BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2165 - Hill Hearing Date:
June 11, 2012 A
As Amended: May 7, 2012 FISCAL B
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DESCRIPTION
Current law requires the state's investor-owned utilities (IOUs),
publicly owned utilities (POUs) (except the Los Angeles Department
of Water and Power), and other entities offering retail electric
service, to credit all electricity generated by a customer-owned
renewable electric generation facility against the customer's
usage of electricity sold by the utility, on a kilowatt hour basis
(kWh), a procedure known as "net energy metering" (NEM).
Participation by all utilities is capped at five percent of each
utility's aggregate peak electricity demand and the size of
individual renewable electric generation facilities is limited to
those that will offset all or part of the customer's own
electrical requirements to a maximum of one megawatt (MW). This
program also exempts the customer from paying transmission and
distribution costs. This is commonly referred to as full retail
NEM.
Current law requires the state's IOUs to credit all electricity
generated by customer-owned fuel cells against the customer's
usage of electricity sold by the utility, on a kWh basis, a
procedure known as fuel cell NEM. The customer credit is based
only on the electricity generated and does not include
non-generation costs such as transmission, distribution, and
public purpose charges. Eligible fuel cells can be powered by
renewable or fossil-fuel, are sized MW or less, and must at least
meet the emissions standards of combined heat and power systems.
Current law requires large IOUs (Pacific Gas & Electric & Southern
California Edison) to offer the fuel cell NEM to its fuel cell
customer generators until the cumulative capacity of all installed
fuel cells reaches 45 MWs within each service territory. Smaller
IOUs (SDG&E and others) are subject to a cap of 22.5 MWs within
each service territory. All interconnections are subject to a
statewide cap of 112.5 MWs.
This bill eliminates the utility-territory and statewide MW caps
and instead requires all IOUs, regardless of size, to offer the
fuel cell NEM tariff to customers until the IOU has interconnected
fuel cells with generation equal to one percent of the IOU's
aggregate customer peak demand. The California Public Utilities
Commission (CPUC) would be allowed to expand the cap beyond 1% at
any time.
BACKGROUND
What is a Fuel Cell? - A fuel cell is an electrochemical device
that combines hydrogen and oxygen to produce electricity, with
water and heat as its by-product. As long as fuel is supplied, the
fuel cell will continue to generate power. Since the conversion of
the fuel to energy takes place via an electrochemical process, not
combustion, the process is clean, quiet and highly efficient - two
to three times more efficient than fuel burning.
The Issues of Net Metering - Utility customers that generate power
from a renewable facility are eligible for full retail NEM under
which the electricity purchases of the customer are netted against
the electricity generated by the customer's own renewable electric
facility. When the sun is shining or the wind is blowing, for
example, the generated electricity spins the meter backward,
making it financially equivalent to using less electricity for the
customer with the same effect as the electric utility paying the
customer the full retail price for the electricity. When the sun
stops shining and the wind stops blowing, the customer draws
electricity from the grid and their meter spins forward using the
credit on the meter. In theory, depending on weather patterns,
system size and customer behavior, the customer will have a zero
energy bill at the end of a 12-month cycle.
Although all renewable resources sized up to one MW which offset a
customer's load are eligible for full retail NEM, most of the
facilities are solar photovoltaic (PV). Fuel cells are eligible
for full retail NEM if biogas is used to generate the power. If a
fuel cell is powered by natural gas it is eligible for a more
limited NEM program which credits the customer only for the value
of the kilowatt hours at the time the electricity is generated.
Under this program or tariff, the customer pays for transmission
and distribution costs as well as public purpose programs.
The impacts of net energy metering have raised significant
concerns, such as:
At what point does net metering stop looking like energy
efficiency and start looking like a competitor who sells
higher priced electricity than could be found elsewhere?
Will other customers have to pay for these higher rates
and is that fair?
If net metering is adopted by a significant percentage of
customers in the future, how will the utility continue to
cover fixed costs as revenues decline?
Is the utility providing a storage service with the
electric grid, for which the costs aren't being compensated?
Can renewable energy be acquired elsewhere at lower costs
than through net metering?
At the same time, net energy metering can potentially provide
utility, social and generator benefits, such as:
Reduction of air emissions (social)
Lower costs of energy during some peak time periods
(utility)
Some peak capacity benefits (utility)
Avoiding transmission and distribution losses (utility)
Avoiding the need for batteries (generator)
Getting paid more for renewable electricity than wholesale
rates (generator)
These issues continue to be discussed but there are few definitive
answers and many opinions.
NEM Cost Shift - In March, 2010 the CPUC issued a report which
analyzed the cost of full retail NEM to non-NEM ratepayers. At
that point, based on 386 megawatts of installed rooftop solar, the
cost to non-NEM ratepayers was estimated at $20 million per year.
Installed rooftop solar is now over 1,200 MW so that cost has now
at least tripled. Although the total net cost of the NEM at that
point was less than one-tenth of one percent of total utility
revenue average net cost, the more telling cost that was reported
was that full retail NEM amounted to a cost-shift of $0.12 per
(kWh) to non-NEM ratepayers.
The CPUC has initiated a new study to examine the costs and
benefits of full retail NEM and the impacts of the program for
nonparticipating customers. The study will examine the costs and
benefits by utility, customer class, and income group and to
consider possible revisions to NEM and evaluate alternatives.
COMMENTS
1. Author's Purpose . California's fuel cell NEM program has
attracted new, innovative technologies to develop their
industry in the state. California-based fuel cell companies
are counting on fuel cell NEM to encourage customers to adopt
fuel cells and thereby expand in-state manufacturing. Raising
the cap will help customers finance the purchase of these
technologies.
2. Cost-Shifting ? The program in this bill is intended to
avoid cost-shifting to other customers by only crediting the
fuel cell NEM customer for the time of delivery value of the
excess generation associated with the fuel cell, not
transmission, distribution and public purpose program
charges. However, the CPUC reports that "raising the NEM cap
for non-renewable fuel cells may significantly increase
costs" to non-participating ratepayers.
The CPUC further reports that its "cost-effectiveness study
of the full-retail NEM program in March 2010, found that the
net cost to ratepayers in 2008 (for all NEM systems
interconnected as of 2008) was $20 million/year. The
installation of fuel cells under the generation-only NEM
tariff may represent a lower marginal cost to ratepayers than
the full-retail NEM program - since bill credits at the
generation-only rate do not include the cost for use of the
transmission and distribution system, the costs for public
purpose programs, and other bundled costs, whereas bill
credits under full-retail NEM include all bundled costs.
However, even at the generation-only rate, interconnection
costs and the administrative expenses of implementing NEM are
subsidized by ratepayers under both NEM tariffs."
Consequently, "this bill would likely substantially raise the
NEM cap for non-renewable fuel cells, which could
significantly raise the total costs incurred by non-NEM
ratepayers."
In March 2012, the CPUC issued a request for proposals for an
update to the 2010 NEM Cost-Benefit Study. The CPUC reports
that "the findings of this study will better inform the
appropriate cap for fuel cells participating under �the fuel
cell NEM] by: a) Incorporating a significant amount of new
data; b) Studying the impacts of new technologies eligible
under NEM?; and c) Including the ratepayer impacts from NEM
fuel cells that receive generation-only credit.
With the initiation of that study, the CPUC has acted to
suspend full retail NEM on January 1, 2015 pending revisions
to the program in response to the study. To ensure that
these impacts are also considered for the fuel cell NEM, and
to ensure consistent policy review of NEM for all
technologies and fuel sources, the committee may wish to
consider adding a sunset clause to this bill to coincide with
the full retail NEM program for January 1, 2015 so that the
reviews of both programs are accomplished simultaneously and
ensure that there is full awareness of the economic impacts
of any policy choices on all classes of ratepayers.
In the alternative, the committee could amend the bill to
forgo a sunset and remove all caps to the fuel cell NEM
conditioned on the requirement that the costs of the tariff
do not affect non-fuel cell NEM customers, thus ensuring,
that the fuel cell customer pays all other costs associated
with its load on the grid.
3. What is Aggregate Peak Demand ? The phrase has been used
for 14 years and has had no definition by the CPUC but was
left to the utilities. Aggregate peak demand is the basis
for the calculation of the full retail NEM for renewable
facilities and has been incorporated in this bill in lieu of
an installed capacity cap. Recently the CPUC decided to
define the phrase "aggregate peak demand" which resulted in a
significant and controversial expansion of the full retail
NEM program. The action was contrary to legislative history.
Even parties to the proceeding which argued for the new math
and expansion of the full retail NEM cap admitted that the
calculation was not technically possible until the full
installation of Smart Meters which will not be accomplished
in the largest IOU territories until the end of this year at
the earliest.
In its comments on this bill, the CPUC urges the use of an
installed megawatt program cap instead of a percent of peak
demand. The current statutory cap is 112.5 megawatts. The
CPUC opines that PG&E will be the first IOU to hit its
portion of the cap (45 MWs) and "likely will not do so for
another 2-3 years." The remaining utilities have very low
fuel cell penetration levels and plenty of room for growth
within the current cap. The affected industries argue that
they anticipate a 30% annual growth rate in the coming years
necessitating an expansion of the cap particularly in the
PG&E service territory.
To avoid controversy in the future associated with the
definition of peak aggregate demand, the committee may wish
to consider utilizing an installed capacity cap of 200 MW
based on the ratio of the utility's peak demand compared to
the total statewide peak demand. This cap would provide the
capacity necessary to sustain the program through the January
1, 2015 sunset recommended above in the previous comment.
It should be noted that to date, according to industry
representatives, the installed capacity of renewable and
non-renewable capacity is at 40 MWs statewide.
4. Baseload Generation & NEM . The unique characteristic of
wind and solar, which are the primary beneficiaries of the
full retail NEM tariff, is the intermittency of the
electrical generation. Other renewables such as biomass and
biogas digesters can run to coincide with the customer's
electrical load. In doing so, the customer is able to avoid
using the electrical grid and incurring transmission and
distribution costs while running the generator. Consequently,
the need for full retail NEM is not the same as it is for
solar and wind.
However, the author and supporters of this bill argue that
although fuel cells do provide baseload generation, the
facilities are not dispatchable and lack ramping capability.
Consequently, they run the generation full-time and when the
load of the facility drops, such as in the night, the surplus
electricity goes back to the grid. The fuel cell NEM program
allows that generation to accumulate to the customer's credit
to that the customer can utility that credit during business
hours when the fuel cell is offsetting load but the customer
is also pulling generation from the grid.
5. Disparate Treatment . The mandates of this program only
apply to the IOUs. There are no comparable requirements on
POUs which may create barriers to growth of the industry and
use of the technologies in very significant portions of the
state since the POUs serve as much as 23% of the electric
load in California.
ASSEMBLY VOTES
Assembly Floor (52-18)
Assembly Appropriations Committee (11-5)
Assembly Utilities and Commerce Committee
(10-1)
POSITIONS
Sponsor:
Author
Support:
Bloom Energy
California Hydrogen Business Council
California Public Utilities Commission, if amended
Clean Power Campaign, if amended
ClearEdge Power
Environmental Defense Fund
Fuel Cell Hydrogen and Energy Association
FuelCell Energy, Inc.
National Fuel Cell Research Center
Silicon Valley Leadership Group
TechNet
United Technologies Corporation
Oppose:
Division of Ratepayer Advocates, unless amended
San Diego Gas & Electric Company
Southern California Edison
Kellie Smith
AB 2165 Analysis
Hearing Date: June 11, 2012