BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2514 - Bradford Hearing Date:
July 3, 2012 A
As Amended: June 25, 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 decisions of the California Public Utilities Commission
(CPUC) define aggregate peak electricity demand, for purposes of
calculating the NEM cap, as the highest sum of all customers'
non-coincident peak demands that occurs in any calendar year.
This bill requires the CPUC to complete a study that evaluates the
full costs of the NEM program and consider all electricity
generated by renewable electric generating systems, including the
electricity used onsite to reduce customers consumption of
electricity that otherwise would be supplied through the
electrical grid, as well as the electrical output that is being
fed back to the electrical grid for which the customer receives
credit or net surplus electricity compensation under net energy
metering. The study would be due by June 30, 2013.
Current law permits utility customers to utilize wind energy
co-metering.
This bill clarifies the program to clearly permit the use of
advanced metering infrastructure devices.
BACKGROUND
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 MW 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.
New Math - Aggregate peak demand is the basis for the calculation
of the full retail NEM for renewable facilities. The phrase has
been in statute for 14 years and was not defined by the CPUC but
was left to the utilities. 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 conjunction with its expansion of the NEM cap, the CPUC ordered
a study to examine the costs and benefits of full retail NEM and
the impacts of the program for nonparticipating customers. The
study will form the basis of the CPUC's future policy for the NEM
program and is intended to provide full awareness of the economic
impacts of any policy choices on all classes of ratepayers. The
study is due October 13, 2013. The commission also directed the
IOUs to:
Suspend the NEM program for new customer-generators at the
end of calendar year 2014, pending the issuance of new rules
in a rulemaking proceeding to be undertaken in the wake of
the study. This temporary suspension of the NEM program for
new customers, effective January 1, 2015, will remain in
effect until such new rules are issued. If new rules are
issued by December 31, 2014, then no suspension of the
program need occur.
COMMENTS
1. Author's Purpose . The author reports that California has
experienced tremendous growth in NEM because of a combination
of state and federal financial incentives, new financing
mechanisms, customer acceptance of new energy technologies,
and declining costs. As NEM participation grows, a declining
number of customers pay for the cost of utility service. The
CPUC issued a report in 2010 based on 2008 NEM data. Some
costs of NEM were not included in the study, specifically
interconnection costs. In addition, since this report was
issued the capacity of NEM projects has tripled and
electricity rates have changed. AB 2514 requires the CPUC
to complete a study by June 30, 2013, to determine the extent
to which each class of ratepayers receiving service under the
NEM tariff is paying the full cost of the services and the
extent to which those customers pay their share of the costs
of public purpose programs.
2. Duplication of Effort ? As part of its May 24th decision
to increase the NEM cap, the CPUC did direct staff to
commission an updated NEM cost-effectiveness study which is
also what the author intends by this bill. However, although
both studies are aligned in the broader purpose, each study
has unique features starting with different due dates. The
studies can be blended to ensure that the priorities
identified by the CPUC and the priorities identified by the
author are both addressed in the same context. Consequently,
the committee may wish to consider amending this bill to
extend the due date for the study to October 13, 2013 as
intended by the CPUC, and also adding the CPUC's study
parameters to this bill.
3. Study Parameters or Something More ? Some parties have
questioned the purpose and impact of language in the bill
related to the methodology of the NEM cap which is a separate
issue from the cost-effectiveness of the NEM study. In order
to ensure that the parameters of the study are clear, the
committee may wish to consider striking this provision since
its inclusion has distracted and confused the study purpose.
4. Summary of Amendments . Should the amendments referenced
in comments 2 and 3, the study provision in PUC Section
2827.1 (a) would read as follows:
By June 30, 2013 October 13, 2013 , the commission shall
complete a study to determine who benefits, and who
bears the economic burden, if any, of the net energy
metering program authorized pursuant to Section 2827,
and the extent to which each class of ratepayers and
each region of the state receiving service under the net
energy metering tariff authorized pursuant to Section
2827 program is paying the full cost of the services
provided to them by electrical corporations, the extent
to which those customers pay their share of the costs of
public purpose programs , and the benefits of net energy
metering . In evaluating program costs and benefits for
purposes of the study, the commission shall consider all
electricity generated by renewable electric generating
systems, including the electricity used onsite to reduce
customers consumption of electricity that otherwise
would be supplied through the electrical grid, as well
as the electrical output that is being fed back to the
electrical grid for which the customer receives credit
or net surplus electricity compensation under net energy
metering. The study shall quantify the costs and
benefits of net energy metering to participants and
non-participants and shall further disaggregate the
results by utility, customer class, and household income
groups within the residential class. The study shall
further gather and present data on the income
distribution of residential net energy metering
participants. In order to assess the costs and benefits
at various levels of net energy metering implementation,
the study shall be conducted using multiple net energy
metering penetration scenarios, including at minimum,
the capacity needed to reach the solar photovoltaic
goals of the California Solar Initiative and the
estimated net energy metering capacity under the five
percent cap as defined by the commission. The
commission shall use the peak demand reported by those
electric utilities filing a Form No. 1 with the Federal
Energy Regulatory Commission to determine aggregate
customer peak demand, and shall use the Energy
Commission's alternating current ratings to determine
the total generating capacity of eligible
customer-generators, for purposes of calculating the
5-percent limitation in paragraphs (1) and (4) of
subdivision (c) of Section 2827.
5. Look Under the Hood . Since the CSI program was adopted by
the Legislature in 2006, the position of rooftop solar in the
marketplace has completely transformed. How much is unknown
but reports of an exploding solar market are many. In 2006
there the solar industry was struggling and there were few
installers and manufacturers. They reported to the
Legislature that the CSI program was necessary to stimulate
the market. "Just give us the CSI; that's all we need and we
won't be back for more."
A short six years later and the solar market is booming and
delivery mechanisms changing. Customers can buy solar systems
outright or pay zero down and lease or purchase the power the
system produces. PV modules are selling below $1 per watt,
installed costs have dropped to historic lows, the CSI is on
track to meet its goals by 2016, and utility solar generation
contracts are coming in at less than nine cents per kilowatt
hour while some NEM customers are getting more than four
times that amount in reduced electric costs.
The critical take-away is that the solar industry is
booming but the programs continue to operate in the same
old way. Does the industry need subsidies from
non-solar ratepayers to sustain itself in the
marketplace? No one has looked under the hood to
consider this question but shouldn't they before
additional subsidies are provided?
In addition to the NEM study, the CPUC has commissioned
a study to evaluate California's customer-side solar
market. The study is broken down into three sections:
1) Third Party Ownership Market Impact Study; 2)
Customer Solar Market Transformation Study; and 3) Solar
Roofing Assessment. The goal of the study is to assess
whether the CSI program has met its goal of transforming
the solar market in California to one that is
self-sustaining. This threshold question should be
answered before or coincident with the NEM study since
it provides a foundation for considering what further
support solar may or may not need from ratepayers in the
future.
ASSEMBLY VOTES
Assembly Floor (55-9)
Assembly Appropriations Committee (17-0)
Assembly Utilities and Commerce Committee
(11-0)
POSITIONS
Sponsor:
San Diego Gas and Electric Company
Support:
AARP
California Asian Pacific Chamber of Commerce
California Black Chamber of Commerce
California Chamber of Commerce
California Hispanic Chambers of Commerce
California Manufacturers & Technology Association
California Public Utilities Commission, if amended
Pacific Gas and Electric Company
PacifiCorp
Southern California Edison
The Greenlining Institute
The Utility Reform Network
Oppose:
Sierra Club California
Solar Energy Industries Association, unless amended
Kellie Smith
AB 2514 Analysis
Hearing Date: July 3, 2012