BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 365 - Mullin Hearing Date:
June 23, 2014 A
As Amended: June 12, 2014 FISCAL B
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DESCRIPTION
Current law defines as eligible under the Renewables Portfolio
Standard electric generation including the following
technologies and fuel sources: biomass, solar thermal,
photovoltaic, wind, geothermal, fuel cells using renewable
fuels, small hydroelectric generation, digester gas, municipal
solid waste conversion, landfill gas, ocean wave, ocean thermal,
biomass, wind solar, and geothermal. (Public Resources Code �
25741)
Current law creates four different standards for distributed
generation (DG) that utilize natural gas as a fuel source for
stand-alone and combined heat and power applications. Each
generally has a capacity limit in megawatts (MW), limits on
greenhouse gas emissions as well as sulfur oxides and nitrogen
oxides, an electrical efficiency rate, and requires compliance
with standards of the State Air Resources Board (ARB). Those
include:
"Distributed energy resource" (Public Utilities Code �
353.1);
"Advanced electrical distributed generation technology"
(Public Utilities Code � 379.8);
"Distributed energy resources" funded under the
Self-Generation Incentive Program (SGIP) (Public Utilities
Code � 379.6); and
"Combined heat and power system" (CHP) (Public Utilities
Code �� 2840.2, 2843).
This bill defines "clean distributed energy resource" (clean DG)
as a technology that generates electricity or, electricity and
useful heat (CHP), sized to 20 MWs or less, and that is
renewable or has greenhouse gas (GHG) emissions less than the
emissions from generating units dispatched to the grid; and has
nitrous oxide emissions of 0.07 pounds per MW hour or a lower
rate determined by CARB.
Current law and decisions of the CPUC require every
investor-owned utilities (IOU) customer to pay nonbypassable
system benefits charges to fund programs including California
Alternate Rates for Energy (CARE), SGIP, energy efficiency, and
the Electric Program Investment Charge (EPIC). Those charges
also include the costs of bond repayments from the energy crisis
and nuclear decommissioning costs. (Public Utilities Code �
399.8)
Current law requires any customer with a distributed energy
resource sized less than five megawatts to pay reasonable
interconnection charges, public purpose program charges, and
bond repayments from the energy crisis. (Public Utilities Code
� 353.7)
Current law and decisions of the CPUC establish rates and
tariffs to ensure that an adequate supply of electricity is
available (reliability) to serve customer load through demand
and standby charges.
Current law and decisions of the CPUC require customers who
generate a significant amount or all of their own power to pay
departing load charges to cover past under collections for
forward power procured on behalf of these customers.
This bill limits the collection of nonbypassable charges for
customers with "clean DG" to those based on the actual metered
consumption of electricity delivered to the customer.
This bill establishes the parameters for an IOU to follow when
calculating the standby charge for a customer with "clean DG."
BACKGROUND
Net energy Metering (NEM) 1.0, the Holy Grail - The current
tariff for interconnecting renewable generation is referred to
as NEM or NEM 1.0. It was initially designed to stimulate the
installation of rooftop solar and now applies to all small scale
renewable generation, and is very generous in its terms.
Customers are intended to have faster interconnection (less than
30 days) with no studies or fees, exemption from all
transmission and distribution costs, standby charges, demand
charges and nonbypassable charges (public purpose programs).
However, those costs do not disappear and are shifted to the
non-participating ratepayers in each customer category (e.g.
residential, agriculture, industrial). A study of those impacts
released last fall reported that the costs associated with the
available capacity under the NEM 1.0 program is forecast to be
approximately $1.1 billion per year in 2020 (based on 2012
rates). This is approximately 3.1% of the forecasted utility
revenue requirement. That number will vary with electric rates.
NEM 2.0 - To mitigate the cost-shifting effects of current NEM
policy, to provide an equitable tariff that allows all renewable
generation to interconnect to the grid with ease and to
establish equitable cost impacts, the Legislature adopted AB 327
(Perea) last year. The CPUC is directed to adopt a new program,
commonly referred to as NEM 2.0, no later than December 31,
2015, which will be required of all interconnecting customers in
2017, with the following parameters:
Ensure that customer-sited renewable DG continues to
grow sustainably;
Include specific alternatives designed for the growth of
DG among residential customers in disadvantaged
communities;
Ensure that the successor tariff is based on the costs
and benefits of the renewable electrical generation
facility;
Ensure that the total benefits of the tariff to all
customers and the electrical system are approximately equal
to the total costs;
Allow DG projects sized to customer load that are
greater than 1 MW in size to interconnect under reasonable
charges if they do not have significant impact on the
distribution grid; and
Establish terms of service and billing rules for
eligible customer generators, consistent with all other
relevant statutory requirements.
Customer Charges - There are many different charges built into
electric rates and some which appear separately on electric
bills depending on the customer category and other programs.
Each of those charges serves a purpose and cost to the utility
and generally does not disappear if a customer chooses to
generate their own electricity. Generally, those charges can be
classified as:
Nonbypassable charges: include public purpose program
costs and other fixed charges of the utility. It is
critical to note that these charges have little or nothing
to do with the generation of electricity. A number of the
charges support very popular customer programs. They
include:
o Public purpose charges: funds considered by
law to benefit society, such as low-income ratepayer
support (CARE), energy-efficiency, research to
facilitate renewable and GHG reduction goals (EPIC),
subsidization of customer generation (CSI & SGIP);
o Nuclear decommissioning: to restore plant
sites to as near their original condition as possible
once they are shut down; and
o Department of Water Resources (DWR) power
charge: Recovers the costs of DWR bonds utilized to
fund electricity purchase costs as a result of the
electricity crisis.
Standby Charges: cover provision of electric standby
service to customers for the utility to reserve electric
capacity and stand by ready at all times to deliver
electricity on an irregular or non-continuous basis.
Departing Load Charges: are assessed to a customer who
discontinues or reduces its purchases of bundled
electricity service from the IOU so that the remaining
customers of the IOU are held indifferent as to the costs
associated with the departing load (e.g. costs of
electricity already procured into the future). These
include customers who purchase electricity as a result of
direct access and community choice aggregation or reduce
their load due to self-generation. Some parties also lump
nonbypassable charges into this category but they are
separate charges for distinctly different purposes.
Demand Charges: to cover the extraordinary costs of
high demand usually associated with equipment start-up.
Current charges assessed to customers of the IOUs generally
referred to as nonbypassable charges which include public
purpose programs are more than $2 billion per year and could be
closer to $3 billion.
COMMENTS
1. Author's Purpose . According to the author,
nonbypassable charges applied to electricity produced and
consumed onsite (departing load charges) create an economic
barrier to the installation of DG. A recent report points
out that if this barrier was removed, increased
installation of DG would result in ratepayer savings.
The author also reports that AB 365 would require customers
with clean, onsite generation technologies to pay all
applicable nonbypassable charges based only on electricity
purchased from the grid. This policy will enable more
customers to invest their own capital to purchase clean,
onsite electricity generation technologies which improve
grid reliability, improve air quality, and reduce energy
costs for all ratepayers. The departing load charges that
are not paid for by onsite generators that meet the
requirements of this bill will be shifted to other
ratepayers, but a study by Aspen verifies that that from
2010 through 2013, DG would have provided enough economic
benefit to other ratepayers to more than offset the value
of the departing load charge shift.
2. Problem Statement . Under current policy, customers can
decide to offset their electric load by installing DG on
their side of the meter. If that generation is sized less
than one MW and is renewable, such as solar, then they are
exempt from nearly all customer charges as a result of net
energy metering.
However, if the customer has more than 1 MW of renewable
generation or uses fuel cells or turbines powered by
natural gas, they must continue to pay all nonbypassable
charges based on the electricity they generate and the
electricity they pull from the grid, if any. They also pay
departing load charges which cover the costs that the
utility has already incurred or will incur for the purchase
of electricity to serve that customer in the future.
Supporters of this bill argue that requiring "clean DG"
installed on the customer's side of the meter to pay these
charges is a barrier to customer adoption of these
technologies and that these technologies should be treated
on par with technologies under the NEM 1.0 program.
It is critical to note that the NEM 1.0 program was
intended to be temporary and to stimulate the deployment of
customer renewable generation, particularly solar, to a
point where it would be commercially viable. Consequently,
that program will end as the current capacity allocated to
NEM is subscribed to and no later than 2017. At that time
the CPUC has been directed to have a tariff available that
encourages self-generation but does not result in
unsustainable cost shifts to other customers. This bill
jumps ahead of the CPUC's work on a new program and also
establishes new policy which would exempt technologies
powered by natural gas from specified charges.
3. The Costs of Electricity Choice . The attempt to
deregulate the electric industry in California and provide
customers a choice in their electricity provider is largely
regarded as a failure. The program was called "Direct
Access" and approximately 12% of the electric customers of
the IOUs still purchase electricity through that program.
Community Choice Aggregation is a similar model in which a
municipality or joint powers authority can automatically
enroll all customers in its boundaries and purchase
electricity on their behalf. A third option exists for IOU
customers and that is self-generation which usually reduces
the electricity that the customer pulls from the grid.
What each of these purchase options has in common is that
the customer remains obligated to support the costs of the
transmission and distribution system, public purpose
programs, the costs of service that the IOU has already
incurred on their behalf (e.g. forward costs of power
already contracted), and the costs of the IOU to maintain a
reserve of electricity to serve them in the event that
their provider fails to (e.g. DA or CCA) or their generator
fails. Each of those customers also remains eligible for
programs such as energy efficiency.
All of these customers pay the same charges even though the
electricity they purchase from the IOU has been eliminated
or reduced. If any one of these customer groups is
exempted from those charges, they do not go away - they are
shifted to other customers in the rate class. This bill
proposes to pull the rug out from under that long-standing
policy. With the growing interest in self-generation the
cost shifts to other customers is potentially great but
unknown.
4. What is Clean DG ? This bill not only applies to
renewable resources but would exempt from nonbypassable
charges what the author has defined as "clean distributed
generation" which is an attempt to favor generation
resources fueled with natural gas. The definition in this
bill includes microturbines and fuel cells which both have
GHG emissions, and for microturbines also criteria
pollutants but both can be used in ways that the emissions
are lower than those of a gas power plant. The definition
in this bill is different than four other definitions for
natural gas fueled distributed generation already in
statute. It is not clear, due to the limited time that the
committee had to review this bill, what the author is
really defining as clean. It is also not clear why a fifth
definition of DG is necessary.
Supporters of this bill have also proposed yet another
definition of DG in AB 1935 (Campos) which is also before
the committee today.
5. Other State Charges - Apples to Oranges . This bill
includes findings and declarations that California is the
only state among those with high electric rates and
environmental goals that allow IOUs to apply nonbypassable
charges to electricity produced and consumed onsite. This
is not an accurate statement since California does exempt
renewable generation sized less than 1 MW from all customer
charges. The states are so different in their goals,
charges, and rate structures that it is hard to make an
accurate comparison. Due to the short time in which this
bill has been in print, the committee did not have adequate
time to delve into the rate structures of those states.
6. The Study . The author argues that a "recent study<1>
shows that all ratepayers would see a net cost savings from
an increased deployment of onsite generation at customer
sites that pay nonbypassable charges only on their grid
electricity purchases. This ratepayer savings arises
because onsite generation reduces demand on the grid, which
reduces market electricity prices, and avoids transmission
and distribution costs and energy losses."
This bill has been in print just one week. Consequently
the committee was not provided the time necessary to
evaluate the analysis and findings of this study. However,
the committee did check in with several learned experts on
electricity rates and markets that skimmed the study and
were briefed on its findings by the sponsor some weeks ago.
They opine that its conclusions are shaky at best.
Regardless of its merits, any attempt to completely upend
the rate structure of the IOUs is worthy of more
consideration than a few days through the Legislative
process. One striking issue is that the author and study
use the phrases "nonbypassable charges" and "departing load
charges" interchangeably. The charges have two distinctly
different purposes so it is not clear what charges were
analyzed.
Also the committee may want to consider that the CPUC
released a study of the impacts of renewable
self-generation, such as rooftop solar, just last fall.
Those resources were all less than 1 MW and exempted those
customers from all charges. That study did not find a net
benefit to ratepayers but in fact found a large cost shift.
7. Last One Out the Door, Turn Off the Lights . Generally,
any size and type of technology can be interconnected for a
customer to offset their electric load with self-generation
as long as it meets local air quality standards and does
not export power to the grid. In some instances, export is
also permitted. However, charges are still assessed on
customers for interconnection, reliability, departing load,
and public purpose programs. Those charges are not paid if
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<1> Onsite Generation in CA: Potential Ratepayer Savings and Key
Barriers; EtaGen, Menlo Park, CA, June 11, 2014; Independent
Review of Onsite Generation in CA: Potential Ratepayer Savings
and Key Barriers, Aspen Environmental Group, June 11, 2014.
a customer interconnects under the NEM 1.0 program and
these exemptions are its primary attraction. It was
intended to be a limited program to stimulate development
of renewable distributed generation.
Increasingly manufacturers and distributors of technologies
that allow a customer to generate their own electricity,
and their potential customers, strive for inclusion in NEM
1.0. They argue that continuing to charge customers for
the costs of reliability and public purpose programs is a
barrier to the growth of customer DG.
However, the charges are analogous to the gas tax which
supports roads. The more success that the state has in the
deployment of alternative-fueled vehicles, gas tax revenues
will decline and there will be insufficient funds to
support the infrastructure used by all of those cars
regardless of fuel source. The more exemptions allowed
from the IOU reliability, transmission, distribution and
public purpose programs, the fewer customers remain to
support the programs.
This bill exacerbates that problem by exempting all
self-generation from nonbypassable charges which include
important public benefit programs such as CARE, energy
efficiency and SGIP. The irony is that the sponsors
propose to exempt their customers from the very program
charges that have supported the commercialization of many
of the eligible technologies under the bill SGIP.
8. NEM 2.0 . As generation options have become more
affordable and feasible, there has been an explosion of
requests by many different customer types to interconnect
generation of large size and to also avoid differing
customer charges. Given the growing demand for
interconnection, there has to be a program that permits
customer generation to sustain energy policy goals but also
has an equitable cost and rate structure for all customers
served by the IOUs in whatever program and generation
option they choose. The CPUC has the charge to design that
program which is supposed to be available to customers in
January 2015 as a result of the passage of AB 327 last
fall. That tariff will address the issues presented by
this bill but only for renewable technologies. There has
yet to be any direction or study directed at natural gas
fueled generation. However, those same microturbines and
fuel cells can be eligible under NEM 2.0 if they use biogas
instead of natural gas.<2> The Legislature expressed its
strong support for development of the biogas market in
2012. The committee may wish to consider to what degree
support for natural gas fueled generation would undermine
development of the biogas market.
9. Ratepayer Impact . Unknown. Nonbypassable charges
collected by the IOUs total somewhere between $2 and $3
billion annually. This bill would not reduce those
collections but it would shift the collections to bundled
electricity, direct access, and community choice
aggregation customers.
ASSEMBLY VOTES*
Assembly Floor (54-23)
Assembly Judiciary Committee (7-3)
*Prior votes are not relevant.
POSITIONS
Sponsor:
California Large Energy Consumers Association
Etagen
Support:
Bloom Energy
Capstone Turbine Corporation
ElectraTherm
Environmental Defense Fund
Houweling Nurseries Oxnard, Inc.
Regatta Solutions
Sonoma County Water Agency
TechNet
Western Energy Systems
Oppose:
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<2> AB 2196 (Chesbro), Chapter 605, Statutes of 2012; AB 1900
(Gatto), Chapter 602, Statutes of 2012.
Office of Ratepayer Advocates
Pacific Gas & Electric Company
San Diego Gas & Electric Company
Southern California Edison
The Utility Reform Network (TURN)
Kellie Smith
AB 365 Analysis
Hearing Date: June 23, 2014