BILL ANALYSIS �
AB 2234
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Date of Hearing: April 16, 2012
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2234 (Hill) - As Amended: February 24, 2012
SUBJECT : Electricity net energy metering.
SUMMARY : This bill raises the maximum size of renewable energy
projects eligible for net metering for public agency utility
customers. Specifically, this bill :
1)Raises the current project cap for net metering from 1
Megawatt (MW) to 5 MW for new and existing renewable energy
projects.
2)Limits the 5 MW maximum project size cap for projects located
on premises that are owned, leased, or rented by a public
agency.
3)Specifies that a public agency is the state, any agency,
board, commission, council, department, or other entity of
state government, the California Community Colleges, and each
district, campus, branch, and function thereof, the California
State University, and each campus, branch, and function
thereof, the University of California, and each campus,
branch, and function thereof, any county, any city, any city
and county, any regional agency, any district or special
district, any school district, and each campus, branch, and
function thereof, and any other political subdivision or
corporation of the state.
4)Applies to projects located within the service areas of
investor owned utilities and publicly owned utilities, except
Los Angeles Department of Water and Power (LADWP).
EXISTING LAW
1)Requires nearly every utility in California to provide a net
metering rate to customers connecting renewable energy
projects to utility service equipment until the total
renewable capacity equals no more than 5% of each utilities'
aggregated peak electricity demand.
2)Requires payment for excess electricity generation to be
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credited to the customer's utility account at the retail rate
of electricity based on the customer's applicable tariff.
3)Exempts net metered utility customer from paying most of
otherwise nonbypassable utility service charges.
4)Requires nearly every utility in California to provide a
connection to the electricity grid within 30 business days.
FISCAL EFFECT : Unknown
COMMENTS :
1)According to the author, "The goal of this bill is to save
taxpayer dollars during these difficult budget times through
reduced utility bills. Public agencies that have already taken
advantage of Net Energy Metering (NEM) are likely to save $2.5
billion in taxpayer dollars over the 30 year life of the solar
installation. AB 2234 will apply to new and existing renewable
energy installations and will lead to even greater savings for
taxpayers."
2)Backgroun d. Under net-metering, the electric utility is
required to "buy back" all electricity generated by a
customer-owned generator that is not consumed by the customer
on-site. The price is set by the applicable retail rate under
the customer's existing contract. When the customer generates
electricity, he/she uses most of it for his or her own
facility. At the end of each 12-month NEM period, the
electric corporation calculates the amount of electricity
distributed to the grid by the customer and reduces the
customer's annual bill by the amount of electricity generated
by the customer. If the customer consumes more electricity
than their facility generates the utility calculates a bill
based on the net consumption of utility delivered
kilowatthours.
This NEM statute allows the credit at the customer's retail
price - a price that is much higher than the generation costs
because the retail price includes non-generation charges,
including but not limited to transmission and distribution
service, the California Rates for Energy (CARE) subsidy,
public good charges, and service charges for billing and
customer service (Note that transmission and distribution
service charges include, among other things funding for the
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California Public Utilities Commission (PUC) and California
Independent System Operator (CAISO), and utility return on
investment). If the customer-generator is being paid the
retail price, the non-generation costs are shifted to the
utilities' other ratepayers. There is another NEM statute for
Fuel Cell projects that provides a similar credit based on the
generation only rate. The Fuel Cell NEM customers using this
statute pay their service charges and there is no cost shift
to other ratepayers). Some commercial customers, but not all,
will pay demand charges, irrespective of the NEM credits. The
demand charges may be assessed during periods when the
renewable project is operating, thereby offsetting these
charges.
For systems owned by third-party developers, customers will
also pay for on-site generation of the renewable electricity.
The rate that the customer pays is set by the developer. This
rate can range, initially, from 10 cents per kilowatthour to
more than 20 cents per kilowatthour. In addition, it is
typical for the developer to escalate the rate to be paid by
3% to 5% annually over the term of the contract. This is
commonly referred to by developers as 'monetizing net
metering.' By calculating the customer's utility bill NEM
credits and charging the customer for the solar generation in
a manner that results in an initial 10% to 20% discount off of
the customer's pre-NEM electricity bill the developer can
charge customers for the value of NEM. Leased systems are
similarly priced, except that the payment is typically in the
form of a flat monthly fee over the term of the contract. The
Lease contract may or may not include an annual payment
escalation. The contract may or may not allow purchase of the
solar facility at the end of the contract. The contract may or
may not specify the purchase price for the solar facility.
These contracts are based on today's electricity rates and
rate structures and it is not clear how economic assumptions
used to enter into the contract will be impacted by utility
rates and rate design changes over the life of the contract.
Developers cannot guarantee that rates or rate structures over
the next 20 years will be the same as they are when the
contract was signed. One developer claims "the PPA (power
purchase agreement) provides long-term certainty against a
volatile utility market and rising energy bills, which is
critical as energy prices can rise by as much as 10 to 20% in
a given year." The PUC reported to this committee in March
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2012 that IOU electricity rates have roughly tracked inflation
since 2003.
According to the National Renewable Energy Laboratory of the
Department of Energy the third-party contracts may or may not
result in a net billing reduction to the utility customer.
It is also typical for the developer to take ownership of the
environmental attributes, such as Renewable Energy Certificate
(RECs) or Greenhouse Gas Compliance (GHG) credits. The value
of the RECs and GHG credits can be sold by the developer. It
is also typical for the developer to retain all in-state
incentives (such as the utility rebate programs, federal tax
credits, and federal depreciation). The state property tax
exclusion also applies to these projects, although site owners
may be required to pay property taxes if the project is resold
a second time after the developer's initial sale of the
project to investors.
The developer may also establish credit requirements for
subsequent owners of the premises and may sell the project
without restriction to investors, which may present a problem
if a project is placed on premises that are leased by the
state.
For projects that are owned and operated by the facility, the
value of NEM would be retained by the site owner and the
project will have different economics. The site owner would
also retain ownership of the environmental attributes.
In addition to this subsidy by non-NEM customers, non-NEM
customers also pay for the cost of utility safety inspections
and any electricity distribution upgrades that may be
necessary to ensure safety and reliability because of the
total generation added to the distribution system.
For wholesale generation contracts, the PUC has established
standard terms and conditions and reviews and approves the
contract.
3)The expected cost-shift to other ratepayers is not quantified .
The most recent study by the PUC, published in 2010, estimated
that "PV generation on NEM tariffs (386 megawatts (MW)
installed through 2008) will result in a net present value
cost to ratepayers of approximately $230 million over the next
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20 years." Since then, the total MWs interconnected has more
than tripled and electricity rates have changed. The PUC study
did not estimate cost difference between different classes of
customers, i.e., commercial and residential customers.
No similar study of cost shifting has been done for Publicly
Owned Utilities (POUs). But it is important to recognize that
the NEM statute applies to every POU except LADWP.
According to the General Manager of Plumas Sierra Rural
Electric Cooperative (PSREC), "Our entire load is an average
of 25 MW. If PSREC allowed a 5 MW net metered project, the
cooperative would not be able to collect the fixed costs of
the utility, forcing either a massive rate increase in our low
income region or bankruptcy of the cooperative. Furthermore,
we have nearly reached our 5% maximum capacity cap; therefore
a project of this size could not be net metered, irrespective
of this bill."
Plumas Sierra serves a state prison facility where one of the
state-facility 5 MW projects is proposed. If the project moves
forward, the state will be required to pay monthly electric
service charges to the co-op to avoid adversely impacting the
utility. The state will also pay the solar developer for the
electricity produced by the project. It is not clear if any
bill savings will accrue to the state because the terms and
conditions of these contracts are not typically made publicly
available.
4)What about the overall maximum capacity cap ? The current
statute established a cap on the maximum total capacity of NEM
generation the utilities are required to interconnect. The
purpose of this cap is to limit the amount of subsidy that
non-NEM customers are expected to pay for the benefits of
on-site renewable generation. The cap is currently set at 5%
of the utility's aggregated peak demand. If the maximum per
project size cap is raised to 5 MW it is more than likely that
the overall maximum total capacity cap will be reached sooner
and the growth of the industry would be jeopardized by
uncertainty about whether utilities will continue to offer NEM
to their customers.
The PUC is currently considering revising the method that has
been used to calculate the cap. Solar industry organizations
have asked that the method to calculate the cap be revised to
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allow more capacity to be installed under the current cap.
Their proposal would more than double the subsidy. In 2009 the
Legislature approved AB 510 Skinner, Chapter 6, Statues of
2010, which raised the maximum NEM cap to 5% so that all of
the projects authorized by SB 1 Murray, Chapter 132, Statutes
of 2006, to receive ratepayer-funded incentives can also
receive NEM. The author may wish to clarify that the NEM cap
shall be calculated in the following manner to ensure that the
NEM subsidy does not increase beyond its current levels and
that all electric utilities are calculating the cap
consistently by using the peak demand reported in the
utility's Form 1 filing with the Federal Energy Regulatory
Commission (FERC) and the sum of the individual NEM customer
capacity is based on the CEC-AC rating. (Both of these values
are generally accepted by utility and renewable energy
industries and are publicly available.)
5)Are NEM kilowatthours worth more than non-NEM kilowatthours if
both are generated from the same renewable fuel source? The
PUC has implemented several programs to support projects in
the size of 1MW to 20 MW. These programs are reporting cost of
generation no higher than 8 cents per kilowatthour and the
developers are responsible for interconnection costs. And if
the ratepayers can get renewable generation for 8 cents per
kilowatthour it isn't clear why ratepayers should pay more
than that through another program.
It is not clear why these large projects cannot use other
existing programs available to large renewable project
developers, including but not limited to: annual Renewable
Portfolio Standards (RPS) solicitations, the Renewable Auction
Mechanism, the Feed in Tariffs, the utility
Photovoltaic-specific procurement programs offered by Southern
California Edison and Pacific Gas & Electric.
6)Is a NEM-kilowatt hour worth more because of other benefits ?
One argument for higher pricing relates to the location of the
project offsetting transmission and distribution costs. While
this certainly may be true in some locations in California, it
is not something that can be universally true everywhere in
California. According to the PUC's preliminary assessment of
distributed photovoltaic (PV) generation, "changes in PV
output that are faster than the adjustment time of utility
equipment available to control voltage may still cause some
voltage problems. Controlling distribution voltage on circuits
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with a high penetration of PV is an area of significant
ongoing research."
The current NEM interconnection agreement does not require
studies to ensure reliability if the project is 1 MW or less.
If the NEM cap is raised to 5 MW the author may wish to
consider adding a requirement for an interconnection study to
ensure that the project does not create reliability problems
for other customers of the utility .
7)Can the electrons flow out from one project and provide
electricity to another customer? NEM projects are equipped
with bi-directional meters that count the flow of
kilowatthours to and from a utility customer. With respect to
where electricity that flows 'back to the grid,' there is no
way to know where that electricity was discharged. It cannot
be said with certainty that the power flowed to the neighbor
because one cannot say whether the neighbor was drawing any
power at the moment the electricity became available. In any
case, the transformers and substations are not bi-directional
so any electricity that flows onto the grid from a
customer-generator will be limited to a confined area. For
facilities, like schools that are closed on weekends,
substantial amounts of electricity could flow to the local
distribution grid. On weekends, electricity demand is
typically substantially lower than on weekdays, so that extra
electricity may have little or no value to the neighbors. In
any case, more data is needed to support claims that the
excess electrons are delivered to neighbors or any other
utility customer.
Importantly, because utilities are obliged to provide
electricity 24/7/365, they cannot count on the electricity
from NEM projects because the NEM projects cannot schedule
when the excess electricity will be available for other
utility customers. The IOUs must purchase electricity in
amounts and types required by the PUC from wholesale
generators and must pay for electricity from NEM customers.
All of which must be charged to the ratepayers. Similarly,
POUs contract for power as directed by their Governing Boards.
8)Quantifying the tax savings. While there may be some savings
attributable to the utility bill reductions, the actual net
savings are highly dependent on the structure of the
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acquisition, specifically lease versus owned systems. But
associated with those bill reductions are also potential tax
revenue losses, particularly if these projects are located in
any of the more than 140 cities that assess Utility User
Taxes. According to the State Controller these taxes are paid
to the City General Fund. This tax is based on the customer
utility bill. Because the effect of NEM is to reduce the
customer utility bill, cities would not receive revenues they
may have otherwise been entitled to. The effect of the state
and local tax savings and losses due to NEM has not been
quantified.
9)Getting to a sustaining renewable market. Developers argue
that the uncertainty over the NEM cap adversely impacts the
growth of the market for solar (also true for other types of
renewable generation). They argue that the 1 MW size limit is
a barrier to developing larger NEM projects that will create
jobs in California.
Reforming NEM or addressing other barriers to developing a
sustaining market in a manner that does not create an
unreasonable burden on utility customers is needed.
10)The author might wish to consider the following amendments:
a) Specify that net metered customer must pay volumetric
service charges, interconnection inspections, distribution
upgrades, and local utility user taxes as applicable.
b) Require the PUC to establish a cap on the amount
customers should be required to pay for electricity
generated from a privately owned project; cap the rate at
which payments for electricity generated can increase to no
more than the rate increases allowed by the PUC; review the
terms and conditions of the privately owned contracts as is
currently done by the PUC for wholesale generation
contracts.
c) Clarify that the NEM cap shall be calculated in the
following manner to ensure that the NEM subsidy does not
increase beyond its current levels and that all electric
utilities are calculating the cap consistently by using the
peak demand reported in the utility's Form 1 filing with
the Federal Energy Regulatory Commission (FERC) and the sum
of the individual NEM customer capacity is based on the
CEC-AC rating
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REGISTERED SUPPORT / OPPOSITION :
Support
Coalition for Adequate School Housing
Environment California
Environment California
Environmental Defense
Rancho California Water District
Rancho California Water District (RCWD/District)
School Energy Coalition
School Energy Coalition (SEC)
Solar Energy Industries Association (SEIA)
SolarCity
Solaria
Solaria
SunEdison
Sunrun
United States Air Force
United States Army
United States Coast Guard
United States Navy
Vote Solar
Opposition
Bear Valley Electric Service (BVES) (unless amended)
California Association of Small Multi-jurisdictional Utilities
(CASMU) (unless amended)
California Municiple Utilities Association (CMUA)
California Pacific Electric Company, LLC (CalPeco) (unless
amended)
California State Association of Electrical Workers (CSAEW)
Coalition of California Utility Employees (CCUE)
Pacific Gas and Electric (PG&E)
Pacific Power (unless amended)
San Diego Gas & Electric (SDG&E)
Southern California Edison (SCE)
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083
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