BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 58 - Keeley Hearing Date: June 25, 2002 A As Amended: June 20, 2002 Non-FISCAL B 5 8 DESCRIPTION Current law requires all energy service providers, which include investor-owned electric utilities (IOUs), municipal utilities, or any other entity offering retail electric service, to credit all electricity generated by a customer-owned solar or wind system against the customer's usage of electricity sold by the utility, a procedure known as "net metering." Current law allows net metering customers to employ solar or wind electric generation systems as large as 1 megawatt (Mw). This size limitation is reduced to 10 kilowatts (kw) as of January 1, 2003. This bill deletes that sunset, allowing net metering for systems up to 1 Mw to continue indefinitely. Current law doesn't limit the overall amount of net metered capacity in any energy service provider's service area. As of January 1, 2003, the overall amount of net metered capacity is limited to one-tenth of 1 percent of the peak electrical demand for each utility. This bill raises the total cap on net metered capacity tenfold, to 1 percent of the peak electric demand for each energy service provider. This bill requires net metered customers with a capacity of greater than 10 kw but less than 1 Mw to use time-of-use meters to measure electricity consumed and generated, and to value the electricity appropriate to the time of use. The electricity produced by the net metered customer is credited at the value for electric generation at that time of use. This bill requires that net metered customers are responsible for non-generation charges based on the net kilowatt hours (kwh) consumed. This bill requires energy service providers to make all necessary forms and contracts for net metered service available on the Internet. This bill requires the California Public Utilities Commission (CPUC) to assess the cost and benefits of net metering and report to the Legislature by January 1, 2007. BACKGROUND In 1995, the Legislature passed SB 656 (Alquist), Chapter 369, Statutes of 1995, which required all electric utilities to buy back any electricity generated by a customer-owned solar and wind systems system. This buy-back program is known as "net metering" because the electricity purchases of the customer are netted against the electricity generated by the customer's solar electric system. The generated electricity spins the meter backward, making it equivalent to the customer using less electricity. Thirty-five states have net metering programs today with the maximum size of the net metered system limited to 100 kw. Net metering was initially permitted for systems up to 10 kw making it suitable for residential-sized applications. (A typical residential net-metered system is 2 kw - 4 kw). The total amount of capacity that could be net metered was capped at 0.1% of the utility load. In 2001, the Legislature passed AB 29X (Kehoe), Chapter 8, Statutes of the First Extraordinary Session of 2001, which expanded the net metering program to large commercial and industrial customers by raising the maximum size of the net-metered system to 1 Mw and lifting the cap on total net metered capacity. Because of concerns over the effect of these changes, the provisions of AB 29X relating to net metering were sunsetted on January 1, 2003. There are about 2,200 net-metered customers today, with pending applications for an additional 700. Total net-metered capacity is about 6 Mw, with an additional 3 Mw pending. Including the pending projects, total net-metered capacity in California is only about 0.02% of utility peak load. This bill makes a number of substantive changes to existing net metering rules. Conceptually, the bill changes the concept of net metering from one where the net metered customer is treated the same as a non-net metered customer to one where the net metered customer is considered a generator whose output is paid for at the utility's cost. COMMENTS 1)Credit Against Generation Cost Only . The original net metering statute allowed the amount of generated electricity to be credited against the amount of consumed energy. The production was netted against consumption, which had the effect of "paying" for generation at the full retail rate. That retail rate includes not just the charge for the electricity, but also the charges for distribution and public purpose programs. On the average residential bill the cost of generation is about $0.06-0.07/kwh while the total charge is $0.13/kwh. This bill gives the net metered customer credit for the electricity produced at the cost of generation, not the full retail rate. The net metered customer would continue to pay the non-generation parts of the retail electric rate, but only on the net electricity consumed. 2)Time of Use . Electricity costs more during peak times. Wholesale electricity bought off-peak can cost less than $0.01/kwh, while the same electricity bought during the middle of the day can cost $0.05/kwh or more. The current net metering law doesn't account for this difference because it credits the customer with electricity as if it were generated during the most expensive time, even though the actual generation may occur off peak. Allowing the quantity of electricity generated to be netted against the quantity consumed provides a significant benefit to the net metered customers, a benefit that's paid for by non-net metering customers. The value of the benefit is further enhanced because, thanks to the tiered pricing structure adopted by the CPUC last year designed to charge large energy users more money per kwh used by increasing the cost per kwh as usage increases. For the net metered customer, this means the energy produced is in effect netted against the most expensive energy consumed. This bill recognizes the changing cost of electricity during the day by requiring net metered customers with a capacity greater than 10 kw to use time-of-use meters. Under this change, the customer's system generated electricity during peak times he would be credited the utility peak generation rate. If the electricity were generated off-peak, the customer would be credited at the utility's off-peak generation rate. This change provides for a more accurate accounting of the value of customer generated electricity. Taken together, the effect of the time-of-use metering and the credit at the generation rate will be to pay the net metered customer at the rate the utility charges for its generation. 3)Wind Included? One of the concerns about AB 29X was that it allowed large wind customers to net meter and get full credit for their production, despite the fact that wind isn't as reliable a power source as solar and its production doesn't coincide as well with peak usage. The California Energy Commission derates the capacity of wind power by about 80% because it's not reliably available during peak usage times, while solar electric applications are not derated at all. However, by requiring that large net metered customers get paid for production based on the time the power is generated, this concern has been largely mitigated. 4)Recovery of DWR Charges and Utility Undercollection . This bill retains the provision in current law regarding new charges: No new or additional charge that would increase a net metered customers costs beyond those of other customers in the same rate class may be included (Page 4, Line 11). Under this provision, the net metered customer would be responsible for any Department of Water Resources (DWR) and utility undercollections for power already delivered to the net metered customer. However, charges for any stranded DWR procurements could not be charged to the net metered customer. Presumably charges for any undercollections will be assessed on a per kwh basis, meaning the net metered customer will pay these charges only on the total kwh delivered to the customer by the utility. This committee has had a consistent policy of imposing the requirement that a customer leaving utility service not cause any costs to shift to remaining customers. This bill doesn't incorporate the anti-cost shifting language that the committee has asked to be incorporated into a number of other bills including SB 1519 (Bowen), SB 1871 (Monteith), SB 1755 (Soto), and AB 80 (Havice). As such, the author and committee may wish to consider including that same anti-cost shifting language into this bill. 5)Calculating Question . While the bill is clear that non-generation charges must still be paid by the net metering customer, it's not clear what the basis for such calculation will be. If the customer consumes 500 kwh of which 200 kwh is generated by the customer's system and 300 kwh comes from the utility, are the non-generation charges assessed on the 300 kwh or the 500 kwh? If the charges are assessed on the 300 kwh supplied by the utility, is that offset by any surplus customer generation made during the year? In other words, does the customer's generation in excess of usage get credited against the utility-delivered electricity for purposes of calculating the non-generation charges? 6)Interconnection Charges . Expanding the maximum size of net metered installations from 10 kw to 1 Mw (or 1,000 kw) increases the likelihood that modifications to the utility distribution system may be needed. Appropriate studies, reviews, and installation of interconnection facilities, including safety devices, and upgrades to transformers, circuit breakers, and wires may be needed. In March 2002, the California Public Utilities Commission (CPUC), in a unanimous vote, issued an order (D.02-03-057) requiring utilities to be responsible for the costs of the interconnection studies and modifications to their distribution systems. The net metered customer is responsible for the costs of interconnection facilities necessary to meet safety and performance requirements. This bill doesn't effect that order. 7)Inconsistency with Related Bill . The committee is scheduled to consider AB 2228 (Negrete-McCloud) today, which allows net metering for customers using biogas digesters. Both AB 2228 and this bill are similar in concept in that they both require large net metered customers to use time-of-use meters, only permit the credit for the generation component of the bill, and bar the assessment of additional fees and charges. However, the language in the two bills, while is similar, is not identical, and a few minor issues are dealt with differently: a) This bill requires the utility to pay the customer for any surplus electricity generated over a 12-month period. AB 2228 allows the utility to keep the surplus without paying. The author and committee may wish to consider amending this bill to mirror the approach taken in AB 2228 because it's more consistent with the original intent of the net metering statutes. That intent was to allow the net metered customer to reduce its costs, but not to "profit" as if it were a power generator. b) This bill bars the imposition of stand-by fees. AB 2228 bars stand-by fees if they are already covered in transmission and distribution charges. The author and committee may wish to consider amending this bill to mirror the approach taken in AB 2228 for net metered customers with systems greater than 10 kw. Given that the ability to remain connection to the grid and receive power upon demand is a benefit that accrues to the net metered customer - and that the CPUC is in the middle of reviewing stand-by charges to make them more closely resemble the utilities' actual cost - it may be unwise to provide net metered customers with a blanket exemption from stand-by charges, thus allowing them to shift those costs to other ratepayers. ASSEMBLY VOTES Assembly Utilities and Commerce Committee (17-0) Assembly Floor (69-0) POSITIONS Sponsor: Author Support: ----------------------------------------------------------------- |Abel Greenhouse Company |National Solar Power | |Brummitt Energy Associates Inc. |Offline Independent Energy | |CAL-AIR, Inc. |Systems | |California Construction |Office of Ratepayer Advocates | |Authority |PFG Energy Capital | |California Solar Energy |Powerlight Solar Electric | |Industries Association |Systems | |City of Arcata |Real Goods Design & consulting | |City of Santa Rosa |Group | |Clean Power Campaign |Schott Applied Power | |Coalition of California Utility |Shell Solar Industries | |Employees |Short Electric | |Dale Enterprises |Sierra Club | |Enertron Consultants |Solar Depot | |Harmony Farm Supply & Nursery |Solar Technologies | |International Brotherhood of |UNI-SOLAR | |Electrical |Verve Enterprises | | Workers, Local 332 |15 | |Marin County Community |Individuals | |Development | | | Agency | | ----------------------------------------------------------------- Oppose: None on file Randy Chinn AB 58 Analysis Hearing Date: June 25, 2002