BILL ANALYSIS                                                                                                                                                                                                              1
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                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
                                                                        
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                                      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                   |                                |
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           Oppose:
           
          None on file



















          

          Randy Chinn 
          AB 58 Analysis
          Hearing Date:  June 25, 2002