California Solar owners start raising fees NET surplus Generation

One of the most common questions among homeowners and small-business owners contemplating the use of solar electricity is what happens if their system produces more energy than they use.

In California, the leading solar state, what happens is about to change.

Starting in 2011, the state’s private utility companies must begin offering compensation to solar owners whose systems, at the conclusion of a 12-month “true-up” period that began in 2010, have generated more energy than they used. The California Public Utilities Commission has not yet issued a final decision and one is not expected until sometime early in the new year.

The “net surplus compensation” is required as part of AB 920, a bill sponsored by state Rep. Jared Huffman and signed into law by Gov. Arnold Schwarzenegger in 2009, which took effect at the start of 2010.

Although fewer than 10 percent of solar PV system owners are expected to be affected, and the compensation in most cases will be small, the frequency with which this question comes up demonstrates that it packs a symbolic wallop.

Conversations with hundreds of small-scale prospective solar owners suggest that a majority believe that they are entitled to be paid for excess generation at the highest retail price they pay the utility to provide electricity to them, not the wholesale price the utility pays conventional suppliers.

They aren’t going to get it, at least not yet.

Under a proposed decision by an administrative law judge in a proceeding before the California Public Utilities Commission, the compensation for net surplus generation is to be based on a formula suggested by Pacific Gas and Electric Co. that reflects short-term wholesale electricity prices. Because these prices vary, the plan calls for averaging out 12 months of daily fluctuations.

In 2009, the average price for Pacific Gas and Electric was a nickel per kilowatt-hour for energy purchased between 7 a.m. and 5 p.m. The draft decision calls for adding a payment to the wholesale electricity price that reflects the cleaner-energy attributes of solar or other renewable generation. This amount is to be based on the average market price of renewable energy credits, which are not yet traded on a public market in California. Under other pricing mechanisms suggested by the utilities, the added compensation for cleaner energy could have ranged from about 1 to 3 cents per kilowatt-hour.

Before the enactment of AB 920, net surplus generation over a full year’s true-up period usually went to the utility company for nothing.

In addition to the state’s private utility companies, other groups took part in the proceedings to determine the compensation to be provided to solar owners whose systems produce more energy than they use over the course of a year.

One was Wal-Mart, a company with substantial solar installations on stores and other facilities, and another was the city of San Diego, which has a total of 18 megawatts or more of solar electric generating capacity. Both proposed compensation based on different mechanisms that would typically end up paying considerably more. San Diego suggested a method that would have paid up to 20 or 25 cents per kilowatt-hour or a utility’s full retail rate.

Not specifically represented in the proceedings were the vast majority of solar owners – homeowners and small-business owners, who generally have small-scale systems. Now numbering about 70,000 in California, these owners are still unorganized and their rising numbers have not yet translated into direct political influence except in a few cases, as in Mr. Huffman’s Northern California district.

Industry observers had predicted after the enactment of Mr. Huffman’s bill that the compensation amount to be offered probably would not satisfy many solar owners. The law requires that net generators be provided “just and reasonable” compensation but that other ratepayers be unaffected. In setting a compensation method, the utilities commission was authorized to consider both the price of the electricity itself and the cleaner-energy attributes of renewably generated electricity.

So few utility customers are affected that the possibility existed that the compensation to be paid out would be far exceeded by the cost of administering a payment program. In 2009, at a rate of 5 cents per kilowatt-hour, the total net surplus compensation for the three investor-owned utilities would have been about $600,000, or roughly $120 for each customer entitled to compensation.

Eligible customers will be able to choose to receive a cash payment or can opt to roll over any surplus generation credit to the next 12-month true-up period. Under the draft decision, those who choose to roll over credits are to be compensated at the same electricity wholesale market rate, called the “default load aggregation point.”

The administrative law judge’s draft decision postpones the determination of the renewable-energy value of net surplus generation, and it is unclear whether and how much homeowners will be compensated for the fact that any net energy surplus they deliver into the grid is more desirable environmentally than fossil-fueled generation, for example.

The law works in conjunction with existing net-metering rules, under which solar (and wind turbine) owners who generate more electricity than they use in a billing period of less than 12 months are accorded credits that are offset by subsequent underproduction. For example, in spring and fall, a solar electric system may produce more electricity than a household consumes, while in cloudy, low-sun winter months, or when air conditioning is used heavily in the summer, a system’s production may be less than the household uses.

Net metering, unlike the net surplus compensation plan, does afford the opportunity to receive credit at the equivalent of the retail price for excess solar production that occurs within a billing period of less than a full year. Owners under tiered rate systems can offset the highest-priced energy they use with solar electricity. Under some time-of-use rate schedules, solar owners may deliver electricity into the grid during high-priced peak periods while using lower-priced off-peak energy, and end up with an annual billing credit even though they were not net exporters of electricity. Only net exporters are to receive compensation under the law judge’s interpretation of AB 920.  

Net metering rules and the California Solar Initiative rebate systems are set up with the intent for solar owners to generate no more power than they use, and roughly 90 percent or more of owners do not generate net surplus energy on an annual basis, according to utility company reports. It can happen to homeowners, though. Some may simply use less electricity once they begin to generate it themselves and start watching the numbers. Those with teenagers may find their consumption drops when children leave home.

The draft decision notes that the “amount of net surplus energy that is likely to be compensated is quite small compared to California’s total electricity load.”

According to Pacific Gas and Electric, a total of 2,450 customers on net energy metering were net exporters of electricity in 2009. Of those, more than 40 percent had net surplus generation of only 100 kilowatt-hours or less annually. San Diego Gas & Electric Co. said it had fewer than 1,000 customers who would have been eligible for net surplus compensation, while Southern California Edison reported fewer than 1,500 would have been eligible. At 5 cents per kilowatt-hour, the average annual payment would have been less than $125 in the service areas of SCE and SDG&E, the proposed decision said.

Two utility companies that also are affected, PacifiCorp and Sierra Pacific Power Co., have very small numbers of solar owners in their California service areas.

The three major utility companies have set up website pages that address AB 920 and its implications for their net-metered customers.

Pacific Gas and Electric says on its website that “Existing and future NEM customers do not need to take any action to be eligible for the new program enhancement and will be automatically enrolled in this program. However, only those customers who are actually net (kilowatt-hour) generators at their regular true-up, starting with the first regular 12-month true-up ending in 2011, will be notified of their exact compensation options.”

The company adds that because of how tiered and time-of-use rates work, some customers may show a credit on their true-up bills even though they have not in fact been net energy generators.

Southern California Edison says it too is automatically enrolling net-metered customers, adding that they can choose to opt out.

San Diego Gas & Electric and the other two major utilities say on their websites that they will communicate with customers about their specific compensation rates as soon as more information is known. A final ruling has not yet been issued.

In most cases, solar customers with leases or power purchase agreements are not directly affected by the net surplus compensation law.

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