BILL ANALYSIS �
SB 1537
Page 1
Date of Hearing: June 25, 2012
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 1537 (Kehoe) - As Amended: May 1, 2012
SENATE VOTE : 32-6
SUBJECT : Energy: rates: net energy metering.
SUMMARY : This bill prohibits the California Public Utilities
Commission (PUC) from adopting any new charges that only apply
to customers with a net metering tariff until January 1, 2014.
Specifically, this bill :
1)Imposes a moratorium on the PUC from adopting any new demand
charge, standby charge, customer charge, minimum monthly
charge, interconnection charge, or other fixed charge that
applies only to Net Energy Metering (NEM) customers who
receive net metering pursuant to Section 2827 of the Public
Utilities Code.
2)Sunsets this moratorium until January 1, 2014.
EXISTING LAW :
1)Authorizes the California Public Utilities Commission (PUC) to
fix the rates and charges for every public utility and
requires those rates and charges to be just and reasonable.
(451 Public Utilities Code)
2)Requires inclining block rates (known as tiers) on residential
customers. An Inclining Block Rate means that customers are
charged more for greater electricity usage. As a result,
usage in a higher tier is charged a higher price per kWh,
irrespective of the cost of energy or energy services. (739
Public Utilities Code)
3)Establishes nonbypassable charges and recovery of those
charges via from customers of investor owned utilities (IOUs).
(848.1 Public Utilities Code)
4)Created the California Alternate Rates for Energy (CARE)
program to provide affordable service to low-income
residential electric and gas customers and provides rate
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discounts for CARE customers. (739.1 Public Utilities Code)
5)Requires the state's 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 solar or wind system
against the customer's usage of electricity, on a kWh basis, 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 individual
solar and wind systems is limited to those that will offset
all or part of the customer's own electrical requirements to a
maximum of 1 megawatt. This program also exempts the customer
from paying transmission and distribution costs. This is
commonly referred to as full retail NEM. (2827 Public
Utilities Code)
6)Permits a customer enrolled in NEM to apply excess kWh
accumulated at the end of the 12-month billing cycle to the
next 12-month cycle or receive reasonable compensation as
determined by the commission. (2827 Public Utilities Code)
7)Permits fuel cell customer-generators to participate in a
modified NEM program that allows electricity generation to be
credited at the full retail rate against the customer's usage
of electricity only. The fuel-cell customer generator pays
all non-energy charges. (2827.10 Public Utilities Code)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement . A recent filing by SDG&E, subsidiary of
Sempra Energy, exposed solar producers' vulnerability to
drastic electric rate restructuring. In SDG&E's filing they
proposed to increase 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% increase to a non-solar producer. The filing would
disproportionately increase costs to solar producers when
compared to non-solar producers.
In recent years, many entities that have gone solar have done
so using a financing mechanism which amortizes the cost of
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their investments over 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 produces such as those
contemplated by SDG&E, many times these entities investment
will go upside down, resulting in a solar produce having a
total monthly cost greater than those who don't have solar.
Among the largest investors in solar technology in the state
are school districts, water districts, and local governments.
Drastic electricity rate fluctuations have the potential to
derail this State's renewable energy goals.
2)Net Energy Metering. Under net energy 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.
3)Who pays for NEM? The cost of NEM is paid by ratepayers. The
cost of NEM is not paid by utility shareholders (in the case
of a publicly owned utility, there are no shareholders, only
ratepayers). NEM allows utility customers to avoid paying for
the costs of using transmission and distribution
infrastructure and maintenance. Those costs are then shifted
to the non-NEM customers. In addition, NEM customers are
allowed to use excess bill credits to offset their obligation
to contribute to public good programs, such as the low-income
assistance program, energy efficiency programs, and renewable
energy rebates (customers on low-income assistance programs
are exempt from paying charges for public goods programs).
Because those costs are fixed, if one group of ratepayers
doesn't pay their share of these costs, those costs are
shifted to the remaining ratepayers. These costs typically
comprise 40% to 45% of a customer's bill.
4)Who benefits from NEM? If the customer leases or enters into
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a Power Purchase Agreement (PPA) for a solar facility on their
premises, the financier monetizes the value of NEM by charging
customers either a monthly fee or a charge for electricity.
The monthly fee or charge is calibrated to provide a net
discount of approximately 10% off of the customer's pre-solar
electricity bill. This allows the financier to 'monetize the
value of NEM.' The financier also retains the federal tax
credit and depreciation, the state solar incentive, ownership
of the renewable and environmental attributes. They also
retain ownership of the solar facility and retain the right to
approve any change in ownership of the premises upon which the
solar facility is located. In some contracts, the monthly
charge escalates annually over the term of the contract.
5)Who is at risk? 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.
As the author states, the financier has developed a business
model that relies on the rate structure of each utility to
remain unchanged over the term of their contract, as much as
25 years. Yet the customer who enters into that financing
arrangement who will bear the cost if the financier is wrong
about future electricity rate structures because rate reform
is outside of the control of the financier. A real example of
this was seen in 2009, when the communities in Kern County,
principally Bakersfield, experienced higher-than expected
electricity bills. The community fought for and won rate
reforms at the PUC. The Legislature has also enacted rate
reforms in several instances.
6)NEM Cost Shift . Because the cost of NEM is paid for by
ratepayers, the Legislature has limited the total capacity
(megawatts) of NEM accounts (since its inception) based on
aggregated peak demand, in order to limit the costs that NEM
shifts onto other ratepayers utility bills. The Legislature
has periodically raised the cap. In 2010, the Legislature
approved a cap on NEM equal to 5% of aggregated peak demand.
Recently the PUC decided to redefine 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 who argued for the new math and expansion of the
full retail NEM cap admitted that the calculation was not
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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). To
the extent that aggregated NEM increases the use of NEM,
non-NEM customers will be further affected by the cost shift.
When the PUC reported on the impact of NEM, 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. However, the PUC NEM report did not fully
quantify the NEM cost shift, particularly for grid use and
maintenance and public purpose programs offset by NEM
customers. Nor did it quantify the cost of interconnection
services.
7)Network Use Charge. In 2011, San Diego Gas & Electric Company
(SDG&E), as part of its general rate case proposed a new rate
element called 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. If enacted, NEM customers
would have been responsible for paying for their cost of using
the grid like any other utility customer. Thus, the proposed
charge had more impact on a NEM customer because they would no
longer have free use of the grid.
The solar industry complained that the NUC charge would
adversely impact the market for solar because the facility
economics would be undermined.
The PUC dismissed the NUC proposal from the rate case.
8)Solar Industry Status . In 2006, the Legislature authorized a
$3 Billion program to transform the solar market and create a
self-sufficient solar industry. In 2006, the solar industry
was struggling and there were few installers and
manufacturers. They reported to the Legislature that the
incentive program, known as the California Solar Initiative
(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, the solar market is booming and
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delivery mechanisms are changing. Customers can buy solar
systems outright or pay zero down and lease or purchase the
power the systems produce. 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 or sooner.
Utilities are entering contracts for solar generation at less
than 9 cents per kilowatthour. While some NEM customers are
receiving more than 4 times that amount in bill credits.
The critical take-away is that the solar industry is booming
but the programs continue to operate in the same old way. Is
it necessary to provide the same high level of subsidy to an
industry?
9)Moratorium on NEM Applies only to Investor Owned Utilities
(IOUs). While there are 6 investor owned utilities serving
Californians, there are also 45 electric Publicly Owned
Utilities (POUs) in California serving approximately 25% of
all Californians. This bill does not apply to POUs. Most
POUs in California already limit NEM credits so that the cost
of using and maintaining utility services must be paid by NEM
customers. In regions served by the Sacramento Municipal
Utility District and Los Angeles Department of Water and
Power, the solar market appears to be thriving.
The moratorium may have the effect of driving more solar
business activity into areas where their leases and PPAs will
yield a higher return on investment due to the difference
between IOU and POU rate structures.
10)PUC examining rate structures . The PUC issued an Order
Instituting Rulemaking to examine residential rate structures.
Excerpts from the PUC order illustrates the complexity of
statutory restrictions on rate design that have allow the NEM
subsidy to be maximized:
"After prices for electricity skyrocketed during 2000 and
2001, the Legislature enacted AB 1X. In response to the
failing creditworthiness of Pacific Gas and Electric (PG&E)
and Southern California Edison Company (SCE), AB 1X enabled
the Department of Water Resources (DWR) to enter into
long-term electricity contracts with generators to ensure
that electrical service was maintained for PG&E and SCE
customers. In addition, AB 1X directed that the PUC could
not increase residential electricity rates on usage of up
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to 130 percent of baseline until DWR "has recovered the
costs of power it has procured for" electricity customers.
In response to this directive, the PUC adopted a
five-tiered, increasing block rate structure for
residential customers, with rates for Tiers 1 and 2 capped
at 2001 levels and three tiers for usage above 130 percent
of baseline that were uncapped."
"In 2009, the Legislature passed SB 695 Kehoe (Chapter 337,
Statutes of 2009) which set the terms for future
adjustments to the baseline calculation, the ability of the
PUC to increase rates for Tiers 1 and 2, and the timeline
for the ability of the PUC to order IOUs to transition
residential customers onto time-variant rate designs. SB
695 allowed the PUC to increase rates for Tiers 1 and 2 "by
the annual percentage change in the Consumer Price Index
from the prior year plus 1 percent, but not less than 3
percent and not more than 5 percent per year."
"A potential benefit of establishing a different rate
design could be a smoother transition for NEM customers.
Each IOU has requested changes to the rates structures to
accommodate the increasing amount of electricity generated
by such customers. The current policy for NEM customers
offers a bill credit to offset the customer's electricity
bill at fully bundled residential rates. NEM customers
avoid paying all charges that comprise the bundled rate for
the amount of generation they produce. Some of these costs
are then borne by non-participating customers who fall into
Tiers 3 and 4, which have raised equity concerns about
cost-shifting. Additionally, this may also allow NEM
customers to avoid paying for distribution grid upgrades
needed to integrate their generation. A more efficient and
equitable rate structure could address these "cost
causation" issues in a fairer manner, and in a way that
does not harm solar investments."
"Similar issues around subsidies appear with wealth
transfers between climate zones and income levels. For
example, customers with higher incomes who live on the
coast but remain under the Tier 2 rate cap are subsidized
by middle income customers who live in non-coastal regions
and exceed Tier 2 usage levels."
The PUC has scheduled a workshop and requested comments from
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stakeholders this summer. A PUC Scoping Memo to be available in
November 2012.
RELATED LEGISLATION
AB 2514 (Bradford): requires a study by the PUC to investigate
and report on costs and benefits.
AB 2165 (Hill): expands the current NEM cap on fuel cell
facilities.
SB 1473 (Kehoe): places a moratorium on changes to NEM rates.
REGISTERED SUPPORT / OPPOSITION :
Support
School Energy Coalition (SEC)
Solar Energy Industries Association (SEIA)
Opposition
California Public Utilities Commission (CPUC)
San Diego Gas & Electric Company (SDG&E)
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083