BILL ANALYSIS                                                                                                                                                                                                            1
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                 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                DEBRA BOWEN, CHAIRWOMAN
          

          AB 2228 -  Negrete McLeod                              Hearing  
          Date:  June 25, 2002                 A
          As Amended:         June 19, 2002            FISCAL       B

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                                       DESCRIPTION
           
           Current law  requires all investor-owned electric utilities (IOUs)  
          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."

           This bill creates a pilot net metering program for customer-owned  
          electric generation projects fueled by manure methane production  
          that are less than 1 megawatt (mw, which is equal to 1000 kw).   
          The net metered customer must employ a time-of-use meter to value  
          both their production and consumption of electricity, and only  
          gets credit at the generation rate.  The maximum amount of  
          generation capacity allowed under this pilot is 5 mw per utility  
          and bills will be issued annually.

           This bill  sunsets its provisions on January 1, 2006.

                                       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.

          The manure methane production facilities described by this bill  










        generate fuel through the breakdown of animal wastes, primarily in  
        dairies.  The manure is collected and stored in ponds or digesters  
        where it decomposes, or is "digested," releasing methane.  The  
        methane is collected and used to fuel a combustion engine or  
        turbine which then produces electricity.  

        Last year in SB 5X (Sher), Chapter 7, Statutes of the First  
        Extraordinary Session of 2001, the Legislature appropriated $10  
        million to be used for grants for encouraging manure methane power  
        projects.  The California Energy Commission program mandated by  
        the bill provides 50% of the capital cost for such projects.

        Supporters of this bill believe manure methane production provides  
        benefits that go beyond simply generating electricity.  They note  
        that manure can contaminate groundwater and pollute the air with  
        ammonia, methane, and particulate matter.  Digester gas  
        technologies are becoming operational.  A manure methane  
        production facility in Chino, which opened in June, will be able  
        to process 225 tons of manure daily, producing 500 kilowatts (kw)  
        of electricity which will be used to power the digester and  
        partially power a water desalination plant.  

                                      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 energy consumed by the customer.   
          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/kilowatt hour (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, reducing the benefit of net metering.  The net  
          metered customer would continue to pay the non-generation parts  
          of the retail electric rate, but only on the amount of  
          electricity delivered by the utility.  

         2)Time of Use  .  Electricity costs more during peak times.   
          Wholesale electricity bought off-peak can cost less than  
          $0.01/kwh, while that 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  
            at the least expensive time.  Allowing the quantity of  
            electricity generated to be netted against the quantity used  
            provides a significant benefit to the net metered customers - a  
            benefit financed by all of the non-net metered customers.  

            This bill recognizes the changing cost of electricity during the  
            day by requiring net metered customers with a capacity greater  
            than 10 kw to utilize time-of-use meters.  Under this change,  
            the electricity generated by the customer during peak times  
            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 is to  
            pay the net metered customer at the rate the utility charges for  
            its generation - no more and no less.

           3)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  
            that 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, placing such language  
            into SB 1519 (Bowen), SB 1871 (Monteith), SB 1755 (Soto), and AB  
            80 (Havice).  As such,  the author and committee may wish to  
            consider  adding the anti-cost shifting language to this measure.
           
           4)What Does "Delivered" Mean?   The bill provides that all  
            non-generation charges shall be based on the total kwh delivered  
            by the utility (Page 5, Line 26).  The bill also provides that  









          bills will be rendered annually.  Suppose during the first half  
          of the year, the customer consumes 500 kwh of which 200 kwh is  
          generated by the customer's manure-methane system and 300 kwh  
          comes from the utility.  During the second half of the year the  
          customer consumes 500 kwh of which 700 kwh comes from the  
          customer's manure-methane system.  Is the utility delivered  
          electricity 300 kwh or 100 kwh?  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? 

         5)Interconnection Charges  .  Interconnecting large, customer-owned  
          generation devices will require engineering studies, reviews,  
          and potentially the installation of interconnection facilities,  
          safety devices, and upgrades to transformers, circuit breakers,  
          and wires.  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.

         6)Who Pays for the Meter?   If a new meter is required to allow for  
          the measurement of energy production and consumption during the  
          time-of-use intervals, this bill provides that the customer  
          shall pay the cost of the meter (Page 3, Line 21).

         7)Inconsistency with Related Bill  .  This committee is scheduled to  
          consider AB 58 (Keeley) during today's hearing.  AB 58 extends  
          the sunset on large wind and solar net metering facilities.   
          Both AB 58 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 similar, is not  
          identical and there are a few issues the committee may wish to  
          reconcile.

             a) AB 58 requires the utility to pay the customer for any  
             surplus electricity generated over a 12-month period.  This  
             bill allows the utility to keep the surplus without paying.  
              This may be the preferable approach because the  net metering  
             statutues are intended to allow the customer to meet his own  









               load, but not to "profit" as if it were a power generator.

               b) AB 58 bars the imposition of stand-by fees.  This bill  
               bars stand-by fees if they are already covered in  
               transmission and distribution charges.  This may be the  
               fairer approach for large net metered customers.

           8)Does It Really Work?   While turning manure into something useful  
            is a superb goal, the technology to accomplish that goal is at  
            best in its infancy.  Given that the state is investing $10  
            million in the technology and that there will be a cost to  
            ratepayers,  the author and committee may wish to consider   
            requiring a report from the CEC which assesses the success of  
            this program in producing electricity and eliminating  
            environmental hazards.

           9)Combustion Engines  .  Unlike traditional net metered technologies  
            which produce electricity directly, the manure methane projects  
            require combustion engines or turbines to produce electricity.   
            The air quality rules for these engines will be set by local air  
            quality management districts.  The rules established under SB  
            28X (Sher), Chapter 12, Statutes of the First Extraordinary  
            Session of 2001, won't apply because the engines won't be  
            operational by September 1, 2002.
                                            
          10)                                Technically Speaking  .  The bill  
            contains conflicting provisions regarding the payment of  
            non-generation charges.  The author and committee may wish to  
            consider deleting the sentence beginning on page 4, line 7 that  
            starts with "The charges for all retail rate components ?" to  
            eliminate the conflict.
                                            
                                    ASSEMBLY VOTES
           
          Assembly Floor                     (75-0)
          Assembly Appropriations Committee  (23-0)
          Assembly Utilities and Commerce Committee                       
          (16-0)

                                        POSITIONS
           
           Sponsor:
           
          Inland Empire Utilities Agency










         Support:
         
        Association of California Water Agencies
        Chino Basin Watermaster
        Inland Empire Utilities Agency
        Pacific Gas and Electric Company (if amended)
        Southern California Edison
        Western United Dairymen

         Oppose:
         
        California Solar Energy Industries Association


        





        Randy Chinn
        AB 2228 Analysis
        Hearing Date:  June 25, 2002