Thoughts on Solar

Today we attended LADWP’s morning workshop on the relaunch of the Solar Incentive Program (SIP) and, as promised, we are writing to give you our reactions to the event.  We certainly believe that LADWP is trying to do the right thing - and these comments will also be emailed to LADWP staff.  When we get a response, we will update this post.

The program got underway with an introductory statement from LADWP General Manager, Ron Nichols, who told the 150 or so participants that the SIP was an “important part of the big transition that LADWP needs to make” and he thanked us for coming and providing our insight into how to make the program better.  The rest of the program consisted of four parts - an overview of the SIP followed by the participants being divided into breakout groups to address specific issues, then a presentation about the proposed Feed-in Tariff (FiT) program with a breakout session for the Fit as well.  (We will have a later post just about the FiT - the balance of this post will only concern the SIP.)

LADWP promised to make all of its presentation materials available online and you can find them here.  There were some interesting aspects that popped out of the presentation, for example:

• Staff mentioned several times the desire to avoid the “boom-bust cycle” so common with solar incentive programs.  Instead, they were hoping that this program would:

Maintain [a] steady pace of installations and funding so that our customers and [the] solar industry know what to expect and can plan appropriately.
Foster and grow [the] sustainable solar industry in L.A.

• However, it was made clear that the program will allocate up to $40 million per year in rebates.  Once that amount is reached, the program will stop accepting rebate applications until the next fiscal year.  That doesn’t really sound like a “steady pace".


• The program, before the current hiatus, was on track to be fully subscribed (i.e., out of money) by 2012.  The new program expects to be out of money by the end of 2014.  That’s an improvement, but still not great for a program that was designed intended to continue until 2017.


• All of the rebates under the SIP will be EPBB rebates - that is, paid out all in one lump sum.  This is a good deal for system owners, but a rotten deal for LADWP (click here for our general discussion of PBI vs EPBB rebates.)  The LADWP rep suggested that the overhead problem was too much to handle to implement PBI rebates.  Really?  It would seem that the greater productivity insured by PBI rebates would more than offset the cost, and smaller utilities - like PWP - somehow seem to manage it.


• Even under the new SIP, there will be no payments made to system owners who produce more energy than they consume over the course of the year.  (In other words, no AB 920 compensation is being implemented.)  It is true that LADWP is expressly exempt (albeit in a very roundabout way) from the requirements of AB 920, but no cogent argument was advanced for not providing compensation along the lines of what every other utility in the state must do.

The breakout session that we attended was dominated (nearly hijacked) by the leasing interests who were not at all happy with rebates for leased systems being paid out as commercial systems, particularly given that the commercial rates were lower.  (Presumably, if the commercial rates were higher, we wouldn’t have heard those complaints.)  This argument seems founded more on greed than common sense - after all, the owners of leased systems qualify for 30% treasury grants and bonus depreciation - tax benefits that are not available to residential clients who purchase their systems outright.  It only seems fair that they should receive a higher rebate since the overall economic benefit is better balanced that way.  (It will be interesting to see if LADWP sticks to its guns on this one or caves to the leasing companies.)

Which leaves us with our questions for LADWP.  We were told that the utility is running on a very tight timeline and that they must have comments/questions on the SIP relaunch by this Sunday - July 17! (Not sure why they picked a Sunday for the comment deadline, let alone one that is just three days away, but that is what we were told.)  If you have questions or comments, please send them to solar@ladwp.com.  In any event, here are our questions and we will let you know the responses that we get (if any):

• Step sizes - It appears that we are re-starting at Step 5 with incentive values of $2.20, $1.95, and $2.70/W for residential, commercial and government/non-profit projects respectively.  How big are the Steps?  How will the Steps interact with the $40 million/FY budget allocation?


• Building Permit before SIP Application - the revised guidelines require a permit be pulled before filing a SIP application.  What is the justification for this?  Most other utilities are either agnostic on the issue (SCE) or require the rebate application before a permit can be pulled (PWP).  Requiring the permit first, cuts into the time available for completing the project before the permit expires.


• 10-hour testing window - the revised guidelines would entirely disqualify for a rebate any system that was operated for more than ten hours prior to inspection.  There was no justification given for this number and it seems arbitrary.  We could well imagine a scenario where a system is brought online on Friday and allowed to operate over the weekend as a burn-in period before being shut off on Monday.  Why would such a system be rendered ineligible for a rebate?  We believe that a more flexible system should be implemented.


• Deficient applications - the guidelines talk about “applicants who … submit 3 deficient applications… will be given a 6 months exclusion from submitting additional applications."  This seems unduly punitive and much more information needs to be given regarding what constitutes a “strike” for these purposes.  For example, we are aware of an application under the prior program that was rejected because a calculation was made - consistent with the text of the guidelines - that was inconsistent with the reviewer’s expectations.  Applicants who abuse the system should be excluded, but good-faith disagreements over interpretations of guidelines should not count as a strike.


• PBI rebates - LADWP really should add these for larger commercial systems under the SIP.


• AB 920 Compensation - LADWP should join the party and pay net energy producers just like every other utility in the state.

We will write more when we hear from LADWP - but remember, deadline for comments is this Sunday, July 17.

In a mailing dated January 18, 2011, Pasadena Water & Power (PWP) sent its solar customers election forms to determine how they will be compensated for any surplus energy generated. We previously wrote about PWP’s proposal and the City Council’s adoption of that proposal for net surplus energy compensation. Here is our analysis of the current form and our recommendation.

As we noted previously, PWP’s compensation proposal fails to fairly compensate solar power customers for the excess energy that they produce.  The present form does nothing to improve on that situation, but does reveal that compensation on a monthly basis will not actually result in a check being cut unless and until the amount owed exceeds $50.  This is apparently another “administrative savings” for PWP that was not discussed when their proposal was brought before the City Council.

Curiously, neither the cover letter nor the form itself discloses what the actual compensation rates will be.  From our earlier post, here are the amounts:

While the compensation is greater under monthly billing, in neither case is the total compensation equal to the fully loaded PWP price which is closer to 19¢/kWh.  Since under the monthly billing option surplus energy credits are converted to cash (even though they are not paid to the customer until they exceed $50), you actually would lose money every month.  The better option is to roll your excess energy credits forward every month for the year, and that is especially true if you are only a net energy producer in some months, but a net energy consumer in others.

So here are our recommendations, box-by-box, on how to fill out PWP’s form:

1. Provide the required contact information here.
2. Check Yes.
3. Check the top box for “I prefer annual net metering.”
4. Check the box assigning the RECs to PWP.  At this time there does not appear to be a separate market for residential customers for their RECs. However, that is likely to change in the future and at that point you will probably want to rescind this assignment, but for now, you may as well get the extra 2.5¢ (just don’t spend it all in one place!).

It is unfortunate that surplus energy producers cannot receive full compensation for the value of the energy produced - just as it is unfortunate that we are seeing rebates disappear with no feed-in-tariff to take their place.  For now, the above recommendations reflect our best advice on how to maximize your benefit under the existing rules in Pasadena.

Introduction

On Monday, November 8, 2010, the Pasadena City Council unanimously adopted PWP’s staff recommendation for surplus solar energy compensation rules in response to AB 920. That’s the good news. The bad news is that the rules that were adopted are clearly inconsistent with the mandates of AB 920. Moreover, they do not provide fair compensation for surplus solar energy producers since the compensation paid - even at its most generous - does not equal the true cost of energy for most PWP customers.

Run on Sun attended the City Council meeting (as did two of our Pasadena customers) and addressed the Council over what we saw as the deficiencies in the staff’s recommendation.  This post will first provide some background on what was being proposed, then layout our concerns as expressed to the Council (though that will take more than the three minutes provided for comment at the meeting) and then conclude with our recommendations for how PWP customers can best maximize their benefits under the new rules. By necessity this is a very long post - we hope you find it helpful.

Staff Recommendation

AB 920 amended the State’s Net Metering law to require utilities (except LADWP) to provide “just and reasonable compensation for the value of net surplus electricity, while leaving other ratepayers unaffected.” For municipal utilities like PWP, the process of determining what is “just and reasonable” was left to the discretion of the utility. (Investor-owned utilities, like SCE, must go through the CPUC to get their compensation method approved.) Despite requests for input into the process, to our knowledge, the compensation scheme advanced by PWP was crafted solely in-house without input from the installer - or customer - community.

Staff proposed to compensate customers who are surplus providers by paying them 8.7¢/kWh for the value of the energy itself and another 2.5¢/kWh for the Renewable Energy Credits (RECs) associated with the energy being from a renewable source.  Thus the total compensation proposed was 11.8¢/kWh. Missing from this proposal was any accounting for transmission and distribution costs or other fees and taxes that are tacked on to the cost of every kWh sold in Pasadena.

PWP’s staff report voiced internal concern about the cost of carrying over credits from one billing period to the next until they could be netted out at the end of the year, claiming that as more such customers came online, PWP would need to add a full time employee - at an annual cost of $75,000 - to handle the accounting. To avoid that accounting problem, staff proposed to encourage customers to switch to a netting-out process every billing cycle. To incentivize such a switch, PWP acknowledged that “the monthly net surplus compensation rate would need to be higher than the full retail rate for electricity, plus taxes ([as] this is the value customers would otherwise receive by carrying forward surplus energy from one billing period to the next within the twelve month net energy metering period.)” This incentived compensation rate included an additional 6.6¢/kWh to account for the amounts ignored above - transmission, distribution, customer charges and taxes - for a total amount of 17.8¢/kWh.

Thus, PWP’s staff proposed a two option approach:

• Option A - customer carries forward their surplus from billing cycle to billing cycle until the end of their twelve-month net-metering period and then is compensated for any surplus energy at the rate of 11.8¢/kWh; or
• Option B - customer is netted out at the end of each billing cycle and if there is any surplus in that cycle, they are paid for it at the rate of 17.8¢/kWh.

Run on Sun’s Critique

Unfortunately, there are a number of problems with the staff’s proposal, not the least of which is that it has no support in the law.

Legal Questions

AB 920 is quite clear on how this is supposed to work:

At the end of each 12-month period, where the electricity generated by the eligible customer-generator during the 12-month period exceeds the electricity supplied by the electric utility during that same period, the eligible customer-generator is a net surplus customer-generator and the electric utility shall, upon an affirmative election by the eligible customer-generator, either (A) provide net surplus electricity compensation for any net surplus electricity generated during the prior 12-month period, or (B) allow the eligible customer-generator to apply the net surplus electricity as a credit for kilowatthours subsequently supplied by the electric utility to the surplus customer-generator.

Public Utilities Code § 2827(h)(3) (emphasis added).

AB 920 requires the utility to pay based on the complete, 12-month net-metering period, or allow the customer to carry over the entire surplus to the following year - an option not addressed by PWP at all.  As we read the statute, there is no allowance there for administrative convenience as a basis for abandoning the 12-month netting-out process.

After we pointed this out to the Council, the head of PWP, Phyllis Currie, essentially conceded that the statute did call for a 12-month net-metering period, but then dismissed it as if it were of no consequence.  Indeed, one Councilmember praised PWP for coming up with a creative approach to solving their accounting problem. Creative it may be, but it is of dubious legality. Interestingly, the City Attorney was not asked for, and did not offer, an opinion at the meeting as to whether PWP’s proposal complied with the law.

Compensation Below Retail Value

PWP customers will now be given two options for compensation coming in at 11.2 or 17.8¢/kWh - the latter amount allegedly being “higher than the full retail rate for electricity."  Except that it is not. We routinely and consistently see PWP customers paying closer to 19¢/kWh for their electricity, when all taxes and fees are factored into the equation. This means that for most of the customers that we have seen, they will be losing money if they elect to receive payment under either payment rate. The Council entirely ignored this concern.

No Provision for Adjustment Based on Rate Increases

The staff proposal does nothing to tie the compensation rate to the rate structure going forward. Thus, PWP could raise its residential rates but leave the AB 920 rates untouched. Again, the Council ignored this concern.

No Basis for Setting the REC Value to “Green Power” Charge

The staff set the compensation value for REC credits (which flow to PWP under the law) at 2.5¢/kWh because that “is in line with current market cost of qualifying renewable energy credits and is equal to the premium rate paid by PWP’s Green Power customers.” Staff further suggested that “as more liquid and transparent renewable energy credit markets evolve, staff may recommend future changes to the renewable attribute compensation amount.” Yet there are markets that trade in solar RECs right now and you can readily see what their values have been simply by looking online.

According to the website, SRECTrade, the most recent prices for SRECs are as follows:

To relate this market data back to PWP’s proposal, according to Wikipedia, “a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces."  Thus, if the average value for an SREC representing 1,000 kWh of energy is $354.30, then the value of 1 kWh would be $354.30/1,000 = 35.43¢/kWh - more than 14 times as much as PWP is claiming is “in line with current market cost.“

Of course, the staff report provides no visibility into what market data PWP considered (if any) and their conclusory statement seems to fly in the face of real world data that is readily available.

Suggestions for PWP Customers

So what is a PWP customer to do? That depends on how much surplus energy you are producing, and how frequently you are doing so. If your system produces surplus energy every month, so that there is no chance that in a subsequent month you will be a net energy consumer, then you should opt for the higher payment made on each billing cycle. You won’t be paid a true market value for your surplus energy, but you will do better than holding it to the end of the year given PWP’s approach.

On the other hand, if in some months you are a net producer and in other months you are a net consumer, you should carry your credits forward to the end of the year. That way you will save money by offsetting your future consumption since that offset is worth more than the 17.8¢/kWh that PWP is willing to pay you. Moreover, if you anticipate that your energy needs could increase in the next year - say because you are going to purchase an electric vehicle - then you should demand that PWP allow you to carry your energy surplus into the next year, as expressly required by AB 920.

As always, we welcome your (non-spam) comments.

The Pasadena City Council will hold a public hearing and vote on the proposed surplus compensation rate proposal submitted by Pasadena Water & Power (PWP) next Monday night, November 8, 2010. The compensation proposal pursuant to AB 920 breaks down as follows:

Energy services credit: 8.7¢/kWh - PWP’s average cost of energy;
REC credit: 2.5¢/kWh = premium paid by “Green Power" customers.
Total compensation: 11.2¢/kWh

In the first year of this program PWP estimates that it will payout roughly $1,300 to $1,700 total - “an amount equal to about 0.001% of PWP’s retail sales.”

Of course, what is missing from this equation is any compensation for the non-energy charges, such as PWP’s avoided transmission and distribution costs.

PWP itself realizes that this is not a very attractive deal and that customers are more likely to simply roll-over their surplus to offset more expensive energy costs in months when they are not a net energy producer. In fact, PWP complains that to track these likely carryovers, PWP will have to hire a full time employee at an annual cost of $75,000, making this a bad deal for both PWP and its customers.

To reduce that overhead cost, PWP proposes to provide a second option that would convince customers to get compensated as part of each regular billing cycle instead of carrying credits forward. As PWP acknowledges:

To encourage customers to select this option, the monthly net surplus compensation rate would need to be higher than the full retail rate for electricity, plus taxes (this is the value customers would otherwise receive by carrying forward surplus energy from one billing period to the next within the twelve month net energy metering period). The proposed compensation rate for customers choosing this option is the sum of the applicable Energy Services Charge for the billing period, plus 6.6¢/kWh to reflect non-energy charges (transmission, distribution, customer charges and taxes), and 2.5¢/kWh for the value of the renewable attributes. The resulting total compensation rate for residential customers would be approximately 17.8¢/kWh.

Of course, this is the rate that they should be paying from the start - regardless of whether a customer chooses to be compensated on a regular or annual billing cycle as this is the true value of the energy provided. (PWP’s inability to bring its billing system into the 21st century is an entirely different matter and not relevant to this discussion.) Given the tiny fraction of PWP’s overall sales represented by these solar net energy producers, there is no possible inequity that would be imposed on other ratepayers by providing full-value compensation.

We will update this post and bring forward additional details as they become available. In the meantime, we encourage all PWP solar customers to attend the City Council meeting next Monday and voice your support for adequate compensation for net energy producers.

On March 15, SCE filed with the California Public Utility Commission (CPUC) its proposed Net Surplus Compensation Rate for solar customers under AB 920.  You will recall that AB 920 requires utilities to pay solar customers who are net producers of energy “fair and reasonable” compensation for the surplus energy provided.  As an investor-owned utility, SCE must file its proposal with the CPUC.  (Municipal utilities like PWP, BWP and GWP need only seek approval from their local City Council.  As of this writing, we have not seen anything from the munis yet.)

The filing with the CPUC consists of three documents, which are linked to this posting, and in total they run to more than 100 pages of at times impenetrable regulatory-speak.  The first document is the Application to the CPUC, the second is prepared Testimony explaining (sort of) the Application, and the third is a short set of “Work papers” filed in support of the Application.  (Please note - any annotations in these documents are MINE, and not those of SCE.)

We will have more to say about these documents in the coming days but for now, we wanted to make sure that interested parties would have access to them and we would welcome your thoughts about the implications of SCE’s proposal.  We would note one thing of interest - SCE is NOT proposing to compensate solar customers for the retail value of the electricity produced.

SCE laid out a potential schedule for adoption of its proposal (subject to CPUC approval):

• April 15 - Protests and/or initial public comments to be filed;
• June 8 & 9 - Public workshops to be held;
• June 30 - Comments based on workshops to be filed;
• August 6 - Final Decision

Of course, if the CPUC holds a hearing on these proposals (it is also considering Applications from PG&E and SDG&E) these dates are likely to slip.