BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1537 - Kehoe Hearing Date:
April 24, 2012 S
As Amended: April 9, 2012 FISCAL B
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DESCRIPTION
Current law establishes the California Solar Initiative (CSI), a
$3.6 billion program which provides incentives for the
installation of solar photovoltaic (PV) systems for customers of
the state's investor-owned utilities (IOUs) and publicly owned
utilities (POUs).
Current law requires the state's IOUs, 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 energy system 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 5 percent of
each utility's aggregate peak electricity demand and the size of
renewable energy systems is limited to those that will offset all
or part of the customer's own electrical requirements to a maximum
of 1 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 permits NEM customers to roll-over excess kWh beyond
the first 12-month billing cycle or receive compensation at a rate
set by the California Public Utilities Commission (CPUC) for net
surplus generation.
This bill prohibits the CPUC from increasing rates and charges on
NEM customers in an amount greater than other customers in the
rate class that are not NEM customers.
BACKGROUND
Net Energy Metering - The primary benefit of the CSI program is
derived from the solar customer's eligibility for full retail NEM
which is authorized under state law separately from the CSI
program. Utility customers that generate power from renewable
energy systems are eligible for the full retail NEM tariff under
which the electricity purchases of the customer are netted against
the electricity generated by the customer's own renewable electric
system. When the sun is shining or the wind is blowing, 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.
The full retail price of electricity includes the utility's cost
of generating, distributing and transmitting the power, public
goods programs (e.g. energy efficiency), low-income customer
assistance (e.g. CARE), energy crisis costs and other charges not
related to generation. By compensating the renewable energy
customer at the full retail rate, the utility is using ratepayer
funds to pay the renewable energy customer at a rate well above
the value of the generated power, which is about one-third of the
total cost of a typical residential customer's bill. The
renewable energy customer does not pay transmission or
distribution costs even though they are still connected to the
electrical grid and use it for all their generation needs when the
sun isn't shining and the wind isn't blowing (approximately 18
hours a day). Consequently, those unpaid transmission and
distribution costs and public goods charges are a subsidy, the
cost of which is ultimately shifted to all other ratepayers in the
class. All customer classes are eligible for NEM.
Full retail NEM is really the foundation of what made the CSI so
successful. Due to the intermittent nature of solar and the
original costs of installation, at the program's inception rooftop
systems would not pencil out for most customers without the
exemption from transmission and distribution costs provided by
full retail NEM. The program has been known to be a subsidy but
one historically thought worth its value by the Legislature as
part of its effort to stimulate the solar industry and bring down
the costs of solar which has occurred.
NEM Cost Shift - The fundamental effect of NEM is that the
participating customer avoids the costs of transmission,
distribution and public goods charges which fund programs such as
the CARE and energy efficiency. Because those costs are fixed, if
one class of ratepayers is excluded from paying those costs, then
those costs are shifted to the remaining ratepayers. Transmission
and distribution costs typically comprise one-half to two-thirds
of a residential customer's billing.
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 now exceeds 112,000 projects with 1,173 MWs
installed in the IOU territories so that the cost impacts would
have likely tripled since the time of the study. The most telling
impact of that study was that full retail NEM amounted to a cost
of $0.12 per kilowatt hour (kWh) to non-NEM ratepayers.
NEM Cap/New Math - When the Legislature increased the cap on NEM
to 5% of the utility's aggregate customer peak demand in 2009, the
capacity was designed to coincide with the capacity goals of the
CSI and therefore had a form of sunset. However, after 15 years
of using one set formula for the cap calculation, the CPUC has
suddenly decided to consider that maybe it's been using the wrong
math all of this time. The CPUC has issued a proposed decision
using the new math which is estimated to at least double the MWs
of rooftop solar permissible under the cap which is contrary to
Legislative intent.
Network Use Charge - Last fall San Diego Gas & Electric Company
(SDG&E), as part of its general rate case proposed a new rate
element - a Network Use Charge (NUC) - for all customers. The
impact of the NUC would have been to charge customers for their
actual use of the electric distribution grid as power comes in
from the grid and, in the case of solar customers, as power is
exported to the grid. Non-NEM customers are already paying more
than their share of distribution grid charges for power they use;
NEM customers do not. Consequently NEM customers would have been
subject to costs for the power coming and the power going out for
the first time. �Note: Non-residential NEM customers do have
some fixed charges.] Consequently the impacts of the NUC would
have fell on NEM customers.
The CPUC presiding commissioner on the case opined that
"development of such a rate element could affect not only SDG&E
and solar customers, but also PG&E, SCE and other distributed
generation and self-generation customers and needed to be
considered outside of a rate case. The NUC proposal was dismissed
from the rate case.
COMMENTS
1. Author's Purpose . According to the author a recent filing
by investor owned utility, SDG&E, subsidiary of Sempra
Energy, exposed solar producers' vulnerability to drastic
electricity rate restructuring. In SDG&E's filing they
proposed to increases certain charges paid by solar producers
by over 600% while only increasing the same charge to
non-solar producers by 52%. The overall bill impact for a
typical solar producer would be an increase of 40% or more
and only a 6% overall increase to the non-solar producer. The
filing by SDG&E would disproportionately increase costs to
solar producers when compared to non-solar producers. In
recent years, many entities which have gone solar have done
so using financing mechanisms which amortize the cost of
their investments over a period of as much as 25 years. The
savings these entities realize on their electricity bills
often times just barely offset the cost of the financing. By
introducing drastic rate hikes on solar producers such as
those contemplated by SDG&E, many times these entities'
investments will go upside down resulting in a solar producer
having a total monthly cost greater than those who don't have
solar. Among the largest investors in solar technology in the
State of California are school districts, water districts,
and local governments. Drastic electricity rate fluctuations
have the potential to derail this State's renewable energy
goals.
This bill will prohibit an electric utility, on a percentage
basis, from increasing rates and charges for eligible
customer-generators by an amount that is greater than those
applied to customers in the same rate class that are not
eligible customer-generators and require that an electric
utility's rate design be consistent with the policy of the
state to ensure ongoing, sustainable, and robust growth of
distributed customer-generation.
2. 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 4 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?
Competing claims about the costs of NEM and multiple opinions
about whether it is or isn't a subsidy and who is or isn't
benefitting from the subsidy. In its advocacy for a NUC as
part of its general rate case, SDG&E opined that:
the "major power supply transformation that is now
taking place in our state requires a sustainable rate
structure where all customers pay their appropriate
share of infrastructure costs. The current net energy
metering structure can easily result in many
customers who have rooftop solar paying no bill at
all, yet having access to all of the reliability,
storage and access features of the grid. This is a
situation that is not sustainable and requires a
broad set of stakeholders to collaborate on a fair
and effective solution."
3. NEM Fee Freeze Premature . This bill is intended to
forever prohibit any fees or fee increases for NEM customers
that are more than non-NEM customers regardless of what
impacts the commission determines are occurring on the grid
and for other ratepayers. This may or may not be
appropriate. However, until the Legislature and commission
determine the sustainability of solar in the marketplace and
what, if any subsidies are necessary to support the market,
it does not seem wise to freeze rates and charges associated
with NEM. However, an interim solution may be warranted.
Consequently the committee may wish to consider, as an
alternative to the rate and fee freeze provisions of this
bill, a moratorium through 2013 on any new charges until the
future of program subsidies can be fully considered. Or, in
the alternative, should the commission impose new charges on
NEM, exempt any customer with an existing NEM tariff at the
time the charge is imposed.
POSITIONS
Sponsor:
Sullivan Solar
Support:
AEE Solar, Inc.
Mainstream Energy Corp.
REC Solar, Inc.
School Energy Coalition
Oppose:
None on file
Kellie Smith
SB 1537 Analysis
Hearing Date: April 24, 2012