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Pasadena Adopts AB 920 Compensation Rules - Sorta

11/09/10

  06:12:17 am, by Jim Jenal - Founder & CEO   , 1501 words  
Categories: AB 920 Payments, PWP

Pasadena Adopts AB 920 Compensation Rules - Sorta

Introduction

On Monday, November 8, 2010, the Pasadena City Council unanimously adopted PWP’s staff recommendation for surplus solar energy compensation rules in response to AB 920. That’s the good news. The bad news is that the rules that were adopted are clearly inconsistent with the mandates of AB 920. Moreover, they do not provide fair compensation for surplus solar energy producers since the compensation paid - even at its most generous - does not equal the true cost of energy for most PWP customers.

“PWP Customers who are not surplus energy producers every month should consider rolling over their surplus energy not only each month, but also from year-to-year to avoid paying for more expensive energy in the future…”

Run on Sun attended the City Council meeting (as did two of our Pasadena customers) and addressed the Council over what we saw as the deficiencies in the staff’s recommendation.  This post will first provide some background on what was being proposed, then layout our concerns as expressed to the Council (though that will take more than the three minutes provided for comment at the meeting) and then conclude with our recommendations for how PWP customers can best maximize their benefits under the new rules. By necessity this is a very long post - we hope you find it helpful.

Staff Recommendation

AB 920 amended the State’s Net Metering law to require utilities (except LADWP) to provide “just and reasonable compensation for the value of net surplus electricity, while leaving other ratepayers unaffected.” For municipal utilities like PWP, the process of determining what is “just and reasonable” was left to the discretion of the utility. (Investor-owned utilities, like SCE, must go through the CPUC to get their compensation method approved.) Despite requests for input into the process, to our knowledge, the compensation scheme advanced by PWP was crafted solely in-house without input from the installer - or customer - community.

Staff proposed to compensate customers who are surplus providers by paying them 8.7¢/kWh for the value of the energy itself and another 2.5¢/kWh for the Renewable Energy Credits (RECs) associated with the energy being from a renewable source.  Thus the total compensation proposed was 11.8¢/kWh. Missing from this proposal was any accounting for transmission and distribution costs or other fees and taxes that are tacked on to the cost of every kWh sold in Pasadena.

PWP’s staff report voiced internal concern about the cost of carrying over credits from one billing period to the next until they could be netted out at the end of the year, claiming that as more such customers came online, PWP would need to add a full time employee - at an annual cost of $75,000 - to handle the accounting. To avoid that accounting problem, staff proposed to encourage customers to switch to a netting-out process every billing cycle. To incentivize such a switch, PWP acknowledged that “the monthly net surplus compensation rate would need to be higher than the full retail rate for electricity, plus taxes ([as] this is the value customers would otherwise receive by carrying forward surplus energy from one billing period to the next within the twelve month net energy metering period.)” This incentived compensation rate included an additional 6.6¢/kWh to account for the amounts ignored above - transmission, distribution, customer charges and taxes - for a total amount of 17.8¢/kWh.

Thus, PWP’s staff proposed a two option approach:

  • Option A - customer carries forward their surplus from billing cycle to billing cycle until the end of their twelve-month net-metering period and then is compensated for any surplus energy at the rate of 11.8¢/kWh; or
  • Option B - customer is netted out at the end of each billing cycle and if there is any surplus in that cycle, they are paid for it at the rate of 17.8¢/kWh.

Run on Sun’s Critique

Unfortunately, there are a number of problems with the staff’s proposal, not the least of which is that it has no support in the law.

Legal Questions

AB 920 is quite clear on how this is supposed to work:

At the end of each 12-month period, where the electricity generated by the eligible customer-generator during the 12-month period exceeds the electricity supplied by the electric utility during that same period, the eligible customer-generator is a net surplus customer-generator and the electric utility shall, upon an affirmative election by the eligible customer-generator, either (A) provide net surplus electricity compensation for any net surplus electricity generated during the prior 12-month period, or (B) allow the eligible customer-generator to apply the net surplus electricity as a credit for kilowatthours subsequently supplied by the electric utility to the surplus customer-generator.

Public Utilities Code § 2827(h)(3) (emphasis added).

AB 920 requires the utility to pay based on the complete, 12-month net-metering period, or allow the customer to carry over the entire surplus to the following year - an option not addressed by PWP at all.  As we read the statute, there is no allowance there for administrative convenience as a basis for abandoning the 12-month netting-out process.

After we pointed this out to the Council, the head of PWP, Phyllis Currie, essentially conceded that the statute did call for a 12-month net-metering period, but then dismissed it as if it were of no consequence.  Indeed, one Councilmember praised PWP for coming up with a creative approach to solving their accounting problem. Creative it may be, but it is of dubious legality. Interestingly, the City Attorney was not asked for, and did not offer, an opinion at the meeting as to whether PWP’s proposal complied with the law.

Compensation Below Retail Value

PWP customers will now be given two options for compensation coming in at 11.2 or 17.8¢/kWh - the latter amount allegedly being “higher than the full retail rate for electricity."  Except that it is not. We routinely and consistently see PWP customers paying closer to 19¢/kWh for their electricity, when all taxes and fees are factored into the equation. This means that for most of the customers that we have seen, they will be losing money if they elect to receive payment under either payment rate. The Council entirely ignored this concern.

No Provision for Adjustment Based on Rate Increases

The staff proposal does nothing to tie the compensation rate to the rate structure going forward. Thus, PWP could raise its residential rates but leave the AB 920 rates untouched. Again, the Council ignored this concern.

No Basis for Setting the REC Value to “Green Power” Charge

The staff set the compensation value for REC credits (which flow to PWP under the law) at 2.5¢/kWh because that “is in line with current market cost of qualifying renewable energy credits and is equal to the premium rate paid by PWP’s Green Power customers.” Staff further suggested that “as more liquid and transparent renewable energy credit markets evolve, staff may recommend future changes to the renewable attribute compensation amount.” Yet there are markets that trade in solar RECs right now and you can readily see what their values have been simply by looking online.

According to the website, SRECTrade, the most recent prices for SRECs are as follows:

Nov. 2010 SREC Prices
District of Columbia $225.00
Delaware $259.99
Massachusetts $500.00
Maryland $320.00
New Jersey $640.00
Ohio $325.10
Pennsylvania $210.00
Average $354.30

To relate this market data back to PWP’s proposal, according to Wikipedia, “a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces."  Thus, if the average value for an SREC representing 1,000 kWh of energy is $354.30, then the value of 1 kWh would be $354.30/1,000 = 35.43¢/kWh - more than 14 times as much as PWP is claiming is “in line with current market cost.

Of course, the staff report provides no visibility into what market data PWP considered (if any) and their conclusory statement seems to fly in the face of real world data that is readily available.

Suggestions for PWP Customers

So what is a PWP customer to do? That depends on how much surplus energy you are producing, and how frequently you are doing so. If your system produces surplus energy every month, so that there is no chance that in a subsequent month you will be a net energy consumer, then you should opt for the higher payment made on each billing cycle. You won’t be paid a true market value for your surplus energy, but you will do better than holding it to the end of the year given PWP’s approach.

On the other hand, if in some months you are a net producer and in other months you are a net consumer, you should carry your credits forward to the end of the year. That way you will save money by offsetting your future consumption since that offset is worth more than the 17.8¢/kWh that PWP is willing to pay you. Moreover, if you anticipate that your energy needs could increase in the next year - say because you are going to purchase an electric vehicle - then you should demand that PWP allow you to carry your energy surplus into the next year, as expressly required by AB 920.

As always, we welcome your (non-spam) comments.

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Comment from: scott [Visitor]
5 stars
scottHi Jim, Boy did the council ignore quite a lot. Thanks, Jim. I think like most folks, the facts exceed their curiosity (not willing to think nor care that much about it), and in those situations, they will always defer to staff.
12/01/10 @ 17:46
Jim Jenal is the Founder & CEO of Run on Sun, Pasadena's premier installer and integrator of top-of-the-line solar power installations.
In addition, Run on Sun offers solar consulting services, working with consumers, utilities and municipalities to help them make solar power affordable and reliable.

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