BILL ANALYSIS                                                                                                                                                                                                    



          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  








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            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  








          SB 550 (Hertzberg)                                 Page 4 of ?
          
          
          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.  









          SB 550 (Hertzberg)                                 Page 7 of ?
          
          
          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)








          SB 550 (Hertzberg)                                 Page 8 of ?
          
          
          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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