BILL ANALYSIS
AB 2573
Page 1
Date of Hearing: April 17, 2006
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
AB 2573 (Leno) - As Introduced: February 23, 2006
SUBJECT : Electricity: Hetch Hetchy Water and Power solar
generation.
SUMMARY : Increases the amount of solar generation permissible
for the City and County of San Francisco's (City's) net-metering
facilities, and permits the City to generate photovoltaic
(solar) power at one location and have that electricity be used
at another City-designated remote location. Specifically, this
bill :
1)Increases the amount of power that the City can generate from
solar electric generation facilities, from 5 megawatts (MW) to
25 MW.
2)Defines "qualifying remote new load (QRNL)," permits the City
to designate the QRNL site both inside and outside of the
City, requires the QRNL to begin operations after January 1,
2006, and exempts this load from the 25 MW cap.
3)Deletes the 1 MW cap on how much electricity a single solar
generation facility can generate.
4)Excludes the amount of electricity provided for QRNL from the
monthly true-up between City-generated electricity provided to
Pacific Gas and Electric Company (PG&E), and PG&E electricity
provided to the City.
5)Deletes a provision that states that if the City engages in
retail sales to PG&E customers as a result of becoming a
community choice aggregator or municipalization, the section
that defines the City's on-site solar production and
Interconnection Agreement offsets would become inoperative.
6)Permits the City to use its solar generation to serve the QRNL
sites and requires PG&E to treat any electricity exported to
the grid by the City's solar generation as "behind the meter"
generation that offsets the electrical usage of the QRNL
sites.
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EXISTING LAW :
1)Defines a customer generator who would be eligible to
participate in net metering to generate no more than 1 MW; be
located on the customer's owned, leased, or rented premises;
and whose electricity produced is primarily to offset part or
all of the customer's own electrical needs. A customer
generator can be a residential, commercial, industrial, or
agricultural customer of an electric service provider that
uses solar or wind.
2)Requires the total amount of electricity generated by
City-owned solar generators to not exceed 5 MW of peak
generation capacity and requires that no single solar
generation project exceed 1 MW of peak generation capacity.
3)Requires PG&E to identify the appropriate tariff for energy
generated at the City-owned solar sites, and apply a monetary
credit to offset amounts invoiced by PG&E pursuant to the
Interconnection Agreement between PG&E and the City.
4)Specifies that if the City is a net energy producer, the City
shall receive no credit or offset for the electricity exported
to the grid in excess of the electricity delivered to the site
from the grid.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to allow the City to generate an increased amount of solar
electricity for use at off-site or non-adjacent City-designated
municipal buildings and be treated in the same manner as current
net-metering arrangements.
1) Background : The City owns Hetch Hetchy Water and Power, which
provides water from the Tuolumne River to the City and its
residents. The federal Raker Act (1913) permitted the City to
dam the Tuolumne River, build a 167-mile aqueduct, and construct
powerhouses and transmission lines below Hetch Hetchy Reservoir
for generation, sale, and distribution of electric energy. The
Act also established priorities for the use of Hetch Hetchy
hydropower: first to drive the system's waterworks, next to
supply the City's municipal government agencies, and then to
farmers and municipal governments within the Modesto and Turlock
irrigation districts. Any remaining hydropower could be sold to
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the City's residential and business users but never to a
corporation, such as PG&E.
At that time, PG&E was the sole provider of gas and electricity
in the City. Although the City built a transmission line from
the Hetch Hetchy hydroelectric plant to Newark (across the bay,
south of Oakland), it was unable to obtain funding for the last
stretch into the City.
The City has a unique arrangement. PG&E continues to procure
generation, and provide transmission and distribution services
to all bundled-service ratepayers such as residential,
commercial, and industrial customers within the City's
boundaries. However, the City owns the Hetch Hetchy power which
requires the City to use it for its municipal load first. As
such, PG&E does not procure electricity for the City's municipal
load. The City needs PG&E to provide the transmission across
the bay and into the City, and it needs PG&E for the local
distribution of the power to the municipal facilities. Over the
years, the City and PG&E negotiated a federally approved
Interconnection Agreement that identifies the terms and
conditions under which PG&E will transport and distribute the
City's Hetch Hetchy power to the City's municipal locations.
2) One size does not necessarily fit all : SB 656 (Alquist,
Chapter 369, Statutes of 1995) created the net metering
guidelines to provide an incentive to residential customers to
install solar panels on their homes. The intent was to decrease
dependence on remote generators and the transmission grid.
Under net metering, all electric utilities are required to buy
back any electricity generated by a customer-owned solar system.
This "buy back" works by having the solar generated electricity
spin the meter backward. By spinning the meter backward, the
excess solar power offsets the power the customer already
consumed from the utility. The end result of a net-metered
transaction is equivalent to the utility buying the excess solar
power at the utility's retail rate, which includes the utility's
transmission and distribution costs, taxes, the utility's return
on investment, and public goods charges (funding for low-income
assistance, energy efficiency, and renewable power programs).
The utilities would prefer to only pay the average wholesale
generation costs to the utility, or a reasonable index that
reflects its opportunity cost of purchasing electricity from
another generator. By requiring the utility to buy back the
power at the retail rate, the utility's remaining customers are
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essentially subsidizing these net-metered customers.
The current net-metering provisions permit a solar generator to
be located on or adjacent to the facility that would use the
electricity, and only permit the singular solar generator to
generate less than 1 MW. Net metering arrangements are
restricted to a specific percentage of the utilities' total load
to mitigate the cost shifts. At the end of each year, the
utility "nets out" the amount of electricity provided to the
utility by the customer with the amount of electricity the
customer purchased from the utility. The net-metering
provisions discourage over-building by permitting any
electricity that was over-generated as determined at the end of
the year to be free to the utility.
The City, as its own municipal utility, is different than a
singular IOU-served homeowner. Two years ago, the Legislature
passed AB 594 (Leno, Chapter 790, Statutes of 2004), which
enabled the City's municipal facilities to engage in
net-metering arrangements and install solar facilities to serve
some of the City's municipal load at the site of the municipal
facility. PG&E doesn't send a typical electricity bill to the
City as it does with a homeowner, so it couldn't offset the
solar generation. To allow for a similar end-result, AB 594
required PG&E to provide a credit against the Interconnection
Agreement. The 1 MW cap on the size of a single facility was
consistent with existing net-metering provisions, however, AB
594 permitted the City to generate up to an aggregated total of
5 MW using its solar facilities. This bill would delete the 1 MW
cap on an individual facility, and would increase the cap on the
City's total net-metering load to 25 MW. The City, as the
sponsor of this bill, requested that these caps be increased
because the City is a municipal utility, and not an individual
homeowner.
The City is planning new redevelopment projects at Hunters Point
and Treasure Island. It cannot serve the electricity needs with
solar generation because neither of these locations would
optimize the generating capacity of solar panels. The City is
located in one of the most geographically and climatically
diverse environments and possesses the ability to optimize solar
energy generation at one location during peak times, which may
not be on or adjacent to the facility it needs to serve. As
such, placing a solar facility at or adjacent to the proposed
redevelopment sites, as required by current net-metering
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provisions, would render little benefit to the City's municipal
needs.
3) The big picture : Over the past few years the Legislature
and Governor have enacted legislation that would encourage the
use of clean renewable energy and localized generation. There
are currently two bills in the Legislature that are trying to
streamline the complex and multi-jurisdictional process to
upgrade existing or build new transmission systems. The City's
geographic position makes it vulnerable to unreliable
electricity supplies. It is located at the terminus of just two
transmission lines. In addition, for over 40 years, the City
relied on old PG&E fossil-fuel burning power plants to serve
some of the residential and commercial customers. These plants
are either being retrofitted or shut down altogether.
Against this backdrop, the City developed its Electricity
Resource Plan (ERP) that proposes increasing renewable
generation to 50 MW by 2015. Two years ago the City's voters
approved local Propositions B and H, which could potentially
provide over $100 million in revenue bond financing for
municipal and private solar projects. Recently, the Moscone
Convention Center was retrofitted with solar panels that produce
688 kW of electricity and a second site is proposed at a
wastewater treatment plant that will generate 600 kW.
It appears as if the City is progressing toward the legislative
directives of becoming less dependent on fossil-fuel power
plants and precarious transmission lines. However, this bill
attempts to facilitate attaining the legislative goals by
confusingly trying to put the proverbial "square peg in a round
hole." The bill language inserts exceptions and specifications
into the existing net-metering provisions. This could be
confusing and cause much debate. To clarify that this new
arrangement, the QRNL, is different than the existing
net-metering arrangements, the committee may wish to consider
defining each of the two types of solar generation and specify
which provisions apply to solar generation facilities using the
system of credits to the Interconnection Agreement, and which
provisions apply to solar generation facilities that supply
QRNL.
3) The City's desire to build solar : The City's voters
approved bond financing for the City to self-generate its own
solar energy for its own use. Under current law, if the City
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placed a solar facility in a sunny location to generate
electricity, it would over-generate for the on-site municipal
facility (i.e. a reservoir) and would be required to send most
of the energy to the PG&E grid with no compensation for the
generation. This would be contrary to the intent of the City
propositions that authorized bond financing, and unfeasible for
voters. As such, the City would likely not develop the solar
facility.
PG&E states that the City can build the facilities using the
voter-approved bonds and the City would be able to participate
in PG&E's Renewable Portfolio Standard (RPS) solicitations or
enter into a bilateral agreement to sell the solar power at
negotiated rates. The City claims that this arrangement is not
what voters intended. They did not vote to finance independent
solar generators to help PG&E meet its RPS, regardless of the
price that PG&E would be willing to pay for the solar energy.
PG&E also suggested that the City could request a separate
arrangement directly with PG&E in order to compensate PG&E for
transporting the power from the solar facility to the QRNL
location over PG&E's distribution system. The City is concerned
that this arrangement would place it in an undesirable
negotiating position because the City needs PG&E to move the
power through the distribution system, and PG&E doesn't have the
same criticality and therefore is in a far superior negotiating
position. The City's municipal locations could be placed at risk
at the expense of the City's voters. If this were the case, the
City would likely refrain from building the solar facilities.
The California Public Utilities Commission (PUC) regulates PG&E
and requires that PG&E be compensated for any system impact
costs. The committee may wish to amend the bill to require PG&E
to distribute City-owned power to City-designated QRNL sites.
Include directives that there shall be no cost shifts to PG&E
bundled-service ratepayers as a result of engaging in this
arrangement. The committee may wish to clarify that the City,
and not PG&E ratepayers, will pay for all reports and system
impacts of interconnection and reliable delivery of electricity
from the solar generation sites to facilities designated as
QRNL. In the determination of costs, the committee may wish to
employ established PUC decisions for evaluating system impacts.
REGISTERED SUPPORT / OPPOSITION :
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Support
California League of Cities
California Solar Energy Industries Association (CALSEIA)
Clean Power Campaign
Environment California
Planning and Conservation League
PV Manufacturers Alliance (PVMA)
PV Now
San Francisco Public Utilities Commission (SFPUC) (sponsor)
Vote Solar
Opposition
Pacific Gas & Electric Company (PG&E)
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083