As expected, the Glendale City Council yesterday voted to approve a Feed-in Tariff program patterned after programs that have failed. Here’s our final report, for now.
One clear tell that the FiT proposed by GWP was a non-issue: no other solar company bothered to comment on it before the City Council. As for the City Council itself, another tell - two of the five Councilmembers were participating via Skype and phone - but they both bailed after voting on the City’s budget but before the FiT came up for a vote.
Which left only me.
For the second week in a row, I was the only speaker to address the FiT. I pointed out to the Council the failure of the programs in Anaheim and Riverside - the models for the GWP program - to yield a single solar installation in more than two years. I reminded them of what we were told by the woman in Anaheim - that there is a difference between designing a program to meet the letter of the law and designing a program that works. I acknowledged that they were going to pass the ordinance, because they had been told that they had no choice - they were stuck with buying a pig in a poke. I encouraged them to revisit the issue in three months. If GWP was correct, and their program was destined for greatness, we would certainly know by then - but if I was right, perhaps it would be proper to revisit this program and try to design one that would actually work.
That argument received some traction with the Council - and I have already set the reminder for three months from now to revisit this with the Council. (Ironically, if you are speaking about something that is not on the agenda, they give you 5 minutes to speak, but for actual business before the Council, they only give you two. So when I return in September I will actually be able to layout my case in some detail!)
Once again, Councilmember Ontero picked up on what I said and asked Staff whether they had, indeed, designed a program that could only meet the letter of the law but not actually accomplish anything. And again, GWP’s Chief Assistant General Manager, Steve Lins responded but did not actually answer the question. Instead he brought up LADWP’s Ratepayer Advocate as complaining that LADWP was overpaying (an old argument that was rejected twice - by the LADWP Board and by the LA City Council).
Beyond that, Mr. Lins insisted that my complaints were that “my project” didn’t pencil out and that was why I was complaining. Of course Mr. Lins knows nothing about my motivations so his speculation was unjustified. For the record (since Council rules did not afford me an opportunity to respond), Run on Sun did not have a client that we were representing here - we were simply advocating for sound public policy in support of solar.
So the program is now adopted and we will wait and see how this plays out.
We attended Tuesday night’s Glendale City Council meeting to share our thoughts with Councilmembers regarding GWP’s proposed Feed-in Tariff. As might be expected, it was not an encouraging experience - here’s our report.
In our previous post analyzing the proposed FiT, we noted that essentially small players could not produce projects that would pencil out and only the very largest projects - 1.4 MW under the proposed guideline - would be economically viable. Given the limited size of the overall program - just 4.2MW - three of those largest possible projects would completely subscribe the program.
At the outset of discussion on this item, Glendale Mayor Dave Weaver commented that this was one of the most complicated staff reports he had ever seen and he implored staff to make their presentation something that lay people could understand. You can watch the full discussion in the clip below - my comments begin around the 11:00 mark.
However we heard something new during the staff presentation - by Senior Assistant City Attorney Christine Godinez - that surprised us: the contracts being offered under the FiT would not be for a set price for the duration of the contract, nor were they even contracts with an established initial rate that would be subject to an escalation provision going forward. Instead, we were told that the price would be adjusted every quarter with the new price applied to existing contracts!
We decided to follow-up on that point and spoke today with Ms. Godinez. She confirmed that payments under 20-year FiT contracts would change every quarter and cited the programs in Anaheim and Riverside (but not LA) as examples of that approach. Frankly, we do not see how any developer would agree to such an approach when, as Ms. Godinez conceded, the price to be paid could go up or down with no way to predict what it would do in advance. Think about it, what developer is going to spend hundreds of thousands of dollar to sell renewable energy based on a reimbursement rate that is solely and unilaterally under the discretion of the buyer? Indeed, does this even meet the definition of a long-term contract when the most important term - price - is undefined?
That got us to wondering what was really going on in Anaheim and Riverside and whether those programs had been successful. We were able to confirm that both cities have FiT programs that change their rates annually (as opposed to quarterly under GWP’s proposal) but we could not see any evidence of actual FiT installations in either City. We managed to speak to representatives of both utilities.
Ms. Carrie Thompson, an Integrated Resource Planner for Anaheim, explained that they do adjust their offered price each year but, contrary to what GWP is proposing, that price is then held fixed for the lifetime of the contract. (The price is presently 4.587¢/kWh - which is roughly where it has been since the program began in 2011. It is due to increase by 8/10’s of a cent on July 1 - but please, curb your enthusiasm.) But this is largely a theoretical difference since not a single project application has been submitted to the City since the program went live more than two years ago. Ms. Thompson, who was extremely helpful - calling us back twice to return our call - noted somewhat wistfully that there is a difference between “designing a program that meets the letter of the law and designing a program that works.”
“Jerry” from Riverside told us that their FiT price of 5.8¢/kWh is the same price they have offered since the program went live in 2011 and that it was tied to the City’s price for energy under long-term utility-scale renewable energy contracts with remote suppliers. He said that the City understood that at that price, there would be no developers building projects under the FiT because “it cannot make economical sense." Indeed, the City, “doesn’t want solar here” and in that sense their FiT “program” has been a success - there are no FiT projects in Riverside.
In other words, GWP is patterning its FiT program on two programs that were designed to fail and which have resulted in the installation of no solar whatsoever within their respective City boundaries!
Two other points - Councilmember Quintero (at 14:18 into the video) pointed out his concern that entrepreneurial individuals who might want to install solar along San Fernando road would be shut out of this program because the rate was too low. Of course, he is exactly correct - no commercial building owner is going to be able to participate in this program because of the low rate being paid and the tremendous lack of clarity about where payment rates will go in the future.
The second point concerns the comments from GWP’s Chief Assistant General Manager, Steve Lins. He sought to contradict my statement that there was no net-metered rebate program for commercial customers in Glendale. No, he said, there was a program - its just that it was over-subscribed last year (i.e., it ran out of funds without notice) and that there would be no funds for it this year because it has been over-subscribed in the past - “a victim of its own success." Of course, that is not a rebuttal of my assertion that no such program is presently available in Glendale.
In response to Councilmember Quintero’s concern, he responded that under the statute (SB 1332) they could only pay based on their avoided costs. But that, of course, is a misreading of the statute which makes avoided costs only one component to be considered. Here is the relevant text of the law:
The governing board of the local publicly owned electric utility shall ensure that the tariff adopted pursuant to subdivision © reflects the value of every kilowatthour of electricity generated on a time-of-delivery basis, and shall consider avoided costs for distribution and transmission system upgrades, whether the facility generates electricity in a manner that offsets peak demand on the distribution circuit, and all current and anticipated environmental and greenhouse gases reduction compliance costs. The governing board may adjust this value based on the other attributes of renewable generation. The governing board shall ensure, with respect to rates and charges, that ratepayers that do not receive service pursuant to the tariff are indifferent to whether a ratepayer with an electric generation facility receives service pursuant to the tariff.
SB 1332 - Public Utilities Code §399.32(d)
Moreover, because GWP released no information - nor held any public hearings - about how it calculated avoided costs, even that assertion is subject to question. Given that the stated purpose of SB 1332 is to “encourage electrical generation from eligible renewable energy resources… located within the service territory of, and developed to sell electricity to, a local publicly owned electric utility,” comparing avoided costs from large, utility-scale resources located far away is not an appropriate comparison.
Bottom line: GWP is proposing, and next week the Glendale City Council is almost certain to approve, a program that ignores the intent of the law and may well be in violation of it. One thing is for certain, very little, if any, renewable energy will be generated as a result of this program. And apparently - like in Riverside - that is the whole point.
Glendale’s proposed Feed-in Tariff combines all of the fee expenses associated with its Big Brother in Los Angeles with a payment rate that is just a fraction of what would be paid by LADWP. What could possibly go wrong?
We have gone through the FiT proposal from GWP and it is as bad as we had feared. Here are our thoughts and concerns.
We have been pressing GWP to provide us with details about their FiT since January. Emails sent to members of the GWP Commission were ignored. In March we received this Tweet in response to our continued questioning:
We are currently working on the rates and community meetings will be scheduled for May/June.Info. will be posted on meetings soon.Thank u
Well, meetings were held in June about GWP’s proposed rate increase, but they did not touch on the proposed FiT at all. To the best of our knowledge, no public meetings of any sort have been held by GWP in preparing its FiT proposal. Contrast that with the years of joint effort between LADWP and stakeholders to produce a program that managed to be over-subscribed in its first tranche.
Sadly, it appears that GWP is actively seeking to avoid public input into its FiT proposal. Indeed, even at the City Council meeting scheduled for tonight, this is not noticed for a public hearing, rather it is simply an action item.
There is one place where the design of the GWP FiT rivals that of its sibling - the magnitude of the fees being charged to participants. For the sake of discussion, we will assume throughout a 100 kW project being proposed in both locales. (GWP caps system size at 1.4MW compared to 3 MW in LADWP territory.) Both LADWP and GWP will assess the same types of fees: an application fee, an interconnection study fee (to determine how much the project owner will have to pay to get connected to the grid) and a refundable deposit based on the size of the system and which is paid back when the project goes live. Here’s the comparison between the two:
Initially the 100 kW project in LADWP will payout roughly twice what it will cost to proceed in GWP territory ($6,250 vs $3,135) but the bulk of that gets refunded when the project is online. So the true comparison is the non-refundable fees and there the two are nearly identical.
GWP’s published materials provide no guidance on what the actual interconnection costs might be - which adds to the uncertainty of the application process and makes it harder for a project developer to predict what her total costs might be. This was something that all of the stakeholders demanded of LADWP during the development of its program - but that does not appear to be a lesson GWP chose to learn.
While the fees being charged are comparable, the price to be paid for energy is not.
LADWP came up with a simple and predictable method for pricing its program, starting with a Base Price for Energy (BPE) that would step down with each tranche. To make sure that the ultimate price paid reflected the value of the energy being purchased, they also adopted Time-of-Delivery multipliers that increased the BPE by as much as 225% or reduced it by as much as 50%. LADWP’s first tranche BPE was 17¢/kWh - and that sold out in two weeks. The next tranche, set to open sometime in July, will offer a BPE of 16¢/kWh, and each subsequent tranche reduces by one cent.
The virtue of this approach is transparency and predictability. A project developer who anticipates submitting an application for a project in the time frame of the third tranche knows exactly what her return will be.
GWP’s method for setting its price is the exact opposite: opaque and entirely unpredictable. From the Council packet, here is their “formula":
(1) for energy delivered to GWP during the peak [offpeak] period, the avoided peak [ offpeak] period cost of energy that would otherwise be purchased from the spot or short-term market during the upcoming calendar quarter, using the MEAD_ ON [MEAD_OFF] forward curve ($/MWh), as posted by the lntercontinentaiExchange (Mead 230 Day Ahead Clearing Price) for on-peak and off-peak periods, respectively; plus
(2) the value of Portfolio Content Category One (PCC1) Renewable Energy Credits (REGs) based on recent actual transactions by GWP ($/MWh); plus
(3) the avoided greenhouse gas (GHG) compliance costs, which are the product of (a) the default carbon emissions rate expressed in carbon allowances/MWh times (b) the price of carbon allowances from the most recent auction conducted by the California Energy Commission ($/MWh); plus
(4) the value of avoided transmission and distribution losses that would occur if energy were purchased on the spot or short-term market and imported into Glendale (eight percent (8%) multiplied by the avoided peak [offpeak] period cost of energy).
The “formula” is to be calculated on a quarterly basis, presumably to provide a new value for FiT contracts entered into that quarter. So how can our project developer plan against this formula? She cannot, since every component is subject to market changes. Again, this increases the uncertainty around the program which will only serve to decrease participation.
GWP includes a sample calculation but commits to nothing, saying that the numbers offered are “illustrative only". Here’s their chart:
This means that if this were the pricing calculation to actually be used, GWP would be paying between 7.251¢/kWh and 9.292¢/kWh - which makes it a way worse deal than simply having a commercial solar system on a net-metering agreement. Oh wait, GWP isn’t offering commercial net-metering at this time.
The peak-time rate is paid, according to GWP’s materials, Monday through Saturday from six a.m. to 10 p.m., excluding holidays. However, since solar power systems without storage do not produce energy outside of those hours, the only time off-peak rates will be paid are on Sundays and holidays.
This rate is way lower than even LADWP’s Ratepayer Advocate urged - which was a BPE of 11-12¢/kWh - based on his study of 30 MW projects. And that BPE was still subject to adjustments of as much as 225% based on time of delivery. LADWP’s General Manager warned his Board that a FiT set at that level would not be subscribed - again, a lesson that GWP has apparently not learned.
So why the difference? The staff report notes that LADWP is higher (although it frames it in a way to make that as unclear as possible) but insists that “A simple comparison of GWP’s proposed FIT rates and those of other publicly-owned utilities is not possible, because these other utilities have adopted significantly different approaches." Really? Why is that, if they all must comply with the same state mandate? As always, the staff report remains obtuse: “There are multiple reasons for these differences, both in methodology and assumptions about avoided costs." But there is no discussion whatsoever about those differences or the justification for the radically different approach that GWP is proposing.
How does this compare in terms of actual amounts paid?
We previously calculated the earnings for a 100 kW system in Year 1 under LADWP’s FiT. For a BPE of 16¢/kWh - the price to be paid in the second tranche - the project owner would earn roughly $25,200 in Year 1, or roughly $463,000 over the twenty year lifetime of the project (allowing for system degradation of 0.9%/year).
To calculate the corresponding payment under GWP’s proposal, we would need to take the total kilowatt hours produced by the system and determine what percentage of those fall on holidays or Sundays. Looking at 2014, there are 10 federal holidays, none of which occur on Sunday. There are 365 days in 2014 (i.e., it is not a leap year) and so the total number of off-peak days would be 62, 52 Sundays plus 10 holidays. Our 100 kW system oriented at 180 degrees with a 10 degree pitch will produce roughly 152,000 kWhs in Year 1. Thus, the payment calculation is as follows:
For the exact same energy, our project developer is only going to earn 54% of what they would have made building the system in LADWP territory. Over the course of 20 years, that is more than $213,000 less revenue to the hapless project developer who chooses to build her project in Glendale.
How do these systems compare in terms of Return on Investment? Assume that our project developer can have her 100 kW system built for $4.00/Watt, making the install price $400,000. Factoring in an Operations & Maintenance expense of 0.5% of cost/year and tax rates of 39% federal and 10% state (applied solely for calculating the benefit of depreciation), yields an Internal Rate of Return of 11.1% with Payback in Year 6. Net earnings after 20 years (not adjusted for inflation) are $300,000.
But what of that same investment in Glendale? Now the IRR drops to just 4.1% with Payback taking twice as long, occurring in Year 12. Net earnings after 20 years? Just $87,000. So what project developer would choose to devote her energies - sorry, pun intended - into building her system in Glendale?
Of course, perhaps this is intended for folks playing at the upper limit of what is allowed - a 1.4 MW project - of which there could be exactly three in GWP territory at which point the entire FiT would be subscribed. Assuming a conservative economy of scale and imagine that such a project developer could build his system for $3/Watt. For such a developer the financials improve significantly with the IRR moving up to 7.1% and Payback in Year 8. Net earnings after 20 years? $1.8M.
So… if you are a high roller developer your investment of $1.4M earns you 43% after 20 years but the little guy earns half of that. The message seems clear: little guys need not apply.
Part of the point of the statute that demanded that GWP provide a Feed-in Tariff was to incentivize solar at all sizes. Why? Because small projects provide benefits that larger project do not, such as small business development and local jobs. LADWP recognized that - and created a carve-out in their proposal to insure that small projects would be built throughout the City of the Angels. Yet another lesson that Glendale failed to learn.
Having eschewed public input into the process of developing its FiT, GWP has sent the unmistakeable message that it simply does not care what the public thinks. The program that it has proposed will empower just a handful of large-scale developers - if even they elect to participate. But having waited until the last minute, GWP has put the City Council in an awkward position - it is unlikely that any Councilmember understands the nuances of this proposal well enough to push back and even if they did, how are they going to demand meaningful changes when staff has effectively managed to run out the clock?
It is unfortunate that in a city about to face a significant rate increase from their city-owned electric utility, this is the only game in town. There is no commercial rebate program in Glendale, even though such programs thrive just down the road in Pasadena. At best, this is an unfortunate missed opportunity. At worst, it is way worse. It will be interesting to see who submits FiT applications when this program finally goes live.
We have just learned that Glendale Water & Power has released the details of its proposed Feed-in Tariff program - one day before the City Council is expected to vote on it! We will post our thoughts tomorrow, but in the meantime, here are some links for interested readers:
From what we can suss out quickly, it appears that the FiT will pay a maximum (peak periods) of 9.292¢/kWh and a low of just 7.251¢/kWh - well below the base price of energy of 17¢/kWh offered by DWP in its initial tranche.
More thoughts when we have had a chance to review these materials.
Glendale Water and Power has started holding public workshops on its proposed rate increase - though still remaining mum about their mandated Feed-in Tariff program. Here’s an update.
As we reported before, GWP is poised to impose a rate increase over the next five years in excess of 24%. The first two of six scheduled public meetings to discuss the rate increase were held on Wednesday and Thursday and GWP posted their presentation materials from those meetings online. Here are some of the highlights from those materials:
Of course, in any systemwide rate increase like this, some customers will fare better than others. So who are the winners and losers? This chart is pretty definitive:
In each and every year of this five-year rate increase, residential customers are seeing higher rate increases than any other class of customer in Glendale! They aren’t looking at a 24% rate increase, their rate increase is 26.4% or 5.28%/year. In contrast, small commercial customers who do not exceed the threshold for demand charges (i.e., peak demand less than 30 kW) are seeing the smallest increases. (GWP’s spokesperson asserted that this result is mandated by Proposition 26.)
Unfortunately, there is nothing in the presentation about the reinstitution of GWP’s solar rebate program, and the GWP website simply advises customers to “check back again after July 2013." Of course, it would be more useful if GWP published its plans for that program - along with the FiT - and allowed the public time to comment and possibly improve the program.
At present, that doesn’t seem to be happening in Glendale.
So electric customers of GWP are going to see their rates increase substantially - albeit from a relatively low base at present - and the most effective tool that they could have to counter those increases, adding solar, remains in limbo.
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