a) The 2011 Net Metering and Buyback Tariff for Emission Free, Renewable Distributed Generation Serving Customer Load

Memorandum To: Municipal Light Advisory Board; Municipal Light Board; file From: Belmont Light Staff Date: June 19, 2014 Re: Solar PV Distributed Generation 1. Background & Summary Belmont Light supports renewable electric generation on the New England grid in three ways: 1) by contracting with renewable resource generators for its energy supply 1, 2) through its customer demanddriven Green Choice program 2, and 3) through its distributed wind and solar resource interconnection and energy buyback program. The following section describes the distributed solar generation program and provides a summary of its policy history and program iterations. Sections 2 and 3 provide an analysis of the ratepayer impacts of distributed solar PV generating facilities and a comparison to the Green Choice Program. Section 4 provides Belmont Light staff s recommendations for implementation of new program elements. a) The 2011 Net Metering and Buyback Tariff for Emission Free, Renewable Distributed Generation Serving Customer Load In November 2011, the Belmont Municipal Light Board (MLB), with recommendations from the Municipal Light Advisory Board (MLAB), Belmont Light staff, and input from the public across a series of open meetings, approved a two phase Net Metering and Buyback Tariff for Emission Free, Renewable Distributed Generation Serving Customer Load ( 2011 EFR DG Tariff ). Phase I of the EFR DG Tariff, the net metering phase, calls for host customers of solar and wind powered distributed generation facilities to be charged for all energy delivered to their location by Belmont Light at the retail rate applicable to their customer rate class and also credited for all excess energy fed back into the Belmont Light system at the full retail rate. The avoided electric bill benefit to the host customer under Phase I net metering is calculated as avoided electric bill to host customer = (energy delivered by Belmont Light * applicable retail rate) (excess energy fed back into the Belmont Light system * applicable retail rate) Under Phase I net metering, the avoided electric bill to the host customer includes not only the avoided generation cost to the system, but also all other system costs that are embedded in the Belmont Light 1 For calendar year 2014, Belmont Light s has contracted for approximately 15% of electric supply with hydro and wind powered generation resources. 2 See Section 3. Page 1 of 16

retail rate, including distribution costs, transmission services costs, and conservation services costs. 3 Generation from the distributed PV facility does not reduce the host customer s contribution to these non generation costs, and they must be recovered from other customers who are not hosts of distributed generation. Thus, a portion of the host customer s avoided electric bill from Phase I net metering is provided as a cross subsidy from other Belmont Light ratepayers. In drafting the 2011 EFR DG Tariff, MLAB, MLB, and Belmont Light staff recognized that the cross subsidy from Phase I net metering would be economically inefficient and result in ratepayer inequities. 4 This cross subsidy is additional to any other state, federal, and market subsidies that may be available to host customers of distributed renewable generation. 5 Thus, the 2011 EFR DG Tariff also calls for a second phase, called the buyback phase, to be implemented one year after the commencement of Phase I or when the necessary billing and metering technologies became available to Belmont Light. 6 All new and existing host customers of EFR DG facilities operating under Phase I of the 2011 EFR DG Tariff would be subject to the terms of Phase II upon its commencement. 3 In the absence of energy storage technologies, solar PV facilities function as intermittent generating resources and therefore do not provide peak reduction benefits to the distribution system. The system wide value of solar PV generation will increase significantly as battery storage technologies improve and increase in availability. Storage technologies would allow electricity from solar PV generators to be used during periods of high demand, thereby reducing demand side costs to the distribution system (see, for example, Bullis, K. (2014, January 8). New Battery Material Could Help Wind and Solar Power Go Big. Retrieved June 16, 2014, from http://www.technologyreview.com/news/523251/new battery material could help wind and solar powergo big/; [5] LaMonica, M. (2014, May 5). Ambri Funding Influx Suggests a New Day for Grid Batteries.. Retrieved June 16, 2014, from http://www.technologyreview.com/news/527061/ambri funding influx suggests a new day for grid batteries/). 4 See the 2011 Distributed Generation Policy Statement, available at http://www.belmontlight.com/about us/financials policiesterms.php?id=4. For general information regarding the utility and consumer implications of net metering policies, see, Linville, Carl et al., Designing Distributed Generation Tariffs Well: Fair Compensation in a Time of Transition, November 2013, available at www.raponline.org/document/download/id/6898 (downloaded June 16, 2014). 5 For example, the federal government offers a tax credit equal to 30% of solar and wind facility installation costs (see, Federal Tax Form 5695: Residential Energy Credits, available at http://www.irs.gov/pub/irs pdf/f5695.pdf (downloaded June 16, 2014)). Massachusetts allows a 15% credit, up to $1,000, against the state income tax for the net expenditure of a renewable energy system (including installation costs) installed on an individual s primary residence; if the credit amount is greater than a resident's income tax liability, the excess credit amount may be carried forward to the next succeeding year for up to three years (see, Residential Renewable Energy Income Tax Credit. (n.d.), available at http://dsireusa.org/incentives/incentive.cfm?incentive_code=ma06f&re=0&ee=0 (downloaded June 16, 2014)). Massachusetts also includes a Solar Carve Out in its RPS schedule, putting a premium on SRECs over RECs from other Class I sources (see, MA DOER, Solar Carve Out/SREC I, http://www.mass.gov/eea/energy utilities clean tech/renewable energy/solar/rps solar carveout/current status of the rps solar carve out program.html (downloaded June 19, 2014)). Massachusetts also provides for a property tax exemption (Renewable Energy Property Tax Exemption, available at http://dsireusa.org/incentives/incentive.cfm?incentive_code=ma01f&re=0&ee=0 (downloaded June 16, 2014) and a Renewable Energy Equipment Sales Tax Exemption (Renewable Energy Equipment Sales Tax Exemption,available at http://dsireusa.org/incentives/incentive.cfm?incentive_code=ma05f&re=0&ee=0 (downloaded June 16, 2014)).the federal government has a Modified Accelerated Cost Recovery System for qualifying solar facilities Depreciation of Solar Energy Property in MACRS. (n.d.),available at http://www.seia.org/policy/finance tax/depreciation solar energy property macrs (downloaded June 16, 2014)). 6 As of June 19, 2014, Belmont Light continues to operate under Phase I of the 2011 EFR DG Tariff. Page 2 of 16

Under Phase II, all host customers would be charged at the full retail rate for all energy delivered by Belmont Light, and credited for excess energy fed back into the Belmont Light system at the wholesale price for electricity the real time locational marginal price (RTLMP) at the ISO New England NEMASSBOST load zone for the hour in which the energy is fed back into the system. 7 Under Phase II buyback, the avoided electric bill benefit to the host customer would be calculated as avoided electric bill to host customer = (energy delivered by Belmont Light * applicable retail rate) (excess energy fed back into system * hourly RTLMP) Although Phase II buyback would eliminate the portion of the cross subsidy that results from crediting excess energy fed back into the system at the retail rate, it would not eliminate the portion of the cross subsidy associated with the host customer s consumption of energy generated behind the meter. Thus, the 2011 EFR DG Tariff also includes an Aggregate Production Limit of 2% of system annual kwh sales and a Facility Production Limit, which would allocate the 2% aggregate limit across EFR DG facilities according to the host customer s rate class and its share of system annual kwh sales. The Facility Production Limit serves as a threshold over which host customers may continue to generate electricity, but would begin to pay the distribution, transmission services, and conservation costs on all energy consumed from behindthe meter generation. The 2% of sales Aggregate Production Limit is based on common policies at the state and utility level in Massachusetts, and the Facility Production Limit allows host customers a partial cross subsidy for energy generated at the host customer s facility, but also provides a backstop to control economically unsustainable levels of unrecovered costs. Since the adoption of the 2011 EFR DG Tariff, Belmont Light has been preparing its metering and billing infrastructure for the implementation of Phase II buyback. The topics of EFR DG policies, tariffs, implementation, and ratepayer implications have been on the agenda at several public meetings. Belmont Light staff recommend that the necessary metering and billing infrastructure is now in place to successfully implement Phase II buyback of excess energy at the RTLMP. b) 2014 Proposed Revisions to the 2011 EFR DG Tariff On January 21, 2014, Sustainable Belmont submitted a proposed Alternative Phase II Term Sheet to members of MLAB and the Belmont Light staff. In the proposed term sheet, Sustainable Belmont suggested that the Facility Production Limit included in the 2011 EFR DG Tariff is overly complicated and that it impedes financial planning for potential owners and operators of distributed solar PV generation. Seeking to address the concerns raised regarding the complexity of the Facility Production Limit, members of MLAB and Belmont Light staff met with members of Sustainable Belmont and other interested ratepayers on February 3, 2014 to discuss the elimination of the Facility Production Limit and 7 The 2011 EFR DG Tariff allows for Belmont Light to use monthly or quarterly averages of the hourly RTLMP for practical billing purposes. Page 3 of 16

possible alternatives. At its subsequent public meeting on February 24, 2014, MLAB, with input from the public and Belmont Light staff, discussed possible changes to the EFR DG Tariff. MLAB considered two alternative Phase II tariff structures that would eliminate the need for the Facility Production Limit and/or the Aggregate Production Limit while adequately recovering non generation costs and maintaining the goals of the Energy Resources Policy. 8 A review of MLAB s proposed wholesale net metering alternative is included below in Section 1(c). At the February 24 meeting, MLAB requested that Belmont Light staff provide an analysis of the ratepayer impacts resulting from distributed solar PV generation under its proposed wholesale net metering alternative vis à vis Phase I retail net metering. MLAB also requested an analysis of the costs and savings associated with the Belmont Light Green Choice program relative to the system cross subsidy associated with Phase I net metering. The results of these analyses are presented in Sections 2 and 3 below, with input assumptions and sources attached as Appendix A. The key findings from these analyses include: 41% of the modeled host customer s avoided electric bill comes from avoided generation costs while 59% is provided through a cross subsidy from other customers. MLAB s proposed wholesale net metering alternative would eliminate this cross subsidy by crediting the host customer at the RTLMP for all energy generated, rather than crediting the host at the retail rate. Wholesale net metering would reduce the host customer s avoided electric bill by 35% relative to Phase I net metering. For a total cost equal to the annual cross subsidy paid to the host of a 5 kw residential solar PV system, Belmont Light Green Choice program participants support 82% more renewable generation. Belmont Light Green Choice participants could support the level of renewable generation produced by existing Belmont solar PV facilities at a 45% lower total cost. The analyses presented in Sections 2 and 3 assume the distributed generation technology used is rooftop solar photovoltaic; the ratepayer impacts resulting from distributed wind power generation and other distributed solar electric generation technologies were not investigated. Section 4 provides Belmont Light staff recommendations for implementation of MLAB s proposed wholesale net metering alternative. Belmont Light staff recommend an interim phase to enable the development of the billing and metering processes that are necessary to implement MLAB s proposed wholesale net metering alternative. This interim phase would credit any excess energy from distributed 8 See memo from Belmont Light Staff to MLAB dated February 24, 2014. Page 4 of 16

generation that is fed into the Belmont Light system at the wholesale price for electric energy; however any energy generated and consumed by the host customer behind the meter would not be quantified during the interim phase. c) Review of MLAB s proposed wholesale net metering alternative At the February 24, 2014 meeting, MLAB discussed an alternative to the current Phase II buyback tariff for EFR DG. The alternative tariff structure proposed by MLAB is summarized as follows: Belmont Light would meter all energy delivered to the host customer, all excess energy fed back into the Belmont Light system, and the total generation of the EFR Facility. Using this information, Belmont Light would charge the host customer at the applicable retail rate for all energy consumed, including energy supplied by the EFR Facility and calculated in each billing period as total kwh consumed = total kwh delivered + total kwh generation total kwh fed into the system Belmont Light would also credit the host customer at the applicable wholesale rate (ISO New England hourly RTLMP for the NEMASSBOS Load Zone) for all energy generated by the EFR Facility. The customer bill for a Residential Rate A host customer would thus be calculated as net customer bill = (total kwh consumed * full retail rate) (total kwh generated * RTLMP) Note that this calculation of the customer bill is the same calculation that is applied after the Facility Production Limit has been exceeded for the production year under Phase II of the 2011 EFR DG Tariff. 2. Analysis of Distributed Solar PV Generation Ratepayer Impacts a) Residential host customer avoided electric bill The average Belmont Light Residential Rate A customer consumes 7,290 kwh of electricity per year, resulting in a base case annual delivered energy charge of $1,345. A rooftop solar PV facility with a nameplate capacity of 5 kw would generate approximately 85% of the host customer s total annual consumption 9, providing approximately 38% of the host customer s hourly demand and leaving 62% to be delivered by Belmont Light. In the absence of energy storage, 56% of hourly generation is fed back into the Belmont Light system. 10 Table 1 below shows that under Phase I net metering, the average Residential Rate A customer would avoid over 85% of their base case electric bill with the installation of a 5 kw PV facility. This is due to crediting all energy generated at the same rate as the charge for delivered energy. 9 NREL PV Watts: Hourly PV Performance Data, available at http://pvwatts.nrel.gov/. 10 See Appendix Table A 1. Page 5 of 16

Table 1. Annual host customer avoided electric bill benefits under Phase I net metering. Under Phase I net metering, the avoided electric bill to the host customer includes not only the avoided system generation cost, but also all other system costs that are embedded in the Belmont Light retail rate, including, with respect to Residential Rate A, distribution costs, transmission services costs, and conservation services costs. Generation from the distributed PV facility does not reduce the host customer s contribution to these costs, and they must be recovered from other customers who are not hosts of distributed generation. Thus, a significant portion of the host customer s avoided electric bill is provided through a cross subsidy from other ratepayers. Table 2 below shows that 41% of the modeled host customer s avoided electric bill comes from avoided generation costs while 59% is provided through a cross subsidy from other customers. Page 6 of 16

Table 2. Avoided system generation cost and cross subsidy from ratepayers. As shown in Table 2, the estimated cross subsidy to the average Residential Rate A host customer with a 5kW distributed solar PV facility is $679 per year. For comparison 11, the estimated annual cross subsidy paid to the average residential low income customer in the form of a reduced rate is $422 per year, or 35% lower than the estimated Phase I net metering cross subsidy. 12 Under MLAB s proposed wholesale net metering alternative, the avoided electric bill to the host customer is equal to the avoided generation cost to the system, measured by the RTLMP, and there is no cross subsidy to be recovered from non host customers. The annual avoided electric bill to the host customer under the proposed wholesale net metering alternative is shown in Table 3 below. 11 The Residential Low Income Rate is the only non governmental cross subsidy explicitly provided for in Belmont Light s retail rate tariffs. 12 The Residential Rate LI Tariff including availability can be downloaded at http://www.belmontlight.com/customerservice/residential rates.php?id=21. Qualifying low income customers receive a reduced rate including a $0 per month fixed customer charge and a discounted total energy charge per kwh consumed. Page 7 of 16

Table 3. Annual avoided electric bill benefits under MLAB s proposed wholesale net metering alternative. Under wholesale net metering, the avoided electric bill benefit to the host customer is reduced to 34.8% of the base case bill. This reduction in avoided bill benefits is due to receiving a credit at the wholesale price of electricity for both energy consumed behind the meter and excess energy fed back into the system, rather than receiving credits at the full retail rate. Under this proposed structure, the avoided electric bill to the host customer is equal to the avoided system generation cost, and the cross subsidy from other customers is eliminated. b) Non host customer bill impacts from Phase I net metering As shown above in Table 2, the estimated Phase I net metering cross subsidy from non host customers to a residential host customer of a 5 kw solar PV facility is $679 per year, or $136 per kw of installed distributed solar PV capacity. As of June 6, 2014, 266.66 kw of distributed solar PV capacity is installed on the Belmont Light system: 71.34 kw is installed at residential customer locations; 195.32 kw are installed Page 8 of 16

at commercial customer locations. 13 At this current level of installed capacity, the estimated system total cross subsidy from Phase I net metering is $36,234 (see Table 4 below). 14 Table 4. Belmont Light system installed solar PV capacity and total estimated cross subsidy to host customers. Table 5 below shows the average annual customer bill impact of the estimated $36,234 cross subsidy from the current level of installed solar PV capacity in Belmont. The average annual bill impact of the Phase I net metering cross subsidy varies depending on how the non generation costs to be recovered are allocated across rate classes. For example, if all Belmont Light rate classes are included in cross subsidy recovery, the average Residential Rate A bill increases by $2.12 per year, and the average Residential Rate LI bill increases by $1.01 per year (see Table 5 a); if only the residential and commercial rate classes are included in the cost allocation, the average Residential Rate A bill would increase by $2.28; $1.09 per year for Residential Rate LI (see Table 5 b). 13 Massachusetts DOER, RPS Solar Carve Out Qualified Renewable Generation Units updated June 6, 2014, available at http://www.mass.gov/eea/energy utilities clean tech/renewable energy/solar/rps solar carve out/current status of the rpssolar carve out program.html. 14 Projected future solar PV installed capacity growth was not included in this analysis, however, continued technological advancements will increase solar PV generating efficiency and reduce costs, thereby suggesting significant growth of solar PV installed capacity over time (see for example, Bullis, K. (2014, June 13). Record Breaking Solar Cell Points the Way to Cheaper Power. Retrieved June 16, 2014, from http://www.technologyreview.com/news/528351/record breaking solar cell points theway to cheaper power/; Stauffer, N. W. (2014, May 7). Getting more electricity out of solar cells. Retrieved June 16, 2014, from http://newsoffice.mit.edu/2014/getting more electricity out solar cells 0507; Bullis, K. (2014, April 8). Cheap Solar Power at Night. Retrieved June 16, 2014, from http://www.technologyreview.com/news/525296/cheap solar power at night/. Page 9 of 16

Table 5. Average annual customer bill impact at 266.66 kw installed solar PV capacity. 3. Green Choice program comparison to distributed solar PV generation The Belmont Light Green Choice program allows customers to voluntarily purchase blocks of environmental attributes from renewable generation as an added charge to their monthly electric bill. Each block represents 100 kwh of renewable generation (equivalent to 1/10 th of a REC). The 2014 Green Choice price per block is $6, and customers may request any number of blocks per month. At the end of the calendar year, Belmont Light purchases and retires RECs in the amount requested by participants in the Green Choice Program. To meet demand for the Green Choice program, Belmont Light purchases and retires RECs produced by Massachusetts RPS Class I qualified resources. Page 10 of 16

Because there is no additional environmental benefit of distributed solar PV over centralized Class I resources (e.g. large scale wind power generators), Belmont Light customers may choose to participate in the Green Choice program as an alternative to hosting a distributed solar PV facility. Table 6 shows that for the same total cost as the estimated Phase I net metering cross subsidy paid to the host of a 5 kw distributed solar PV facility, Belmont Light ratepayers can support the generation of 82% more energy from renewable resources through the Green Choice program. Because the average Green Choice participant purchases two blocks per month, this level of renewable generation could be achieved by approximately 6 to 10 customer participants per year. Table 6. Renewable generation achievable through Green Choice participation relative to Phase I Net Metering of a 5 kw residential solar PV facility. 4. Staff recommendations for next phase implementation Belmont Light staff has reviewed MLAB s proposed wholesale net metering alternative and recommends an interim phase, to be referred to as Phase II buyback, to facilitate the transition to MLAB s proposed wholesale net metering alternative, Phase III wholesale net metering. Phase II would begin in the fourth quarter of 2014, and is summarized as follows: As with Phase I, Phase II will apply to host customers of distributed solar and wind powered electric generating resources that are interconnected with the Belmont Light distribution system. During Phase II, all new and existing host customers would be charged at the applicable retail rate for all energy delivered by Belmont Light and credited at the RTLMP for all excess energy fed back into the system. Belmont Light will not measure energy consumed from behind the meter generation during Phase II. Page 11 of 16

The avoided electric bill to the average residential host customer would be reduced by approximately 33% relative to Phase I net metering (see Table 7 below). The cross subsidy paid to the host customer would be reduced by approximately 56% relative to Phase I net metering (see Table 7 below). The Aggregate Production Limit and Facility Production Limit included in the 2011 EFR DG Tariff will not be included in the new Phase II and Phase III tariff provisions. Beginning with the commencement of Phase II, all new host customers will be required to provide the necessary meter socket and wiring for Belmont Light to install a meter to measure generation from the generating facility. The installation of the second meter at each location during Phase II will enable the commencement of Phase III. Existing host customers will be notified during Phase II that upon the commencement of Phase III, all output from the host customer s EFR DG facility must be reported to Belmont Light in a manner to be determined by Belmont Light. The commencement of Phase II buyback will require prior finalization of: an updated tariff for emission free, renewable distributed generation serving customer load updated terms and conditions for residential and commercial interconnection processes to 1) download and aggregate historical RTLMP 2) credit customer accounts for excess energy fed back into the system at the RTLMP and 3) express charges and credits clearly on host customer billing statements. For the duration of Phase II, Belmont Light will ensure the necessarily metering, billing, and communications infrastructure is in place to begin execution of Phase III wholesale net metering. The timeline for commencement of Phase III has not yet been determined. Page 12 of 16

Table 7. Annual avoided electric bill benefits under Belmont Light s recommended interim buyback phase. Page 13 of 16

Appendix A. Input Assumptions to the Ratepayer Impacts Model Table A 1. Input assumptions to the ratepayer impacts model. Page 14 of 16

Table A 2. NREL PV Watts Performance Data input assumptions. Page 15 of 16

Table A 3. Solar Carve Out Qualified Renewable Generation Units in Belmont (as of 6/6/14). Table A 4. Residential Rate LI annual cross subsidy calculation. Page 16 of 16