In sweeping rewrite, Calif. overhauls rates, lifts net metering cap

Source: Anne C. Mulkern, E&E reporter • Posted: Monday, September 16, 2013

California’s Legislature yesterday approved a sweeping rewrite of electricity rates, passing a package of legislation that would allow prices to rise while expanding a program that gives bill credits for renewable energy.

The state also would throw out a barrier to hiking its ambitious green power mandate as part of A.B. 327 from Assemblyman Henry Perea (D). The California Public Utilities Commission, or CPUC, had been barred from increasing the existing requirement of 33 percent renewable energy by 2020. Under the bill, the agency would be free to raise the level.

The measure now heads to Gov. Jerry Brown (D) after passing yesterday in the Assembly on a vote of 71-0. It had returned to that chamber for agreement on amendments by the Senate, which approved the measure Monday. Brown is expected to sign the bill.

“A.B. 327 is a balanced approach to modernizing California’s outdated rate structure to protect all Californians from soaring energy bills and addressing the state’s renewable energy goals,” Perea said in a statement.

The solar industry lauded the bill’s approval as momentous because it buttresses net energy metering, the system that allocates bill credits to households that feed extra renewable power to the grid. As solar power has grown in popularity, net metering has been a point of contention for utilities. They have battled to cap how many people can use it.

“This bill is going to continue to ensure that California leads the way in renewable energy for years if not decades,” said Bryan Miller, vice president of public policy at Sunrun and president of the Alliance for Solar Choice, an advocacy group for rooftop solar.

He added that allowing the CPUC to raise the state’s renewable portfolio standard, or RPS, above 33 percent by 2020 is a “precedent-setting provision” that other states likely will follow.

“It’s sort of breaking the mold here,” Miller said.

Utilities said they were pleased with the bill, which they called a compromise.

“The Legislature’s approval of A.B. 327 is a significant step toward restoring fairness in electric rates for all customers,” Ted Craver, chairman and CEO of Edison International, the parent company of Southern California Edison Co. (SCE), said in a statement. “The legislation will allow the [CPUC] to improve the current outdated electricity rate structure with one that has electric rates more accurately reflect the actual costs of electric service.”

The bill that passed, however, differs significantly from what Perea originally introduced and what the state’s three large investor-owned utilities had hoped to obtain. Pacific Gas and Electric Co. (PG&E), San Diego Gas & Electric Co. and SCE have lobbied for some time for changes to electricity rates.

The measure, when it first cleared the Assembly, would have given the CPUC the unfettered ability to raise rates for customers of the three investor-owned utilities. It also would have granted the CPUC permission to add unlimited service charges to customer bills. The measure at that point did not include any of the language on net energy metering or on the state’s renewable power mandate.

Consumer groups and the solar industry howled, saying A.B. 327 as approved would lead to sharply high electricity bills and would hobble the renewable industry.

People familiar with the politics said Brown insisted on provisions for net metering. Those were added by the state Senate Appropriations Committee.

“The governor’s office made it very clear that net metering reform had to be in the bill,” said Mark Toney, executive director of the Utility Reform Network, or TURN, a consumer advocacy group. “The governor wanted to help the solar industry.”

A spokesman for Brown did not respond to a request for information about the governor’s involvement.

Subsidizing the coast?

The Golden State currently has a tiered structure for electricity rates, with four categories based on consumption. The more power people use, the more they pay per kilowatt-hour. Rules put in place during the state’s electricity crisis in 2000 bar the CPUC from raising rates for the bottom two tiers. They also block a fixed fee that would apply to those lower tiers.

Utilities have looked to eliminate those barriers and allow the CPUC to raise rates for the lower tiers. They argue that such a move could allow them to lower rates for the higher tiers. Perea also was interested in reform, seeing a need in his district in the state’s Central Valley.

“Fresno residents face very high electricity bills in summer because they run their air conditioners when the temperature outside reaches triple digits,” said Minnie Santillan, Perea’s chief of staff. “At the same time, residents of coastal communities pay below-cost rates while enjoying their moderate climate.”

“A.B. 327 is intended to remove these outdated restrictions so the CPUC can rebalance rates to be less punitive of residents in less temperate areas of the state,” Santillan added.

James Avery, vice president of power supply for San Diego Gas & Electric, said a quarter of that utility’s customers pay tier 3 and 4 rates and that “the rest are paying highly subsidized rates.” He argued that most customers are not seeing the true cost of the electricity.

Utilities also have sought the option of monthly fees, saying that they’re needed to cover non-generation costs like grid upkeep and distribution of power. It’s a trend around the country, Toney said. In Arizona, the utility Arizona Public Service Co. in March increased its customer charge, calling it necessary to fund fixed costs as it sold less electricity because of solar power (ClimateWire, April 2).

“If there is a service charge, it will apply to everybody,” said Lynsey Paulo, a PG&E spokeswoman. “Those are services that everybody receives. It’s maintenance of the grid. It’s use of the grid.” It also pays for state-mandated social programs, she said, like discounts for low-income customers.

TURN and other consumer groups tried to stop A.B. 327 in the Assembly, Toney said, but they found themselves outgunned.

“We fought the bill tooth and nail,” Toney said. “We did dozens of individual visits with legislators, the Utilities Committee, the Appropriations Committee, leadership. We simply got hosed. The utilities had so many more lobbyists. They were there every day.”

After the bill passed the Assembly 66-4, with eight members not voting, “that made us realize that we were better off salvaging what we could to improve the bill and having some protections for consumers,” he said. “We felt like our backs were against the wall.”

New net metering program ordered

In the Senate, Toney said, consumer groups were able to put in provisions to protect ratepayers.

In the final language, the fixed charge cannot exceed $10 for most customers, and the CPUC does not have to apply it. The agency was told, as well, to consider bill minimums as an alternative, said Miller with SunRun. If the minimum were $20, he said, and a customer with solar generation had a $50 bill after net metering credits, he would not pay any extra money on his bill.

TURN also argued against time-of-use pricing, and under the measure, it cannot be put into place before 2018. Toney said real-time rates discriminate against senior citizens, the disabled and others who might be at home during the day. Some environmental groups have wanted time-of-use pricing sooner, saying it drives conservation and therefore lowers greenhouse gas emissions.

The Senate also added the provisions on net metering. One of those would keep the policy in place until customers of the three large investor-owned utilities have installed more than 5,200 megawatts of renewable power, allocated among the utilities based on size. Net metering otherwise would have been suspended as soon as the end of 2014.

The bill further would give the CPUC authority to remove caps on participation in the program, said Susannah Churchill, California policy advocate at the Vote Solar Initiative.

“The existing cap is set at a rather arbitrary 5 percent of utility non-coincident peak load, beyond which new California solar customers are no longer guaranteed to receive net metering credit for the valuable clean power they deliver to the grid,” she wrote in a blog post, adding that Vote Solar has fought repeatedly to raise the cap.

The CPUC, however, will be required to revise net metering by 2015. The measure tells the agency that the new program “is to be based on electrical system costs and benefits to nonparticipating ratepayers.”

The measure also would order by July 2015 that the big utilities submit to the CPUC plans for how to identify optimal locations for the deployment of locally generated power, also known as distributed generation.

“This is exciting because there is so much overall grid benefit to be gained from customer investment in distributed solar where it is needed most, and we think that value should be fairly recognized,” Churchill wrote.

By the time the deal was worked out in that chamber and back in the Assembly, Perea had a coalition of support that included utilities, solar companies and consumer groups.

“We think that this provides a good balance,” said Paolo with PG&E. “It provides some certainty for the net energy metering program, and it still protects non-solar customers from cost shifts.”