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Net Metering in California, A Solar Energy Concept

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If you’re unfamiliar with Net Metering (NEM), please read my last blog post – Net Metering 101, A Solar Energy Concept. This post dives deeper into California’s NEM policies as they are a leader in the solar industry and in NEM regulations and laws.

Since 1995, California law has required NEM policies to be in place to provide the incentives to customers using distributed generation (DG) such as solar and wind. This article provides an explanation of the statutory and regulatory framework about how NEM works in California.

Scope of Utility NEM Programs

Prior to 1995, the only form of NEM service in California that was available to customers of the three investor-owned utilities (IOUs) -  PG&E, SDG&E and SCE - was very limited. In 1995, however, access to NEM for smaller customers was allowed when Section 2827 was added to the Public Utilities Code requiring the IOUs to offer tariffed NEM service to residential customers who installed solar or wind DG systems up to 10 kW. The NEM statutory regime has since been amended and expanded several times since, and has been further expanded by the California Public Utilities Commission (CPUC), such that the large IOUs are currently required to offer tariffed NEM service to both residential customers and non-residential customers who install solar, wind, hybrid solar-wind, biogas or fuel cell DG systems up to 1 MW.[1]

Any retail customer located in an IOU service territory and who meets the applicable eligibility requirements may take service under the IOUs’ NEM tariffs. At the same time, however, Section 2827 “caps” the overall size of the IOUs’ NEM programs, in terms of the aggregate capacity of DG installed by customers taking service under the IOUs’ NEM tariffs, at 5% of each utility’s “aggregate customer peak demand.”[2]

The below sections denote different types of energy customers and how NEM affects them, and includes:

  • Bundled Service Customers (those customers being served only by the utility)
  • Direct Access Customers (customers being served by a competitive retail supplier)
  • Miscellaneous Customers

Bundled Service Customers (those customers being served only by the utility)

Under the current NEM statutes, the utility charges against which eligible “customer-generators” that purchase their electricity from their local utility, also known as bundled service customers, are to receive credits depending on the type and size of the DG system a customer installs.[3] The availability of NEM credits to bundled service customers with different types and sizes of DG systems is summarized in the following table:

Table 1.  NEM Credits Available to Bundled Service Customers (circa 2013)

Customer-Generator Type Generation Credits T&D
Solar up to 1 MW
Wind up to 50 kW
Wind 50 kw-1 MW -
Biogas up to 1 MW -
Fuel Cell up to 1 MW -

Direct Access Customers (customers being served by a competitive retail supplier)

In January 2013, a coalition of Energy Service Providers (ESPs) and Direct Access (DA) customers filed a petition with the CPUC requesting that the Commission issue an order clarifying the obligation of the IOUs to make service under their NEM tariffs available to DA customers in a fair and non-discriminatory manner and receive the full benefits including not only generation credits provided by their ESPs for net energy production, but also T&D credits from the IOUs.”[4] Southern California Edison (SCE) subsequently agreed to revise its NEM tariffs accordingly, and the petition was withdrawn.

Accordingly, under all three of the IOUs’ current NEM tariffs, DA customers are eligible to receive billing credits for excess generation flowed back to the grid as follows:

Table 2.  NEM Credits Available to DA Customers (circa 2013) 

DA Customer-Generator Type Generation Credits T&D
Solar up to 1 MW ESP provides IOU provides
Wind up to 50 kW ESP provides IOU provides
Wind 50 kw-1 MW ESP provides -
Biogas up to 1 MW ESP provides -
Fuel Cell[5] up to 1 MW ESP provides -

Miscellaneous Customers

  • NEM Aggregation – On September 20, 2013, the CPUC issued a statute authorizing NEM-eligible customer-generators with multiple meters to elect to aggregate the electrical load of the meters located on the property where their generation facility is located, and on all property adjacent or contiguous to the property on which the generation facility is located, if those properties are solely owned, leased or rented by the eligible customer-generator, and if the Commission made a determination that permitting NEM-eligible customer-generators to aggregate their load from multiple meters will not result in an increase in the expected revenue obligations of customers who are not eligible customer-generators. In response, the Commission: (1) finds that “allowing eligible NEM customer-generators to aggregate their load from multiple meters, pursuant to SB 594, will not result in an increase in the expected revenue obligations of customers who are not eligible customer-generators”; and (2) orders the IOUs to modify their NEM tariffs to file advice letters implementing the meter aggregation provisions of SB 594. The IOUs’ implementing advice letters needed to be filed on or before October 4, 2013.
  • Virtual Net Metering – Under the Virtual Net Metering (VNM) program, customers of record for multi-tenant and multi-account properties are allowed to allocate electricity generated from a single renewable DG system to other accounts on the same property as kWh credits. Originally limited to multiple family affordable housing properties with solar PV systems, the CPUC expanded both the types of customers and generation technologies eligible for VNM in July 2011 to allow all multi-tenant and multi-meter properties (including commercial and industrial properties) and all technologies that are eligible under the utilities’ “full retail” NEM tariffs to participate in VNM, 5 provided that the customer is served by a single service delivery point.[6]
  • NEM Program Cap – Section 2827 provides that the three large IOUs are required to offer NEM service to eligible customer-generators located in their respective service territories on a first-come, first-serve basis only until the total rated generating capacity used by eligible customer-generators exceeds five percent of the utility’s “aggregate customer peak demand.”6 In May 2012, the Commission clarified that the “aggregate customer peak demand” upon which the 5% “cap” is to be based is the highest sum of all customers’ individual peak demands, or their non-coincident peak demands, in a calendar year.[7] In the same decision, the Commission clarified that “no utility shall be relieved of its obligation to offer net energy metering to renewable customer-sited generation until it has reached its target for solar photovoltaic capacity under the California Solar Initiative.”7 The practical effect of the Commission’s clarification of “aggregate customer peak demand” is to significantly increase the potential size of the IOUs’ NEM programs. Based on the IOUs’ most recent update advice letter filings, their respective NEM program caps and estimated remaining room thereunder are as follows: 

Table 3.  5% NEM Program Cap by IOU (Estimates as of August 31, 2013) 

5% Cap 2,408.8 2,240.3 606.7
Subscribed (MW) 879.9 581.2 184.1
Subscribed % 1.8% 1.3% 1.5%
Unsubscribed (MW) 1,528.9 1,659.1 422.6
Unsubscribed % 3.2% 3.7% 3.5%

Draft Study on NEM Cost Effectiveness – On September 26, 2013, the CPUC issued a draft study of the costs and benefits of the three large IOUs’ NEM programs. The study was commissioned to fulfill the requirements of Assembly Bill (AB) 2514 (Bradford, 2012) to study “who benefits, and who bears the economic burden, if any, of the net energy metering program” by October 1, 2013. The study also serves as an update to the CPUC’s 2010 NEM Cost‐Effectiveness Evaluation. As reported in the trade press, the draft study finds that the IOUs’ NEM programs could shift over $1 billion per year in costs to customers who do not participate.[7] It is widely anticipated that the study’s findings could impact the CPUC’s ongoing deliberations on future residential rate design, but are not necessarily expected to impact the IOUs’ NEM offerings to non-residential customers.

[1] Pub. Util. Code §§ 2827(b)(4)-(5) and 2827.10(a)(3).

[2] See footnotes 14-16 below and accompanying text for further discussion of the 5% “cap” on the size of the IOUs’ NEM programs.

[3] Pub. Util. Code §§ 2827(g)-(h), 2827.8(b) and 2827.10(e)(2)(A).

[4] Petition 13-01-016 (filed January 11, 2013).

[5] Multifamily Affordable Solar Housing (MASH) program participants remain the exception to the single SDP limitation in the VNM program.

[6] Decision 12-05-036, p. 1 and Ordering Paragraph 1.

[7] “Study Finds Costs to Net Metering,” California Energy Markets, Issue No. 1251, p. 6.

Posted: November 09, 2013