Assembly Bill 327: California Net-Metering in Transition
Assembly Bill 327 (“AB 327”), which was recently passed by California lawmakers and is expected to be signed into law by Governor Brown, provides (among other things) a significant roadmap into the future changes to the net energy metering (“NEM”) programs for California’s three largest investor-owned utilities: PG&E, SCE and SDG&E (“IOUs”). NEM portions of AB 327 were fiercely debated and pivoted the IOUs (which wanted to reduce the full retail credits they are currently required to give to NEM customers) against solar/ ratepayer advocacy groups (which wanted to preserve such retail credits as much as possible).
A. Summary of AB 327 NEM Rule
The current NEM program provides IOU customers that go solar with a billing credit for full retail value of the electricity their solar systems generate. AB 327 makes the following material changes (and compromises) to this program:
- It removes the current planned suspension of the NEM program which would have gone into effect by the end of 2014;
- It clarifies how the current NEM program limit for each utility (i.e., 5% of such utility’s aggregate customer peak demand) is calculated, and in any event, sets a floor of 2,409MW for PG&E, 2,240MW for SCE and 607MW for SDG&E (the “NEM Cap”);
- Once the NEM Cap is met, the IOUs would be relieved of the current retail credit requirement and instead transition to offering NEM customers a new standard contract (“Standard Contract”) that will undoubtedly be at a lower value than the current retail credit; and…
- It grandfathers existing NEM customers through a transition period before they too will be subject to the lower value Standard Contract.
Items 1 and 2 above are great for utility customers that go solar because they ensure that California NEM programs will stay in place for the foreseeable future. As a compromise, however, items 3 and 4 set in motion a transition period that will move the state’s current NEM programs toward a lower value Standard Contract in order to provide the IOUs with a sustainable way to administer NEM benefits going forward.
B. Critical NEM Transition Dates.
The following 2013-2017 timeline sets forth the critical NEM transition (and solar tax-related) dates:
Strictly in terms of regulatory impacts on solar projects, the timeline illustrates three distinct periods. Years 2013 and 2014 should be viewed as a “Green” period for solar projects because the current full retail value for NEM remains firmly intact. Solar systems commissioned during this time also get the benefit of a “grandfather” transition clause, whereby they will continue to enjoy NEM retail value for a transition period (“Transition Period”) after the NEM Cap is reached (i.e., as early as mid-2016 but no later than mid-2017). The length of such transition period will be determined by the California Public Utilities Commission (“CPUC”) no later than March 31, 2014, and the CPUC must consider “a reasonable expected payback period based on the year the [solar] customer initially took service under the [NEM] tariff.” Based on this guidance, we estimate that the Transition Period will extend current NEM benefits for up to 5-10 year after the NEM Cap is reached for most qualifying customers.
Year 2015 is expected to be a “Yellow” caution period to go solar. With a December 31, 2015 deadline looming for the CPUC to set the value/ terms of the new Standard Contract and fewer years left to get the full retail value of NEM, many customers may want to exercise caution on potential solar projects.
Years 2016-2017 can be viewed as a “Red” uncertain period if we account for the unfavorable regulatory impacts to solar. During this period, the retail NEM Cap will be reached— as early as some time in 2016 but no later than the statutory deadline of July 1, 2017. This triggering event would then move all new solar customers into a lower value Standard Contract program. At the federal level, the 30% investment tax credit will also decrease to 10% by December 31, 2016. These regulatory events could have a negative impact on the solar economics of new projects, and it is currently premature to guess on whether further reductions in the cost to build a solar facility could adequately make up for these impacts.
Despite the uncertainty to solar net metering value after 2016, we are generally optimistic about AB 327 because it ensures that a CPUC-regulated net metering program will continue well past 2017 in California. And with careful near term planning, solar customers can get well ahead of the state’s transition to a less attractive NEM Standard Contract.
Please contact us to learn more about AB 327 and its impact on California NEM policy.