9. Net Energy Metering

The net energy metering program established in Pub. Util. Code § 2827 allows eligible residential and small commercial customers relying on small photovoltaic and wind generators, with a meter capable of registering two-way electricity flow, to offset future retail electricity purchases with their excess generation at anytime during an annual billing cycle. The current rules prescribed by Pub. Util. Code § 2827 limits program eligibility to customer generating units up to 1 MW maximum capacity.¹⁹ Utilities must, and energy service providers may, offer net energy metering. Utilities may not impose costs on net energy metering customers that are not also assigned to customers in the rate class to which that customer would otherwise be assigned.

Net energy metering has been promoted as an effective way to encourage renewable generation by small-scale generators. Some parties state that net energy metering provides a reasonable proxy for benefits from renewable generation that are difficult to measure, particularly environmental benefits. They argue that without the economic incentives provided by the flexible billing provisions of the program, many small, renewable self-generation units would not be financially feasible. Parties supporting the net energy metering program also argue that in addition to environmental benefits, other system benefits exist from the energy commodity delivered to the grid from net-metered distributed generation.

Because net energy metering encourages the use of small, non-polluting technologies, this proceeding considered options to expand the net energy metering program. Parties identified four areas for potential amendment of the program: 1) increasing the size of eligible units from the 10 kW limit in place at the time parties were filing testimony; 2) expanding eligibility to environmentally beneficial or emerging technologies such as fuel cells and microturbines that are not currently eligible under current rules in §2827; 3) expanding eligibility to other customer classes; or 4) increasing the 0.1% aggregate demand program limit in place at the time parties were filing testimony. CALSEIA believes any of these changes would necessarily require legislative action.

PG&E, SDG&E, SCE, and EEI oppose any expansion of the existing net energy metering program. FEA joins these parties, arguing that subsidies that may occur from net energy metering should not be increased by expansion of the program. They argue that allowing net energy metering customers to offset energy consumption with energy produced during a different time-of-use period gives rise to a mismatch in pricing signals. These parties also state that a subsidy arises because customers are credited for energy produced at the full retail price, which includes nonbypassable charge components for public purchase programs, CTC, nuclear decommissioning, and ancillary services. LIF is concerned that funding of public purpose programs may be jeopardized by expansion of net energy metering. PG&E states that it incurs costs from the banking service required by annual billing under the net energy metering program.

CalSEIA believes the subsidy arguments to be overstated and based on inaccurate assumptions. CALSEIA believes that net energy metering customers who produce energy primarily for their own needs are subject to different economics than larger generation plants. Eligible net energy metering customers are small residential and commercial customers who would generally not take time-of-use service to begin with and therefore would not necessarily respond to time-differentiated pricing. CALSEIA also testifies that it is possible that the UDC receives excess energy from net energy metering customers at high cost and peak load periods during which solar photovoltaic and wind energy systems are most likely to generate, which benefits the system. Further, CALSEIA asserts that net energy metering customers do not have the incentive to generate more than they consume over an annual billing period as they do not receive credit for any excess generation at the end of the billing period.²⁰

The ISO states that although net energy metering is inconsistent with ISO rules, the current program limits do not adversely affect the ISO's reliability or ancillary markets functions. The ISO cautions that net energy metering expansion, particularly of the allowable aggregate demand limit above the current level, may impair the ISO's ability to account for load in planning for reserve requirements and reliability. For this purpose, the ISO requests monitoring measures to ensure that the size limit is not exceeded.

9.1 Discussion

The net energy metering program was established to "encourage private investment in renewable energy resources, stimulate in-state economic growth, enhance the continued diversification of California's energy resource mix, and reduce interconnection and administrative costs for electricity suppliers." (Pub. Util. Code § 2827.) The Legislature's statement of intent demonstrates its emphasis on developing diverse, environmentally sensitive electricity resources.

The original net metering law was established in 1995, and has been amended three times by the Legislature: in 1998, in 2000 by Assembly Bill (AB) 918 (Chapter 1043, Statutes of 2000), and in 2001 by ABX1 29. Most utility net energy metering customers requested this service only after the amendments to § 2827 in 1998.

Energy from renewable self-generation may be more economic to customers than in the past due to current retail electricity prices throughout the state. Peak demand concerns may promote installation of photovoltaic units that generate energy on-peak, when system demand is most critical. Various buy-down and financing incentives are offered by the Commission, CEC, and other state agencies for purchases of renewable and super clean generators. This trend could result in additional programs or incentives being developed that might impact participation in net energy metering programs. Together these influences may result in increased participation in the current program that was not reflected in parties' recommendations during Phase 1 of this proceeding.

Prior to passage of ABX1 29 (Chapter 8, Section 11, Statutes of 2001), the net energy metering program had a low program limit of 0.1% of aggregate demand, in part, to minimize potential financial impacts from the program.²¹ Participation in the net metering program historically has been well below this limit. ABX1 29 removed the percent limit, making it unnecessary for us to consider modifications to the limit in this decision. AB 58 (Chapter 836, Stats. 2002) reinstates a program limit of one-half of one percent, which is five times the prior limit.

This proceeding considered whether to increase the maximum capacity of eligible units from the 10 kW limit in place at the time parties were filing testimony. ABX1 29 statutorily raised the limit from 10 kilowatts to one megawatt. Therefore, we decline to make further changes to the limit in this decision.

We also considered whether to expand net metering eligibility to other customer classes. ABX1 29 expanded eligibility to large commercial, industrial, and agricultural customers and AB 58 retains this eligibility. Therefore, there is no current need to expand eligibility.

While DPCA and New Energy have suggested extending eligibility to environmentally beneficial and emerging technologies not currently eligible under the current program, they fail to identify specific technologies would meet such a definition. Besides solar and wind technologies, it is uncertain which types of fuel cell technologies can be considered "environmentally beneficial". The experimental nature of many fuel cells shows that it is premature to define fuel cells in a generic sense, as providing environmental benefits, without further information. Therefore, we do not propose that the Legislature consider modifying § 2827 to expand eligibility to additional technologies at this time.

For the foregoing reasons, we conclude that it is not necessary at this time to modify the current program eligibility criteria established by § 2827.

9.2 Eligibility of Integrated Renewable and Nonrenewable Technology Configurations for Net Metering

Resolution E-3764 recommended that this proceeding consider the applicability of net energy metering to system configurations that use both eligible renewable generation (solar and/or wind turbines) and nonrenewable generation, such as microturbines. We agree, and address the issue in this decision.

SCE's Schedule NEM-Net Energy Metering Service, revised pursuant to ABX1 29 and approved by the Commission in Resolution E-3764, defines "Eligible Customer-Generator" as a customer "who uses a solar or wind turbine electrical generating facility, or a hybrid system of both, without the support of fossil fuel or other non-wind or non-solar energy source,...that is the sole source of generation located on the eligible customer's premises" (emphasis added). This language excludes otherwise eligible renewable technologies from participating in net energy metering if an ineligible technology (i.e. fueled neither by solar nor wind and excluded from net metering eligibility) is also installed on the customer's premises.

SDG&E and PG&E describe net energy metering as available to "residential, small commercial..., commercial, industrial, or agricultural customers who use a solar or wind turbine electrical generating facility, or a hybrid system of both, with a capacity of not more than 1000 kilowatts that is located on the customer's owned, leased, or rented premises, is interconnected and operates in parallel with the Utility's transmission and distribution facilities, and is intended primarily to offset part or all of the customer's own electrical requirements." This definition does not preclude otherwise eligible renewable technologies from participating in net energy metering if they also have an ineligible technology installed on the premises.

The City of Santa Monica and Helios International protested SCE's new definition of a customer-generator in the proposed tariff, stating that it would exclude new, "smart" designs to integrate high efficiency combined heat and power microturbine systems with photovoltaic installations. SCE responded that the language was justified in the stated definition from AB X1 29, Chapter 8, Section 11.b.2 and, additionally, that the City of Santa Monica did not indicate how nonrenewable energy would be prevented from supplementing renewable energy exports to the grid on the net energy metered tariff.

Section 2827 of the Public Utilities Code defines an Eligible Customer-Generator as a customer "who uses a solar or wind turbine electrical generating facility, or a hybrid system of both...that is located on the customer's owned, leased or rented premises." We do not interpret this language as disallowing a non-wind or non-solar energy source from also being installed on the customer's premises, nor do we believe integrated use of nonrenewable energy sources excludes eligible renewable generation connected to the same service account from net metering. We note, however, that the ineligible generator does not become eligible for net metering due to the combined configuration. This decision does not expand the scope of technologies eligible for net energy metering.

Standard, simplified interconnection procedures were developed by a working committee including representatives from the regulated electric utilities and other parties, and were adopted in this Rulemaking. The subsequent Rule 21 interconnection tariffs specify standard interconnection, operating, and metering requirements for distributed generation.

Rule 21 requires one of four options to ensure that excess power will not be exported to the grid from an approved, grid-connected system. Option 1 utilizes a reverse power Protective Function to ensure that power is not fed back into the utility grid. We believe this provides adequate assurance that a nonrenewable generation system, even when connected to the same service account as the eligible renewable generator, will not export electricity. Such export to the utility grid from the generator would interfere with accurate registration of net energy metering for the eligible renewable generation system. The nonrenewable generator also would be required to meet all other Rule 21 interconnection standards. In such a renewable/nonrenewable configuration, a separate meter may only be required by the utility if necessary to ensure accurate accounting of net metered energy. The cost of this meter would be borne by the customer.

We order SCE to modify its Net Energy Metering tariff to remove the exclusionary language, and be consistent with approved language used by PG&E and SDG&E.