BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2649 - Mullin, et al. Hearing
Date: June 23, 2014 A
As Amended: June 12, 2014 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 1
megawatt (MW). This program also exempts the customer from
paying transmission and distribution costs and requires the
utility to expedite interconnection at no less than 30 days.
This is commonly referred to as full retail NEM. (Public
Utilities Code � 2827)
Current law and decisions of the California Public Utilities
Commission (CPUC) establish the conditions under which any IOU
customer may interconnect generation renewable or fossil-fueled
to an IOU's distribution system, to offset their electrical
load. (Electric Rule 21)
This bill requires IOUs to interconnect, within 30 days, any
renewable or fossil-fueled electric generation facility, that is
sized no greater than the customer load, and that does not
export electricity, on any military base or facility or
privatized military housing (collectively referred to as
military facilities).
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 such things as past under
collections for forward power procured on behalf of these
customers.
Current law and decisions of the CPUC establish charges to
support programs such as the California Alternate Rates for
Energy (CARE), Self-Generation Incentive Program (SGIP), energy
efficiency and Electric Program Investment Charge (EPIC) which
serve a broader purpose, the funding of which is collected from
customers through what are commonly referred to as nonbypassable
charges. Those charges also include the costs of bond
repayments from the energy crisis and nuclear decommissioning
costs.
This bill exempts any military facilities that reduce the
electric demand as a result of energy efficiency, load
reduction, or self-generation from paying any demand, standby
charges, departing load or nonbypassable charges based on that
reduced demand.
This bill establishes the parameters for an IOU to follow when
calculating the standby charge for a military facility.
BACKGROUND
Military Installations in California - The findings and
declarations in this bill speak to military bases that are on
par with small cities but the definitions in the bill are far
more expansive than the large bases that appear to be the target
of the author. Navy representatives provided a list of ten
bases in Southern California that appear to be the focus of
their efforts to build renewable generation. A comprehensive
list of facilities and electrical demand was not available from
the IOUs (due to customer confidentiality) and was not provided
by the author. The Department of Defense identifies 29 military
installations in California.
Congressional legislation, Presidential directives, and military
policies require all military bases to diversify supply, update
energy infrastructure, and reduce energy costs, which are
reflected in two federal executive orders:
Federal Executive Order 13423 (January 2007) establishes
goals for improving energy efficiency and reducing
greenhouse gas emissions through reduction of energy
intensity by 3 percent annually through the end of fiscal
year 2015, or 30 percent by the end of fiscal year 2015,
relative to the baseline of the agency's energy use in
fiscal year 2003.
Federal Executive Order 13514 (October 2009) establishes
the policy of the United States for agencies to increase
their energy efficiency and reduce energy intensity.
NEM 1.0, the Holy Grail - The current program for
interconnecting renewable generation is referred to as NEM or
NEM 1.0. It was designed to stimulate the installation of small
scale generation such as rooftop solar and is therefore 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 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 (in $2012). This is
approximately 3.1% of the forecasted utility revenue
requirement, which will vary with electric rates.
NEM 2.0 - To mitigate the cost-shifting effects of current NEM
policy and to provide an equitable tariff that allows all
renewable generation to interconnect to the grid with ease and
with 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 distributed
generation continues to grow sustainably;
Include specific alternatives designed for the growth of
distributed generation 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 distributed generation 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.
Rule 21 - Distribution interconnection rules that have been
established by the CPUC only recognize three types of generation
interconnection: net metering, selfgeneration (nonexport), and
wholesale distribution access tariff (WDAT). Net metering is on
the customer side of the meter and involves a bill credit for
exported energy. It is not visible to the California Independent
System Operator (CAISO), and is connected at distributionlevel
voltage. There is a limit of 1 megawatt (MW) of nameplate
capacity. Selfgeneration interconnect is effectively wheeled to
the customer via the distribution grid, but is not intended for
net production. Wholesale distribution access interconnect is
visible to the CAISO and is interconnected on the utility side
at distribution level voltage.
All customer generators, except those eligible for NEM, that
interconnect to the distribution grid whether or not the
generator exports to the grid require an interconnection
application and pay an $800 application fee. Non export
generators are eligible for the Fast Track review, which does
not require study fees, but if they do not pass the Fast Track
review, depending on the findings, the IOU may require a
supplemental review and additional review fee of $2,500. If
they do not pass the Supplemental Review, they may need to
undergo detailed studies, which require higher study deposit
amount.
Customer Charges - There are many different charges built into
electric rates, some which appear separately on electric bills,
depending on the customer category and other programs. Each of
those charges serve a purpose and generally don't disappear if a
customer chooses to generate their own electricity. Generally,
those charges can be classified as:
Nonbypassable charges that generally apply 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 efforts
considered by law to benefit society, such as
low-income ratepayer (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 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: can also be considered
nonbypassable charges and 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. These include
customers who purchase electricity as a result of direct
access and community choice aggregation or reduce their
load due to self-generation.
Demand Charges: to cover the extraordinary costs of
high demand usually associated with equipment start-up.
COMMENTS
1. Author's Purpose . According to the author, the one
megawatt cap on the interconnection of renewable generation
facilities under the NEM program, and therefore the
exemption from departing load and standby charges,
discriminates against most military installations because
the facilities serve the entire load of the base through
one meter. Although there are multiple facilities on base
including military operations, housing, commissaries, and
medical facilities, the buildings are not individually
metered; if they were they would each qualify as a separate
customer and would each therefore be eligible for
interconnection under NEM. The author opines that the one
megawatt cap has unfairly hindered the development of
renewable energy on the state's military bases and has
prevented the military from meeting its clean energy and
national security goals.
2. Problem . The author reports that military installations
have too many barriers in their efforts to deploy renewable
generation to offset their generation. The problems seem
to fall into two categories - physics and costs - with a
little bureaucracy as well. Processes exist for the
military to interconnect but, according to representatives
of the bill's sponsor, take too long and cost too much.
This bill responds to those issues by exempting the
facilities from most customer charges, as indicated in the
preceding "Background", and by mandating a 30-day
interconnection standard for the utility. Representatives
of the Navy argue that the process should be simplified
(thus the 30-day interconnection standard of NEM) and that
they should be afforded the same benefits of NEM (cost
waivers) because the NEM policy cap of 1 MW discriminates
against large customers with one master meter, such as
military bases.
The military installations are uniquely situated. Many
have large electric loads (25 MWs is not uncommon) and
usually rely on one meter for the entire base that
precludes eligibility for the NEM program to address any
more of the base's load than 1 MW. This bill attempts to
apply the standards of a NEM program intended for small
generation to those bases regardless of the generation type
and size.
It's important to note that the military has been
successful in deploying renewable generation. As an
example, the China Lake Naval Air Station has 14 MWs of
solar generation which offsets 30% of their demand which
was interconnected by Southern California Edison under Rule
21. Representatives of the Navy report that the project
took many years to gain the approvals necessary for
interconnection. Whether it was a problem of physics or
bureaucracy is not clear but it may be difficult to
legislate a fix. Since that time, the CPUC has made a
concerted effort to revise and update Rule 21 with a
decision released in 2012. Last month they released a
scoping memo for additional improvements to the rule in an
effort to keep up with new and changing technologies.
3. Military Goals at State Expense . The federal government
has established renewable and security goals separate and
apart from the state and is seeking an exemption from the
costs related to serve the bases through this bill. The
bill would exempt those bases from the support of critical
utility programs, funded by all other ratepayers, to
support public purpose programs deemed critical by the
Legislature and energy leaders such as CARE and energy
efficiency. The Department of Defense has established
energy efficiency and renewable goals but does not seem to
have provided their bases with the funding necessary to
implement those goals thus the reliance on California
ratepayers.
Of particular concern to the Navy is the charge for support
of the CARE program. They take exception to supporting
low-income programs which they opine provide no benefit to
their personnel. Moreover, they represent that the charge
is unconstitutional under a U.S. Supreme Court<1> case and
that the charge is discriminatory.
4. Last One Out the Door, Turn Off the Lights . A
perception exists that IOU customers are barred from
interconnecting generation to offset their own load. That
is not accurate. The IOUs have tariffs that allow all
non-exporting generation to interconnect to the grid to
offset a customer's load. Generally, any size and type of
technology can be interconnected 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 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, these customer charges support reliability of the
grid and public purpose programs. 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 costs.
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<1> The Navy appears to be referencing Commonwealth of
Massachusetts v United States, 43 U.S. 444 (1978), establishing
a three-part test for determining governmental immunity from
taxes or fees. The applicability of this case is not apparent
since it concerned a claim from a state that a federal fee
violated the implied immunity of a state government from federal
taxation.
This bill exacerbates that problem by exempting all
self-generation at all military facilities from those
charges which support the infrastructure that keeps the
lights on and supports important public benefit programs
such as CARE.
5. 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 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. The CPUC has the
charge to design that program which is supposed to be
available to customers by in January 2015 as a result of
the passage of AB 327 last fall. That tariff will address
the issues presented by this bill.
6. Interconnection Challenges . The CPUC released a new and
improved Rule 21 in 2012 to which provided a separate
Generator Interconnection Agreement for Exporting
Generating Facilities and Exporting Generating Facility
Interconnection Request. The revisions to Tariff Rule 21
focused on the interconnection study process. The
settlement agreement required that each utility revise its
Tariff Rule 21 to assign all interconnection requests to
either the "Fast Track" - a screen-based, streamlined
review process for net energy metering, non-export, and
small exporting facilities1 or the Detailed Study with
three study processes for more complicated generating
facilities. Last month the CPUC reopened its review of
Rule 21 and will now examine the use of smart inverters.
The sponsors of this bill argue that the utilities make
interconnection unnecessarily difficult and which acts as
an impediment to interconnection. If the utilities are not
carrying out their responsibilities under Rule 21 perhaps
the author and committee should consider focusing this bill
on that issue by striking its content, and instead direct
the CPUC to intervene if a customer believes that the
utility is unnecessarily delaying an interconnection
request under Rule 21.
ASSEMBLY VOTES
Assembly Floor (75-1)
Assembly Appropriations Committee (16-0)
Assembly Utilities and Commerce Committee
(10-2)*
*Prior vote not relevant
POSITIONS
Sponsor:
United States Navy
United States Marines
Support:
California Solar Energy Industry Association
Center for Sustainable Energy
Department of Defense Regional Environmental Coordinator, Region
9
Environment California
Environmental Entrepreneurs
Natural Resources Defense Council
Solar Energy Industries Association
Sunrun, Inc.
Vote Solar
Oppose:
California Coalition of Utility Employees
California State Association of Electrical workers
California State Pipe Trades Council
Pacific Gas and Electric Company
San Diego Gas and Electric Company
Southern California Edison
Southern California Public Power Authority
Western States Council of Sheet Metal Workers
Kellie Smith
AB 2649 Analysis
Hearing Date: June 23, 2014