AB 920 Net Surplus Compensation Proposal of the

AB 920 Net Surplus Compensation: Proposal of the Solar Alliance and the Vote Solar Initiative Tom Beach Crossborder Energy July 9, 2010

AB 920 Net Surplus Compensation Rate § Other customers must be “unaffected” by the rate. § P. U. Code Section 2827[h][4][A] § Use Commission-approved long-run avoided costs. § Recognize that behind-the-meter DG resources avoid line losses and T&D costs, similar to EE resources. § Rate should be simple to understand easy to administer. § Using a rate that is fixed for the life of a NEM customer’s system provides a hedge against volatile fossil fuel prices. § Proposed Net Surplus Compensation Rate (NSCR): NSCR = MPR x TOD Factor + Avoided Line Losses + Avoided T&D § Based on AB 1969 rate for surplus sales, extended to DG.

Avoided Cost Components of the NSCR § MPR: 20 -year MPR § For the year the NEM customer begins operation. § Use 2008 MPR for existing NEM customers. § Fixed for the life of the NEM customer’s system. § TOD: RPS / MPR TOD factors § Calculate a utility-average TOD factor based on a representative PV profile from NREL’s PVWATTS model. § Avoided line losses: from the adopted E 3 avoided cost model for EE § Hourly values weighted by the PV profile § Avoided T&D: also from E 3 AC model for EE § Hourly values weighted by the PV profile

MPR is a Measure of Long-run Avoided Costs for Energy and Capacity in California § MPR is the levelized, all-in cost of a new CCGT § CCGTs are the IOUs’ avoided resource. § Cost of the “brown power” resource that the IOUs would build or buy but for RPS generation. § Pricing benchmark for RPS costs. § Other CPUC-approved uses of the MPR as a measure of long-run avoided costs § § Long-run avoided costs for EE (D. 05 -04 -024 et al. ). Renewable FIT (AB 1969, D. 07 -07 -027). 10 -year firm QF price for large CHP (D. 07 -09 -040). FIT price for small CHP (AB 1613, D. 09 -12 -048).

Calculation of the TOD Factor Solar PV Profile on the PG&E System (June to September) 350% Percent of Summer Season Average 300% Solar PV Profile (Sacramento) 250% 200% PG&E Summer TOU Factors (2010 RFO) 150% PV-Weighted Summer TOU Factor 100% 50% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour

Calculation of Avoided Line Losses 20% 18% 300% 16% Percent Line Losses 14% 12% 200% 150% 8% 6% 100% 4% 50% 2% 0% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hours in July PV Output as Percent of Average 250% Hourly Line Losses Weighted Average Line Losses PV Profile

Calculation of Avoided T&D Costs 300% 25 250% 20 200% 15 150% 10 100% PV Output as Perent of Average 350% 30 T&D Adder ($ per MWh) 35 Hourly T&D Adder PV-Weighted Average T&D Adder PV Profile 5 50% 0 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hours in July

Results: Proposed NSCR using 2008 MPR § Applies to NEM customers on-line before December 17, 2009. § 2009 AB 920 NSCR based on the 2008 MPR: AB 920 Price Component PG&E SCE SDG&E 2008 MPR (20 -year, 2009 start) cents/k. Wh 11. 1 TOD Factor 1. 24 1. 32 1. 12 Avoided Line Losses cents/k. Wh 1. 15 1. 22 1. 02 Avoided T&D cents/k. Wh 1. 87 1. 39 4. 03 Total AB 920 Rate cents/k. Wh 16. 8 17. 3 17. 6

Results: Proposed NSCR using 2009 MPR § Applies to NEM customers on-line after December 17, 2009. § 2010 AB 920 NSCR based on the 2009 MPR: AB 920 Price Component PG&E SCE SDG&E 2008 MPR (20 -year, 2009 start) cents/k. Wh 9. 67 TOD Factor 1. 26 1. 32 1. 12 Avoided Line Losses cents/k. Wh 1. 02 1. 07 0. 89 Avoided T&D cents/k. Wh 1. 90 1. 43 4. 13 Total AB 920 Rate cents/k. Wh 15. 1 15. 3 15. 9

Other Pricing Methods Considered § MRTU DA Prices or SRAC § PV systems are long-term renewable resources. § MRTU DA or SRAC prices are appropriate for fossil resources making daily or monthly dispatch decisions. § Energy-only markets; PV provides capacity. § No recognition of avoided losses or T&D costs from DG resources. § No hedge against volatile fossil fuel prices. § Use of REC market prices for renewable attributes. § Willing to consider once the REC market develops.

Eligibility and Administrative Issues § Solar Alliance / Vote Solar agree with PG&E on the following issues: § Pay the NSCR to NEM customers with surplus k. Wh but no excess bill credits. § Customer’s choice of a check or a rollover bill credit. § No WREGIS registration or CEC certification needed to count k. Wh for RPS. § Include NSCR in existing NEM tariff. § $1 threshold for a check. § FERC order removes the need for QF certification. § Affidavit on REC ownership for systems > 100 k. W.

System Sizing Issue § No need for new system sizing rules. § CSI rules already limit incentives to the system capacity needed to serve the historical on-site load. § AB 920 compensation encourages “right-sizing”: § Optimize use of roof space and inverter capacity. § Minimize installation costs per k. W. § Additional RPS-eligible generation at an avoided cost price well below the cost of utility-owned PV. § Price proposed is unlikely to result in a substantial increase in net surplus generation.

Implementation § Potential for customer confusion § Customers with excess bill credits but no surplus k. Wh may not understand why they do not receive a check. § Customer need to understand that they are selling RECs, to avoid duplicative sales. § Need simple, clear communications and information. § Permanent NSCR can be adopted now. § Review program in 2013 after two years’ experience.