8. Independent Clean Energy Tariff

8.1 Background

On August 21, 2000, CalSEIA filed a motion requesting expedited adoption of an independent clean energy tariff (ICE-T) to encourage electric utility customers to deploy non-polluting, renewable solar distributed generation to alleviate anticipated market supply disruptions. On August 29, 2000, the assigned Administrative Law Judge issued a ruling which denied the motion without prejudice. The ruling noted that CalSEIA served testimony proposing the ICE-T in both Phase 1 and Phase 2 of this rulemaking, and the Commission would consider adoption in this proceeding, following Phase 2 hearings.

CalSEIA would exempt solar generating facilities up to 1 MW that do not export power to the grid and are ineligible for net energy metering from any new or additional demand, standby, customer, minimum monthly, and interconnection charges, or any other charges not included in the applicable rate schedule to which the customer-generator would otherwise be assigned. ¹⁸ Because power would not be exported to the grid under this tariff, customer-generators would not be able to "bank" the value of excess generation to offset electricity taken by the customer off the grid, unless the customer entered into a power sales contract with the utility or a third party. For small installations, net energy metering tariffs achieve the removal of such technical and financial impediments. CalSEIA argues that for larger wind and solar installations that do not qualify for net energy metering tariffs, such impediments remain in place.

CalSEIA describes the ICE-T proposal as an effort to remove barriers that discourage individual customers from creating new, non-polluting generation, tailored to meet localized customer needs, and capable of being deployed quickly. CalSEIA asserts that most solar distributed generation is sized to serve on-site load only, typically to reduce peak demand. The balance of the customer's load is served by the utility. Cal SEIA believes the ability of solar distributed generation to remove load from the grid at system peak can make a contribution to solving California's electric market crisis, relieve local overload of transmission and distribution facilities, and provide long-term distribution system benefits, as well as overall system benefits.

CalSEIA maintains that the utilities incur minimal to no costs to interconnect solar distributed generation, therefore, no costs should be imposed on solar distributed generation customers. CalSEIA's witness testified that his review of hundreds of interconnection studies indicates that no special interconnection facilities or equipment are typically required to interconnect small-scale distributed generation to the utility system. To support its standby charge exemption, CalSEIA compares the fluctuation in demand when small solar generating facilities are installed to demand fluctuations for non-generating customers installing energy efficiency measures. In both cases, CalSEIA states that the net effect is reduced customer demand on the utility system. CalSEIA contends that utilities will not incur costs beyond those ordinarily incurred to serve demand fluctuations of non-generating customers installing energy efficiency measures.

According to CalSEIA, the current market for PV in California is about 2.2 MW per year. The market is growing at about 20% per year, resulting in an annual market of about 6 MW per year, for a total of 20 to 25 MW installed by 2006. If the ICE-T proposal is adopted, CalSEIA estimates a PV market growth rate of about 30% per year, with approximately 30 to 35 MW of PV systems connecting to the grid over the next five years. (CalSEIA Exh. 103, p. 8.) CalSEIA estimates that through 2006, solar distributed generation will still account for less than 0.1% of California's electric system peak load. (CalSEIA Exh. 103, pp. 5-6.)

ORA, NRDC, TURN, and State Consumers support CalSEIA's ICE-T proposal. TURN states that the expedited development of clean, non-polluting renewable resources should be a high priority given the current energy crisis. TURN observes that the ICE-T proposal is consistent with AB 970 and would fulfill the legislature's intent to promote rapid deployment of renewable distributed generation technologies. TURN further asserts that existing utility practices require expensive interconnection studies and impose financial hardships for solar technologies. State Consumers observe that California's net energy metering program cannot accommodate solar facilities for the type of governmental entities it represents, but the proposed ICE-T would apply to such facilities.

PG&E, SCE, SDG&E, and FEA oppose CalSEIA's ICE-T proposal, primarily on the grounds that exemption from cost-based charges is rate subsidization, and runs counter to the Commission's long-standing policies favoring cost-based rates. SDG&E and FEA assert that rate subsidies amount to poor public policy; FEA argues that subsidies promoting development or installation of non cost-effective applications will likely result in higher electric rates. The ISO does not formally oppose the ICE-T, but concurs with the utilities and FEA that costs not assessed to generators on the ICE-T would be shifted to other customers. FEA asserts that small distributed generation shouldn't be allowed to avoid costs just because the costs are small. The utilities argue that substantial federal and state subsidies already exist for solar generation.

SCE refutes CalSEIA's comparison of the demand fluctuations of solar distributed generation to those of non-generating customers installing energy efficiency measures. SCE notes that load reductions caused by energy efficiency measures such as fluorescent lighting, insulated windows or super efficient refrigerators are permanent until removed and do not require standby power, whereas solar distributed generation output can decrease due to weather conditions or nightfall. SCE argues that the benefits of solar power cited by CalSEIA and TURN are attributed to generation, not distribution, and it is not appropriate to reduce or eliminate distribution charges because of a purported generation benefit. The utilities assert that distributed generation provides benefit to the distribution system only when solicited by a utility to fulfill an identified need.

CalSEIA contends that SCE overstates the need for standby power for a technology that is almost 99% reliable, and that the demand fluctuations of small solar distributed generation are likely more predictable than demand fluctuations of non-generating customers. (CalSEIA Reply Brief- Phase 2, pp. 8-9.) TURN supports this position, arguing that solar distributed generation's unique ability to produce maximum output coincident with the customer's own peak load, near-perfect performance reliability, and reduced air emissions from peaking generators provide distribution system benefits, energy efficiency contributions, and environmental benefits to ratepayers and non-participants that should be recognized by the Commission.

8.2 Discussion

Although the Commission will generally address issues associated with AB 970 in R.98-07-037, we are not precluded from recognizing the ability of the proposed ICE-T to promote state policy goals as expressed in AB 970. Nor are we precluded from adopting this tariff, which has been thoroughly litigated in R.99-10-025. We anticipate increased availability of and participation in renewable incentive programs such as the California Energy Commission's Emerging Renewable Buydown Program and programs resulting from AB 970 and other legislation. We agree with CalSEIA and TURN that adoption of the ICE-T will complement, rather than duplicate, existing programs for solar generation, and will be consistent with incentive programs proposed to implement AB 970.

The ICE-T proposal targets precisely the size of customer-generator most capable and motivated to reduce peak demand: large commercial and industrial customers. According to SDG&E, most of its customers over 20 kW and all customers over 40 kW are medium or large commercial and industrial customers. (SDG&E Reply Brief- Phase 2, p. 43.) We believe these customers are also most likely to have the financial resources to pursue distributed generation options or to participate in distributed generation incentive programs.

CalSEIA has made a persuasive argument that solar distributed generation installations under 1 MW impose negligible interconnections costs on the utility system, therefore, we will waive interconnection fees for solar distributed generation up to 1 MW. However, in all other respects, these customer-generators must comply with the interconnection requirements spelled out in Rule 21 of each utility's tariffs. Likewise, the utilities should process interconnections for these customer-generators, consistent with the requirements of Rule 21.

Based on CalSEIA's projected photovoltaic market growth, it is clear that even with extensive deployment over the next five years, small solar generating units will represent far less than one percent of California's peak demand requirements. Given that Governor Davis has called for a minimum reduction of California electricity usage of 7% from energy efficiency efforts¹⁹, CalSEIA's comparison of solar distributed generation's impact on peak demand to energy efficiency becomes more compelling. It is well recognized that California's peak electricity usage generally occurs when temperatures are highest. High temperatures generally occur when the sun is shining. Solar generating units rely on the sun to produce electricity. It is clear that solar distributed generation, if reliable²⁰, will produce electricity coincident with peak demand for electricity. Thus, increased deployment of solar distributed generation will clearly provide a generation benefit by reducing the peak electricity demand that must be supplied by the grid. In the short term, it is less clear that distribution infrastructure costs will be avoided by installation of distributed generation. However, the forecast growth of this technology over the next five years leads us to believe that any cost shifting associated with elimination of charges not normally included in the applicable rate schedule will be very limited. Therefore, we will adopt the ICE-T for solar distributed generation units up to 1 MW that do not export power to the grid.²¹

Several parties note the CalSEIA proposal did not include program limits comparable to the 0.1% utility system capacity limit currently in effect for California's net energy metering program.²² SCE notes that a similar limit for solar distributed generation up to 1 MW would likely limit program availability to only a handful of large solar facilities, while without a program cap, the potential impact on remaining ratepayers could be substantial. TURN believes the 0.1% limit should apply to all solar facilities covered by net energy metering tariffs and ICE-T.

We will include solar facilities of up to 1MW within the 0.1% limit set by Pub. Util. Code § 2827 on an interim basis, with final recommendations to be made in conjunction with the Commission's net energy metering and other policy recommendations in the Phase 1 decision in this proceeding. Section 2827 provides that utilities and energy service providers make available to the Commission information regarding their net energy metering loads on an annual basis relative to the 0.1% cap. We believe that the prevailing market conditions support increased participation in the net energy metering programs. Because we have adopted the ICE-T, which will count towards the cap on an interim basis, we will require the utilities to inform us once they have reached a level of participation in net energy metering and ICE-T equal to 75% of the 0.1% aggregate demand limit. This notification will allow us an opportunity to recommend to the Legislature whether to expand the aggregate demand limit, prior to the 0.1% limit being reached.