4. Issues surrounding Net Energy Metering, VNM, and Bill Credit Transfer Tariffs
In D.08-10-036, the Commission established the MASH Program as a subset of the CSI program. The MASH program provides solar incentives to qualifying affordable housing developments. One component of the MASH program is VNM, which allows electricity generated from a single solar energy system on a multifamily affordable housing property to be allocated as kilowatt hour (kWh) credits to either common areas of the property or to individually metered tenant accounts, without requiring the system to be physically interconnected to each tenant's meter. (See D.08-10-036 at 31.)
The Staff Proposal made several recommendations surrounding VNM, either to modify aspects of it under MASH or to expand the benefits offered by a VNM tariff beyond the MASH Program to other utility customers. We discuss these proposals below. Section 4.1 discusses expanding VNM beyond the service delivery point for MASH program participants. Section 4.2 involves expanding VNM beyond the MASH program, although with the service delivery point limitation. Section 4.3 pertains to whether VNM should be expanded to all affordable housing customers and Section 4.4 considers expansion of a specialized tariff currently available only to local governments.
4.1. Service Delivery Point as VNM Boundary in the MASH Program2
As part of the VNM tariff established pursuant to D.08-10-036, the Commission required that each utility's VNM must:
Allow for the allocation of net energy metering benefits from a single solar energy system to all meters on an individually metered multifamily affordable housing property, without adversely impacting building tenants. (D.08-10-036 at 38.)
The Commission did not define what "affordable housing property" meant in terms of multifamily housing. Many multifamily affordable housing projects are actually comprised of multiple buildings on a single property, or on multiple parcels extending across the equivalent of several city blocks but under the same ownership. These housing complexes are often served by multiple utility "service delivery points" (SDPs). The SDP is defined in utility practice as the demarcation between the customer-owned electrical system and the utility distribution system. Typically, each multi-tenant building has one SDP that then serves multiple tenants or utility accounts. Generally, each tenant's apartment or unit is served by its own meter.
The Commission's Energy Division approved the VNM tariffs that were filed in compliance with D.08-10-036. As filed, the VNM tariffs limit the transfer of kWh credits to those utility accounts served by a single SDP. Some developers of MASH/VNM projects argue that this tariff provision has limited the viability of VNM for many potential affordable housing sites that have multiple SDPs. They have questioned whether "affordable housing property" should more properly be defined as "all units in a single affordable housing development" so that tenants served by different SDPs within a single development can benefit from VNM bill credits. Developers further claim their projects are stymied by the current implementation of the VNM tariffs and the utility should allow all units in a development to share credits from one or more MASH solar systems even if there are multiple SDPs.
In response to this criticism, the Staff Proposal recommended that the Commission should determine that the SDP is not the proper boundary for VNM tariffs for affordable housing projects. Instead, the Staff Proposal recommends the Commission clarify that VNM should be available to the entire affordable housing development, not just the units behind a single SDP, and direct the utilities to modify their tariffs accordingly. The Staff Proposal makes this recommendation for a change in the SDP limitation only for VNM applicable to affordable housing projects, and not for VNM if it were expanded to all customers.
In August 2010, PG&E filed Advice Letter 3718-E to temporarily address this SDP issue and the challenges it created for several affordable housing project developers, especially those facing financing deadlines in order to take advantage of American Recovery and Reinvestment Act of 2009 (ARRA) funding. As an interim measure and to address these ARRA funding concerns, PG&E proposed netting customer-generated power beyond the SDP but within the low income development. PG&E proposed defining "eligible low income development" as "all of the real property and apparatus employed in a single low income housing enterprise on contiguous parcels of land." (See PG&E Electric Schedule NEMVNMA, Tariff Sheet 1, Section (d).) The proposed tariff further specified that these parcels may be divided by a dedicated street, highway, or public thoroughfare or railway, so long as they are otherwise contiguous and part of the same single low income housing enterprise, and all under the same ownership. In the same advice letter, PG&E also proposed expanding VNM tariff eligibility to customers that meet MASH eligibility requirements but do not receive funding if MASH funds are fully subscribed. The Commission approved PG&E's advice letter and it went into effect on September 15, 2010, with a sunset date of December 31, 2011.
The Commission now faces the question of whether to adopt the Staff Proposal and expand VNM eligibility for affordable housing across multiple service delivery points for the other utilities, similar to the approval granted to PG&E's advice letter. A related question is whether the Commission should lift the sunset date in PG&E's advice letter, thus making the tariff changes permanent.
Several parties support the Staff Proposal's recommendation, namely CCSE, IREC, Joint Solar Parties, EcoPlexus, Everyday Energy, and Recolte. EcoPlexus maintains that the intent of the MASH decision was for VNM to encompass the entire affordable housing development and that if the SDP limit is not modified, or if PG&E's tariff is allowed to sunset, it will severely undermine and perhaps cripple the expansion of solar on multi-tenant properties. IREC echoes these concerns and contends the SDP is an unnecessarily restrictive boundary that excludes certain multi-tenant properties from VNM without sufficient justification. Instead, IREC suggests that a more logical boundary for multi-tenant properties to participate in VNM be based on the definition of an "eligible low income development" in PG&E's recent tariff modification, which allows the sharing of credits over multiple SDPs as long as the sharing occurs over contiguous parcels under common ownership.
CCSE claims that expanding the definition of an eligible property beyond the SDP will allow for greater economies of scale from multifamily solar projects. Everyday Energy asserts that the SDP limit currently contained in the VNM tariffs has added substantially to the costs of installations, reduced the efficiency of installations, and precluded some low-income customers from receiving the benefits of MASH funded projects. According to Everyday Energy, in most cases an entire MASH development could be served through the installation of solar facilities on only a portion of the buildings in the development.
Recolte endorses the concept of maximum flexibility for customers in transferring kWh credits, and it suggests that the Commission allow credits to be transferred throughout the utility's entire territory, removing the SDP boundary for VNM. According to Recolte, one of its clients incurred an additional $650,000 in expenses due to the SDP limitation, which affected the project's cost-effectiveness.
In addition, letters supporting the Staff Proposal were received from EAH, Eden Housing, Helio Micro Utility, and San Diego Interfaith Housing Foundation, who are all developers of multifamily affordable housing. These entities generally claim that the SDP limitation has negatively impacted their projects.
SDG&E supports the Staff Proposal to remove the SDP limit, but only for qualified low-income customers. It contends that if the Commission expands sharing of VNM credits beyond the SDP, then the Commission should adopt language limiting the arrangement to a single corporate entity owning a contiguous property, not divided by any public right of way. Similarly, SCE does not oppose removing the SDP limitation as long as the new limiting point for the transfer is the "customer's premises,"3 as defined in existing tariffs. SCE's proposed definition of premises appears similar to SDG&E's proposal, in that properties of a single owner may not be divided by a road or other public thoroughfare. In addition, SCE proposes to charge customers who share Net Energy Metering (NEM) credits across multiple SDPs for their use of the IOU's local distribution system. This proposed charge would apply the existing distribution rate to any energy produced by a generating account at one SDP that provides a credit to a benefiting account at another SDP.
In contrast, PG&E opposes the staff recommendation and argues that the transfer of kWhs across SDPs is "retail wheeling," which raises both policy and technical concerns. PG&E acknowledges that its Advice Letter 3718-E allows netting of generation beyond the SDP, but it contends this action was a stopgap measure to allow development of certain low-income projects that may have been designed and financed under a misunderstanding of how the VNM tariff works. Those projects should generally be completed by December 31, 2011. PG&E urges the Commission to maintain the sunset date of its VNM tariff allowing NEM credits beyond the SDP. Once the tariff sunsets, PG&E recommends the Commission once again apply the SDP limit for netting generation.
PG&E contends that the purpose of the SDP limitation is to limit the extent to which the utility grid is used to move power without compensation for that service. PG&E maintains that all NEM arrangements, including VNM, use PG&E's transmission and distribution (T&D) system to provide power to the customer's load when the solar system is not generating and to move power away when the system is producing more than the load behind the SDP requires. Thus, solar NEM customers are not fully covering the cost of T&D services and these costs are being borne by all other customers. PG&E alleges that this misalignment is accentuated if VNM is expanded beyond the SDP.
PG&E claims that the concept of transferring kWh credits beyond the service delivery point would be a significant departure from Commission precedent. For example, PG&E asserts that in D.03-02-068, the Commission considered and rejected "distribution only wheeling." (See PG&E, 12/6/10 at 5.) In addition, PG&E cites several instances where the legislature has provided customers the opportunity to generate power at a given location on the utility grid and to have it consumed at another location on the grid. In all those instances, PG&E asserts that customers have been required to cover the costs of transmitting and distributing the power and they receive only a generation credit at the point of consumption. 4 According to PG&E, the Staff Proposal to allow NEM credits across SDPs would encourage other utility customer groups, such as agricultural and local government customers, to push for other retail wheeling schemes, and this could substantially increase the costs borne by other customers.
PG&E urges the Commission to explore reasonable alternatives to expanding VNM beyond the SDP such as procuring power through a power purchase agreement (PPA) or using a feed-in tariff. In addition, PG&E suggests the Commission further explore SCE's proposal to charge the existing distribution rate for delivery of power beyond the SDP. At the same time, PG&E questions the need for any VNM modifications since the MASH program is fully subscribed in its territory.
Ecoplexus dismisses PG&E's wheeling arguments, maintaining that any use of distribution infrastructure for VNM beyond an SDP will likely be minimal and amount to a few yards as opposed to miles. Ecoplexus contends that the utilities have hundreds of substations which connect the distribution system to customer sites. Given the number of distribution substations maintained by the utilities, Ecoplexus maintains that the distribution system would be minimally impacted, and any distribution charge, such as the one SCE proposes, should be less than $.005 per kWh. It suggests a simple fee per month per meter, in the range of 25 to 50 cents, for a solar energy system owner to use VNM kWh credits at a different SDP which is more than 500 yards away.
Discussion. PG&E raises valid concerns over wheeling and the use of the transmission and distribution grid. However, its own VNM tariff contains limiting language to reduce the extent to which such wheeling would occur. Namely, any sharing of credits would be limited to a single enterprise on contiguous parcels. The parcels may be divided by a street, highway or public thoroughfare, as long as they are otherwise contiguous and part of the same low income housing enterprise, and all under the same ownership.
Moreover, the MASH program is very limited in scope and budget, and the extent to which credits will be shared over multiple SDPs is minimal. One of our MASH program goals is to allocate the benefits of solar energy systems to all tenants on the affordable housing property. The current limitation that VNM credits may only be shared if served by a single SDP hampers our ability to meet this goal and has jeopardized otherwise viable projects. We will lift this SDP limitation and allow VNM credits to all tenants of the affordable housing development as long as the development matches the description in PG&E's current NEMVNMA tariff that it is a single enterprise on contiguous parcels under the same ownership.5 Therefore, we will direct SCE and SDG&E to revise their VNM tariffs to match the revision to PG&E's NEMVNMA tariff. In addition, we will direct PG&E to remove the sunset date from its VNM tariff language.
4.2. Expansion of VNM to All Customers6
Staff recommends that the Commission expand VNM to all multi-tenant or multi-meter customers - namely residential, commercial, and industrial customers - not merely those that qualify for the MASH program, as long as the customers who receive the credits are all behind the same utility SDP. Unlike the previous section where staff proposed, and we approved, sharing across multiple SDPs for those served by the MASH program, staff recommends that transfer of credits for all other multi-tenant or multi-meter customers be limited to accounts served behind a single SDP. Staff suggests that as long as VNM credits are transferred between the accounts served by a single SDP, there should be no significant cost-shifting between customer classes.
Many parties support the Staff Proposal to allow any multi-tenant property to take VNM service. Parties in support include Ecoplexus, the Joint Solar Parties, CCSE, Recolte, Everyday Energy, IREC, and CCSF. Ecoplexus and IREC note that many residential renters and small businesses that rent retail or office space fund CSI through their rates but are unable to apply for incentives. They claim that VNM expansion is needed to allow these customers to benefit from CSI. IREC believes the SDP barrier should be removed and the Commission should allow contiguous parcels managed as part of the same development, even if divided by a street, highway, public thoroughfare or railway, to participate in VNM. IREC contends that use of the grid would be so minimal as to hardly warrant a charge on the bill. Recolte supports expansion of VNM where customers could share kWh credits to any customer in the entire investor-owned utility (IOU) territory, not just behind an SDP. It suggests allowing the utilities to charge customers a fee per linear foot from the point of generation to the SDP of the account being offset. It also suggests the Commission allow a VNM tariff for all renewable technologies, not just solar. The Joint Solar Parties and CCSE both maintain that if VNM is expanded to multi-tenant properties, it should not be limited to those who receive CSI incentives, particularly since CSI funds will not be available indefinitely.
In contrast, the utilities oppose expansion of VNM. PG&E contends that expansion of VNM to multiple SDPs raises the same wheeling and cross-subsidy issues it expressed in opposition to the expansion of VNM in the MASH, as discussed above in Section 4.1. Further, PG&E cautions that before expanding VNM to all multi-tenant customers, the Commission should consider the cost-shift associated with CSI and the increased billing costs of VNM. PG&E states that current billing costs for VNM customers are $36 to set up an account and $15 per month to bill that account. PG&E contends billing costs would increase significantly if the Commission expands VNM eligibility, requiring PG&E to make a significant information technology investment. If the Commission does expand VNM to all multi-tenant properties, PG&E agrees with the staff recommendation that this expanded VNM should be limited to accounts served by a single SDP.
Similarly, SDG&E contends that if VNM is expanded beyond MASH participants to all multi-tenant customers, these customers must all be behind the same SDP. According to SDG&E, extending VNM to multi-tenant properties served by different SDPs would increase the hidden subsidies to VNM customers and leave remaining customers with these costs. As SDG&E explains, this cross-subsidy occurs because renewable distributed generation (DG) does not perfectly match on-site usage and a DG customer uses the utility grid like a battery. However, under NEM tariffs, NEM customers avoid paying all T&D charges.
SCE states that it would consider expanding VNM to all multi-tenant customers assuming the "premises" restriction it proposed in Section 4.1, along with application of a distribution charge when customers seek to allocate kWh credits to accounts served by a different SDP. SCE opposes sharing VNM credits at retail rates between separate premises. SCE also raises a retail wheeling concern if VNM allowed the transfer of kWhs across SDPs. SCE recommends the Commission work with the utilities and parties to resolve the complexities and issues associated with expanding VNM before adopting any expansion proposal.
In response to wheeling concerns raised by the utilities, the Joint Solar Parties contend there are ways to mitigate wheeling concerns by limiting sharing of VNM credits to a geographically confined area, rather than imposing an overly restrictive SDP boundary. They maintain that any use of the T&D system for VNM credit purposes would be minimal if sharing beyond the SDP is somehow limited. Therefore, VNM customers should not be assessed a fully loaded T&D charge.
Discussion. We find that there are ample reasons to offer VNM to all multi-tenant and multi-meter properties, not just affordable housing properties. If we expand VNM, this will allow residential, commercial, and industrial customers who now fund CSI through their rates to receive the benefits of the installation of a solar energy system and net energy metering.
We will limit the expansion to those customers served by a single SDP. The utilities raise valid concerns about cross-subsidies and use of the T&D system if credits extend beyond the SDP. While SCE's proposal for a distribution charge for sharing across multiple SDPs may be worthy of consideration in the future, we do not want to delay implementation of VNM expansion while we examine this idea. Instead, we will limit VNM to customers served by a single SDP.
We will direct PG&E, SCE and SDG&E to file modifications to their NEM tariffs to allow VNM to apply to all residential, commercial and industrial multi-tenant and multi-meter properties, with the limitation that sharing of bill credits can only occur for accounts served by a single SDP. The tariff should mirror the one created in compliance with D.08-10-036, with the following clarifications based on the comments of Recolte. First, VNM should not be limited to those who receive CSI incentives. Customers may opt for VNM even if they did not apply for CSI incentives. We do, however, clarify that per the NEM statutes, systems are "intended primarily to offset part of all of the customer's own electrical requirements" (Pub. Util. Code Section 2827(b)(4)),7 and should be sized accordingly. Second, VNM should not be limited to photovoltaic (PV) systems. The expanded VNM concept can apply to any DG technology that receives a full retail rate credit under net energy metering. As PG&E and SDG&E point out, biogas and fuel cell NEM customers do not receive a full retail credit. Thus, biogas and fuel cell NEM customers would not be eligible for the VNM program. PG&E, SCE and SDG&E should each file an advice letter containing their proposed expanded VNM tariff within 60 days of this decision.
The parties raised many issues surrounding implementation details of an expanded VNM tariff such as allocation of credits for commercial and industrial customers, metering costs, billing charges and start up costs. We prefer to allow these details to be worked out through the compliance advice letter process rather than to address them here. We agree with parties who commented that a workshop may be useful to help resolves these issues. Energy Division may hold a workshop or direct the utilities to host a workshop to resolve implementation issues that may arise relating to the VNM tariffs. Moreover, we will direct that the expanded VNM tariffs should mirror those filed for VNM in the MASH program. If the utilities choose to deviate from the details of the MASH VNM program, their advice letter filing should contain justification to support any proposed deviations.
With regard to billing concerns raised by PG&E, the utilities may propose in their advice letter filings a one-time account set up fee and a monthly administrative fee for VNM service. In addition, the utilities may seek recovery of implementation and setup costs for VNM in their future general rate cases.
4.3. Expansion of VNM to All Affordable Housing Customers8
If no Commission action is taken in the short-term on expansion of VNM to all customers, the Staff Proposal recommends the Commission could allow all qualified multifamily affordable housing customers to apply for VNM tariffs regardless of whether they participate in the MASH program or the CEC's New Solar Homes Partnership (NSHP) affordable housing program. Specifically, multifamily affordable housing properties that install solar energy systems, either with incentives from the CSI general market program or without any CSI rebate, could apply for VNM. At present, D.08-10-036 limits VNM to participants in the MASH program (and NSHP's affordable housing program).
Discussion. In Section 4.2 above, we accepted the staff recommendation to offer VNM to all multi-tenant and multi-meter properties, which opens VNM to residential, commercial, and industrial customers. Affordable housing properties that are not able to receive a MASH incentive may still take part in VNM as set forth in Section 4.2 above, which means these properties must comply with the limitation that sharing of bill credits can only occur for accounts served by a single SDP. Therefore, the staff recommendation is moot.
4.4. Bill Credit Transfer Option9
Another option that could, if adopted, allow solar energy system owners to transfer bill credits across multiple service delivery points is the "Renewable Energy Self-Generation Bill Credit Transfer" (RES-BCT) option. The concept of a bill credit transfer was created by Section 2830 and is currently available only to local governments.
Under the RES-BCT tariffs recently approved by the Commission in Resolution E-4283 in April 2010, local government entities can generate electricity at one account and transfer any available or excess bill credits to another account of the same local government. The bill credits are calculated by multiplying the generation component of the time of use rate applicable to the account by the amount of energy exported to the grid. Credits under RES-BCT can be transferred to multiple accounts within the geographical boundaries of the local government customer. A credit under the RES-BCT tariff is lower than a VNM credit, because the VNM tariffs allow the transfer of kWhs for credit at the full retail rate, which includes generation, transmission, and distribution components.
Staff proposes the Commission require the utilities create a bill credit transfer tariff for all multi-tenant buildings, similar to the RES-BCT tariffs that currently exist for local governments. An expanded RES-BCT tariff would provide an option for a project that was unable to comply with the SDP restrictions under the expanded VNM program in Section 4.3 above. Staff further proposes that if customers receive this new tariff, they should only receive CSI program solar incentives for capacity not to exceed the total load at the host site, although the total solar energy system size could exceed the rebated capacity size. This latter recommendation is to maintain compliance with the CSI statute on system sizing.
PG&E opposes expanding the RES-BCT tariff to multi-tenant properties, contending the arrangement is a form of retail wheeling and should be considered as part of a reopening of direct access. PG&E contends the RES-BCT tariff is an extremely complicated rate to bill and expanding the tariff would require significant information technology start-up costs, as well as account set-up and ongoing billing costs. As an alternative, PG&E suggests that multi-tenant properties interested in developing renewable energy resources should enter into standardized PPAs with the utility.
SDG&E urges the Commission not to expand the RES-BCT tariff until the proceeding regarding a rate for Net Surplus Compensation10 pursuant to AB 920 (stats. 2009, ch. 376) is finalized so that any expanded RES-BCT tariff can be reconciled with that proceeding. Likewise, SCE urges the Commission to resolve complexities and issues associated with expanding VNM and RES-BCT tariffs before adopting the Staff Proposal. SCE would consider expanding RES-BCT to other entities at different premises at the generation rate where all accounts are registered to the same customer. SCE opposes expanding RES-BCT at the retail rate, contending that is equivalent to retail wheeling with no compensation for use of the T&D system and would adversely affect other ratepayers.
The Joint Solar Parties and CCSE support expanding the RES-BCT tariff to include multi-tenant customers, but they note that onsite load restrictions make the program unattractive. Similarly, IREC and Recolte Energy contend that the RES-BCT tariff does not offer significant value to customers. These parties claim that in order for a RES-BCT tariff to be attractive and effective, a customer would need to be able to size a solar system up to the total load of all benefiting accounts. Joint Solar Parties urge the Commission to eliminate NEM sizing restrictions by reinterpreting "premises" in Public Resources Code 25782 to include multiple sites owned by a single entity. They suggest the Commission allow entities to aggregate load from multiple sites and receive a solar incentive based on aggregated load.
The utilities generally oppose lifting NEM sizing restrictions. SCE contends that if the RES-BCT tariff is expanded to all multi-tenant properties, system size should be allowed to match all accounts, but the CSI incentive should be limited to site load. PG&E echoes this comment.
Discussion. The concept of expanding the RES-BCT tariff to all customers is intriguing and would provide additional flexibility to solar energy system owners to share the production at one site with other accounts registered to the same customer. Nevertheless, we agree with the utilities that there are several issues surrounding an expanded RES-BCT tariff that would need to be addressed before implementation could occur.
For example, should the bill credit rate match the rate offered under the Net Surplus Compensation11 program? How should billing and implementation costs be handled and what are reasonable amounts for these costs? The RES-BCT tariff is limited within the geographic boundaries of the local government, under Pub. Util. Code Section 2830. If RES-BCT were expanded, would those on the tariff be able to transfer credits over the entire utility service territory?
Given these questions, and others raised by the utilities, we will not decide this issue at this time. Instead, we will ask our Energy Division to consider the questions above, and the other issues raised by parties in their comments on this subject, and provide a revised recommendation to the Assigned Commissioner and ALJ. This will allow the Commission to reconsider the recommendation to expand the RES-BCT tariff in a later phase of this rulemaking.
2 See Staff Proposal Section 2.2.
3 Rule 1 of SCE's tariffs define "premises" as follows:
All of the real property and apparatus employed in a single enterprise on an integral parcel of land undivided, excepting in the case of industrial, agricultural, oil field, resort enterprises, and public or quasi-public institutions, by a dedicated street, highway, or other public thoroughfare, or a railway. Automobile parking lots constituting a part of and adjacent to a single enterprise may be separated by an alley from the remainder of the premises served. (See SCE comments, 12/20/10 at 3, n. 7.)
4 Specifically, PG&E cites to a generation credit for the City of Davis, Assembly Bill (AB) 2573 regarding CCSF solar wheeling, AB 2488 regarding dairy biodigesters, and AB 2466 regarding local government renewable power. (See PG&E comments, 12/6/10 at 4.)
5 As stated in PG&E's tariff that the Commission approved in PG&E's Advice Letter 3718-E, parcels may be divided by a street, highway or public thoroughfare as long as they are otherwise contiguous, part of the same enterprise, and under the same ownership.
6 See Staff Proposal Section 2.3.
7 All statutory references are to the Public Utilities Code unless otherwise noted.
8 See Staff Proposal Section 2.4.
9 See Staff Proposal section 2.5.
10 The Commission issued D.11-06-016 on June 9, 2011 to establish a Net Surplus Compensation Rate in Application (A.) 10-03-001 and consolidated cases.
11 See D.11-06-0106 issued by the Commission on June 9, 2011.