The CPUC Issues a Pivotal Ruling on Net Energy Metering

By Jerry R. Bloom, Christine Kolosov

On February 5, 2016, the California Public Utilities Commission (CPUC) issued its “Decision Adopting Successor to Net Energy Metering Tariff,” which preserves retail net metering in the service territories of California’s investor owned utilities (IOUs) and implements significant changes regarding eligible generation facility size, customer fees and rate structures. The CPUC issued the decision in a contentious rulemaking in which a wide range of stakeholders took very differing positions on the future of the CPUC’s Net Energy Metering (NEM) program and, more generically, distributed generation in the state. The CPUC decision orders the development of successors to the existing NET tariffs and addresses other controversial issues related to the NEM program. While addressing numerous issues, the CPUC deferred, until a second phase of the rulemaking, the development of alternatives for disadvantaged communities and consideration of additional measures that may be required for the protection of customers not participating in the NEM program.

Existing NEM

Program Originally instituted in 1996, the existing NEM program allows the participation of “customer-generators” with eligible renewable generation facilities installed behind the customers’ meters that meet certain technical requirements and are no larger than one megawatt (MW). The NEM has evolved over time, but under present rules, customer-generators use electricity generated by their on-site facilities to offset their electrical demand, and they receive a financial credit for excess electricity generated by their facilities that is directed back into the power grid for use by other utility customers. These credits are valued at the full retail price per kilowatt hour (kWh) and are carried forward to offset customer-generators’ electricity bills in subsequent billing periods. At the end of each year, the credits and charges accrued over the previous 12-month period are “trued-up,” and the customer-generator may be eligible for compensation from their utility. Under current rules, NEM customers are not required to pay interconnection fees and are required to pay nonbypassable charges only on the netted-out quantity of energy consumed from the grid. The current NEM program has a cap of 5% of aggregate customer peak demand for each IOU.

The existing NEM program is supplemented by virtual net metering (VNM) and net energy metering aggregation (NEMA). Originally established for affordable housing properties only, VNM allows electricity generated by a solar energy generating system on a multifamily property to be allocated as kWh credits to common areas or to individually metered tenant accounts, without any requirement that the system be physically interconnected to each tenant’s meter. In 2011, the CPUC authorized the expansion of VNM to the general multi-tenant market, but only properties participating in the Multifamily Affordable Solar Housing (MASH) Program may have multiple service delivery points at a single site. Implemented in 2013, NEMA allows an eligible customer-generator with multiple meters to aggregate the load of the meter serving the property where a renewable electrical generation facility has been installed with the load on all adjacent and contiguous properties that are solely owned, leased or rented by the customer-generator.

Successor NEM Tariffs

The California legislature directed the CPUC to develop successor tariffs that will apply to facilities interconnecting in each IOU’s service territory upon the earlier of (i) attainment of the relevant IOU’s NEM cap or (ii) July 1, 2017. In 2014, the CPUC established a transition period of 20 years after each NEM facility interconnects. As such, the successor NEM tariffs established by the recent CPUC decision will not apply to current NEM customers or other customers who interconnect prior to attainment of the NEM caps or July 1, 2017, as applicable, until the end of such 20 year transition period. Customer-generators participating under current rules may opt to switch to the successor NEM tariff. The successor tariffs will include the following changes: (i) elimination of the 1 MW cap on eligible project size, provided that customers with facilities larger than 1 MW will be required to bear interconnection and upgrade costs, (ii) implementation of a one-time interconnection fee for most NEM successor tariff customers with facilities smaller than 1 MW, (iii) requirement that successor NEM customers bear greater nonbypassable charges, (iv) requirement that successor customers be on a time-of-use (TOU) rate, and (v) expansion of VNM to allow multiple service delivery points at a single site.

One of the most significant changes is that the successor NEM tariffs will require most customers to bear certain interconnection costs associated with their energy generation facilities. For example, the previous 1 MW cap on facilities is eliminated, provided that the projects do not have a significant impact on the distribution grid, are built to the size of the onsite load, and are subject to reasonable interconnection charges established pursuant to the CPUC’s Electric Rule 21 and applicable state and federal requirements. In order to comply with the statutory requirement of no significant impact on the distribution grid, the CPUC decision orders that customers be required to pay all Rule 21 interconnection and upgrade costs. NEM successor tariff customers with facilities smaller than 1 MW will have to pay a “modest one-time additional fee,” to be developed by the respective IOU. This is meant to allow the serving IOU to recover the costs of providing interconnection service. Notably, the interconnection fee will be waived for low-income homeowners participating in the Single-family Affordable Solar Housing (SASH) program.

The successor NEM tariffs will also require customers to bear other increased charges. Whereas under the existing NEM program, customers only pay nonbypassable charges on the netted-out quantity of energy consumed, under the successor NEM tariffs, customer generators will be required to pay charges typically specified as nonbypassable for departing loads on each kWh of electricity that they consume from the grid. Specifically, these nonbypassable changes will include the Public Purpose Program Charge, the Nuclear Decommissioning Charge, the Competition Transition Charge and the Department of Water Resources bond charges. These charges support programs that are used by and benefit all ratepayers, including NEM successor tariff customers. According to the CPUC, these changes to the NEM program will make it more fair and transparent as compared to its original program.

The successor NEM tariffs will also require that that customer generators be on a TOU rate (either the default residential rate or another available TOU rate). This change comports with the CPUC’s view that TOU rates are important to its overall approach to residential rate reform. Specifically, the CPUC has set 2019 as the target year for beginning TOU rates for residential customers, which are to provide incentives for residential customers to adjust their electricity use to minimize impacts to the grid at times of high demand. The CPUC does create some flexibility for successor NEM tariff customers who complete their interconnection application under the NEM program before default TOU rates for residential customers have been implemented. Such customers who take service under any TOU rate (including a TOU pilot rate) prior to implementation of the default residential TOU rates will have the option to stay on that TOU rate for a period of five years. Once default residential TOU rates have been implemented, residential customers who apply for a NEM successor tariff will be put on the appropriate default TOU rate, but may also switch to another available TOU rate.

VNM and NEMA will continue as supplements under the successor NEM tariffs, with an expansion to the VNM program. Specifically, whereas under existing law multiple service delivery points at a single site are allowed only under the MASH Program, under the successor NEM tariffs, this feature will be available to all multitenant properties.

As with the existing NEM program, customers who take service under the successor NEM tariffs will be eligible to continue taking service thereunder for 20 years from the date of interconnection of the customer’s generation facility. Customers who opt to make a one-time switch from their IOU’s existing NEM tariff to the successor tariff will be allowed to continue to take service under the successor tariff for 20 years from the date that their generation facility was originally interconnected, but the switch will not reset the start date for the 20-year period.

The Future

While the CPUC’s decision makes significant changes in the NEM program, the design and implementation of NEM alternatives for residential customers in disadvantaged communities and the development of methods for effectuating consumer protection in relation to NEM programs was deferred until a second phase of the rulemaking proceeding. Otherwise, it appears that the CPUC’s determinations set forth in this decision will be the rules for customer-generators who begin taking service under a successor NEM tariff at least until 2019, which, as set forth above, is the target year for the institution of default TOU rates for residential customers. It is also the anticipated date for review of the NEM successor tariffs. The CPUC expresses optimism that by that time it will be able to develop (i) a valuation of exports to the grid from customer-sited renewable generation facilities that reflects the locational and temporal value of that generation and (ii) a more accurate valuation of the services provided by the grid when such customer-generators are importing from the grid.

Californians can anticipate that the CPUC’s Energy Division will, over the next few years, conduct research, hold workshops, produce reports and engage in consultations with stakeholders that will provide a basis for the CPUC’s review of the NEM successor tariffs in 2019; for the time being, however, the CPUC has preserved retail net-metering within the service territories of California’s IOUs, and the robust development of customer generation facilities is likely to continue.

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