SR-02-11-2014-13Ai�Ca•'i'i'C'ri'r�lfi�°�aZC!
To: Mayor and City Council
From: Councilmember Winterer
Date: - Fbbruary 11, 2014
13-A: Request of Councilmember Winterer that the Council direct staff to
advocate that the California Public Utilities Commission implement a 30
year transition period for changes to net metering contracts for existing
solar electric facilities, as prescribed by AB 327.
• 0
AB 327 Threatens Existing Solar and Renewable Projects I PublicCEO
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Local Governmen,
Solar AB 327 Threatens Existing - - r
Projects
Local Governments - Exclusive — 05 February 2014
CPUC Deciding
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In October 2013, Gov. Jerry Brown
signed into law Assembly Bill 327
that may significantly change the
economics of roof -top solar and
similar renewable energy projects for public agencies, businesses and homeowners. In part,
AB 327 alters the state's net energy metering (NEM) law by permitting the California Public
Utilities Commission (CPUC) to modify these standard contracts and tariffs for existing
customers of California's investor -owned utilities (IOUs) -San Diego Gas & Electric, Pacific
Gas & Electric and Southern California Edison, after the end of a CPUC- determined transition
period. Once this transition period is over, existing NEM projects will likely be subject to less
solar - friendly, higher -cost NEM contracts. The CPUC is currently considering how to structure
the transition period, and parties have proposed widely different transition periods (five years
versus 30 years). Anyone with an affected renewable project can and should provide their
input to the CPUC.
http: / /www.publicceo.conY2Ol4 /02 /ab- 327 - threatens- existing - solar -and- renewable - projects/ 2/6/2014
AB 327 Threatens Existing Solar and Renewable Projects I PublicCEO Page 2 of 5
Smaller renewable energy projects like roof -top solar have become an important way in
which California hopes to meet its goal of 33 percent of renewable energy by 2020. NEM is
an important tool for solar projects, in particular to ensure such projects are economically
viable. Current NEM contracts permit customers to use the grid like a battery, feeding energy
into the grid and rolling their meters backwards during the day and then utilizing these
credits during the night.
The current NEM structure has been criticized by California's three IOUs, arguing that NEM
customers are not paying for enough of the transmission and distribution costs. These
concerns have especially focused on residential customers as studies have found that
nonresidential customers under NEM contracts, such as public entities, actually pay
significantly more than their share of such costs.
AB 327 responds to the utilities concerns by permitting the CPUC to develop a new NEM tariff
for future NEM projects taking service beginning July 1, 2017 or when the IOU reaches an
existing statutory cap on eligible renewable projects. A tariff is a CPUC- approved rule or
regulation that applies to an IOUs' customer. In this context, it is helpful to consider the tariff
as the standard NEM contract for all customers, and tariff and contract can be used
interchangeably. This new tariff will presumably reduce NEM customers' energy cost savings
by providing less of a credit for energy generated and fed into the grid.AB 327 does not limit
this change to new projects. It also directs the CPUC to determine a "transition period" for
current customers to continue under the existing NEM tariff before being subject to the new
NEM tariff. The CPUC is required to consider a "reasonable expected payback period based on
the year the customer initially took service" when establishing the transition period.
This provision will have a very large impact on all existing NEM customers, including public
agencies. When customers invested in renewable projects, they did so with the
understanding that they would benefit from the current NEM structure and receive the
expected energy savings for the life of the system. Reducing these savings may affect the
economic viability of existing projects.
Renewable stakeholders opposed AB 327 when it was being debated and requested that
existing NEM customers' investments be protected. Unfortunately, amendments to AB 327
did not directly address these concerns. However, in signing AB 327, Brown stated, "I expect
the Commission to ensure that customers who took service under net metering prior to
reaching the statutory net metering cap on or before July 1, 2017, are protected under those
rules for the expected life of their systems."
http: / /www.publicceo.com/ 2014 /02 /ab- 327 - threatens- existing -solar -and- renewable - projects/ 2/6/2014
AB 327 Threatens Existing Solar and Renewable Projects I PublicCEO Page 3 of 5
The CPUC has already opened the NEM transition period proceeding and invited comments
from interested parties on how the transition period should be structured. This proceeding is
under significant time pressure as AU 327 requires the CPUC to establish the NEM transition
period by March 31. This short timeline has impeded participation. On Nov. 27, (the day
before Thanksgiving), the CPUC issued a ruling requiring parties to submit comments on the
transition period by Dec. 6 with reply comments due Dec. 16. While the CPUC ultimately
granted a short extension, comments and reply comments were submitted in December with
limited supplemental comments due on Jan. 6.
Numerous parties are participating in the proceeding. These parties have advocated for
widely divergent lengths in the transition period. PG &E and SDG &E have argued for a
standard 10 -year period through 2023 that would apply to existing projects. Projects
installed before 2016 would be subject to a six -year period, and projects installed in and
after 2016 would transition to the new NEM tariff in 2017 or when that IOU reached its
statutory cap. SCE proposed a standard 10 -year period through 2023. Other stakeholders
have argued for as much as a 30 -year transition period.
The IOUs maintain that the transition period should be limited to the average residential or
commercial customers' break -even point, the point at which the average customer recoups
the cost of its solar investment. The IOUs have been very dismissive of the governor's
statement. In fact, SDG &E has brazenly suggested it should be ignored and provides "no
basis" for the CPUC's consideration of the transition period. Other parties believe that early
adopters of renewable energy should not be penalized for doing so and should receive the
expected energy savings for the life of their projects.
This issue is especially important for affected public agencies. The IOUs calculated their
average break -even points by excluding all public projects and by including assumptions like
expected tax benefits that do not apply to public projects. This may result in a transition
period that does not fairly treat public agencies. In addition, many agencies' renewable
energy investments were authorized under statutes that require the agency to determine
that the investment would save energy costs. Simply focusing on break -even undermines
these findings.
While the initial comment period has finished, there are still opportunities for interested
agencies and parties to participate. In addition to potential future hearings and briefings, the
CPUC will be issuing a proposed decision within the next few months, and parties will be able
to comment on that decision.
http:/ /www.publiecco.conil2014 /02lab- 327 - threatens- existing - solar- and - renewable - projects / 2/6/2014
AB 327 Threatens Existing Solar and Renewable Projects I PublicCEO
Page 4 of 5
Through participation by the public sector, a strong cohesive message can be sent to the
CPUC that changes that may result in losses to those who have committed to renewable
energy generation are not an acceptable option. By participating in the CPUC proceeding,
public agencies can help affect the outcome.
Sophie Akins is a partner of Best Best & Krieger LLP and leader of the
firm's Renewable Energy Practice group, specializing primarily in solar and
renewable energy projects, proceedings before the CPUC and public
contracts. She also provides general governance advice to public entities.
Based in law firm's Indian Wells office, Akins can be reached at
Sophie.akins@bbl<law.com.
Joshua Nelson serves as legal counsel for multiple California cities from
88 &K's Sacramento office. In addition to general public agency
governance, he has experience assisting public agencies with code
enforcement, telecommunications, solid waste and general utilities
issues. He can be reached at johsua.nelson @bbklaw.com.
88 &K has formed the NEM Public Agency Coalition or "NEM PAC. "The NEM PAC gathers and
submits data regarding its renewable energy clients' investments, such as expected payback
periods, to ensure that the CPUC receives and considers such information in formulating its
proposed grandfathering period. If you are interested in participating in the NEM PAC, please
contact Ms. Akins at sophiovakin.s @bbk/aana.com or 619 -525 -1300.
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