BILL ANALYSIS 1 1 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 2 2 2 8 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