3.1. Commission Authority to Set a Net Surplus Compensation Rate
3.1.1. Parties' Positions
The utilities raise the issue of whether the Commission has the authority to set an NSC rate given Federal Energy Regulatory Commission (FERC) jurisdiction over "the sale of electric energy at wholesale in interstate commerce."7 According to the utilities, when an NEM customer produces excess power but receives a bill credit, i.e., a credit against its retail purchases, FERC considers this "netting" to be a billing arrangement and not a wholesale sale. PG&E cites a 2004 FERC order that states:
...under most circumstances [FERC] does not exert jurisdiction over a net energy metering arrangement when the owner of the generator receives a credit against its retail power purchases from the selling utility. [Footnote omitted.] Only if the Generating Facility produces more energy than it needs and makes a net sale of energy to a utility over the applicable billing period would [FERC] assert jurisdiction. [Footnote omitted.]8
Thus, the utilities claim FERC does not assert pricing jurisdiction over NEM billing arrangements where there is no "net sale" of electricity. However, they contend that if a customer's generating facility produces more energy than it needs and makes a net sale of energy to a utility over the applicable billing period and receives direct compensation for excess electricity, i.e. a check or one time payment rather than a bill credit offsetting future purchases, FERC considers this net sale a FERC jurisdictional wholesale transaction. (PG&E, 3/15/10 at 33; SDG&E, 3/15/10 at 6; PacifiCorp, 3/1/10 at 3.)
SDG&E further asserts that the only time a state commission has a role in setting a wholesale rate is under the Public Utility Regulatory Policies Act of 1978 (PURPA), which establishes a separate framework applicable to qualifying facilities (QFs) and provides that the state adopted rate may not exceed avoided cost. (SDG&E, 3/15/10 at 5-6.) SDG&E notes that FERC recently confirmed this "avoided cost" requirement for state-set wholesale rates. (SDG&E, 7/23/10 at 4, citing 132 FERC ¶61, 047 (July 15, 2010).) Similarly, CARE, DRA, PacifiCorp, PG&E and TURN agree that recent FERC orders appear to preclude net surplus compensation unless it represents the utilities' avoided costs.
In contrast to these jurisdictional concerns, CALSEIA/EC, the City of San Diego, and IREC contend the state has the authority to set an NSC rate without restriction. CALSEIA/EC contend the question of Commission authority to set wholesale prices is irrelevant because "no seller is required to sell electricity to the utilities." (4/23 at 17.) Further, CALSEIA/EC assert that AB 920 requires the utilities to offer to compensate for net surplus as an incentive to increase energy efficiency and meet solar rooftop environmental goals. IREC contends that NEM is a "billing arrangement" and not a wholesale sale. Likewise, the City of San Diego considers the utilities' argument that NEM customer-generators must obtain certification as QFs as a creative barrier in order to pay NEM customers a lower rate for their net surplus generation. Both the City of San Diego and IREC note that wind and solar facilities with net power production capacity of 1 megawatt (MW) or less are no longer required to file a QF certification with FERC. (IREC, 4/23/10 at 11, fn. 26 citing FERC Order No. 732, 130 FERC ¶ 61,214 (March 19, 2010).)
In identifying the NSC rate to be paid to NEM customers, the Commission must consider both state and federal requirements. State law requires the Commission to establish a value for the NSC rate to be paid to NEM customers. Section 2827 requires that the NEM customer receive "just and reasonable compensation for the value of net surplus electricity, while leaving other ratepayers unaffected."9 Section 2827 also provides that "where appropriate justification exists" the NSC can include either or both of "[t]he value of the electricity itself" or the "value of the renewable attributes of the electricity."10 The statute then reiterates that in establishing the NSC the Commission shall ensure that it "does not result in a shifting of costs between solar customer-generators and other bundled service customers."11
When we consider federal law, we find the utilities are correct that FERC has held that a net billing arrangement is not subject to FERC jurisdiction so long as no "net sale" is made to the utility.12 In addition, FERC has held that transfers of net surplus energy by a net metering customer to a utility are wholesale transactions that may comply with either the Federal Power Act (FPA) or PURPA.13
A recent FERC order reiterates the Commission has a wide degree of latitude in establishing avoided cost rates under PURPA and clarifies that the concept of a multi-tiered avoided cost rate structure is consistent with the avoided costs requirements of PURPA. (California Public Utilities Commission, 133 FERC ¶ 61,059 (October 21, 2010) at 20 and 24.) As this FERC order explains, avoided cost rates under PURPA may "differentiate among [QFs] using various technologies on the basis of the supply characteristics of the different technologies." (Id. at 23.) The order further states that avoided cost rates for purchases from QFs must be, among other things, at rates that are not in excess of the "the incremental cost to the electric utility of alternative electric energy" which is further defined as "the cost to the electric utility of the electric energy which, but for the purchase from [the QF], such utility would generate or purchase from another source." (Id. at P 22.)
Thus, the Commission should implement the NEM Program pursuant to PURPA. Under such a program, the Commission should establish an NSC rate that does not exceed the utility's full avoided costs, but the Commission may differentiate an avoided cost rate for net surplus generators from the avoided costs rates currently paid to other QFs.
NEM customers eligible for NSC under AB 920 must use a solar or wind generation facility of not more than 1 MW. FERC has recently modified its regulations so that generating facilities of 1 MW or less no longer need to file a certification of QF status with FERC to be considered a QF. (FERC Order 732, 130 FERC ¶ 61, 214 (March 19, 2010) and 18 CFR § 292.203(d)). Accordingly, NEM customers can be considered QFs exempt from certification requirements at FERC and may receive net surplus compensation at a rate that does not exceed avoided costs, as determined by the Commission. As discussed further in the next section, for purposes of interconnection, the Commission would require each NEM customer to notify the utility that they are a QF exempt from certification filing. This notification should occur at the time the NEM customer affirmatively elects either an NSC payment or application of their net surplus to future usage, pursuant to Section 2827(h)(3), and can be easily accomplished by the utility creating a notification form that customers would sign when making their NSC payment election.
3.2. Authority over Interconnection
3.2.1. Parties' Positions
In addition to concerns over Commission authority to set the NSC rate, PG&E raises jurisdictional concerns regarding interconnection issues. PG&E is concerned that because FERC will consider payment for net surplus a wholesale sale, FERC will assert jurisdiction over the interconnection between an NEM customer and PG&E. PG&E is concerned that application of FERC interconnection rules to NEM projects could result in customers paying higher interconnection application fees ($500 to $1000), and subject them to costs for interconnection studies and distribution system modifications. (PG&E, 3/15/10 at 32-35 and 6/21/10 at 7.)
PG&E proposes three possible solutions to its jurisdictional concerns. It suggests the Commission: 1) file a petition asking FERC to disclaim jurisdiction over interconnection of NEM customers electing compensation for net surplus generation under AB 920; 2) require all NEM customers to be QFs as a condition for eligibility for NSC (and thereby able to use the Commission's Rule 21 interconnection procedures); or 3) ask FERC to approve changes to the FERC-filed wholesale distribution tariff so that the FERC jurisdictional interconnection rules are the same for NEM customers electing NSC as the rules for those not electing NSC. PG&E prefers the first option, a petition asking FERC to disclaim jurisdiction.
The City of San Diego agrees with PG&E that the Commission should ask FERC to disclaim jurisdiction. Joint Solar Parties, IREC, and CALSEIA/EC disagree with PG&E. They maintain that FERC interconnection rules do not impact NSC implementation and the Commission has clear jurisdiction over interconnection arrangements for NEM customers.
We share PG&E's preference for Rule 21 to govern interconnections of customers who receive NSC. Because this program is being implemented pursuant to PURPA, PG&E's second option is self-executing. As described in the section above, NEM customers opting for an NSC payment must self-designate as QFs to receive such a payment. This QF status entitles NEM customers to interconnect pursuant to the Rule 21 process without any further action by the Commission.
7 16 U.S.C. § 824(b)(1).
8 FERC Order 2003-A, 106 FERC ¶ 61,220 (2004) at P 747 (footnotes omitted) (FERC Order 2003-A).
9 Section 2827(h)(4)(A).
10 Sections 2827(h)(4)(A)(i) and (ii).
11 Section 2827(h)(4)(B).
12 MidAmerican, 94 FERC ¶ 61,340 at 62,262-63 (2001) (MidAmerican) and SunEdison LLC, 129 FERC ¶ 61, 146 (2009) at 18 (SunEdison). ("Where there is no net sale over the billing period, the Commission has not viewed its jurisdiction as being implicated; that is, the Commission does not assert jurisdiction when the end-use customer that is also the owner of the generator receives a credit against its retail power purchases from the selling utility. [citing to MidAmerican]").
13 See, e.g., both MidAmerican and SunEdison at ¶ 18. ("Only if the end-use customer participating in the net metering program produces more energy than it needs over the applicable billing period, and thus is considered to have made a net sale of energy to a utility over the applicable billing period, has the Commission asserted jurisdiction.")