BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   April 16, 2012

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
                   AB 2234 (Hill) - As Amended:  February 24, 2012
           
          SUBJECT  :   Electricity net energy metering.

           SUMMARY  :   This bill raises the maximum size of renewable energy 
          projects eligible for net metering for public agency utility 
          customers. Specifically,  this bill  :  

          1)Raises the current project cap for net metering from 1 
            Megawatt (MW) to 5 MW for new and existing renewable energy 
            projects.

          2)Limits the 5 MW maximum project size cap for projects located 
            on premises that are owned, leased, or rented by a public 
            agency.

          3)Specifies that a public agency is the state, any agency, 
            board, commission, council, department, or other entity of 
            state government, the California Community Colleges, and each 
            district, campus, branch, and function thereof, the California 
            State University, and each campus, branch, and function 
            thereof, the University of California, and each campus, 
            branch, and function thereof, any county, any city, any city 
            and county, any regional agency, any district or special 
            district, any school district, and each campus, branch, and 
            function thereof, and any other political subdivision or 
            corporation of the state.

          4)Applies to projects located within the service areas of 
            investor owned utilities and publicly owned utilities, except 
            Los Angeles Department of Water and Power (LADWP).

           EXISTING LAW  

          1)Requires nearly every utility in California to provide a net 
            metering rate to customers connecting renewable energy 
            projects to utility service equipment until the total 
            renewable capacity equals no more than 5% of each utilities' 
            aggregated peak electricity demand.

          2)Requires payment for excess electricity generation to be 








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            credited to the customer's utility account at the retail rate 
            of electricity based on the customer's applicable tariff.

          3)Exempts net metered utility customer from paying most of 
            otherwise nonbypassable utility service charges.

          4)Requires nearly every utility in California to provide a 
            connection to the electricity grid within 30 business days.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

          1)According to the author, "The goal of this bill is to save 
            taxpayer dollars during these difficult budget times through 
            reduced utility bills. Public agencies that have already taken 
            advantage of Net Energy Metering (NEM) are likely to save $2.5 
            billion in taxpayer dollars over the 30 year life of the solar 
            installation. AB 2234 will apply to new and existing renewable 
            energy installations and will lead to even greater savings for 
            taxpayers."

           2)Backgroun  d. Under net-metering, the electric utility is 
            required to "buy back" all electricity generated by a 
            customer-owned generator that is not consumed by the customer 
            on-site. The price is set by the applicable retail rate under 
            the customer's existing contract. When the customer generates 
            electricity, he/she uses most of it for his or her own 
            facility.  At the end of each 12-month NEM period, the 
            electric corporation calculates the amount of electricity 
            distributed to the grid by the customer and reduces the 
            customer's annual bill by the amount of electricity generated 
            by the customer.  If the customer consumes more electricity 
            than their facility generates the utility calculates a bill 
            based on the net consumption of utility delivered 
            kilowatthours.

            This NEM statute allows the credit at the customer's retail 
            price - a price that is much higher than the generation costs 
            because the retail price includes non-generation charges, 
            including but not limited to transmission and distribution 
            service, the California Rates for Energy (CARE) subsidy, 
            public good charges, and service charges for billing and 
            customer service (Note that transmission and distribution 
            service charges include, among other things funding for the 








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            California Public Utilities Commission (PUC) and California 
            Independent System Operator (CAISO), and utility return on 
            investment). If the customer-generator is being paid the 
            retail price, the non-generation costs are shifted to the 
            utilities' other ratepayers.  There is another NEM statute for 
            Fuel Cell projects that provides a similar credit based on the 
            generation only rate. The Fuel Cell NEM customers using this 
            statute pay their service charges and there is no cost shift 
            to other ratepayers). Some commercial customers, but not all, 
            will pay demand charges, irrespective of the NEM credits. The 
            demand charges may be assessed during periods when the 
            renewable project is operating, thereby offsetting these 
            charges.

            For systems owned by third-party developers, customers will 
            also pay for on-site generation of the renewable electricity. 
            The rate that the customer pays is set by the developer. This 
            rate can range, initially, from 10 cents per kilowatthour to 
            more than 20 cents per kilowatthour. In addition, it is 
            typical for the developer to escalate the rate to be paid by 
            3% to 5% annually over the term of the contract. This is 
            commonly referred to by developers as 'monetizing net 
            metering.' By calculating the customer's utility bill NEM 
            credits and charging the customer for the solar generation in 
            a manner that results in an initial 10% to 20% discount off of 
            the customer's pre-NEM electricity bill the developer can 
            charge customers for the value of NEM. Leased systems are 
            similarly priced, except that the payment is typically in the 
            form of a flat monthly fee over the term of the contract. The 
            Lease contract may or may not include an annual payment 
            escalation. The contract may or may not allow purchase of the 
            solar facility at the end of the contract. The contract may or 
            may not specify the purchase price for the solar facility.

            These contracts are based on today's electricity rates and 
            rate structures and it is not clear how economic assumptions 
            used to enter into the contract will be impacted by utility 
            rates and rate design changes over the life of the contract. 
            Developers cannot guarantee that rates or rate structures over 
            the next 20 years will be the same as they are when the 
            contract was signed. One developer claims "the PPA (power 
            purchase agreement) provides long-term certainty against a 
            volatile utility market and rising energy bills, which is 
            critical as energy prices can rise by as much as 10 to 20% in 
            a given year." The PUC reported to this committee in March 








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            2012 that IOU electricity rates have roughly tracked inflation 
            since 2003.

            According to the National Renewable Energy Laboratory of the 
            Department of Energy the third-party contracts may or may not 
            result in a net billing reduction to the utility customer.

            It is also typical for the developer to take ownership of the 
            environmental attributes, such as Renewable Energy Certificate 
            (RECs) or Greenhouse Gas Compliance (GHG) credits. The value 
            of the RECs and GHG credits can be sold by the developer. It 
            is also typical for the developer to retain all in-state 
            incentives (such as the utility rebate programs, federal tax 
            credits, and federal depreciation). The state property tax 
            exclusion also applies to these projects, although site owners 
            may be required to pay property taxes if the project is resold 
            a second time after the developer's initial sale of the 
            project to investors.

            The developer may also establish credit requirements for 
            subsequent owners of the premises and may sell the project 
            without restriction to investors, which may present a problem 
            if a project is placed on premises that are leased by the 
            state.

            For projects that are owned and operated by the facility, the 
            value of NEM would be retained by the site owner and the 
            project will have different economics. The site owner would 
            also retain ownership of the environmental attributes.

            In addition to this subsidy by non-NEM customers, non-NEM 
            customers also pay for the cost of utility safety inspections 
            and any electricity distribution upgrades that may be 
            necessary to ensure safety and reliability because of the 
            total generation added to the distribution system.

            For wholesale generation contracts, the PUC has established 
            standard terms and conditions and reviews and approves the 
            contract.

           3)The expected cost-shift to other ratepayers is not quantified  . 
            The most recent study by the PUC, published in 2010, estimated 
            that "PV generation on NEM tariffs (386 megawatts (MW) 
            installed through 2008) will result in a net present value 
            cost to ratepayers of approximately $230 million over the next 








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            20 years." Since then, the total MWs interconnected has more 
            than tripled and electricity rates have changed. The PUC study 
            did not estimate cost difference between different classes of 
            customers, i.e., commercial and residential customers. 

            No similar study of cost shifting has been done for Publicly 
            Owned Utilities (POUs). But it is important to recognize that 
            the NEM statute applies to every POU except LADWP.

            According to the General Manager of Plumas Sierra Rural 
            Electric Cooperative (PSREC), "Our entire load is an average 
            of 25 MW.  If PSREC allowed a 5 MW net metered project, the 
            cooperative would not be able to collect the fixed costs of 
            the utility, forcing either a massive rate increase in our low 
            income region or bankruptcy of the cooperative. Furthermore, 
            we have nearly reached our 5% maximum capacity cap; therefore 
            a project of this size could not be net metered, irrespective 
            of this bill."

            Plumas Sierra serves a state prison facility where one of the 
            state-facility 5 MW projects is proposed. If the project moves 
            forward, the state will be required to pay monthly electric 
            service charges to the co-op to avoid adversely impacting the 
            utility. The state will also pay the solar developer for the 
            electricity produced by the project. It is not clear if any 
            bill savings will accrue to the state because the terms and 
            conditions of these contracts are not typically made publicly 
            available.

           4)What about the overall maximum capacity cap  ? The current 
            statute established a cap on the maximum total capacity of NEM 
            generation the utilities are required to interconnect. The 
            purpose of this cap is to limit the amount of subsidy that 
            non-NEM customers are expected to pay for the benefits of 
            on-site renewable generation. The cap is currently set at 5% 
            of the utility's aggregated peak demand. If the maximum per 
            project size cap is raised to 5 MW it is more than likely that 
            the overall maximum total capacity cap will be reached sooner 
            and the growth of the industry would be jeopardized by 
            uncertainty about whether utilities will continue to offer NEM 
            to their customers.
             
             The PUC is currently considering revising the method that has 
            been used to calculate the cap. Solar industry organizations 
            have asked that the method to calculate the cap be revised to 








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            allow more capacity to be installed under the current cap. 
            Their proposal would more than double the subsidy. In 2009 the 
            Legislature approved AB 510 Skinner, Chapter 6, Statues of 
            2010, which raised the maximum NEM cap to 5% so that all of 
            the projects authorized by SB 1 Murray, Chapter 132, Statutes 
            of 2006, to receive ratepayer-funded incentives can also 
            receive NEM.  The author may wish to clarify that the NEM cap 
            shall be calculated in the following manner to ensure that the 
            NEM subsidy does not increase beyond its current levels and 
            that all electric utilities are calculating the cap 
            consistently by using the peak demand reported in the 
            utility's Form 1 filing with the Federal Energy Regulatory 
            Commission (FERC) and the sum of the individual NEM customer 
            capacity is based on the CEC-AC rating.  (Both of these values 
            are generally accepted by utility and renewable energy 
            industries and are publicly available.)

           5)Are NEM kilowatthours worth more than non-NEM kilowatthours if 
            both are generated from the same renewable fuel source?  The 
            PUC has implemented several programs to support projects in 
            the size of 1MW to 20 MW. These programs are reporting cost of 
            generation no higher than 8 cents per kilowatthour and the 
            developers are responsible for interconnection costs. And if 
            the ratepayers can get renewable generation for 8 cents per 
            kilowatthour it isn't clear why ratepayers should pay more 
            than that through another program.

            It is not clear why these large projects cannot use other 
            existing programs available to large renewable project 
            developers, including but not limited to: annual Renewable 
            Portfolio Standards (RPS) solicitations, the Renewable Auction 
            Mechanism, the Feed in Tariffs, the utility 
            Photovoltaic-specific procurement programs offered by Southern 
            California Edison and Pacific Gas & Electric.

           6)Is a NEM-kilowatt hour worth more because of other benefits ? 
            One argument for higher pricing relates to the location of the 
            project offsetting transmission and distribution costs. While 
            this certainly may be true in some locations in California, it 
            is not something that can be universally true everywhere in 
            California. According to the PUC's preliminary assessment of 
            distributed photovoltaic (PV) generation, "changes in PV 
            output that are faster than the adjustment time of utility 
            equipment available to control voltage may still cause some 
            voltage problems. Controlling distribution voltage on circuits 








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            with a high penetration of PV is an area of significant 
            ongoing research." 

            The current NEM interconnection agreement does not require 
            studies to ensure reliability if the project is 1 MW or less.  
            If the NEM cap is raised to 5 MW the author may wish to 
            consider adding a requirement for an interconnection study to 
            ensure that the project does not create reliability problems 
            for other customers of the utility  .

           7)Can the electrons flow out from one project and provide 
            electricity to another customer?  NEM projects are equipped 
            with bi-directional meters that count the flow of 
            kilowatthours to and from a utility customer. With respect to 
            where electricity that flows 'back to the grid,' there is no 
            way to know where that electricity was discharged. It cannot 
            be said with certainty that the power flowed to the neighbor 
            because one cannot say whether the neighbor was drawing any 
            power at the moment the electricity became available. In any 
            case, the transformers and substations are not bi-directional 
            so any electricity that flows onto the grid from a 
            customer-generator will be limited to a confined area. For 
            facilities, like schools that are closed on weekends, 
            substantial amounts of electricity could flow to the local 
            distribution grid. On weekends, electricity demand is 
            typically substantially lower than on weekdays, so that extra 
            electricity may have little or no value to the neighbors. In 
            any case, more data is needed to support claims that the 
            excess electrons are delivered to neighbors or any other 
            utility customer.
             
             Importantly, because utilities are obliged to provide 
            electricity 24/7/365, they cannot count on the electricity 
            from NEM projects because the NEM projects cannot schedule 
            when the excess electricity will be available for other 
            utility customers. The IOUs must purchase electricity in 
            amounts and types required by the PUC from wholesale 
            generators and must pay for electricity from NEM customers. 
            All of which must be charged to the ratepayers. Similarly, 
            POUs contract for power as directed by their Governing Boards. 


           8)Quantifying the tax savings.  While there may be some savings 
            attributable to the utility bill reductions, the actual net 
            savings are highly dependent on the structure of the 








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            acquisition, specifically lease versus owned systems. But 
            associated with those bill reductions are also potential tax 
            revenue losses, particularly if these projects are located in 
            any of the more than 140 cities that assess Utility User 
            Taxes. According to the State Controller these taxes are paid 
            to the City General Fund.  This tax is based on the customer 
            utility bill. Because the effect of NEM is to reduce the 
            customer utility bill, cities would not receive revenues they 
            may have otherwise been entitled to. The effect of the state 
            and local tax savings and losses due to NEM has not been 
            quantified.

           9)Getting to a sustaining renewable market.  Developers argue 
            that the uncertainty over the NEM cap adversely impacts the 
            growth of the market for solar (also true for other types of 
            renewable generation). They argue that the 1 MW size limit is 
            a barrier to developing larger NEM projects that will create 
            jobs in California. 

            Reforming NEM or addressing other barriers to developing a 
            sustaining market in a manner that does not create an 
            unreasonable burden on utility customers is needed.

          10)The author might wish to consider the following amendments:

             a)   Specify that net metered customer must pay volumetric 
               service charges, interconnection inspections, distribution 
               upgrades, and local utility user taxes as applicable.
             b)   Require the PUC to establish a cap on the amount 
               customers should be required to pay for electricity 
               generated from a privately owned project; cap the rate at 
               which payments for electricity generated can increase to no 
               more than the rate increases allowed by the PUC; review the 
               terms and conditions of the privately owned contracts as is 
               currently done by the PUC for wholesale generation 
               contracts.
             c)   Clarify that the NEM cap shall be calculated in the 
               following manner to ensure that the NEM subsidy does not 
               increase beyond its current levels and that all electric 
               utilities are calculating the cap consistently by using the 
               peak demand reported in the utility's Form 1 filing with 
               the Federal Energy Regulatory Commission (FERC) and the sum 
               of the individual NEM customer capacity is based on the 
               CEC-AC rating









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           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Coalition for Adequate School Housing
          Environment California
          Environment California
          Environmental Defense
          Rancho California Water District
          Rancho California Water District (RCWD/District)
          School Energy Coalition
          School Energy Coalition (SEC)
          Solar Energy Industries Association (SEIA)
          SolarCity
          Solaria
          Solaria
          SunEdison
          Sunrun
          United States Air Force
          United States Army
          United States Coast Guard
          United States Navy
          Vote Solar

           Opposition 
           
          Bear Valley Electric Service (BVES) (unless amended)
          California Association of Small Multi-jurisdictional Utilities 
          (CASMU) (unless amended)
          California Municiple Utilities Association (CMUA)
          California Pacific Electric Company, LLC (CalPeco) (unless 
          amended)
          California State Association of Electrical Workers (CSAEW)
          Coalition of California Utility Employees (CCUE)
          Pacific Gas and Electric (PG&E)
          Pacific Power (unless amended)
          San Diego Gas & Electric (SDG&E)
          Southern California Edison (SCE)

           
          Analysis Prepared by  :    Susan Kateley / U. & C. / (916) 
          319-2083 










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