To: Honorable Public Utilities Board Submitted by: /s/ Janet Oppio AGM - Energy Resource Planning

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1 AGENDA ITEM NO: 6.A.1 MEETING DATE: 11/17/2010 ADMINISTRATIVE REPORT NO.: To: Honorable Public Utilities Board Submitted by: /s/ Janet Oppio AGM - Energy Resource Planning From: Suzie Shin Energy Resources Analyst Approved by: /s/ Girish Balachandran General Manager Subject: Approving Rate of Compensation for Net Energy Metering RECOMMENDATION By resolution, approve a Rate of Compensation for Net Energy Metering (NEM) customers based on the average cost of power from Alameda Municipal Power s (AMP) renewable resources, effective December 1, The proposed change sets a Rate of Compensation for Net Energy transmitted by Customer-generators over a twelve-month period, in accordance with Assembly Bill 920 (AB 920). BACKGROUND In 2001, the Public Utilities Board (Board) adopted Rider NEM in order to comply with Assembly Bill X1-29, which required all electric utilities to develop a standard tariff providing for residential and commercial Net Energy Metering for customer-owned solar and wind systems under one megawatt. Net Energy Metering is defined as measuring the difference between electricity supplied by the electric grid and electricity generated by a Customer-generator and fed back to the electric grid over a twelve-month period. A Customer-generator is a customer whose electrical requirements, in part or whole, can be supplied from a solar or wind power production source owned and operated by the customer. Net Energy is defined as the electricity used by a customer minus the electricity generated by the customer s solar or wind system. Net Energy is positive when the electricity consumed by a customer is greater than the electricity generated by the customer over an entire billing period, and the customer is billed for the Net Energy supplied at the customer s applicable rate. Net Energy is negative when the electricity consumed by a customer is less than the electricity generated by the customer over an entire billing period, and the customer is credited for the Net Energy transmitted. Rider NEM set the Rate of Compensation for Net Energy transmitted by a customer at the generation component of the customer s applicable rate. Note that AMP was not required to credit customers for any Net Energy transmitted beyond their consumption over a twelve-month period.

2 AGENDA ITEM NO: 6.A.2 MEETING DATE: 11/17/2010 ADMINISTRATIVE REPORT NO.: In 2007, the Board approved a solar photovoltaic (PV) rebate program in compliance with Senate Bill 1 (SB 1), which requires electric utilities to offer rebates to customers that install solar PV systems. Customers who participate in the solar rebate program are required to sign an Interconnection and Purchase Agreement for Net Energy Metering, which states that Customergenerators will be charged or credited for Net Energy supplied or transmitted, respectively, as stated in Rider NEM. In 2008, due to concerns about potential over-sizing of customer-owned solar and wind systems, the Board revised Rider NEM to limit the compensation for Net Energy transmitted to 10% of a Customer-generator s kilowatt-hour consumption over a twelve-month period. This is in keeping with the eligibility criterion listed in SB 1 that solar energy systems receiving customerfunded incentives be intended primarily to offset part or all of the consumer s own electricity demand. In 2009, the California State Legislature approved AB 920, which requires electric utilities to compensate a Customer-generator for all Net Energy transmitted over a twelve-month period. That is, an eligible Customer-generator will receive compensation for 100% of the Net Energy transmitted over a twelve-month period. AB 920 states that any renewable energy credit for Net Energy transmitted that is purchased by a utility shall belong to the utility. Furthermore, Customer-generators may elect to receive either a bill credit in kilowatt-hours or compensation in dollars at a rate to be approved by the Board (Rate of Compensation). Electric utilities shall not provide remuneration for Net Energy transmitted over the twelve-month period if a Customer-generator does not elect to receive compensation or credit. As of October 2010, 24 customers have elected to receive compensation and 16 customers have elected to receive credit. In February 2010, the Board approved revisions to Rider NEM that, in compliance with AB 920, allow eligible Customer-generators to be compensated or receive credit for 100% of the Net Energy transmitted over a twelve-month period and provide for a single true-up calculation at the end of the twelve-month period. The proposed change to Rider NEM under consideration, as mandated by AB 920, sets the Rate of Compensation for Net Energy transmitted by Customergenerators who have so elected. Again, the current Rate of Compensation is the generation component of a Customer-generator s applicable rate. The proposed change does not affect Customer-generators who have elected to receive credit for Net Energy transmitted. DISCUSSION AB 920 stipulates that compensation for Net Energy transmitted be offered at a per kilowatthour rate. This is illustrated by the following formula: Compensation ($) = Net Energy Transmitted (kwh) x Rate of Compensation ($/kwh) AB 920 also stipulates that the Rate of Compensation provide the Customer-generator just and reasonable compensation while leaving other customers unaffected. The ratemaking authority

3 AGENDA ITEM NO: 6.A.3 MEETING DATE: 11/17/2010 ADMINISTRATIVE REPORT NO.: shall determine whether the compensation will include, where appropriate justification exists, either or both of the following components: (i) the value of the electricity itself (ii) the value of the renewable attributes of the electricity. In addition, the ratemaking authority shall ensure that the rate does not result in a shifting of costs between solar Customer-generators and other bundled service customers. There are several options for determining the Rate of Compensation, summarized in Table 1 below. Table 1. Options for Rate of Compensation Options $/kwh Cost of AMP Power Portfolio (FY10) Cost of AMP Renewable Resources (FY10) Cost of AMP Renewable Resources (FY10) within Last 10 Years PG&E Default Load Aggregation Point (FY10, 7AM-5PM) Generation Retail Rate Effective FY Total Retail Rate Effective FY MPR for 10-yr contract AMP Power Portfolio One methodology is to use the average cost of energy in Fiscal Year 2010 (FY10) from AMP s power resources, either in total or a subset thereof. The advantage of this methodology is that it is simple, easy to calculate, and based on actual energy costs. The average cost of AMP s total power portfolio represents the cost of energy procured on behalf of customers; however it includes non-renewable resources and does not fully capture the value of renewable electricity. AMP Renewable Resources Another option is to base the Rate of Compensation on the average power cost of those AMP resources that are eligible to meet the Renewable Portfolio Standard (RPS), as defined by the California Energy Commission. Currently, RPS-eligible resources include AMP s geothermal facilities, four landfill gas contracts, the High Winds facility, and the small hydro Graeagle project. The cost of power from AMP s renewable resources is actually lower than the total power portfolio, which includes more expensive peaking units and debt on the large hydro Calaveras project. The average cost of AMP s RPS-eligible resources is expected to decrease in FY11 due to the retirement of debt on the geothermal facilities and then slowly increase as other renewable resources, such as Butte, are gradually added to the portfolio. One possible objection to using AMP s entire RPS-eligible portfolio is that it includes resources that were procured decades ago and thus does not reflect the cost of renewables today. This could be addressed by

4 AGENDA ITEM NO: 6.A.4 MEETING DATE: 11/17/2010 ADMINISTRATIVE REPORT NO.: using the average cost of AMP s renewable resources that were procured within the last ten years, which would exclude the geothermal facilities. Under either methodology, the Rate of Compensation would be updated to be effective on December 1st of each year to reflect the previous fiscal year s cost of renewable energy. Customer-generators would receive compensation at the rate in effect at the end of their true-up period. Note that the cost of transmission is not included in these options because the Net Energy transmitted by Customer-generators is a local resource and AB 920 states that compensation is for the value of the electricity itself. PG&E DLAP Another method is to use the average locational marginal price (LMP) at the Pacific Gas & Electric (PG&E) default load aggregation point (DLAP) during the daylight hours of 7 AM to 5 PM. The LMP at the PG&E DLAP the hourly average of all nodal prices for load within PG&E s transmission area is the price that AMP pays for energy to serve its load. This approximates the cost of power that would be offset by solar generation but does not include any renewable attributes. This issue could be addressed in theory by adding the value of a renewable energy credit (REC), but in practice this is extremely difficult to calculate, given the lack of a transparent REC market and uncertainty in the policy landscape. As such, staff does not recommend using the DLAP or the sum of the DLAP and REC. Generation and Total Retail Rate Previously, AMP had compensated Customer-generators at the generation component of their applicable rate. However, the generation component of AMP s retail rates has not been updated in more than a decade, and it is not clear that this methodology would accurately represent the value of the energy. Furthermore, the generation component of AMP s retail rate does not include any renewable attributes. Using the total retail rate is inappropriate as well, since it includes a distribution component, a public purpose charge mandated by the state, and cost recovery for customer services MPR The Market Price Referent (MPR), determined annually by the California Public Utilities Commission (CPUC), is based on the cost of building a new combined cycle plant. This includes the cost of capacity in addition to the value of the electricity generated. As such, it should not be used as the Rate of Compensation for Net Energy transmitted. The pros and cons of the various options are summarized in Table 2 below.

5 AGENDA ITEM NO: 6.A.5 MEETING DATE: 11/17/2010 ADMINISTRATIVE REPORT NO.: Table 2. Pros and Cons of Options for Rate of Compensation Options Pros Cons Cost of AMP FY10 Renewable Portfolio Fully captures the value of renewable electricity Includes older projects that do not reflect today s market Cost of AMP FY10 Renewable Portfolio within Last 10 Years Fully captures the value of renewable electricity Cost of AMP FY10 Power Portfolio Represents average cost of delivered electricity Does not fully capture value of renewable attributes FY10 PG&E LAP Approximates avoided cost of Does not include value of generation during daylight hours renewable attributes FY10 PG&E LAP + REC Includes value of electricity and Difficult to calculate renewable attributes Generation Retail Rate Effective FY10 Total Retail Rate Effective FY MPR for 10-yr contract Set by CPUC on annual basis and therefore easy to implement Has not been updated in several years Includes distribution, public purpose charge, and customer service costs Represents cost of building new combined cycle plant; includes cost of capacity The two feasible options that account for the value of the electricity and its renewable attributes are (1) the cost of AMP s renewable portfolio and (2) the cost of AMP s renewable portfolio procured within the last ten years. In FY10, the former ($ per kwh) was actually higher than the latter ($ per kwh) due to the debt on the geothermal facilities, which came online in However, this debt was retired at the end of FY10 and thus in FY11, the cost of AMP s entire renewable portfolio will dip below that procured within the last ten years. In order to recognize the value of local, renewable generation and maintain a consistent rate, Staff recommends that the Board adopt a Rate of Compensation based on the higher of the cost of AMP s renewable portfolio and that procured within the last ten years. For FY10, this would be the entire renewable portfolio at $ per kwh. In FY11, it will likely be the recently procured renewable portfolio. This methodology is just and reasonable, as AMP is already purchasing renewable energy at this rate on behalf of our customers. In the future, the Board may decide to change the methodology of calculating the Rate of Compensation in response to market developments and further regulation. For example, the Board may prefer to use the PG&E DLAP plus a REC adder if and when a robust REC market evolves, as PG&E proposed in its filing. Furthermore, the Federal Energy Regulatory Commission may issue relevant regulation, in light of its recent ruling that the California Public Utilities Commission s feed-in tariffs for combined heat and power generators must be restricted to the purchasing utility s avoided costs.

6 AGENDA ITEM NO: 6.A.6 MEETING DATE: 11/17/2010 ADMINISTRATIVE REPORT NO.: FINANCIAL IMPACT The financial impact to AMP is minimal, given that the proposed Rate of Compensation is only slightly higher than the generation component of the retail rate currently being used ($ versus $ ). The annual net generation of AMP s Customer-generators is on the order of 15,000 to 20,000 kwh, which translates to a total compensation of $1,000 to $1,300. Furthermore, not all Customer-generators have elected to receive compensation (currently 24 of 40). Although it may be argued that customers are paying a premium for renewable energy that is not needed to meet AMP s Renewable Portfolio Standard, the total financial impact is so minimal that it does not shift costs from Customer-generators to other customers. LINK TO STRATEGIC PLAN AND METRICS Strategy No. 6: Implement energy efficiency, renewable power and customer service programs to increase customer satisfaction. Strategy No. 7: Set rates to meet environmental, reliability, community and fiscal health objectives while being equitable for all customer classes. EXHIBIT A. Resolution Approving Rate of Compensation for Net Energy Metering B. Rate Schedule Rider NEM Effective December 1, 2010 C. Assembly Bill 920

7 CITY OF ALAMEDA ALAMEDA MUNICIPAL POWER RESOLUTION NO. APPROVING RATE OF COMPENSATION FOR NET ENERGY METERING WHEREAS, on April 11, 2001, the Governor signed into law Assembly Bill X1-29, requiring all electric utilities to develop a standard tariff providing for net energy metering for customer-owned solar and wind systems; and WHEREAS, on July 1, 2001, the Public Utilities Board (Board) adopted Rider Net Energy Metering (NEM) as a standard tariff providing for residential and commercial net energy metering for customer-owned solar and wind systems under 1 megawatt in size; and WHEREAS, the rate of compensation for net energy transmitted by a customer-generator under Rider NEM was set at the generation component of the customer s applicable standard rate; and WHEREAS, on August 21, 2006 the Governor signed into law Senate Bill 1, requiring all local publicly owned electric utilities to implement and fund a solar initiative program for the purpose of encouraging the increased installation of residential and commercial solar energy systems; and WHEREAS, on November 26, 2007, the Board approved a solar photovoltaic rebate program that, among other things, requires participants to sign an interconnection agreement providing for net energy metering as stated in Rider NEM; and WHEREAS, on July 1, 2008, the Board revised Rider NEM by establishing a limit on the kilowatt-hour amount of transmitted net energy eligible for compensation at 10% of a customergenerator s total consumption over a twelve-month period; and WHEREAS, on October 11, 2009 the Governor signed into law Assembly Bill 920 (AB 920), which requires electric utilities to compensate a customer-generator for any net energy transmitted over a twelve-month period without restriction; and WHEREAS, AB 920 requires the ratemaking authority of publicly owned electric utilities to set a rate of compensation by January 1, 2011 for customer-generators who have elected to receive compensation for any net energy transmitted over a twelve-month period; and WHEREAS, certain revisions to Rider NEM are necessary in order to set the rate of compensation in conformance with AB 920 as detailed in the proposed Rate Schedule; and AGENDA ITEM NO.: 6.A MEETING DATE: 11/17/2010 EXHIBIT A Page 1 of 2

8 NOW, THEREFORE, BE IT RESOLVED by the Board that the rate of compensation for net energy transmitted, as reflected in the proposed Rate Schedule (Exhibit B), be approved and adopted for use effective as of December 1, Approved as to Form By: /s/ Farimah Faiz Assistant City Attorney AGENDA ITEM NO.: 6.A MEETING DATE: 11/17/2010 EXHIBIT A Page 2 of 2

9 ELLECTTRIIC RATTE SSCHEDULLESS RIDER NEM NET ENERGY METERING (Applied in Conjunction with the Standard General Service Rate Schedules for Residential, Commercial, and Municipal Service) PURPOSE The purpose of this rider is to establish rates, terms, and conditions for providing Net Energy Metering service to residential, commercial, and municipal customers that are generating electricity using solar and wind facilities. Net Energy Metering is defined as measuring the difference between electricity supplied by the electric grid and electricity generated by a Customer-generator and fed back to the electric grid over a twelve-month period. This rider complies with California State legislation requiring every electric utility in the state, including municipally owned utilities, to develop a standard contract or tariff providing for Net Energy Metering, as defined below. APPLICABILITY This schedule is applicable to service for residential, commercial, and municipal Customer-generators, defined as those customers where part or all of their electrical requirements can be supplied from a solar or wind power production source owned and operated by the customer. Customer-generators must currently be receiving service (or be eligible for service) under Alameda Municipal Power s (AMP) residential rate schedules D-1 or D-2, commercial rate schedules A-1, A-2, or A-3, or municipal rate schedule MU-1. The solar or wind generation source must: 1) not exceed a capacity of 1 megawatt (alternating current, AC), 2) be located on the Customer-generator s premises, 3) be connected for parallel operation with AMP s distribution facilities, and 4) be intended for the sole purpose of offsetting a part or all of the Customer-generator s own electrical requirements. In no case shall the power or energy generated by the customer-owned solar or wind source be available for resale, except as specified under this rider. Additional terms and conditions for service, including terms of interconnection and parallel operation, are specified in a customer-specific Interconnection and Purchase Agreement for Net Energy Metering. This service is available throughout AMP s entire service area where the facilities of AMP are available, have adequate service capacity, and are adjacent to the premises. Applicability of this tariff does not extend to customers whose solar or wind power source exceeds 1 megawatt AC. RATES Net Energy Supplied Charge Where the electricity supplied by AMP exceeds the electricity generated by the Customergenerator over a twelve-month period, the Customer-generator will be billed for the Net Energy supplied at the applicable residential, commercial, or municipal service rate (either Schedule D- 1, Schedule D-2, Schedule A-1, Schedule A-2, Schedule A-3, or Schedule MU-1) in effect when the service was rendered. All conditions, charges, adjustments, and taxes under the applicable rate schedule shall be in effect. The Customer-generator s bill will be trued up at the end of the twelve-month period. ADOPTED: November 17, 2010 RESOLUTION NO (Superseding Rider NEM Effective March 1, 2010) Effective: December 1, 2010 Page 1 of 3

10 ELLECTTRIIC RATTE SSCHEDULLESS RIDER NEM (continued) Net Energy Transmitted Compensation or Credit Where the electricity generated by the Customer-generator exceeds the electricity supplied by AMP over a twelve-month period, at the end of the period AMP will, upon an affirmative election by the Customer-generator, provide compensation or credit for any Net Energy transmitted. Credit will be in the form of kilowatt-hours, to be applied toward energy subsequently supplied by AMP to the Customer-generator. Compensation will be calculated by multiplying the Net Energy transmitted by a rate equal to the higher of (1) the average cost of energy in the previously concluded fiscal year from AMP s Renewable Portfolio Standard (RPS) eligible resources, as defined by the California Energy Commission and (2) the average cost of energy in the previously concluded fiscal year from RPS eligible resources procured within the last ten years. The rate shall be updated to be effective on December 1 st of each year and posted on AMP s website. If a Customer-generator does not elect to receive compensation or credit, AMP shall retain any Net Energy transmitted during the twelve-month period. AMP shall retain any renewable energy credit for Net Energy transmitted that it purchases from Customergenerators. SPECIAL CONDITIONS 1. INTERCONNECTION AGREEMENT A signed Interconnection and Purchase Agreement for Net Energy Metering between the Customer-generator and AMP is required for service under this rider. 2. NET ENERGY Net Energy is defined as: Net Energy = EL EG Where: EL is the customer s energy consumption, or load, EG is energy generated by the customer s generator. Net Energy shall be determined by the use of a single, non-demand, non-time-differentiated, kilowatt-hour (kwh) meter capable of registering the flow of electricity in two directions. All necessary labor, equipment, materials, and related facilities costs in addition to or in substitution of AMP s standard facilities that are required in order to take and sell power through one meter socket will be at the Customer-generator s expense. a. NET ENERGY SUPPLIED (EL>EG) Net Energy supplied occurs when the customer s energy consumption is greater than the energy generated over a twelve-month period. The cumulative value of the Net Energy consumed or generated will be billed at the end of the twelve-month period. b. NET ENERGY TRANSMITTED (EL<EG) Net Energy transmitted occurs when the customer s energy consumption is less than the energy generated over a twelve-month period. At the end of the period, AMP will, upon an affirmative election by the Customer-generator, provide compensation or credit for any Net Energy transmitted (see Rates section above). c. EG METER AMP will install a second kilowatt-hour meter at its expense to accurately measure and record the total amount of EG. The customer shall provide the appropriate meter socket and AMP will reimburse the customer for the actual cost of the associated labor and material. 3. BILLING PERIOD The meters will be read on the customary monthly billing period. The annual calculation of the compensation or credit for Net Energy transmitted shall be done at the end of the twelve-month period. The twelve-month period shall commence on the day after AMP receives the election ADOPTED: November 17, 2010 RESOLUTION NO (Superseding Rider NEM Effective March 1, 2010) Effective: December 1, 2010 Page 2 of 3

11 ELLECTTRIIC RATTE SSCHEDULLESS form from the Customer-generator, or for Customer-generators who begin Net Energy Metering service after March 1, 2010, on the date of interconnection. 4. PARTIAL REQUIREMENTS PROVIDER The Customer-generator agrees to take all supplemental electric service (i.e. supplemental to power from the qualifying solar or wind generation) from AMP. In no event shall the customer use additional self-generation (except emergency back-up), co-generation, or electricity wheeled from any other source without the consent of AMP. 5. RULES and REGULATIONS Other conditions, as specified in AMP s Rules and Regulations shall apply to this electric rate schedule. ADOPTED: November 17, 2010 RESOLUTION NO (Superseding Rider NEM Effective March 1, 2010) Effective: December 1, 2010 Page 3 of 3

12 Assembly Bill No. 920 CHAPTER 376 An act to amend Section 2827 of the Public Utilities Code, relating to energy. [Approved by Governor October 11, Filed with Secretary of State October 11, 2009.] legislative counsel s digest AB 920, Huffman. Solar and wind distributed generation. The existing Public Utilities Act imposes various duties and responsibilities on the Public Utilities Commission with respect to the purchase of electricity and requires the commission to review and adopt a procurement plan and a renewable energy procurement plan for each electrical corporation pursuant to the California Renewables Portfolio Standard Program. The program requires that a retail seller of electricity, including electrical corporations, community choice aggregators, and electric service providers, but not including local publicly owned electric utilities, purchase a specified minimum percentage of electricity generated by eligible renewable energy resources, as defined, in any given year as a specified percentage of total kilowatthours sold to retail end-use customers each calendar year. Under existing law the governing board of a local publicly owned electric utility is responsible for implementing and enforcing a renewables portfolio standard that recognizes the intent of the Legislature to encourage renewable resources, while taking into consideration the effect of the standard on rates, reliability, and financial resources and the goal of environmental improvement. Existing law relative to private energy producers requires every electric distribution utility or cooperative, as defined, upon request, to make available to an eligible customer-generator, as defined, a standard contract or tariff for net energy metering on a first-come-first-served basis until the time that the total rated generating capacity used by eligible customer-generators exceeds a specified amount. Existing law provides that where the electricity generated by the eligible customer-generator exceeds the electricity supplied by the electric distribution utility or cooperative during a 12-month period, the eligible customer-generator is a net electricity producer and the electric distribution utility or cooperative retains any excess kilowatthours generated and the customer-generator is not owed compensation for those excess kilowatthours unless the electric distribution utility or cooperative enters into a purchase agreement with the eligible customer-generator for those excess kilowatthours. This bill would replace the definition of electric distribution utility or cooperative in existing law relative to private energy producers with a

13 2 definition of electric utility. The bill would require the ratemaking authority, as defined, for the electric utility to adopt, by January 1, 2011, a net surplus electricity compensation valuation to compensate a net surplus customer-generator, as defined, for the value of net surplus electricity, as defined, generated by an eligible customer-generator and delivered to the grid that is in excess of the amount of electricity that is delivered from the grid to the eligible customer-generator. The bill would require the electric utility to offer a standard contract or tariff to eligible customer-generators that includes compensation for the value of net surplus electricity. The bill would require the electric utility, upon an affirmative election by the eligible customer-generator to receive service pursuant to this contract or tariff, to either: (1) provide net surplus electricity compensation for any net surplus electricity generated in the 12-month period, or (2) 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. The bill would, for an electric utility that is an electrical corporation or electrical cooperative, authorize the commission to adopt requirements for providing notice and the manner by which eligible customer-generators may elect to receive net surplus electricity compensation. The bill would provide that upon adoption of the net surplus electricity compensation rate and the eligible customer-generator electing to receive net surplus electricity compensation, any renewable energy credit, as defined, for net surplus electricity belongs to the electric utility purchasing the electricity and that net surplus electricity counts toward the electric utility s renewables portfolio standard purchasing requirements. This bill would incorporate additional changes in Section 2827 of the Public Utilities Code, proposed by AB 560, to be operative only if AB 560 and this bill are chaptered and become effective on or before January 1, 2010, and this bill is chaptered last. Under existing law, a violation of any order, decision, rule, direction, demand, or requirement of the commission is a crime. Because this bill would require action by the commission to implement certain of its requirements that expand the existing obligations of electrical corporations, a violation of these provisions would impose a state-mandated local program by expanding the definition of a crime. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. The people of the State of California do enact as follows: SECTION 1. Section 2827 of the Public Utilities Code is amended to read:

14 (a) The Legislature finds and declares that a program to provide net energy metering combined with net surplus compensation, co-energy metering, and wind energy co-metering for eligible customer-generators is one way to encourage substantial private investment in renewable energy resources, stimulate in-state economic growth, reduce demand for electricity during peak consumption periods, help stabilize California s energy supply infrastructure, enhance the continued diversification of California s energy resource mix, reduce interconnection and administrative costs for electricity suppliers, and encourage conservation and efficiency. (b) As used in this section, the following terms have the following meanings: (1) Co-energy metering means a program that is the same in all other respects as a net energy metering program, except that the local publicly owned electric utility has elected to apply a generation-to-generation energy and time-of-use credit formula as provided in subdivision (i). (2) Electrical cooperative means an electrical cooperative as defined in Section (3) Electric utility means an electrical corporation, a local publicly owned electric utility, or an electrical cooperative, or any other entity, except an electric service provider, that offers electrical service. This section shall not apply to a local publicly owned electric utility that serves more than 750,000 customers and that also conveys water to its customers. (4) Eligible customer-generator means a residential, small commercial customer as defined in subdivision (h) of Section 331, commercial, industrial, or agricultural customer of an electric utility, who uses a solar or a wind turbine electrical generating facility, or a hybrid system of both, with a capacity of not more than one megawatt that is located on the customer s owned, leased, or rented premises, and is interconnected and operates in parallel with the electric grid, and is intended primarily to offset part or all of the customer s own electrical requirements. (5) Net energy metering means measuring the difference between the electricity supplied through the electric grid and the electricity generated by an eligible customer-generator and fed back to the electric grid over a 12-month period as described in subdivisions (c) and (h). (6) Net surplus customer-generator means an eligible customer-generator that generates more electricity during a 12-month period than is supplied by the electric utility to the eligible customer-generator during the same 12-month period. (7) Net surplus electricity means all electricity generated by an eligible customer-generator measured in kilowatthours over a 12-month period that exceeds the amount of electricity consumed by that eligible customer-generator. (8) Net surplus electricity compensation means a per kilowatthour rate offered by the electric utility to the net surplus customer-generator for net surplus electricity that is set by the ratemaking authority pursuant to subdivision (h).

15 4 (9) Ratemaking authority means, for an electrical corporation or electrical cooperative, the commission, and for a local publicly owned electric utility, the local elected body responsible for setting the rates of the local publicly owned utility. (10) Wind energy co-metering means any wind energy project greater than 50 kilowatts, but not exceeding one megawatt, where the difference between the electricity supplied through the electric grid and the electricity generated by an eligible customer-generator and fed back to the electric grid over a 12-month period is as described in subdivision (h). Wind energy co-metering shall be accomplished pursuant to Section (c) (1) Every electric utility shall develop a standard contract or tariff providing for net energy metering, and shall make this standard contract or tariff available to eligible customer-generators, upon request, on a first-come-first-served basis until the time that the total rated generating capacity used by eligible customer-generators exceeds 2.5 percent of the electric utility s aggregate customer peak demand. Net energy metering shall be accomplished using a single meter capable of registering the flow of electricity in two directions. An additional meter or meters to monitor the flow of electricity in each direction may be installed with the consent of the eligible customer-generator, at the expense of the electric utility, and the additional metering shall be used only to provide the information necessary to accurately bill or credit the eligible customer-generator pursuant to subdivision (h), or to collect solar or wind electric generating system performance information for research purposes. If the existing electrical meter of an eligible customer-generator is not capable of measuring the flow of electricity in two directions, the eligible customer-generator shall be responsible for all expenses involved in purchasing and installing a meter that is able to measure electricity flow in two directions. If an additional meter or meters are installed, the net energy metering calculation shall yield a result identical to that of a single meter. An eligible customer-generator that is receiving service other than through the standard contract or tariff may elect to receive service through the standard contract or tariff until the electric utility reaches the generation limit set forth in this paragraph. Once the generation limit is reached, only eligible customer-generators that had previously elected to receive service pursuant to the standard contract or tariff have a right to continue to receive service pursuant to the standard contract or tariff. Eligibility for net energy metering does not limit an eligible customer-generator s eligibility for any other rebate, incentive, or credit provided by the electric utility, or pursuant to any governmental program, including rebates and incentives provided pursuant to the California Solar Initiative. (2) (A) On an annual basis, beginning in 2003, every electric utility shall make available to the ratemaking authority information on the total rated generating capacity used by eligible customer-generators that are customers of that provider in the provider s service area and the net surplus electricity purchased by the electric utility pursuant to this section.

16 5 (B) An electric service provider operating pursuant to Section 394 shall make available to the ratemaking authority the information required by this paragraph for each eligible customer-generator that is their customer for each service area of an electric corporation, local publicly owned electric utility, or electrical cooperative, in which the eligible customer-generator has net energy metering. (C) The ratemaking authority shall develop a process for making the information required by this paragraph available to electric utilities, and for using that information to determine when, pursuant to paragraphs (1) and (3), an electric utility is not obligated to provide net energy metering to additional eligible customer-generators in its service area. (3) An electric utility is not obligated to provide net energy metering to additional eligible customer-generators in its service area when the combined total peak demand of all electricity used by eligible customer-generators served by all the electric utilities in that service area furnishing net energy metering to eligible customer-generators exceeds 2.5 percent of the aggregate customer peak demand of those electric utilities. (4) By January 1, 2010, the commission, in consultation with the Energy Commission, shall submit a report to the Governor and the Legislature on the costs and benefits of net energy metering, wind energy co-metering, and co-energy metering to participating customers and nonparticipating customers and with options to replace the economic costs and benefits of net energy metering, wind energy co-metering, and co-energy metering with a mechanism that more equitably balances the interests of participating and nonparticipating customers, and that incorporates the findings of the report on economic and environmental costs and benefits of net metering required by subdivision (n). (d) Every electric utility shall make all necessary forms and contracts for net energy metering and net surplus electricity compensation service available for download from the Internet. (e) (1) Every electric utility shall ensure that requests for establishment of net energy metering and net surplus electricity compensation are processed in a time period not exceeding that for similarly situated customers requesting new electric service, but not to exceed 30 working days from the date it receives a completed application form for net energy metering service or net surplus electricity compensation, including a signed interconnection agreement from an eligible customer-generator and the electric inspection clearance from the governmental authority having jurisdiction. (2) Every electric utility shall ensure that requests for an interconnection agreement from an eligible customer-generator are processed in a time period not to exceed 30 working days from the date it receives a completed application form from the eligible customer-generator for an interconnection agreement. (3) If an electric utility is unable to process a request within the allowable timeframe pursuant to paragraph (1) or (2), it shall notify the eligible customer-generator and the ratemaking authority of the reason for its inability to process the request and the expected completion date.

17 6 (f) (1) If a customer participates in direct transactions pursuant to paragraph (1) of subdivision (b) of Section 365 with an electric service provider that does not provide distribution service for the direct transactions, the electric utility that provides distribution service for the eligible customer-generator is not obligated to provide net energy metering or net surplus electricity compensation to the customer. (2) If a customer participates in direct transactions pursuant to paragraph (1) of subdivision (b) of Section 365 with an electric service provider, and the customer is an eligible customer-generator, the electric utility that provides distribution service for the direct transactions may recover from the customer s electric service provider the incremental costs of metering and billing service related to net energy metering and net surplus electricity compensation in an amount set by the ratemaking authority. (g) Except for the time-variant kilowatthour pricing portion of any tariff adopted by the commission pursuant to paragraph (4) of subdivision (a) of Section 2851, each net energy metering contract or tariff shall be identical, with respect to rate structure, all retail rate components, and any monthly charges, to the contract or tariff to which the same customer would be assigned if the customer did not use an eligible solar or wind electrical generating facility, except that eligible customer-generators shall not be assessed standby charges on the electrical generating capacity or the kilowatthour production of an eligible solar or wind electrical generating facility. The charges for all retail rate components for eligible customer-generators shall be based exclusively on the customer-generator s net kilowatthour consumption over a 12-month period, without regard to the eligible customer-generator s choice as to from whom it purchases electricity that is not self-generated. Any new or additional demand charge, standby charge, customer charge, minimum monthly charge, interconnection charge, or any other charge that would increase an eligible customer-generator s costs beyond those of other customers who are not eligible customer-generators in the rate class to which the eligible customer-generator would otherwise be assigned if the customer did not own, lease, rent, or otherwise operate an eligible solar or wind electrical generating facility are contrary to the intent of this section, and shall not form a part of net energy metering contracts or tariffs. (h) For eligible customer-generators, the net energy metering calculation shall be made by measuring the difference between the electricity supplied to the eligible customer-generator and the electricity generated by the eligible customer-generator and fed back to the electric grid over a 12-month period. The following rules shall apply to the annualized net metering calculation: (1) The eligible residential or small commercial customer-generator shall, at the end of each 12-month period following the date of final interconnection of the eligible customer-generator s system with an electric utility, and at each anniversary date thereafter, be billed for electricity used during that 12-month period. The electric utility shall determine if the eligible residential or small commercial customer-generator was a net consumer or a net surplus customer-generator during that period.

18 7 (2) At the end of each 12-month period, where the electricity supplied during the period by the electric utility exceeds the electricity generated by the eligible residential or small commercial customer-generator during that same period, the eligible residential or small commercial customer-generator is a net electricity consumer and the electric utility shall be owed compensation for the eligible customer-generator s net kilowatthour consumption over that 12-month period. The compensation owed for the eligible residential or small commercial customer-generator s consumption shall be calculated as follows: (A) For all eligible customer-generators taking service under contracts or tariffs employing baseline and over baseline rates, any net monthly consumption of electricity shall be calculated according to the terms of the contract or tariff to which the same customer would be assigned to, or be eligible for, if the customer was not an eligible customer-generator. If those same customer-generators are net generators over a billing period, the net kilowatthours generated shall be valued at the same price per kilowatthour as the electric utility would charge for the baseline quantity of electricity during that billing period, and if the number of kilowatthours generated exceeds the baseline quantity, the excess shall be valued at the same price per kilowatthour as the electric utility would charge for electricity over the baseline quantity during that billing period. (B) For all eligible customer-generators taking service under contracts or tariffs employing time-of-use rates, any net monthly consumption of electricity shall be calculated according to the terms of the contract or tariff to which the same customer would be assigned, or be eligible for, if the customer was not an eligible customer-generator. When those same customer-generators are net generators during any discrete time-of-use period, the net kilowatthours produced shall be valued at the same price per kilowatthour as the electric utility would charge for retail kilowatthour sales during that same time-of-use period. If the eligible customer-generator s time-of-use electrical meter is unable to measure the flow of electricity in two directions, paragraph (1) of subdivision (c) shall apply. (C) For all eligible residential and small commercial customer-generators and for each billing period, the net balance of moneys owed to the electric utility for net consumption of electricity or credits owed to the eligible customer-generator for net generation of electricity shall be carried forward as a monetary value until the end of each 12-month period. For all eligible commercial, industrial, and agricultural customer-generators, the net balance of moneys owed shall be paid in accordance with the electric utility s normal billing cycle, except that if the eligible commercial, industrial, or agricultural customer-generator is a net electricity producer over a normal billing cycle, any excess kilowatthours generated during the billing cycle shall be carried over to the following billing period as a monetary value, calculated according to the procedures set forth in this section, and appear as a credit on the eligible commercial, industrial, or agricultural customer-generator s account, until the end of the annual period when paragraph (3) shall apply.

19 8 (3) 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. For an eligible customer-generator that does not affirmatively elect to receive service pursuant to net surplus electricity compensation, the electric utility shall retain any excess kilowatthours generated during the prior 12-month period. The eligible customer-generator not affirmatively electing to receive service pursuant to net surplus electricity compensation shall not be owed any compensation for the net surplus electricity unless the electric utility enters into a purchase agreement with the eligible customer-generator for those excess kilowatthours. Every electric utility shall, by January 31, 2010, provide notice to eligible customer-generators that they are eligible to receive net surplus electricity compensation for net surplus electricity, that they must elect to receive net surplus electricity compensation, and that the 12-month period commences when the electric utility receives the eligible customer-generator s election. The commission may, for an electric utility that is an electrical corporation or electrical cooperative, adopt requirements for providing notice and the manner by which eligible customer-generators may elect to receive net surplus electricity compensation. (4) (A) The ratemaking authority shall, by January 1, 2011, establish a net surplus electricity compensation valuation to compensate the net surplus customer-generator for the value of net surplus electricity generated by the net surplus customer-generator. The commission shall establish the valuation in a ratemaking proceeding. The ratemaking authority for a local publicly owned electric utility shall establish the valuation in a public proceeding. The net surplus electricity compensation valuation shall be established so as to provide the net surplus customer-generator just and reasonable compensation for the value of net surplus electricity, while leaving other ratepayers unaffected. The ratemaking authority shall determine whether the compensation will include, where appropriate justification exists, either or both of the following components: (i) The value of the electricity itself. (ii) The value of the renewable attributes of the electricity. (B) In establishing the rate pursuant to subparagraph (A), the ratemaking authority shall ensure that the rate does not result in a shifting of costs between solar customer-generators and other bundled service customers. (5) (A) Upon adoption of the net surplus electricity compensation rate by the ratemaking authority, any renewable energy credit, as defined in Section , for net surplus electricity purchased by the electric utility shall belong to the electric utility. Any renewable energy credit associated