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