On January 28 the California Public Utilities Commission (CPUC) voted 3-2 to adopt new rules governing what is known as Net Energy Metering, thereby creating the framework for Net Energy Metering 2.0 (NEM 2.0). Here is our take on what the CPUC did, and didn’t do.
The first and most important thing to know is that for many people, the new rules adopted by the CPUC will not affect you at all! These new rules only directly apply to customers of the three investor owned utilities (IOUs): SCE, PG&E, and SDG&E. If your electrical service is provided by one of the municipal utilities - like PWP or LADWP - nothing that the CPUC did last month will directly affect you since the CPUC does not have jurisdiction over the munis. (That said, the munis often follow the lead of the CPUC, so it is entirely possible that they will individually adopt their own version of NEM 2.0, but that will be a discussion for another day.)
Even for solar clients in the service territory of one of the IOUs, if you have already signed a net metering agreement, you will be grandfathered in and allowed to continue to operate under the old rules for 20 years. Once the 20 years have elapsed, you will be transitioned to the net metering rules (NEM 5.0?) then in effect.
Beyond all of that, even for new solar clients in IOU territory, these new rules do not go into effect right away. Rather, the old rules will still apply until your utility reaches their 5% of customer aggregate demand cap, or July 1, 2017 - whichever comes first. In SCE territory it is an open bet as to which will occur first (see more below).
Bottom line: this is not happening right away, so you still have time to benefit from the existing rules.
Net metering is changing!
Lots of people weighed in on NEM 2.0 including all three IOUs, CALSEIA, NRDC, and various advocates for rate reform and consumer protection. While some of the proposals, and their proponents, were entirely predictable, others were not, and at least one such position was seriously disappointing.
For example, the three IOUs all advanced proposals that would have significantly reduced the value of going solar. SCE wanted to reduce the rate for energy exported from full retail to just 7¢/kWh (with a 1¢ adder if you give SCE your renewable energy credits), plus a $3/kW/month “grid access charge", and a one-time $75 interconnection charge. (SDG&E’s proposal was even worse, seeking a $9/kW/month charge!) On top of that SCE wanted to eliminate virtual net metering altogether.
At the other extreme, the “solar parties” (such as CALSEIA and The Solar Alliance) advocated for keeping net metering at full retail value. However, in a nod to changing realities, they did support paying on nonbypassable charges (more on that mouthful in a minute) but not until after 2019.
Still, there was one proposal that strikes us as entirely reasonable which CALSEIA opposed - mandatory warranty periods. Back when the California Solar Initiative was in place (i.e., when SCE was paying rebates), solar contractors were required to provide a ten-year warranty on their work in order to participate in the program. With the demise of the CSI program, technically that warranty requirement also went away. As part of the NEM 2.0 rulemaking, ratepayer advocates advanced the notion of restoring the warranty requirement - a common sense request that no one should oppose.
But the “solar parties” did oppose it, asserting that such a requirement could “discourage innovation in product offerings." Seriously? What “product” might we reasonably want to offer that having to stand behind it would be discouraging? When pressed about this position during CALSEIA’s NEM 2.0 webinar, Brad Heavner, CALSEIA’s policy director, said that the view was that the market could decide this: presumably if a company didn’t offer a warranty and that was important to the customer, they would go with a different company. This was not, however, a position that CALSEIA pushed hard to win, and in the end, they lost on this point.
In our view, opposing a mandatory warranty paints solar in a bad light. It puts the industry on the side of those who do the least reliable work, and penalizes those companies who go the extra mile to install systems that will stand the test of time. From what we have seen it is tough enough to get a company to honor its warranty commitments, let alone relying on the “invisible hand” of the market to protect consumers. CALSEIA did a lot of great work on NEM 2.0, but this position was a mistake.
The ultimate decision is a major defeat for the IOUs, and a partial victory for the solar industry. For the IOUs, they clearly overplayed their hand, advancing proposals that were so clearly anti-solar that the Commissioners couldn’t really take them seriously. According to a CALSEIA webinar, toward the end of the proceedings the IOUs suggested an energy export feed-in-tariff which, if they had proposed it at the start, might have gained traction. Something to think about as we look toward subsequent iterations on NEM rules.
The solar industry retained full retail value for energy exports, but they also saw three changes that undercut somewhat the value of that victory: nonbypassable charges (NBC) for all energy taken from the grid, one-time interconnection fees, and mandatory time-of-use (TOU) rates. Let’s look at each in turn.
As part of their rate schedules, the IOUs have certain rate components that are known as nonbypassable charges or NBCs. For example, if you were to look at SCE’s Domestic Rate schedule tariff page (check out page 3), you would see a whole host of factors that go into making up the rate that the customer ultimately pays. The decision affects three of those NBCs: the Nuclear Decommissioning Charge, the Public Purpose Programs Charge, and the Department of Water Resources Bond Charge. The sum of those three charges for an SCE residential rate payer comes to 2.224¢/kWh. (The lion’s share of which is the charge for public purpose programs, such as bill assistance to people on limited incomes.)
Under the old rules, solar customers would only pay for these charges on the net energy that they consumed in a month. So, if your consumption was 1000 kWh per month, and your solar system produced 800 kWh, you would only pay these charges on 200 kWh, about $4.45. Under the new rules, however, every kWh that you pull from the grid, whether it is ultimately netted out by energy you exported, is subject to NBCs. Sticking with the same example, of the 800 kWh that you produce, imagine that 500 kWh of that are consumed at your home and the remaining 300 kWh are exported. Meaning that you imported a total of 500 kWh from the grid. As a result, under NEM 2.0 you will pay NBC on 500 kWh — raising the charge from $4.45 to $11.12, and increase of $6.67/month on the solar customer’s bill.
The relatively small impact of the NBCs is due in part to solar industry lobbying that held the line at around 2¢/kWh versus a proposal, apparently favored by the two dissenting Commissioners, to include more charges that would have brought the total above 4¢/kWh. (Indeed, we are told that keeping the NBCs at 2¢/kWh is what caused those two Commissioners to vote against the final package.)
Frankly, we think the NBC costs are fair. The programs supported by the NBCs are a public benefit and all other customers pay for those based on every kWh they pull from the grid. Under the new rules, so will solar customers. Of course, if you are in a lease and only saving $20/month from your old bill, this is a much bigger hit. Yet another reason to avoid leasing!
Also reasonable was the imposition of one-time interconnection fees to be set based on the IOUs actual cost of handling the interconnection. The CPUC estimates that the fee will be somewhere between $75-150. (Recall that SCE advanced a $75 fee as part of its proposal, so it will be fascinating to see if they try to come back for a higher fee now!)
The biggest hit to solar mandated by the NEM 2.0 rules was the requirement that solar customers get switched over to TOU rates. (SCE is moving all customers to TOU rates eventually, but that target date is 2019.) Under TOU rates, you pay more for your energy depending upon the time of day when you use it, as opposed to being on a tiered rate schedule where you pay more when you use more during a billing cycle. For residential customers, SCE sets its peak charge time as the hours between 2 and 8 p.m., and Noon to 6 p.m. for commercial customers. This means that, for residential customers, solar exported to the grid before 2 p.m. will be valued less than energy that needs to be pulled from the grid after the sun goes down, but before 8 p.m.
It is this change to the rate structure, and to a lesser extent the imposition of the full NBCs, that makes intelligent energy storage that much more valuable. With smart storage, you won’t export energy during the day, you will store it for later use. That reduces the total amount of energy pulled from the grid (lowering the NBCs) and allows you to shift the availability of the energy to the evening so as to avoid peak TOU rates altogether. There can be no doubt that this is the future for how solar installations under NEM 2.0 (and likely beyond) will be the most cost-effective. We are optimistic that by the time NEM 2.0 goes into effect for SCE clients in our service area, we will have an intelligent storage solution to offer.
So when does all of this go into effect? As we noted above, at the very latest, the new rules go into effect on July 1, 2017. Most likely, however, they will go into effect sooner than that since the actual start date is tied to when the IOU reaches its 5% cap. In SCE territory, the following NEM report is informative:
SCE’s total customer aggregate demand, the basis for the 5% cap, is 44,807 kW. 5% of that is 2,240 MW of solar installed. As of the end of December, 2015, SCE had 1,388 MW of solar either installed or with net metering agreements in place, leaving 852 MW remaining under the cap.
The report also shows that applications for 48.1 MW of new solar were received during the month of December. If we take that number as a fair monthly average, we can expect SCE to reach its cap in 17 to 18 months. So to lock-in your system under the existing rules, you will need to have your net metering application complete and on file with SCE before then (May-June 2017). We will continue to update on the status of SCE’s progress toward its cap.
On the whole, the solar industry dodged a bullet, especially when you look at the latest battles over NEM in other states, like Nevada. This success is a tribute to the thousands of people who took the time to advocate for solar, whether they be our trade association, CALSEIA; individual solar companies, like Run on Sun; or solar customers who reached out to inform the Commission of the true value of solar. Not lost in the debate was the importance of solar as a job creation engine in California.
Moreover, the political climate in California, from the Governor on down, has been strongly supportive of solar and they deserve our thanks as well.
We would love to hear your thoughts and if you have questions that haven’t been answered here, please leave them in the comments and we will do our best to address them.
You may have heard that there are forces afoot - brought to you by the investor-owned utilities - that would lead to a “catastrophic” diminution of savings from solar power systems. Stories from the LA Times, to CNBC, to even the Motley Fool all are proclaiming that change is coming to solar and the end is in site for any real solar savings. To which we say - not so fast. Take a deep breath and read on to see our take.
For example, just today the LA Times ran a story in the Business section quoting solar customers who were “just so angry” over not having access to renewable energy credits (RECs) under the state’s new renewable energy targets law. Yet, that isn’t a change to past practices – no residential client has been able to sell RECs on the open market.
Similarly with the upcoming changes in the state’s net metering rules - while the investor owned utilities, including our own Southern California Edison, are lobbying like mad to make solar less economically appealing, no decision has yet been reached. Moreover, the California Public Utilities Commission (which is charged with resolving this issue) has consistently sided with the solar industry, and most likely will do so now. If they don’t, there will still be the option of seeking a legislative fix before the new rules can go into effect.
And that raises yet another point that counsels for a less breathless approach to all of this: the new rules won’t take effect for at least a year, and clients who install solar before then are locked into the present, solar-friendly net metering rules for the next twenty years!
So let’s recap:
But there is one catch here - the second half of 2016 is poised to be crazy with lots of consumers trying to get their projects completed in time to take the tax credit. This will invariably lead to a real crunch and folks who wait too long will miss out. If solar is in your plans for 2016, the time to get started is now!
Smokey the Bear knew a thing or two about urgency, and appropriating his call to action seems particularly apt right now. Today, rooftop solar is under concerted attack before the California Public Utilities Commission (CPUC). If we are to maintain the growth of solar, with its tens of thousands of jobs here in California, as well as its huge benefits in reducing air pollution - particularly greenhouse gas emissions - we need YOU to act now.
Our friends over at Vote Solar, along with the California Solar Energy Industries Association (CalSEIA) are working to beat back the insidious proposals coming from the Investor Owned Utilities - including SCE - to gut net metering and impose taxes on those who invest in rooftop solar. If those proposals were to be adopted, much of the economic value of solar could be destroyed.
But it doesn’t have to be that way. The CPUC is a poltical entity and like any political entity, it responds to pressure from the public. We cannot match the economic clout of the IOUs, but we can beat them the old fashioned way - by standing up for solar!
It’s easy - just click on this button:
When you do, you will go the Vote Solar website where you can add your name to the list of concerned Californians who want to preserve the many benefits of rooftop solar. Please pass this word on to your friends and colleagues and urge them to get involved too!
We can win this fight - but we need YOU now!
Regular readers of this blog will know that solar-friendly policies are under constant attach by the utilities, especially the three Investor-owned utilities (or IOUs as they are known), PG&E, SDG&E and our own SCE. Well they are at it again, with rate proposals before the California Public Utilities Commission (CPUC) that could harm both solar and energy efficiency measures alike. Fortunately, we have an opportunity to have our say - here’s our take. (H/t our friends at CalSEIA.)
Current policies in California, most notably net metering, along with a tiered rate structure (whereby you pay more for electricity as you use more) have provided powerful incentives not only for consumers to install solar, but to also take proactive measures to reduce their energy consumption. As a result, energy use in California over the past twenty years has grown slower than the growth in population despite the explosion of new electronic devices in homes and businesses during that time. Indeed, California has lead the way for the rest of the Nation, proving that you can have a twenty-first century lifestyle and still reduce your energy demand.
In other words, these policies have been a success.
The proposals being floated at the CPUC would change rates throughout the three IOU service areas (i.e., much of California) and threaten that success. In particular, they are seeking to add a flat, monthly fee to everyone of $10 to all bills, regardless of use and to reduce the number of tiers from four to two. In addition, the rate for the lowest tier would increase, making this a double-whammy not just to solar owners, but to the poorest electric customers who will see a rise in their rates. (So much for the utilities’ concern over hurting the poor!)
Fortunately these changes are not yet cast in stone and the public, particularly advocates for solar and energy efficiency, have a chance to have their voices heard. The CPUC is holding a series of public hearings, some in the Run on Sun service area, as well as others around the state. Here are the upcoming hearings:
September 29, 2014
2:00 pm & 6:30 pmFontana City Council Chambers 8353 Sierra Avenue Fontana, CA 92335
September 30, 2014
2:00 pm & 6:30 pm?Temple City Council Chambers 5938 Kauffman Avenue Temple City, CA 91780
October 2, 2014
2:00 pm & 6:30 pmPalmdale City Council Chambers38300 Sierra Hwy, Suite APalmdale, CA 93550
October 9, 2014
2:00 pm & 6:30 pmHoliday Inn Chico – Conference Center685 Manzanita Ct.Chico, CA 95926
October 14, 2014
2:00 pm & 6:30 pmFresno City Council Chambers2600 Fresno StreetFresno, CA 93721
We are planning on attending the hearing in Temple City. If you attend one of these important hearings, please let us know about your experience in the comments.
UPDATE - On January 28, 2016, the CPUC issued their final decision on the successor tariff for net metering (known as NEM 2.0). You can read our analysis of that decision and the upcoming changes here.
When Governor Brown signed AB327 last October, one thing was clear: net metering as we presently know it was going to go away, we just didn’t know how soon. Now, thanks to a ruling yesterday by the California Public Utilities Commission (CPUC), we know: 20 years. Here’s the scoop.
Around the country, utilities have been pushing hard against net metering—the tariff under which solar customers receive credit for surplus energy production (say during the day when no one is home or on a weekend when a commercial facility is dormant) that offsets energy consumed from the grid (for example, at night). The solar customer’s bill reflects the “netting out” of those two quantities (total energy exported versus total energy imported from the grid) and the customer only pays for the difference. If the solar customer is a net energy producer (quite rare), the utility has to cut the customer a check for the surplus. (Unless you are an LADWP customer, sorry.) Last year’s bill sought to end the squabbling and provide certainty to solar customers.
Under the law, the CPUC is required to devise a replacement for the current net metering arrangement, but yesterday’s ruling does not disclose what that will be. Instead, the ruling establishes a sundown provision for customers who are either currently, or will become net metering customers under the current rules before July 1, 2017 (at which time the present net metering rules will be closed to new participants).
Solar system owners will be entitled to operate their systems under the net metering rules for a full 20 years from the year in which they interconnect their system. That, decided the CPUC, will provide sufficient time for solar customers to recoup their investment. However, solar customers can transition to the new rules, whatever those may turn out to be, sooner at the customer’s election. The year of interconnection is determined by the date on the Permission to Operate letter received from the utility, and the twenty-year term ends on the last day of the twentieth year.
What happens to systems that are modified after July 1, 2017? Does the new portion of the system get its own 20-year net metering extension or is it simply subsumed into the term for the original system? The CPUC split this into two possible scenarios: repairs or modifications that did not increase system capacity by more than 10% of the original design will operate under the original 20-year term, neither resetting or ending it. But system changes beyond the 10% limit will either have to be metered separately, or the entire system will have to be transitioned to the new tariff structure.
The next question to be resolved was what happens if the system is sold or relocated? After all, many solar customers purchase systems expecting it to increase the value of their home—but if the sale eliminates the net metering agreement, that added value could be lost. The utilities, of course, disdained any such concerns, arguing that the net metering term should be tied to the original owner only.
Fortunately, the CPUC sided again with solar system owners. Thus, systems will remain under net metering for the full twenty-year term, regardless of changes in ownership, as long as the system remains at the original location. However, if the system is physically moved to a new location, the CPUC deems that to be a new interconnection and the old net metering agreement would no longer apply.
The decision yesterday also took an important step in addressing the impact of adding energy storage systems to an existing solar system operating under the twenty-year net metering rule. The CPUC ruled that “to the extent that energy storage systems are considered an addition or enhancement to a renewable electrical generation facility utilizing a NEM tariff, we find that they should be treated in the same way, and subject to the same transition period, as the underlying renewable generation system to which they are connected.”
The July 1, 2017 deadline is an absolute cutoff, but the actual end of new net metering agreements can actually be reached sooner if the utility in question has reached its “net metering cap.” The CPUC previously set the cap at 5% of the utility’s “non-coincident aggregate peak load.” To allow perspective solar customers to know if their utility is going to hit that peak before the July 1, 2017 deadline, the CPUC ordered the three IOUs to report to the Commission (and on the utility’s website), on a monthly basis, their progress toward that cap.
Finally, the ruling addressed whether solar installers should be required to provide prospective clients with disclosures about the ruling, specifically as to the duration and limitations on existing net metering agreements. According to the decision, IREC and SEIA opposed such a requirement on the grounds that it exceeds the authority of the CPUC. As a legal matter, that may well be true, but SEIA’s position strikes a sour note. Frankly, the solar industry is in serious need of mandated, standardized disclosures on everything from system components, warranties, energy yield, true costs, etc., to say nothing of issues surrounding the changes to net metering. SEIA should be producing model documents for its member installer companies to use and drafting model legislation to mandate their use.
In any event, the CPUC punted the requirement issue for installers, saying:
Solar installers have a legal [citing Business & Professions Code § 17500] and ethical responsibility to disclose to their customers the terms that will apply to renewable distributed generation systems for the foreseeable future, including the applicable tariffs as well as the timing and terms for transition to a successor tariff. Such disclosures provide customers with the information that they need to make educated decisions about their future electric service. Because of this, we expect solar installers to provide honest and complete disclosures on the NEM transition, and we encourage customers to report to the appropriate authorities any misleading or fraudulent information that may be provided to them. At the same time, we require the large IOUs to post information on the NEM transition clearly on their Web sites along with other information about NEM terms, eligibility, and progress towards the statutorily mandated transition trigger level.
Of course B&P section 17500 is entirely generic and provides no guidance as to what disclosures solar companies should provide to their potential clients. Clearly this is an area that requires legislation and California, as the most mature solar market in the country, should be leading the way here.
As for Run on Sun, we will revise our Return on Investment materials to reflect a 20-year window instead of the 25-year model we have used previously. Hopefully that will provide clients with a more accurate estimate of their true ROI.
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