Thoughts on Solar

On January 28 the California Public Utilities Commission (CPUC) voted 3-2 to adopt new rules governing what is known as Net Energy Metering, thereby creating the framework for Net Energy Metering 2.0 (NEM 2.0).  Here is our take on what the CPUC did, and didn’t do.

What Hasn’t Changed

The first and most important thing to know is that for many people, the new rules adopted by the CPUC will not affect you at all!  These new rules only directly apply to customers of the three investor owned utilities (IOUs): SCE, PG&E, and SDG&E.  If your electrical service is provided by one of the municipal utilities - like PWP or LADWP - nothing that the CPUC did last month will directly affect you since the CPUC does not have jurisdiction over the munis.  (That said, the munis often follow the lead of the CPUC, so it is entirely possible that they will individually adopt their own version of NEM 2.0, but that will be a discussion for another day.)

Even for solar clients in the service territory of one of the IOUs, if you have already signed a net metering agreement, you will be grandfathered in and allowed to continue to operate under the old rules for 20 years.  Once the 20 years have elapsed, you will be transitioned to the net metering rules (NEM 5.0?) then in effect.

Beyond all of that, even for new solar clients in IOU territory, these new rules do not go into effect right away.  Rather, the old rules will still apply until your utility reaches their 5% of customer aggregate demand cap, or July 1, 2017 - whichever comes first.  In SCE territory it is an open bet as to which will occur first (see more below).

Bottom line: this is not happening right away, so you still have time to benefit from the existing rules.

What is Going to Change

Net metering is changing!

Proposals

Lots of people weighed in on NEM 2.0 including all three IOUs, CALSEIA, NRDC, and various advocates for rate reform and consumer protection.  While some of the proposals, and their proponents, were entirely predictable, others were not, and at least one such position was seriously disappointing.

For example, the three IOUs all advanced proposals that would have significantly reduced the value of going solar.  SCE wanted to reduce the rate for energy exported from full retail to just 7¢/kWh (with a 1¢ adder if you give SCE your renewable energy credits), plus a $3/kW/month “grid access charge", and a one-time $75 interconnection charge.  (SDG&E’s proposal was even worse, seeking a $9/kW/month charge!) On top of that SCE wanted to eliminate virtual net metering altogether.

At the other extreme, the “solar parties” (such as CALSEIA and The Solar Alliance) advocated for keeping net metering at full retail value.  However, in a nod to changing realities, they did support paying on nonbypassable charges (more on that mouthful in a minute) but not until after 2019.

Still, there was one proposal that strikes us as entirely reasonable which CALSEIA opposed - mandatory warranty periods.  Back when the California Solar Initiative was in place (i.e., when SCE was paying rebates), solar contractors were required to provide a ten-year warranty on their work in order to participate in the program.  With the demise of the CSI program, technically that warranty requirement also went away.  As part of the NEM 2.0 rulemaking, ratepayer advocates advanced the notion of restoring the warranty requirement - a common sense request that no one should oppose.

But the “solar parties” did oppose it, asserting that such a requirement could “discourage innovation in product offerings."  Seriously?  What “product” might we reasonably want to offer that having to stand behind it would be discouraging? When pressed about this position during CALSEIA’s NEM 2.0 webinar, Brad Heavner, CALSEIA’s policy director, said that the view was that the market could decide this: presumably if a company didn’t offer a warranty and that was important to the customer, they would go with a different company.  This was not, however, a position that CALSEIA pushed hard to win, and in the end, they lost on this point.

In our view, opposing a mandatory warranty paints solar in a bad light.  It puts the industry on the side of those who do the least reliable work, and penalizes those companies who go the extra mile to install systems that will stand the test of time.  From what we have seen it is tough enough to get a company to honor its warranty commitments, let alone relying on the “invisible hand” of the market to protect consumers.  CALSEIA did a lot of great work on NEM 2.0, but this position was a mistake.

Decision

The ultimate decision is a major defeat for the IOUs, and a partial victory for the solar industry.  For the IOUs, they clearly overplayed their hand, advancing proposals that were so clearly anti-solar that the Commissioners couldn’t really take them seriously.  According to a CALSEIA webinar, toward the end of the proceedings the IOUs suggested an energy export feed-in-tariff which, if they had proposed it at the start, might have gained traction.  Something to think about as we look toward subsequent iterations on NEM rules.

The solar industry retained full retail value for energy exports, but they also saw three changes that undercut somewhat the value of that victory: nonbypassable charges (NBC) for all energy taken from the grid, one-time interconnection fees, and mandatory time-of-use (TOU) rates.  Let’s look at each in turn.

Nonbypassable Charges (NBCs)

As part of their rate schedules, the IOUs have certain rate components that are known as nonbypassable charges or NBCs.  For example, if you were to look at SCE’s Domestic Rate schedule tariff page (check out page 3), you would see a whole host of factors that go into making up the rate that the customer ultimately pays.  The decision affects three of those NBCs: the Nuclear Decommissioning Charge, the Public Purpose Programs Charge, and the Department of Water Resources Bond Charge.  The sum of those three charges for an SCE residential rate payer  comes to 2.224¢/kWh.  (The lion’s share of which is the charge for public purpose programs, such as bill assistance to people on limited incomes.)

Under the old rules, solar customers would only pay for these charges on the net energy that they consumed in a month.  So, if your consumption was 1000 kWh per month, and your solar system produced 800 kWh, you would only pay these charges on 200 kWh, about $4.45.  Under the new rules, however, every kWh that you pull from the grid, whether it is ultimately netted out by energy you exported, is subject to NBCs.  Sticking with the same example, of the 800 kWh that you produce, imagine that 500 kWh of that are consumed at your home and the remaining 300 kWh are exported.  Meaning that you imported a total of 500 kWh from the grid.  As a result, under NEM 2.0 you will pay NBC on 500 kWh — raising the charge from $4.45 to $11.12, and increase of $6.67/month on the solar customer’s bill.

The relatively small impact of the NBCs is due in part to solar industry lobbying that held the line at around 2¢/kWh versus a proposal, apparently favored by the two dissenting Commissioners, to include more charges that would have brought the total above 4¢/kWh.  (Indeed, we are told that keeping the NBCs at 2¢/kWh is what caused those two Commissioners to vote against the final package.)

Frankly, we think the NBC costs are fair.  The programs supported by the NBCs are a public benefit and all other customers pay for those based on every kWh they pull from the grid.  Under the new rules, so will solar customers.  Of course, if you are in a lease and only saving $20/month from your old bill, this is a much bigger hit.  Yet another reason to avoid leasing!

One-Time Interconnection Fees

Also reasonable was the imposition of one-time interconnection fees to be set based on the IOUs actual cost of handling the interconnection.  The CPUC estimates that the fee will be somewhere between $75-150.  (Recall that SCE advanced a $75 fee as part of its proposal, so it will be fascinating to see if they try to come back for a higher fee now!)

Mandatory TOU Rates

The biggest hit to solar mandated by the NEM 2.0 rules was the requirement that solar customers get switched over to TOU rates.  (SCE is moving all customers to TOU rates eventually, but that target date is 2019.)  Under TOU rates, you pay more for your energy depending upon the time of day when you use it, as opposed to being on a tiered rate schedule where you pay more when you use more during a billing cycle.  For residential customers, SCE sets its peak charge time as the hours between 2 and 8 p.m., and Noon to 6 p.m. for commercial customers.  This means that, for residential customers, solar exported to the grid before 2 p.m. will be valued less than energy that needs to be pulled from the grid after the sun goes down, but before 8 p.m.

It is this change to the rate structure, and to a lesser extent the imposition of the full NBCs, that makes intelligent energy storage that much more valuable.  With smart storage, you won’t export energy during the day, you will store it for later use.  That reduces the total amount of energy pulled from the grid (lowering the NBCs) and allows you to shift the availability of the energy to the evening so as to avoid peak TOU rates altogether.  There can be no doubt that this is the future for how solar installations under NEM 2.0 (and likely beyond) will be the most cost-effective.  We are optimistic that by the time NEM 2.0 goes into effect for SCE clients in our service area, we will have an intelligent storage solution to offer.

Timing

So when does all of this go into effect?  As we noted above, at the very latest, the new rules go into effect on July 1, 2017. Most likely, however, they will go into effect sooner than that since the actual start date is tied to when the IOU reaches its 5% cap.  In SCE territory, the following NEM report is informative:

SCE’s total customer aggregate demand, the basis for the 5% cap, is 44,807 kW.  5% of that is 2,240 MW of solar installed.  As of the end of December, 2015, SCE had 1,388 MW of solar either installed or with net metering agreements in place, leaving 852 MW remaining under the cap.

The report also shows that applications for 48.1 MW of new solar were received during the month of December.  If we take that number as  a fair monthly average, we can expect SCE to reach its cap in 17 to 18 months. So to lock-in your system under the existing rules, you will need to have your net metering application complete and on file with SCE before then (May-June 2017).  We will continue to update on the status of SCE’s progress toward its cap.

Final Thoughts

On the whole, the solar industry dodged a bullet, especially when you look at the latest battles over NEM in other states, like Nevada.  This success is a tribute to the thousands of people who took the time to advocate for solar, whether they be our trade association, CALSEIA; individual solar companies, like Run on Sun; or solar customers who reached out to inform the Commission of the true value of solar.  Not lost in the debate was the importance of solar as a job creation engine in California.

Moreover, the political climate in California, from the Governor on down, has been strongly supportive of solar and they deserve our thanks as well.

We would love to hear your thoughts and if you have questions that haven’t been answered here, please leave them in the comments and we will do our best to address them.

You may have heard that there are forces afoot - brought to you by the investor-owned utilities - that would lead to a “catastrophic” diminution of savings from solar power systems.  Stories from the LA Times, to CNBC, to even the Motley Fool all are proclaiming that change is coming to solar and the end is in site for any real solar savings.  To which we say - not so fast.  Take a deep breath and read on to see our take.

For example, just today the LA Times ran a story in the Business section quoting solar customers who were “just so angry” over not having access to renewable energy credits (RECs) under the state’s new renewable energy targets law.  Yet, that isn’t a change to past practices – no residential client has been able to sell RECs on the open market.

Similarly with the upcoming changes in the state’s net metering rules - while the investor owned utilities, including our own Southern California Edison, are lobbying like mad to make solar less economically appealing, no decision has yet been reached.  Moreover, the California Public Utilities Commission (which is charged with resolving this issue) has consistently sided with the solar industry, and most likely will do so now.  If they don’t, there will still be the option of seeking a legislative fix before the new rules can go into effect.

And that raises yet another point that counsels for a less breathless approach to all of this: the new rules won’t take effect for at least a year, and clients who install solar before then are locked into the present, solar-friendly net metering rules for the next twenty years!

So let’s recap:

• Today’s “solar-friendly” net metering rules will still be available to solar clients for at least the next year;
• A consumer who installs solar before the new rules go into effect will be grandfathered into the current rules for 20 years; and
• The 30% federal tax credit remains in effect going into 2016.

But there is one catch here - the second half of 2016 is poised to be crazy with lots of consumers trying to get their projects completed in time to take the tax credit.  This will invariably lead to a real crunch and folks who wait too long will miss out.  If solar is in your plans for 2016, the time to get started is now!

Smokey the Bear knew a thing or two about urgency, and appropriating his call to action seems particularly apt right now.  Today, rooftop solar is under concerted attack before the California Public Utilities Commission (CPUC).  If we are to maintain the growth of solar, with its tens of thousands of jobs here in California, as well as its huge benefits in reducing air pollution - particularly greenhouse gas emissions - we need YOU to act now.

Our friends over at Vote Solar, along with the California Solar Energy Industries Association (CalSEIA) are working to beat back the insidious proposals coming from the Investor Owned Utilities - including SCE - to gut net metering and impose taxes on those who invest in rooftop solar.  If those proposals were to be adopted, much of the economic value of solar could be destroyed.

But it doesn’t have to be that way.  The CPUC is a poltical entity and like any political entity, it responds to pressure from the public.  We cannot match the economic clout of the IOUs, but we can beat them the old fashioned way - by standing up for solar!

When you do, you will go the Vote Solar website where you can add your name to the list of concerned Californians who want to preserve the many benefits of rooftop solar.  Please pass this word on to your friends and colleagues and urge them to get involved too!

We can win this fight - but we need YOU now!

Our first post on the new SCE rate structures revealed that there were big changes coming to Residential customers.  In this post we will look a little closer at how those changes will affect your bill.

As we explained before, SCE’s new Domestic rate structure changes baseline allocations and completely eliminates the dreaded Tier 5.  Instead, the price of energy at Tiers 3 and 4 went up sharply (6.3% and 7.2% respectively) while summertime allocations generally declined.  (We didn’t discuss it in our previous post because it doesn’t affect that many SCE customers, but allocations for “all-electric” homes dropped dramatically, as much as 35% or more!  If you are in an all-electric home, you better be generating your own electricity!)

But the changes in the rate structure are complex - after all, non-summer allocations often increased and without Tier 5 it figured that some customers - those who use a great deal of energy - would actually benefit from the change.  We decided to find out.

Methodology

To assess the impact of the new rate structure, we modified our old SCE Domestic rate model (which we have used to estimate future savings from installing solar) to reflect the rate structure changes: new baseline allocations and the elimination of Tier 5 in return for modifications to the lower Tier rates.  Now we had two models - one based on the “2012 Historical Rates” and the other based on the new rates effective April 1, 2013.

Since the allocations vary by region, we chose Region 9 (which covers the cities surrounding Run on Sun such as South Pasadena and San Marino) as the home for our representative SCE customer.  We then ran our models based on a daily usage ranging from 10 kWh (way less usage than any single-family home in either of those cities) all the way up to 70 kWh (greater usage than all but the largest properties).  To account for summertime loads, we increased the daily usage by 50% for the months of June through September (a generally conservative estimate, especially as daily usage increases).

Winners and Losers

Here are our results (click for larger):

Despite the presence of four (or five for 2012) different rates, the actual graph is almost entirely flat, except for usage at the very bottom end of the scale.  Fairly early on, we see the 2013 rates bend up above the values from 2012 with the greatest increases between 18 and 36 kWh daily usage (more on that in a moment).

As predicted, however, the rate increase is actually a rate reduction - if you happen to own a mansion or are running a whole bunch of Grow Lights.  Indeed, for folks way out there on the right edge of this curve, they will see their annual energy costs decline by more than 1%!  How nice for them.

But how did the rest of us do?  Let’s zero in a bit on where the middle class lives and see what their rates look like - check this out:

For this graph we have restricted our usage values to the range of 18-36 kWh and narrowed the scale of our cost axis to start at $1,000 instead of $0.  The resulting “magnification” shows who is shouldering the bulk of this rate increase.  Customers in this band will see rate increases this year of anywhere from 2.88% to 4.85% (at 28 kWh), and keep in mind this is just one year of a multi-year rate increase plan.

Who are these lucky folks?  Well, in terms of potential solar clients, their system needs would range from 3.6 kW (just above our minimum system size) to 7.2 kW - in other words, the “sweet spot” of our potential residential clients.

So what is our takeaway from this analysis?  Well, as is seemingly commonplace these days, if you are  in the middle you are getting squeezed.  Folks on the low end mostly get a pass while folks on the high end are actually getting a break!  But if you are in the middle, it is your pocket that is getting picked.

Installing solar is your best hedge against the clever targeting by the team, no, make that the legion of lawyers and economists employed by the utilities to design these rate structures.  We cannot stop their scheming, but we can certainly assist you in fighting back!  Give us a call today, or better yet, fill out our online form and let’s put this new rate model to use in saving you some money!

Coming up later this week: how the new rate structures affect commercial customers.

In November we wrote that SCE’s rates were set to climb on average by more than 17% over the next three years.  Now we are starting to see how those rates are about to change and the differences are indeed dramatic.

In a 500+ page filing with the California Public Utilities Commission (CPUC), SCE documents major changes to both residential and commercial rate structures that will change how, and how much, SCE’s customers will pay in the coming years.

We will be breaking this filing down over time, but for a start, let’s look at changes for residential customers.

Changing the Baseline

Most residential customers of SCE pay according to Rate Schedule D (for ‘Domestic’) that charges based on a tiered structure.  At the bottom of the tier is the so-called baseline allocation - an amount of energy use per day allowed based on where the customer resides.

As SCE explains it on their FAQ page:

Baseline was never intended to cover 100% of average residential use, but rather to provide a significant portion of the reasonable energy needs to be charged at the lowest rate, and to encourage conservation of energy.

The CPUC established that the baseline quantities be allocated at 50% to 60% of average residential consumption for basic services such as lighting, cooking, heating and refrigeration, except for residential gas and all-electric residential customers, the baseline quantity is established at 60% to 70% of the average residential consumption during the winter heating season.

Under SCE’s new Domestic rate structure, baseline allocations will drop from their present 55% down to 53% of the average residential consumption.  Since all other aspects of the rate structure are dependent on the baseline allocations, these seemingly small drops can have a significant impact on how much a residential customer ultimately pays.  However, the baseline allocation reductions are an average over the entire customer base - some customers will see their allocation increase while others will see theirs go down.

Here’s a table showing old allocations versus new ones for customers in the Run on Sun service area:

Most everyone sees their allocation increase in the winter period - precisely when most of us need it the least.  But if you live in the San Gabriel Valley - where the vast majority of our clients do - you will see a real drop in your daily baseline allocation and folks in the Pasadena area are especially hard hit.  (NB: Customers of Pasadena Water and Power are not affected by this change - only those who get their electrical service from SCE.)

Overall, for SCE’s nine different regions, six will see a reduction in their baseline allocation during the summer season while three will see increases.  For the remainder of the year, one region will see their allocation go down, six will see it go up and three will remain unchanged.

Is Anyone Shedding Tears Over Fewer Tiers?

SCE’s old residential rate structure had five tiers: baseline (or Tier 1), Tier 2 (usage of the next 30% beyond baseline), Tier 3 (usage between 131 and 200% of baseline), Tier 4 (usage between 201 and 300% of baseline) and Tier 5 (all usage beyond 300% of baseline).  At each Tier, the cost increased substantially.  Whereas a kilowatt-hour of energy within your baseline allocation was charged at the (relatively) modest rate of just 12.9¢, that same kilowatt-hour in Tier 5 would cost 32.6¢ - more than two-and-a-half times as much!

Going forward, Tier 5 is eliminated altogether - which sounds like good news until one realizes that the cost of Tiers 3 and 4 are going up, and for customers with reduced baseline allocations in the summer, they will get into those tiers much sooner.

Here’s how the new rates compare:

While the two lowest tiers are essentially flat, Tier 3 goes up by 6.3% whereas Tier 4 jumps 7.2%.

But surely with Tier 5 eliminated altogether, some customers must do better under the new rate structure, right?  Ah, that is a question for another day, but wouldn’t a graph showing annual electric bills under the old and new domestic rate structure be something interesting to see?

We thought so to - that’s coming next time.