BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 550 Hearing Date: 4/27/2015
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|Author: |Hertzberg |
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|Version: |4/6/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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SUBJECT: Net energy metering
DIGEST: This bill specifies the methodology by which publicly
owned electric utilities (POU) and other electric utilities that
are not "large electrical corporations" are to calculate the cap
on net energy metering programs.
ANALYSIS:
Existing law:
1)Requires every electric utility - other than a local POU that
serves more than 750,000 customers and that also conveys water
to its customers - to offer net energy metering (NEM) to
eligible customer-generators, upon request, on a
first-come-first-served basis until the total rated generating
capacity used by eligible customer-generators exceeds five
percent of the electric utility's aggregate customer peak
demand.
2)Defines an "eligible customer-generator," for NEM purposes, as
a residential customer, small commercial customer, or
commercial, industrial, or agricultural customer of an
electric utility, who uses a renewable electrical generation
facility, or a combination of those facilities, with a total
capacity of not more than one megawatt, that is located on the
customer's owned, leased, or rented premises, and is
interconnected and operates in parallel with the electrical
grid, and is intended primarily to offset part or all of the
customer's own electrical requirements.
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3)Defines "large electrical corporation" as an electrical
corporation with more than 100,000 service connections in
California.
4)Defines "aggregate customer peak demand," for the purposes of
the California Public Utilities Commission's (CPUC)
calculation of a large electrical corporation's NEM program
limit, as the highest sum of the noncoincident peak demands of
all of the large electrical corporation's customers that
occurs in any calendar year and requires every electrical
corporation to use a uniform method, approved by the CPUC, to
determine aggregate customer peak demand.
5)Directs the CPUC to develop a standard tariff or contract,
known as the "successor tariff," for eligible
customer-generators with a renewable electrical generation
facility no later than December 31, 2015.
6)Requires, for each large electrical corporation, using the
successor tariff, to continue to offer NEM to its customers on
July 1, 2017, or upon reaching the five-percent NEM program
limit, whichever is earlier.
7)States that an electric utility that is not a large electrical
corporation, such as a POU, is not obligated to provide net
energy metering to additional eligible customer-generators
once the utility exceeds the five-percent NEM cap, based on
aggregate customer peak demand.
(Public Utilities Code §2827 et seq.)
This bill:
1)Removes the exemption to the NEM program requirements for a
local POU that serves more than 750,000 customers and that
also conveys water to its customers.
2)Defines "aggregate customer peak demand," for purposes of
calculating the five-percent NEM program limit of a POU and
any other electric utility that is not a large electrical
corporation, as the highest sum of the noncoincident peak
demands of all the customers of that utility in any calendar
year.
3)Requires each POU and any other electric utility that is not a
SB 550 (Hertzberg) Page 3 of ?
large electrical corporation to file a quarterly report with
the California Energy Commission (CEC) detailing its progress
toward meeting the five-percent NEM program limit and to make
the report available to the public for download from the
utility's Internet Web site.
4)Requires the CEC to post on its Internet Web site data
detailing the progress of every POU and other electric utility
that is not a large electrical corporation toward meeting the
five-percent NEM cap.
Background
Net Energy Metering - Net Energy Metering generally refers to a
program by which electric utility customers receive a bill
credit for the electricity they generate on-site and export to
the grid. California has required electric utilities to offer
NEM for two decades. California's NEM program is to encourage
substantial private investment in renewable energy resources,
among other goals.
California law requires each electric utility to offer a NEM
program to its customers on a first-come, first-served basis,
until the total rated generating capacity used by eligible
customer-generators exceeds five percent of the electric
utility's aggregate customer peak demand. Statute limits the
NEM participation to customer-generators who install eligible
renewable energy systems of one megawatt (MW) or less on the
customer-generator's premises that is intended to offset part or
all of the customer-generator's electricity use.
The law requires a utility to compensate a NEM participant for
any energy the customer exports to the electric grid over a
12-month period that is in excess of the electricity used on
site by the NEM participant during that period. The amount of
the compensation varies, based upon market prices as determined
by the CPUC, and NEM electricity generation is exempt from
standby charges - a charge to cover the utility's cost to supply
power, should the distributed generation system fail - and
nonbypassable charges that are levied against other electric
utility customers. NEM customers own the renewable energy
credits associated with the eligible renewable energy they
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produce.
Current law requires the three large IOUs to continue to offer
NEM to their customers on July 1, 2017, or upon reaching the
five-percent NEM program limit, whichever is earlier, using a
standard successor NEM tariff, as developed by the CPUC.
Statute does not require a POU or other electric utility that is
not a large electric corporation to offer NEM to its customers
after the POU or other utility reaches its five-percent NEM cap.
Aggregate Customer Peak Demand - As described above, statute
requires electrical utilities to offer NEM to their customers
until the total rated generating capacity used by eligible
customer-generators exceeds five percent of the electric
utility's aggregate customer peak demand. This meaning of this
term - aggregate customer peak demand - has been debated
considerably.
In 2012, the CPUC issued a decision in which it defined the
methodology by which the IOUs were to determine aggregate
customer peak demand. Until that time, the three major IOUs had
calculated aggregate customer peak demand using various
methodologies. However, the IOUs had in common a methodology
that relied on highest peak demand - a summation of demand
happening in the same period of time - to determine aggregate
customer peak demand. Conversely, other parties argued that the
IOUs should determine aggregate customer peak demand by adding
together individual customer peak demand - meaning the sum of
the highest demand for electricity for each customer, regardless
of when that individual peak demand occurred.
In a controversial decision, the CPUC required the IOUs to
determine aggregate customer peak demand by the latter method -
the highest noncoincident demand for electricity for each
customer. According to the IOUs, the change in methodology had
the effect of increasing the NEM cap from five percent to
approximately 12 percent, based on the old methodology.
Questions of the merits of the CPUC's decision are moot, at
least as those questions concern the IOUs' NEM programs. In
2013, the Legislature passed AB 327 (Perea, Chapter 611). That
bill codified the CPUC decision. Today, by law, the IOUs must
calculate aggregate customer peak demand for purposes of
determining their NEM caps by summing each customer's
noncoincident peak demand. Similarly, this bill would require
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the POUs to determine their NEM cap by using the methodology for
aggregate peak demand currently required of the IOUs.
Increasing the NEM Cap - This bill concerns more than
mathematical consistency. Proponents argue that the POUs use a
different NEM methodology to the detriment of the state's clean
energy and job creation goals. The logic of this argument is
that the methodology used by some POUs results in a NEM cap that
is lower than it would be, in absolute terms, using the
methodology required by this bill.
The proponents' argument is consistent with the claims of the
representatives of the POUs. The POUs contend use of the
methodology required by this bill would, in every case, increase
the POUs' NEM caps, in absolute terms. The amount of the
increase would vary by POU, but the Northern California Power
Association (NCPA) and the California Municipal Utilities
Association (CMUA) separately estimate increases to their
members ranging from 1 percent, on the low end, to one hundred
percent on the high end.
A Foolish Consistency - There are three large electric IOUs in
California - Pacific Gas and Electric, Southern California
Edison, and San Diego Gas and Electric. Each of the large IOUs
represents hundreds of thousands of customers across large
service territories. The rates and terms of service of each IOU
are regulated, in detail, by the CPUC, a state agency.
The POUs, in contrast, are a disparate group of nearly two dozen
utilities. Some POUs serve a few thousand customers sparsely
populated across a large service territory. Others, such as the
Los Angeles Department of Water and Power - the only local
publicly owned electric utility that serves more than 750,000
customers and that also conveys water to its customers and,
under existing law, exempt from the NEM requirement - serve
millions of customers in densely packed urban regions.
Each POU is regulated by a local governing board. Each
governing board of a POU determines the rates and terms of
service of its POU to reflect the unique characteristics,
preferences and needs of the POU's customers. State law,
generally, recognizes this local expertise and authority by
maintaining the governing autonomy of the POUs. However, this
is not always the case.
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More specifically, the state has increasingly imposed its
renewable energy and greenhouse gas reduction policies on the
POUs. For example, state law, since 2011, has required the IOUs
and POUs alike to meet the renewable energy procurement
requirements of the RPS statute; and the IOUs and the POUs are
subject to the California Air Resources Board's cap-and-trade
program to reduce the emission of greenhouse gases, to name the
most prominent examples. However, each of those programs treats
the IOUs and the POUs differently in the specifics. And the
statutes governing the NEM program itself differ in regards to
the IOUs and the POUs. For example, statute requires the IOUs
to continue some form of the NEM program beyond the five-percent
NEM cap; yet, statute makes no such requirement of the POUs.
So, it seems that the analysis of this bill cannot rely on a
general rule to determine whether state law should make the same
requirements of the POUs as it does the IOUs. Rather, the
analysis needs to consider whether it is preferable to require
all types of utilities to use the same methodology to determine
aggregate customer peak demand. The conclusion of this analysis
is yes, it is preferable.
Statute, in describing the NEM program cap, uses identical
language to describe the conditions that determine the cap as it
applies to IOUs and POUs (and utilities): when the combined
total peak demand of all electricity used by eligible
customer-generators served?exceeds five percent of the aggregate
customer peak demand of those electric utilities. It is hard to
understand the rationale behind an argument that says aggregate
customer peak demand, relative to the state's NEM program, means
one thing in an IOU territory and another in a POU territory.
There are no inherent differences between an IOU service
territory and a POU service territory that should change the
meaning of aggregate customer peak demand.
That said, there are reasons to treat POUs differently in their
determination of aggregate customer peak demand. Such demand is
most easily determined by the use of smart meters. The large
IOUs have deployed smart meters to much of their service
territories. The large IOUs also have large, diverse customer
bases over which to spread the cost of smart meter installation,
which is costly. Yet, even in the case of the large IOUs, the
CPUC noted in its 2012 decision that estimation techniques can
substitute for customer data in calculating aggregate customer
peak demand.
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Many of the POUs, especially the smallest ones, do not have
large, diverse customer bases over which to spread the costs of
smart meters. These POUs should have the opportunity to
determine aggregate customer peak demand by a method other than
direct collection of customer data. The author and the committee
may wish to consider amending the bill to allow an electric
utility that is not a large electrical corporation to determine
aggregate customer peak demand using a reasonable method, as
determined by the CEC, other than direct customer data
collection.
This analysis sidesteps the question of whether the state should
expand its NEM program. Opponents of this bill express concern
that the NEM program costs to nonparticipating customers exceed
the benefits those customers receive. Proponents of expansion
and this bill contend California's NEM program provides benefits
not usually considered in NEM program evaluations, including
avoided emissions, avoided land use, and avoided water use. The
arguments on both sides are worth considering. However, the
merits of the NEM program itself do not affect the question of
whether aggregate customer peak demand has a consistent meaning
that should be applied, consistently, statewide. Nonetheless,
the members of the committee should be aware enactment of this
bill, as currently written, will result in an expansion of the
NEM cap, in absolute terms. In some cases this will mean
certain POUs - the City of Lompoc and in the Turlock Irrigation
District, for example - that had exceeded the NEM cap, as
calculated using their existing methodologies for determining
aggregate customer peak demand, will be required by law to offer
NEM to their customers once again.
Prior/Related Legislation
AB 327 (Perea, Chapter 611, Statutes of 2013) requires the IOUs
to calculate aggregate customer peak demand for purposes of
determining their NEM caps by summing each customer's
noncoincident peak demand.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
SUPPORT:
Solar City (Sponsor)
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The Alliance for Solar Choice (Sponsor)
Brightline Defense
California Solar Energy Industries Association
Coastal Environmental Rights Foundation
Environment California
School Energy Coalition
Sierra Club California
Solar Energy Industries Association
TerraVerde
OPPOSITION:
California Municipal Utilities Association
City of Lompoc
Northern California Power Agency
Southern California Public Power Authority
Turlock Irrigation District
ARGUMENTS IN SUPPORT: Proponents contend the state should use a
standard methodology applicable to NEM programs in all
jurisdictions, so as to further encourage onsite renewable
energy generation and create jobs.
ARGUMENTS IN OPPOSITION: Opponents argue this bill will result
in an expansion of NEM, which will exacerbate the cost-shift
inherent to the NEM program. Opponents further argue that the
bill unfairly changes the rules of the NEM program so that
utilities had met the NEM program cap would be obligated to
offer NEM once again. Moreover, opponents question whether the
NEM program is still needed, given what opponents describe as a
mature, competitive market for rooftop solar.
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