BILL ANALYSIS �
AB 2514
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ASSEMBLY THIRD READING
AB 2514 (Bradford)
As Amended May 1, 2012
Majority vote
UTILITIES & COMMERCE 11-0
APPROPRIATIONS 17-0
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|Ayes:|Bradford, Buchanan, |Ayes:|Fuentes, Harkey, |
| |Fuentes, | |Blumenfield, Bradford, |
| |Bonnie Lowenthal, Gorell, | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Gatto, |
| |Roger Hern�ndez, Knight, | |Ammiano, Hill, Lara, |
| |Ma, Nestande, Swanson, | |Mitchell, Nielsen, Norby, |
| |Valadao | |Solorio, Wagner |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Requires the California Public Utilities Commission
(PUC) to complete a study on the cost of net energy metering
(NEM) to ratepayers. Specifically, this bill :
1)Requires PUC to complete a study by June 30, 2013, to
determine the extent to which each class of ratepayers and
each region of the state receiving service under the net
energy metering tariff is paying the full cost of the services
provided to them by the investor owned utilities.
2)Requires PUC to report on the extent to which customers
receiving net metering pay their share of the costs of public
purpose programs, and the benefits of net energy metering.
3)Requires the commission to report the results of the study to
the Legislature within 30 days of its completion.
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 utility's
aggregated peak electricity demand.
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2)Requires payment for excess electricity generation to be
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 customers from payment of some
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 : PUC is in the process of awarding a contract
for an NEM cost/benefit study, has allocated up to $250,000 for
this purpose, and anticipates that this study will be well along
by the time this bill would become effective. PUC indicates,
however, that the pending study does not include all of the
parameters specified in this bill-specifically evaluating the
costs and benefits by region and performing the analysis using
specific definitions of peak demand and generation capacity.
Therefore, a subsequent study based on this bill will entail
additional one-time special fund costs, potentially in the range
of $100,000.
COMMENTS :
Statement of Need . Net metering is a popular program that has
helped build an active solar photovoltaic industry in
California. When net metering was first authorized by the
Legislature 14 years ago, we recognized that net metering had
costs associated with it but that those costs were worth it
because we would be bringing jobs, economic opportunity, and
ratepayer benefits through this policy. Clearly a lot has
changed. Photovoltaic (PV) modules are selling below $1 per
watt, installed costs have dropped to historic lows, the
California Solar Initiative (CSI) is on track to meet its goals
by 2016, and utility solar generation contracts are coming in at
less than nine cents per kilowatthour while some NEM customers
are getting more than four times that amount. It is time to
take a look at where we are and see if there is a way to make
sure that NEM can be a sustainable program. Some suggest the
best answer is to make it a generation-only rate, others suggest
full retail and nothing else, and there are variations in
between. With so much progress, it is logical to consider
reforming NEM subsidies. But to understand how to reform NEM it
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is important to understand the costs and benefits of NEM. Until
then, changing NEM, raising project size caps and total capacity
caps and adding charges cannot be done without risking ratepayer
backlash because of the cost or stymieing the growth of this
in-state industry.
Background . 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 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 NEM credits. The demand charges
may be assessed during periods when the renewable project is
operating, thereby offsetting these charges.
NEM is available to all utility customers, including
residential, commercial, industrial, agricultural, and
government.
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NEM customers are not 'off the grid.' They are connected to the
utility services and use utility services at any time the
on-site generation facility is not operating. For customers
with solar generation, these will be nighttime, during inclement
weather, or when the generation facility is out of service.
Fixed costs and variable costs . PUC determines the rates to be
assessed all customers served by investor owned utilities (IOU).
These rates include fixed and variable costs. Fixed charges
include public purpose programs, transmission and distribution
services, funding for PUC and CAISO, local utility user taxes,
low income subsidy programs, and other charges. The extent to
which a NEM customer has avoided fixed costs of utility
services, while still using utility services means that those
costs must be shifted to another ratepayer.
Fixed costs are applied as a volumetric charge assessed on each
kilowatthour of energy used by the customer. With NEM, the
customer is billed for net kilowatthour usage, that is, those
kilowatthours provided by the utility after deducting excess
kilowatthours generated by the customer. This reduces the fixed
charges that would have otherwise been paid for by NEM
customers.
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.
The expected cost-shift to other ratepayers is not currently
quantified for all ratepayers . The most recent study by 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 20 years." Since then, the total MWs
interconnected has more than tripled and electricity rates have
changed. PUC study did not estimate cost differences between
different classes of customers, i.e., commercial and residential
customers, nor did it quantify the cost of interconnection
inspections.
While this bill does not apply to the Publicly Owned Utilities
(POUs), it is useful to point out that no study of cost shifting
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has been done for POU's. Note that NEM statute applies to every
POU except Los Angeles Department of Water Power (LADWP).
Quantifying the benefits . Since the last PUC NEM study, PUC has
also done extensive research on distributed generation (for both
the Feed in Tariff and Reverse Auction programs). Two recent
studies show that location and local electricity demand are,
among other things, important considerations as to whether a
self-generation facility benefits other ratepayers. The studies
also show potential cost impacts as well. PUC should include
this kind of data and analysis in this NEM study.
PUC has also identified other benefits of self-generation,
including displacement of electricity demand during periods of
peak electricity demand, when cost of electricity is typically
highest. Most people think of peak demand in the summer, when
reliance on air conditioning is at its highest. Peak demand is
not uniform throughout the state and in some areas, peak demand
occurs in the winter. For example, a study by the California
Energy Commission (CEC) found that the Alameda Power (a POU
located near Berkeley) is a winter-peaking utility, when cost of
electricity is typically low. Some regions served by IOUs may
also have winter peaks. Summing all of NEM generation and
assigning a value that is based on summer peak electricity
pricing may not be providing an accurate assessment of costs and
benefits. PUC maintains an extensive database on the
performance and location of solar projects receiving solar
rebates. This database can provide meaningful information that
can be disaggregated regionally to help provide insights into
where most projects are being placed and whether those locations
are in areas that PUC's studies on distributed generation (DG)
have identified as being valuable to the grid.
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
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will be limited to a confined area. On weekends, electricity
demand is typically substantially lower than on weekdays, so
that extra electricity may have little or no value. In any
case, PUC should quantify the extent to which excess electricity
from a NEM customer is reducing cost of electricity that would
otherwise be purchased by the utility to provide to both non-NEM
and NEM customers.
NEM Capacity Cap . 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 allow more capacity to be installed under the current
cap. Their proposal would more than double the subsidy. In
2010 the Legislature approved AB 510 (Skinner), Chapter 6,
Statutes 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 purpose of the cap was to ensure that
there are limits on the amount of cost-shifting to non-NEM
customers.
In evaluating program costs and benefits for purposes of the
study, the bill requires PUC to use 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 CEC-AC rating. (Both of these values are
generally accepted by utility and renewable energy industries
and are publicly available.)
The current PUC action to double the allowed capacity under the
current cap does not comport with the Legislature's consistent
interest in controlling the costs for NEM. The appropriate
method for adjusting the capacity would have been to seek
Legislative approval. The current capacity of installed and
pending solar projects is substantially below the current cap,
thus there is no pressing urgency for raising the cap
administratively without Legislative consideration.
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083
FN: 0003933
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