and  
            electricity or 60% to 70% for all electric residential  
            customers and to take climatic and seasonal variations into  
            account. (Public Utilities Code 739(a)(1)

          2)Requires the PUC to set rates for the baseline quantity to be  
            the lowest rate and to allow increasing rates for usage in  
            excess of the baseline quantify. (Public Utilities Code  
            739(d)(1))

          3)Requires the PUC to avoid excessive rate increases for  
            residential customers and to establish an appropriate gradual  
            differential between the rates for the respective blocks of  









                                                                  AB 327
                                                                  Page C
            usage (Public Utilities Code 739(d)(1))

          4)Requires the PUC to retain an appropriate inverted rate  
            structure for residential customers and that if the PUC  
            increases baseline rates revenues resulting from those  
            increases they are to be used exclusively to reduce  
            nonbaseline residential rates. (Public Utilities Code 739.7)


          5)Allows the PUC to make higher allocations for persons with  
            medical needs, such as emphysema, pulmonary patients, or  
            persons on life-support equipment. (Public Utilities Code  
            739(c))


          6)Restricts the PUC from approving IOU rates that increase the  
            residential rates for electricity usage up to 130 percent of  
            the baseline quantities, by the annual percentage change in  
            the Consumer Price Index from the prior year plus 1 percent,  
            but not less than 3 percent and not more than 5 percent per  
            year. The annual percentage change in the Consumer Price Index  
            is calculated using the same formula that was used to  
            determine the annual Social Security Cost of Living Adjustment  
            on January 1, 2008. This restriction sunsets January 1, 2019.   
            (Public Utilities Code 739.9(a))


          7)Restricts approval of mandatory or default time-variant or  
            real time pricing, or critical peak pricing for residential  
            customers and establishes these as opt-in programs only. In  
            addition, requires that customers be provided with one year of  
            data and one year of bill protection and caps billings to no  
            more than they would otherwise have been under the customer's  
            previous rate schedule. Also exempts medical baseline  
            customers. (Public Utilities Code 745)


          8)Further restricts rates charged residential customers for  
            electricity usage up to the baseline quantities, including any  
            customer charge revenues, to not exceed 90 percent of the  
            system average rate prior to January 1, 2019, and not exceed  
            92.5 percent after that date. (Public Utilities Code 739.9(b))


          9)Establishes a program of assistance to low-income residential  









                                                                  AB 327
                                                                  Page D
            customers with annual household incomes no greater than 200%  
            of federal poverty guidelines which reflects discounts based  
            on level of need and allows limited rate increase of up to 3%  
            annually, subject to limitations. CARE rates cannot exceed 80%  
            of the corresponding rates charged to non-CARE customers  
            (excluding non-bypassable charges). (Public Utilities Code  
            739.1(b)(4)


          10)Allows low income customers to be exempt from paying  
            Department of Water Resources bond charge imposed pursuant to  
            Division 27 (commencing with Section 80000) of the Water Code,  
            the CARE surcharge portion of the public goods charge, any  
            charge imposed pursuant to the California Solar Initiative,  
            and any charge imposed to fund any other program that exempts  
            CARE participants from paying the charge. (Public Utilities  
            Code 739.1(g), 2851(d)(3), 379.6(h)


          11)Establishes a program that allows bill credits for energy not  
            consumed on site for customers who self-generate electricity  
            from specified renewable energy technologies which can be  
            applied against both the generation and non-generation charges  
            on the customer's bill.(Public Utilities Code 2827)


          12)Establishes a program that allows bill credits for customers  
            using specified fuel cell electric generation technology.  
            (Public Utilities Code 2827.10).


          13)Exempts customers using specified fuel cell technologies from  
            nonbypassable charges. (Public Utilities Code 371)


          14)Provides a discounted rate for natural gas purchases from  
            IOUs that sell natural gas to customers using specified fuel  
            cell technologies. (Public Utilities Code 379.8)


          15)Establishes a requirement for utilities (IOU and publicly  
            owned) to procure electricity from specified renewable energy  
            technologies to achieve a generation portfolio that is 33%  
            renewable by 2020. (Public Utilities Code 399.11 et seq).










                                                                  AB 327
                                                                  Page E

          16)Requires the PUC to publish a study, biennially, evaluating  
            the impacts of distributed generation on the state's  
            distribution and transmission grid. (Public Utilities Code  
            321.7)

           FISCAL EFFECT  :   According to the Senate Appropriations  
          Committee: 

              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.

           COMMENTS  :   


           1)Statement  . "The energy crisis is long over, but laws meant to  
            protect residential rate users are now preventing CPUC from  
            governing the rate structure and making necessary changes for  
            the thousands of middle to low income families struggling to  
            pay high energy costs. For example, the gap between Tier 2 and  
            Tier 5 increased from 5 cents per kWh to 16 cents per kWh  
            today.  Absent rate reform, the gap between Tier 2 and Tier 5  
            will double to nearly 29 cents per kWh by 2022 causing tens of  









                                                                  AB 327
                                                                  Page F
            thousands of customers to pay rates significantly higher than  
            the actual cost of electricity.  Without legislative changes,  
            the CPUC has only very limited ability to fix this unfair  
            residential electric rate structure."

           2)Background.  During the 2000-2001 energy crisis, AB 1 X1  
            (Keeley), Chapter 4, Statutes of 2001, protected ratepayers  
            from rampant price fluctuations due to a dysfunctional  
            wholesale electricity market.  Among other stabilizing  
            efforts, AB1 X1 prohibited PUC from increasing rates for usage  
            under 130% of baseline until DWR bond charges are paid off.   
            These restrictions did not apply to customers of publicly  
            owned utilities, about 25% of electricity customers in  
            California. Subsequent legislation(SB 695, Kehoe, Chapter 227,  
            Statutes of 2009) removed the freeze on Tiers 1 and 2 and  
            allowed very limited rate increases.

            On June 28, 2012, PUC initiated a proceeding to examine  
            current residential electric rate design, including the tier  
            structure in effect for residential customers, the state of  
            time variant and dynamic pricing, potential pathways from  
            tiers to time variant and dynamic pricing, and preferable  
            residential rate design.  This PUC proceeding is open to the  
            public and allows interested parties opportunities to  
            participate by making comments on PUC rulings, making rate  
            design proposals, commenting on proposals made by others,  
            commenting on proposals made by staff, and commenting on any  
            decision made by PUC.  According to the public schedule, final  
            rounds of comments are due mid-summer 2013.  This would be  
            followed by a draft decision, which is also open to comments.  
            However, the PUC is limited in the way it can implement  
            changes to rate design because of the statutory restrictions  
            on Tier 1 and 2 rates.

            It is important to make a distinction between rate design and  
            the customer's bill.  Redesigning rates does not necessarily  
            result in a change in the customer's bill. This bill includes  
            language to maintain protections for low income ratepayers to  
            ensure affordable energy bills, regardless of the outcome of  
            redesigning residential electricity rates.

           3)Allows PUC to Design Residential Rates  .  Under current law,  
            rate increase for residential must be disproportionately  
            placed on the price paid for electricity by residential  
            customers whose usage exceeds their Tier 2 allocation. This  









                                                                  AB 327
                                                                  Page G
            bill addresses this by removing the restrictions on Tier 1 and  
            Tier 2 rates and including provisions to ensure a transition  
            that will not result in rate shocks. In addition, this bill  
            allows the PUC to approve a fixed charge of up to but no more  
            than $10 or $5 for low-income customers. The bill further  
            specifies that the fixed charge is not to unreasonably impair  
            incentives for conservation or energy efficiency and requires  
            a reasonable transition from current rates to the new rates.

            Non-low income customers will continue to fund a number of  
            programs authorized by the Legislature. In addition to CARE,  
            the Legislature has authorized several ratepayer funded  
            programs to assist low income households procure energy  
            efficiency. The Legislature has also authorized that  
            ratepayers fund the development of new technologies and  
            business models.  These include the Self Generation Incentive  
            Program (SGIP), the California Solar Initiative (CSI), Energy  
            Efficiency Incentive Programs (EEIP), the Energy Savings  
            Assistance Program and Net Energy Metering.

           4)Rate Reform Impacts on Low Income households  .  Currently, CARE  
            customers are to receive a 20% discount off of their electric  
            and gas bills.  However, because of the cap on Tiers 1 and 2,  
            the effective discount can be much higher if CARE customer is  
            using more than 130% of the baseline allocation.  In some  
            instances, PG&E has reported providing discounts in the range  
            of 60% off of the otherwise applicable bill. This bill  
            addresses this by limiting the CARE discount to not less than  
            30% or more than 35% of a non-CARE customer bill.

           5)Time of Use Rates  . In order to move toward pricing electricity  
            based on its time of use, AB 327 allows the PUC to require the  
            default rate for customers be based on time of use beginning  
            January 1, 2018. It also specifies that the PUC shall ensure  
            that these rates do not cause an unreasonable hardship on  
            senior citizens or economically vulnerable customers in hot  
            climate zones.

           6)Net Metering Reform  . Current NEM statute allows a utility  
            customer who self-generates using specified renewable  
            technologies to receive a credit on their utility bill, for  
            generation that is not consumed on site, equal to the retail  
            electricity rate in effect at the time the generation occurs.  
            The credits may be used to offset most of the utility bill,  
            including fixed charges and transmission and generation  









                                                                  AB 327
                                                                  Page H
            charges. The credit is calculated in a manner that reduces the  
            NEM customer's contributions to public purpose programs such  
            as CARE, energy efficiency and renewable incentives, and  
            research and development programs that other customers pay.

            Amendments made in the Senate establish a transition from the  
            current NEM program to a new NEM program. The PUC may develop  
            the NEM reforms prior to December 2015 and may offer it to  
            customers in areas where the NEM capacity limit has been  
            reached. By July 2017 or when they reach their NEM capacity  
            limits, the electrical corporations must use the new NEM.

            Significant NEM reforms include: the total benefits are  
            approximately equal to the costs to all customers and the  
            electrical system and set a payment equal to the cost and  
            benefits of the renewable generation facility. Additional  
            provisions direct the PUC to ensure customer-sited renewable  
            distributed generation continues to grow sustainably and  
            include specific alternatives designed for growth among  
            residential customers in disadvantaged communities. In  
            addition, the amendments provide that the PUC may authorize  
            charges specific to customers who self-generate, such as  
            demand or other charges.

            Some matters related to sustainable growth may be outside of  
            the control of the PUC with respect to ensuring sustainable  
            growth, such as federal tax rules (tax credits and  
            depreciation) and minimal regulatory requirements, which have  
            also helped spur the growth of customer-sited generation. The  
            current 30% federal tax credit is scheduled to expire in 2016.  
            Federal legislation to allow renewable projects to qualify for  
            Master Limited Partnership tax treatment may also add new  
            growth opportunities. The state's greenhouse gas regulations  
            may also help to increase customer-sited renewable generation,  
            particularly for commercial businesses required to comply with  
            those regulations. Federal law allows NEM credits to be  
            excluded from income but the new NEM could require income tax  
            assessments, depending on its final design. The new NEM may  
            also allow more customers to take advantage of federal  
            depreciation - which is currently limited to commercial  
            customers and third party financing providers. Recent rule  
            changes at the Energy Commission now allow customers to sell  
            the renewable attribute in a compliance market established  
            through the Renewable Portfolio Standard.  In addition,  
            current law excludes owners of solar facilities from property  









                                                                  AB 327
                                                                  Page I
            tax reassessment. In order to assess whether the changes to  
            NEM will impact the sustained growth of the industry the PUC  
            will need to consider the growth effects of these other  
            programs and ensure that it does not develop sustainability  
            rules to compensate for changes in other programs that are  
            beyond its control.
           
             For customers who are using the current NEM program, this bill  
            establishes a transition to the new NEM. The PUC is to  
            establish a transition period for existing and new NEM  
            customers added prior to July 2017 and adopt rules for this  
            transition. The PUC must consider a reasonable expected  
            payback period based on the year the customer initially took  
            service. Self-generation customers receive an array of  
            support, some of which are described in this analysis. A  
            recent report by the Climate Policy Initiative found that the  
            financial value of bill savings and the sum of only a few of  
            the incentives mentioned above exceed average system  
            prices.<1> The PUC will need to define what is meant by a  
            "reasonable expected payback period" and establish standard  
            assumptions for calculating the payback period, particularly  
            the price paid for the on-site generation because this value  
            varies widely and the price affects payback. In addition, the  
            bill language refers to reasonable payback from the  
            perspective of the utility customer. However, some customers  
            may elect to assign benefits to a third party financier, such  
            as but not limited to tax credits or local rebates. The PUC  
            will need to address how to adjust the reasonable payback  
            period if a customer transfers some of these values to another  
            entity.

           7)Fuel Cell NEM  . Current law provides a separate NEM in Section  
            2827.10 specifically for customers who use specified fuel cell  
            technologies and allow the use of nonrenewable fuels.  
            Currently, only one fuel cell manufacturer meets these  
            specifications. Fuel cells that use renewable fuels also  
            included in the NEM statute in 2827. This bill would make the  
            fuel cell NEM available until 2017. 

            In addition to the NEM credits fuel cell customers are exempt  
            from nonbypassable charges pursuant to Section 371 of the  
            Public Utilities Code. Customers who use fuel cells also  
            receive a discounted rate for natural gas purchases from gas  


            --------------------------
          <1> Improving Solar Policy: Lessons from the Solar Leasing Boom  
          in California, Climate Policy Initiative, July 2013.








                                                                 AB 327
                                                                  Page J
            corporations that the same as the rate charged for natural gas  
            generation facilities.

           8)Distributed generation resource plans.  AB 327 was amended in  
            the Senate to require electrical corporations to evaluate  
            locational benefits and costs of distributed resources located  
            on their distribution systems. This evaluation shall be based  
            on reductions or increases in local generation capacity needs,  
            avoided or increased investments in distribution  
            infrastructure, safety benefits, reliability benefits, and any  
            other savings the distributed resources provides to the  
            electric grid or costs to ratepayers of the electrical  
            corporation. The bill specifies that the electrical  
            corporation propose ways to deploy cost-effective distributed  
            resources and methods of coordination with existing incentives  
            to minimize the incremental cost of the distributed resources  
            and to identify barriers to deployment, including safety  
            standards or reliable operation of the electricity  
            distribution system.

            The bill further specifies that the PUC will review and modify  
            or approve the plans to minimize cost and maximize ratepayer  
                                                                benefits.

            This provision may help promote increased renewable generation  
            within communities, which could displace procurement for  
            larger central generation facilities.

            This provision also includes planning for electric vehicles,  
            which are being studied for both the potential increased  
            demand for electricity and their potential to help increase  
            flexibility in procurement as a storage technology.

           9)Renewable Portfolio Standard  . Current law prohibits the PUC  
            from requiring electrical corporations to procure renewable  
            energy above the 33% requirement in the Renewable Portfolio  
            Standard. The amendment will allow the PUC to require  
            procurement above the 33% requirement. The PUC usual  
            procurement proceeding is conducted annual in its Long Term  
            Planning and Procurement Proceeding. In this proceeding the  
            PUC determines the least-cost, best fit procurement for each  
            electrical corporation. Costs for electricity generated by  
            some renewable generation facilities are now competitive with  
            conventional natural gas generation. Thus, moving beyond the  
            33% mandate is possible to do, without adversely impacting  









                                                                  AB 327
                                                                  Page K
            electricity rates. 

            According to the California Independent System Operator,  
            current procurement trends will result in substantial excess  
            generation that could cause reliability problems for  
            customers. In addition, because most of the procurement is  
            using wind and solar technologies, large quantities of backup  
            generation may be needed to generate power quickly when the  
            wind stops blowing or the sun stops shining. Ratepayers will  
            pay for the standby capacity of those generators. One means of  
            addressing the issue could be to for the PUC to increase its  
            consideration of time of deliverability when it authorizes  
            additional renewable procurement. Other types of renewable  
            generation technologies, such as but not limited to biopower  
            (biomass, digester gas, biodiesel, landfill gas, municipal  
            solid waste) or geothermal. An example of concentrated  
            reliance one type of renewable technology can be found in one  
            of the recent compliance reports filed by the electrical  
            corporations. One company reports that it plans to meet its  
            2020 33% obligation using 63% solar photovoltaic, 33% wind  
            generation, and 3% biopower. The PUC will need to carefully  
            review the deliverability characteristics of those renewable  
            facilities to ensure that procurement is balanced to ensure  
            that the electricity from those facilities will coincide with  
            when electricity is needed.

           10)Related Legislation  .

            AB 792 (Mullin, 2013) would exempt renewable generation and  
            specified fuel cells from utility user taxes imposed by local  
            governments.

            AB 796 (Muratsuchi, 2013) would extend a discounted natural  
            gas rate to specified fuel cell technologies.

            SB 43 (Wolk) would create a 600 megawatt shared renewable  
            program to allow customers who cannot locate a solar facility  
            on their premises to voluntarily purchase renewable energy  
            through a program approved by the PUC. The renewable  
            facilities are limited in size to enable a developer to place  
            the project as close as possible to the customer. This may  
            include on the distribution line of the electricity  
            corporation. 

           REGISTERED SUPPORT / OPPOSITION  :   









                                                                  AB 327
                                                                  Page L

           Support 
           
          Pacific Gas and Electric (PG&E)
          Independent Energy Producers Association (IEP)
          Clean Power Finance
          REC Solar
          SolarCity
          Sunrun
          SunPower
          Verengo Solar
          Southern California Edison (SCE)
          Solar Energy Industries Association (SEIA)

           Opposition 
           
          Easton Pacific Construction Company
          California Large Energy Consumers Association
          California League of Food Processors
          California Manufacturing & Technology Association (CMTA)
           
          Analysis Prepared by  :    Susan Kateley / U. & C. / (916)  
          319-2083