PURPA

Will California Protect Customers’ Right to Self-Generate?

Should you be able to reduce the amount of energy you buy from your utility by generating your own power? Or does a utility have the right to demand that you buy all your power from them, even if you have a solar system on your roof?

This question is at the heart of California’s new proceeding to determine the future of net metering in the state. In comments to the California Public Utilities Commission in October, California’s three big investor-owned utilities argue that net metering should be unavailable to new customers after the current 5% program cap is reached, and that customers should have to move to a ‘buy all-sell all’ feed-in tariff (FiT) instead. Customers who want to go solar after 2016, the utilities argue, should no longer be allowed under state law to reduce the utility-generated energy they buy by generating their own renewable energy onsite. Instead, they want their customers to have to buy all the electricity they use from the utility, and sell all their onsite renewable generation back to the utility at a pre-determined price.

What price, you ask? Well, the utilities are all over the map on that one.

PG&E proposes the FiT price should vary by technology and should be set at “the avoided cost of the energy minus any costs incurred accommodating the generation that are not paid by the participating customer” (this would equal approximately 4 cents/kWh, minus integration costs). PG&E proposes an adder could be included if needed to allow continued growth of rooftop solar, with that adder declining over time.
SDG&E proposes that the FiT price should vary by technology like PG&E, but argues the price should be set based on production cost, rather than on the value of the energy to the rest of the system. (SDG&E follows up by proposing yet another alternative for determining the price: that it be based on the competitively-set ReMAT price already being used for systems of 1-3 MW.)
So Cal Edison agrees with PG&E that “the FiT rate should be based on market price benchmarks in the wholesale energy markets, such as the CAISO’s default load aggregation point (DLAP) prices” but says the price should not vary by technology and doesn’t suggest an adder to go on top of the short-run energy-only price.

We see some significant problems here. Foremost among them is that throwing out net metering and replacing it with a ‘buy all-sell all’ arrangement would be at odds with Americans’ fundamental right to self-generation. Net metering allows customers to first meet their own electricity needs with the clean energy they generate, and then receive full retail credit on their utility bill for excess electricity they send back to the grid. In California, about two thirds of the power generated from net metered systems is currently used by customers onsite. A FiT is something else entirely – the utility credits customers for all of their solar power production at a set price. In this situation, solar customers are no longer self-generators empowered to use their solar energy to primarily reduce their own load. They instead become power producers that must send all of their power to the utility.

A FiT that accurately values the net benefits of rooftop solar generation— fully building in public health, environmental, economic and grid benefits– is a fine option for those who want to be in the business of delivering power to the utilities, but it should be the customer’s choice whether they move to a FiT or choose to primarily use their solar energy onsite as a way of reducing their electricity purchases from the utility. PURPA, a federal law approved by Congress back in 1978, affirms this common-sense customer right to self-determination. (See our earlier blog post if you’d like to read our principles for designing an expanded net metering program, highlighting the importance of the right to self-generate.)

Beyond the issue of customer rights, there are other practical concerns. Arriving at the right FiT price to compensate customer-sited renewables is a difficult and contentious proposition. As outlined above, the utilities’ proposals for how that price should be calculated vary greatly from each other—and none inspire much confidence in reaching proper valuation. In fact, in recent years several CPUC proceedings considered developing value-based renewable procurement programs (AB 1969 expansion, AB 920 implementation, SB 32 implementation), and in each of those proceedings, utilities fought comprehensive valuation of clean energy tooth and nail. And the Edison Electric Institute, the trade association representing all investor-owned utilities in the US, has repeatedly stated its opposition to crediting distributed renewables with any value beyond the short term price of polluting fossil-fuel generation: see Greentech Media articles here and here. Until the monopoly utilities are willing to properly value distributed generation, a policy that secures value for customers by offsetting retail purchases is a much more pragmatic approach.

Net metering is a simple and proven policy tool for supporting self-generation, and has been enormously successful in California. The real issue here is rate design, where solutions are available, as noted in a recent DOE Sunshot paper that proposes three-pronged approach of revenue decoupling, a minimum bill and time-of-use rates that are gradually phased in for all customers. Since the CPUC is set to approve changes to residential rate structures in 2015 that will kick in over the next several years, we simply can’t know yet how the benefits of net metering to all Californians will stack up against costs (though a proper accounting of both sides is very likely to show continued net benefits for everyone). Meanwhile, California remains far from achieving its long-term goals to protect the climate, and we need to expand solar access to more Californians who live in disadvantaged communities. We hope that in 2015, solar supporters all across the state will come together to urge the CPUC take a common sense approach: extend and expand net metering beyond 2016, enabling more Californians to help tackle our collective climate challenge, and to control their own energy future.

11/17/2014 0 comment

Last fall we decided to intervene in a PURPA avoided cost docket in Colorado, opened by Xcel Energy, because we wanted to encourage the utility to improve the rates paid to solar generators. Instead we found ourselves in a battle over a fundamental protection that PURPA offers – the right to use the electricity that your solar energy system generates to power your property.

What’s a PURPA you ask? No, it’s not the larvae of a large insect. It’s the Public Utility Regulatory Policy Act, a Federal law that has been on the books since 1978. The law requires electric utilities to purchase power from renewable generators, known as qualifying facilities or “QFs,” at a price equivalent to the cost the utility avoids by making an alternative purchase. This rate is known as an ‘avoided cost rate.’

The purpose of PURPA was to encourage the development of small, distributed clean generators across the U.S. However, in practice, avoided cost rates for QF facilities haven’t resulted in a lot of solar development outside of a few states. And that’s because each State in the U.S. is given the jurisdiction to set their own avoided cost rates under PURPA, and they’ve tended to set those rates below retail. Most ‘solar generators’ (i.e. rooftop solar customers) don’t even consider registering as a QF facilities, and instead use net metering – with its fair and simple retail credit – as their compensation arrangement of choice.

Take a look at Colorado: after more than 30 years of having standard avoided cost rates in place for small QFs, the rate has encouraged the construction of a grand total of, wait for it, zero facilities. So last fall, when Public Service Company of Colorado (PSCo), the Colorado operating subsidiary of giant utility Xcel Energy, filed to take a fresh look and potentially change the calculation method for the QF rate for small-scale solar generators (100 kilowatt and smaller systems), we saw the potential opportunity for making this mechanism useful for actually deploying valuable solar. A PURPA-based avoided cost rate that properly quantifies DG benefits could better serve to promote local solar growth.

Our optimism was short lived however as we were able to dig into the details of Xcel’s proposal (only after the judge denied the utility attempt to prevent us from having full access to that information, but that’s another story). Not only is Xcel continuing to undervalue QF generation, the utility is also taking aim at its customers fundamental solar rights.

Under a PURPA QF arrangement – as with net metering – the host customer should first and foremost be empowered to use their generation on-site and then sell any excess energy to the utility. Yet in this new proposal, Xcel insists that the generator must sell 100% of its output to the utility, not allowing the owner to use his or her own power. We fundamentally disagree with this interpretation of PURPA and are pushing back hard against this position at the Commission. Vote Solar firmly adheres to the principle that customers have the right to manage their energy consumption and produce their own power. Whatever happens on the customer side of the meter is the customer’s prerogative, not the business of any utility. Xcel’s stance in this docket would give the utility too much power over a customer’s energy decisions, and take away a customer’s right to use their power onsite.

In addition to undermining customer solar rights, Xcel’s proposal also uses some questionable modeling techniques to undervalue rooftop solar in the resulting QF rate. I’m going to get a little into the weeds here, bear with me.

On an annual basis, the marginal costs it models and wants the Commission to adopt as avoided are less than average costs 5 out of every 6 hours. We take issue with the utility’s methodology. Given that utility systems are run by operating the cheapest unit first, the next cheapest second, and so on (known as economic dispatch), the marginal cost – the cost of generating the next kWh – should be higher than the average of all the cheaper plants already running. When we dove a little deeper, it turned out that the Company‘s modeling finds coal generation on the margin more than half the time. In the utility world, coal is known as a baseload resource meaning that it typically runs almost flat out nearly all the time. Why? Because it is expensive to start but cheap to run (at least if you don’t consider environmental impacts.) Call me crazy, but I am arguing that Xcel should use marginal costs that actually represent the costs that will be avoided when the QF is operating.

So what’s next for the QF docket in Colorado? We have just concluded the formal hearing on the small QF rates and have a couple more steps before we get a decision from the Commission in August or September. We will also concurrently be examining the avoided costs, or to put it another way, the ‘benefits’ of rooftop solar in another process at the Commission.

Our goals in these dockets are to protect the rights of customers to produce their own solar energy for on-site consumption – and to make sure that rooftop solar is properly and consistently valued in the various rate-related proceedings open before the Colorado Commission. Stay tuned.

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