4. Discussion

At issue here is whether generators eligible for net energy metering under § 2827 are exempt from paying for costs associated with interconnection studies, distribution system modifications, or application review fees and the line between interconnection facilities and distributions system improvements for purposes of cost allocation. Section 2827(d) requires that eligible customer-generators be charged rates and fees no higher than those charged to customers in the class to which the eligible customer-generator would otherwise be assigned. CalSEIA argues that § 2827(d) should be interpreted to compare the rates and fees charged to an eligible customer-generator to that customer's retail rate class, absent generation. PG&E, SDG&E, and SCE, on the other hand, argue that the comparison should be to the generator rate class to which the customer would be assigned if it did not utilize specified renewable technologies but still generated power.

Rule 21, as approved in D.00-12-037, exempted net energy metered eligible customer-generators from payment of application review fees prior to expansion of eligibility to 1 MW. SDG&E and SCE agree that eligible customer-generators under § 2827 were exempt from paying for application review fees and have not paid interconnection study costs due to the fact that full-blown studies have not been necessary for eligible customer-generators under 10 kW in size. Both SDG&E and SCE would waive application review fees for eligible customer-generators up to 1 MW. However, SDG&E and SCE both indicate that if a full interconnection study is required, even for eligible customer-generators, the costs should be borne by the customer rather than the ratepayer body as a whole. PG&E would only allow a waiver of application review fees for eligible customer-generators under 10 kW but require them to be paid by customers between 10 kW and 1 MW, as well as eligible customer-generators paying for interconnection study costs. In comments, PG&E, SDG&E, and SCE indicate that all interconnection facility costs, whether on the customer or utility side of the meter should be borne by the customer-generator.

In comments on the draft decision, numerous parties seek clarification on where the line should be drawn between interconnection facilities and distribution system modifications. Interconnection facilities consist of protection devices (including circuit breakers, ground fault detection systems, and automatic transfer trip communications systems), transformers (new and upgrades), and metering equipment required solely as a result of a new generator connecting to the utility system that cannot be used to serve the utility's general customer population. Frequently these interconnection facilities are located close to the customer, on its side of the meter, and thus are more clearly the generator responsibility. However, interconnection facilities may also extend to the utility side of the meter (for example, automatic transfer trip communications systems provide a link between the generator and a circuit breaker on the utility grid). As requested, we clarify that eligible customer-generators must bear the costs of interconnection facilities, as described above, on either side of the meter, necessary to meet the safety and performance requirements of the National Electrical Code, the Institute of Electrical and Electronics Engineers, accredited testing laboratories, and, where applicable, rules of the Public Utilities Commission regarding safety and reliability, for the interconnection in question. Any other costs will be considered distribution system improvements.

When originally adopted, § 2827 was focused on encouraging residential customers to install very small renewable generating units. Without adoption of § 2827 in its original form, a residential customer installing a small renewable generating unit would have been required to become a qualifying facility in order to sell electricity back to the utility, clearly making the customer a generator. Section 2827 removed the requirement to become a qualifying facility and instead defined them as an eligible customer-generator. Adopted net energy metering tariffs did not require eligible customer-generators to pay standby charges like qualifying facilities or other generators, thus continuing to treat eligible customer-generators as retail customers without generation.

This is a reasonable interpretation of the original legislation as it was designed to encourage the installation of environmentally sensitive generating units by residential customers who would otherwise not consider installing generation. Thus, although it is clear that eligible customer-generators are generators, the logical rate class comparison was to how they were previously situated, i.e., as residential retail customers without generation. To interpret the statute otherwise would require an assumption that renewable generation would already be installed by residential customers without the need of encouragement the statute explicitly states as its purpose.

Even after § 2827 was amended in 1998, adopted net energy metering tariffs have continued to treat eligible customer-generators as retail customers without generation. SDG&E and SCE indicate in their comments that they have not charged eligible customer-generators under § 2827 for any study costs. No standby rates have been required for eligible customer-generators as they are for other generators. Thus, the utilities have treated eligible customer-generators under 10 kW like retail customers without generation as recommended by CalSEIA. Although the utilities argue that the language of § 2827(d) would be rendered surplus if eligible customer-generators were not compared to the rate class for other generators, they have implemented the statute as if eligible customer-generators were retail customers without generation. Given the original purpose of the statute, this approach to implementation makes sense.

Now the utilities argue that with the expansion of eligible customer-generators to 1 MW, eligible customer-generators should be treated as if they are generators, subject to interconnection study costs, payment of distribution system modifications and other costs typically assigned to generators. The utilities argue that the complexity of interconnection increases and will require interconnection studies to ensure system reliability as well as potentially costly distribution system modifications when eligible customer-generators are over 10 kW. PG&E states that systems above 10 kW are unlikely to qualify for simplified interconnection, thus requiring additional interconnection studies. Unless charged to individual generators, these costs will be recovered from ratepayers as a whole. The utilities contend that assigning these costs to ratepayers as a whole will encourage inefficient and uneconomic investment in eligible generating units.

PG&E notes that C.01-08-013 (the Adelman Complaint) requests further clarification of § 2827(d). However, PG&E argues that this specific interconnection is anomalous and will not commonly occur because of the facts specific to that case.⁵ PG&E also states that typical distributed generation units smaller than 500 kW have not required distribution system modifications. (November 20, 2001 Reply Comments of PG&E.) Therefore, it is unclear that additional costs will occur or be borne by the general body of ratepayers as a result of interpreting § 2827(d) consistent with CalSEIA's recommendation. In addition, expansion of the net energy metering tariff to eligible customer-generators larger than 10 kW is temporary and expires December 31, 2002, making the potential cost exposure time-limited by the statute itself.

We are sympathetic to the argument that additional costs will be incurred by the general body of ratepayers if net energy metered eligible customer-generators over 10 kW in size are not required to pay application fees, interconnection study costs, or distribution system modifications like other generators. However, changes resulting from adoption of AB 1X 29 did not modify the provisions of § 2827(d). Utilities have consistently treated net energy metered customers like retail customers without generation for purposes of the rate comparison, rather than generators. Past implementation of § 2827 does not support the utilities' current interpretation. In addition, the Legislature has consistently stated that one of the objectives of the net energy metering program is to encourage installation of eligible renewable generating units. By expanding the range of eligible customer-generators to generators between 10 kW and 1 MW for 20 months, the Legislature sent a message that eligible generation was to be installed quickly and with limited barriers. Changing our approach and treating net energy metered customers as generators, rather than retail customers without generation for rate purposes would be inconsistent with past utility practice and legislative intent.

We do agree that implementing § 2827(d) to exempt all eligible customer-generators from payment of application review fees, interconnection study costs, and distribution system modifications could result in a real (but undetermined) cost to ratepayers. As a result, we direct the utilities to track the costs associated with interconnection of net energy metered customers (application review costs (initial and supplemental), interconnection study costs, and distribution system modification costs). The costs should be tracked by project size, at a minimum distinguishing between projects under 10 kW and those between 10 kW to 1 MW in order to determine whether significantly different costs are incurred based on project size. The utilities should track similar information for interconnections processed under Rule 21 that do not meet the requirements of § 2827. With more experience, we can assess whether initial or supplemental review fees need to be modified (or differentiated by size or type of installation), whether any standardization of study costs is possible, and the real distribution system cost impact of distributed generation, specifically those projects that are eligible for net energy metering. SDG&E, SCE, and PG&E should file and serve a report on January 1, 2003 setting forth this data. This data, which will be subject to review by all parties, will allow us as well as parties to make more informed recommendations to the Legislature about whether any prospective changes to § 2827 are necessary.

In comments on the draft decision, PG&E, SDG&E, and SCE argue the Commission should allow cost recovery of any costs tracked by the utilities that customer-generators do not pay as a result of their eligibility under § 2827. They ask that we establish a memorandum account to allow these costs to be recorded for future recovery. We will allow the utilities to establish memorandum accounts to record the costs associated with interconnection of net energy metered customer-generators with projects between 10 kW and 1 MW in size. It is projects of this size whose cost responsibility has changed as a result of ABX1 29, not projects below 10 kW in size. The reasonableness of the recorded costs will be assessed if and when the utilities seek recovery of such costs.