1 STAFF REPORT
DAT
E: January 14, 2025
T
O: Justin Hess, City Manager
F
ROM: Mandip Kaur Samra, General Manager, Burbank Water and Power VIA: Drew Johnstone, Sustainability Officer
BY: Drew Kidd, Marketing Associate
S
UBJECT: Approval of Burbank Water and Power’s Solar Net Billing Program RE
COMMENDATION
Approve Burbank Water and Power’s (BWP) Solar Net Billing program, including the proposed rate structure and determination of the avoided cost of energy (ACOE ), and allow the General Manager of Burbank Water and Power (BWP) to make administrative changes to the ACOE methodology.
BACKG
ROUND
Utilities in California have had policies in place for 29 years that allow solar customers to sell excess electricity back to the grid for credit on their bills. This type of billing mechanism is referred to as net energy metering or NEM.
NE
M 1.0
The California Public Utilities Commission created the first NEM tariff called “NEM 1.0” in 1995, pursuant to Senate Bill (SB) 656, which added Section 2827 to the Public Utilities Code (PUC). SB 656 states that “…a program to provide net energy metering for eligible customer-generators is one way to encourage private investment in renewable energy…” This tariff was designed to offer a favorable rate structure to solar customers to encourage the early adoption of rooftop solar. Under the NEM 1.0 tariff design, utilities measure the net energy produced monthly. The utility then provides kilowatt hour (kWh) solar credits for any excess energy provided to the grid. These solar credits could be used to offset energy on future bills. At the end of every year, the utility would offer a payment to the solar customers for any excess credits at the utility-determined rate for net energy surplus compensation.
WATER AND
POWER
2 In today’s energy market climate, t he NEM 1.0 rate structure overvalues the export of solar energy by compensating for export at the full retail rate instead of at the utility’s avoided cost. In Burbank, the value of a solar credit at a retail rate may be over 20 cents for the solar customer. However, the avoided cost of that energy is closer to 8 cents per kWh. Due to BWP giving NEM 1.0 solar customers greater value for their solar credits than what their energy is worth today, a change to this program is necessary.
NEM 2.0
In 2016, the California Public Utilities Commission (CPUC) created the second NEM tariff, known as “NEM 2.0,” pursuant to Assembly Bill 237. While this tariff was only mandated for investor -owned utilities ( IOUs), not impacting BWP’s net -metering program , it is important to note the evolution of NEM throughout California. NEM 2.0 required the CPUC to ensure that:
• Customer-sited renewable energy continued to grow sustainably. • NEM 2.0was based on the costs and benefits of renewable energy projects. • The total benefits of NEM 2.0 to all customers and the electrical system we re approximately equal to the total costs.
This rulemaking attempted to reduce the gap between the value of solar to solar-owning customers and the value of th at same energy to utilities. Under NEM 2.0, the CPUC required solar customers in IOU territories to:
1. Pay one-time interconnection fees.
2. Pay non-by passable charges in each metered interval (small charges on each net kWh of electricity consumed from the grid in a metered interval).
3. Transfer to a time of use (TOU) rate.
The NEM 2.0 rulemaking did not eliminate the issue of overcompensation for solar at IOUs. The CPUC utilized E3 , a consultant, to conduct modeling using 2020 rates, and found that in San Diego Gas and Electric (SDG&E) territory, the average compensation to solar customers under NEM 2.0 was 31.2 cents per kWh, while the average solar avoided cost (value to the utility) was only 5.5 cents per kWh. 1This meant,
on average, NEM 2.0 customers were being overcompensated by 25.8 cents per kWh in SDG&E territory.
1 Energy Environmental Economics. (2021, February 8). Net Energy Metering Successor Tariff. Retrieved from CPUC: https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/net- energy-metering-nem/nemrevisit/nem-successor-tariff_public-workshop_white_paper.pdf 3 NEM 3.0 (“Net Billing Tariff”)
Due to the issues with NEM 2.0, on December 19, 2022, the CPUC issued Decision 22- 12-056. This rulemaking introduced the “Net Billing Tariff” (NBT), commonly called “NEM
3.0.” The largest difference between NEM 2.0 and NBT is that NBT removes the concept of solar credits. Instead of netting the electricity on a customer’s bill and providing kWh credits for excess generation, compensation for excess generation exported to the electric grid is applied to a customer’s bill at a rate reflecting the value of this generation to the grid. So, in the previous example for NEM 2.0, if the solar avoided cost is 5.5 cents per kWh, the utility would pay the customer at 5.5 cents per kWh for their excess solar generation. As solar generation has a different value to a utility based on the time of day and time of year, the value and compensation for that generation are different during those different periods. The value is highest during summer evenings, which aligns with utility system peaks. Due to this, solar customers can benefit from NBT rates the most by installing battery storage alongside solar to use the battery energy during those higher - value hours.
BWP’s Current Solar Rate
BWP currently uses a NEM 1.0- style rate, as required under Section 2827 of the PUC.
However, Section 2827 of the PUC states that “An electric utility that is not a large electrical corporation 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 five percent of the aggregate customer peak demand of those electric utilities.”
As a local publicly owned utility, BWP is not required to offer a NEM 1.0-style net energy metering program once the total customer solar generation equals five percent of BWP’s total peak demand. Five percent of BWP’s total peak demand is 16 megawatts (MW), and the currently installed nameplate capacity of customer solar in BWP’s territory is 16.06 MW. This amount of solar is installed at over 1,800 customer sites. Since BWP has surpassed the five percent threshold, BWP is able to implement a new solar rat e and program that better meets its objectives.
DISCUSSION
The program design process aims to accomplish the objectives outlined below:
1) Compensate solar production fairly and equitably;
2) Encourage better management of solar energy during peak periods; and 3) Keep solar economically viable for BWP customers.
Proposed Rate Structure
The proposed solar net billing rate structure would require residential customers with rooftop solar to be on a TOU rate, which is currently optional for residential electric vehicle 4 owners. Non-residential customers are currently on a TOU rate and would remain so .
Solar net billing customers would be charged the retail TOU rate for energy they use from the grid. They would be compensated for the energy their solar system exports back into the grid based on BWP's avoided cost of energy (ACOE).
The ACOE would be a time -based rate that aligns with the TOU rate periods and is comprised of two components: avoided generation energy costs and avoided renewable portfolio standard costs . These costs will be evaluated and updated as needed and as market conditions change. The methodology for determining the ACOE rate is as follows:
1. Avoided Generation Energy Costs
Each kWh of energy fed into the grid from a customer generator is one less kWh of energy that BWP must produce or purchase from the market . This time-based avoided cost of generation energy is best represented by analyzing the last three years of historical energy prices in the appropriate energy market for BWP. The hourly data is aggregated by season and TOU period. This component of the ACOE is shown below in Table 1.
2. Avoided Renewable Portfolio Standard (RPS) Costs
State-mandated Renewable Portfolio Standard ( RPS) requirements dictate the percentage of BWP’s power supply that must be from renewable sources. Each kWh that customer generators feed back into the grid reduces BWP’s RPS obligation by reducing the total load that needs to be served by renewable energy, and the value of this avoided renewable energy is the second component of the ACOE. BWP staff proposes to use the average market value of Portfolio Content Category 3 (PCC3) Renewable Energy Credits (RECs) from the last three years as the value of this “green attribute” of renewable power.
This component is also shown below in Table 1—with a value as of April 2024.
The rates shown below are the result of applying the above methodology with current data:
Table 1: Components of BWP’s Avoided Cost of Energy (with Sample Costs) Rate Time Period
Avoided Energy
Generation Costs
($/kWh)
Avoided RPS Costs
($/kWh)
Total Avoided Cost
of Energy ($/kWh)
Summer On-Peak
(4 PM – 7 PM) 0.1086 + 0.01 = 0.1186
Summer Mid-Peak
(8 AM – 4 PM &
7 PM – 11 PM)
0.0725 + 0.01 = 0.0825
Summer Off-Peak
(11 PM – 8 AM) 0.0602 + 0.01 = 0.0702
5 Winter Mid-Peak
(8 AM – 11 PM) 0.0596 + 0.01 = 0.0696
Winter Off-Peak
(11 PM – 8 AM) 0.0596 + 0.01 = 0.0696
The total ACOE is less than the full retail rate of electricity that customers pay for using electricity. This is because w hen BWP delivers energy to a customer , the retail rate includes costs for the non- energy portion of the electric service, such as grid maintenance, capital improvements, and customer service functions . When a customer delivers solar energy to the grid, it doesn’t reduce BWP’s costs for any of those additional services. It only assists BWP with avoiding energy and RPS costs, which is what the customer will be compensated for with the new ACOE.
1 The ACOE will be evaluated yearly during the annual fee schedule approval process. It may be adjusted up or down to reflect the current value of the ACOE. This will include a yearly evaluation of the avoided RPS costs and avoided generation energy costs.
Staff request s that the Council authorize the BWP General Manager to make administrative changes to the ACOE methodology, such as: choosing another source of applicable indexes used for avoided generation and the value of renewable energy credits. Council will be provided updates to any changes to the methodology in advance of implementation.
Summary of Program Parameters
Below is a summary of the solar net billing program parameters outside of the rate change.
1. Maximum Eligible Solar System Size
Under the current rules and regulations, only systems under 1 MW in size are eligible for net -energy-metering. For the new program, staff proposes increasing the eligible limit from 1 MW to 5 MW.
2. Maximum Size Based on Annual Electric Usage
For residential customers, BWP is proposing to increase the allowable system size from 100% to 150% of the annual energy use of the solar customer. For commercial customers, the size limit will now be determined by the service size, not the annual energy use. Size review will be eliminated for all new systems 10kW and under in size.
3. Annual Compensation
Staff proposes allowing customers to receive a check for excess cash balance annually by request.
4. Performance Meter
BWP will continue to require the performance meter.
6 5. Renewable Energy Credits
BWP will claim customer renewable energy credits.
6. Grandfathering
All existing customers and any customers with a finalized building and safety permit for a solar system before the implementation date will be grandfathered into the existing NEM 1.0 rate structure. That grandfathering for all NEM 1.0 customers will sunset after 20 ye ars or if the solar system changes owners or the customer increases the capacity of their solar system.
Solar Customer Impact
Under the new solar net billing program, without modifying electric usage behavior, customers will see lower annual bill savings than with the current NEM program . For residential customers on solar net billing, staff estimates that bill savings will be approximately 47% monthly, whereas bill savings were previously 62% monthly. With 150% oversizing, monthly bill reductions under solar net billing will be similar to current monthly bill savings. However, payback periods under solar net billing are longer than under NEM 1.0. For residential customers with solar systems sized to 100% of a customer’s annual use, calculated payback periods are six years under NEM 1.0, and they would be nine years for the new program . Detailed analysis of the solar customer impact can be found in Attachment 1 - Solar Net Billing Rate Design.
Implementation Plan
A summary table is provided below. Additional details for the implementation plan can be found in Attachment 1 - Solar Net Billing Rate Design.
Table 2: High-Level Project Schedule
Description Due Date
BWP Board Recommendation 11/07/24
City Council Approval 01/14/25
Complete Rate Configuration 05/01/25
Estimated Program Launch Date 07/01/25 - 01/01/26
COMMUNITY OUTREACH
BWP created a communication plan to ensure the public is properly informed of the potential program change and has the ability to provide feedback. As part of that plan, BWP held public meetings on September 11, 2024 (virtual) and on September 30, 2024 (in-person and virtual ). Recordings of the meetings are available on the website, alongside a copy of the presentation given by BWP staff. In the fall of 2024, BWP notified residents via email and reached out to local solar installers to ensure that feedback was received from the affected business community. Based on feedback received by BWP 7 staff, a frequently asked questions document was created and is available on the BWP website.
The Solar Net Billing Program was presented to the BWP Board on November 7, 20 24 and unanimously approved.
ENVIRONMENTAL REVIEW
Staff has reviewed this item in accordance with the California Environmental Quality Act (CEQA) and believes that approval of this item is exempt from CEQA because it involves rates and fiscal activities that do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. (Public Resources Code (PRC) § 20180(b)(3); 14 CCR § 15273; 14 CCR § 15378(b)(4).) The activity here affects the rates and credits for excess solar energy, and its eff ects are primarily fiscal and monetary. The policy will not commit the City to any other project, and, generally, any activity resulting in increases or decreases in rooftop solar systems are exempt under CEQA. (See PRC § 21080.35.) If approved, staff will file a notice of exemption in accordance with applicable law.
FISCAL IMPACT
For each new solar customer that installs a solar PV system under the proposed Solar Net Billing program, BWP will, on average, recover revenue from solar customers equal to the difference between monthly bills for the NEM and solar net billing rates. Table 3 shows this value for the three customer types with the most customers on an NEM rate.
Table 2: Average Annual Cost Recovery from Net Billing
Customer Type
Average Annual Cost Recovery
per Customer
Residential Tiered $412
Small Commercial $1,067
Medium Commercial $2,291
CONCLUSION
Staff concludes that the proposed program design accomplishes the intended objectives, summarized below.
1) Compensate solar production fairly and equitably . Solar PV customers currently on NEM may remain on NEM, as they installed rooftop solar based on the economics of NEM. However, new solar customers in the Solar Net Billing program would be compensated at the avoided cost of energy for BWP. This allow s solar customers to receive the fair market value of energy exported back into the grid. 8 For new solar customers, it removes the cross-subsidization of the NEM rate borne by non-solar customers.
2) Encourage better management of solar energy during peak periods . Under Solar Net Billing, customer s would be required to be on the appropriate TOU rate.
Customers would be incentivized to consume less from the grid during peak times, and Solar Net Billing creates a greater incentive for customers to pair their solar array with a battery . Solar paired with a battery would allow customers to avoid using energy from the grid during peak times by charging the battery during the day and using energy from the battery during the evening peak.
3) Keep solar economically viable for BWP customers. As the analysis showed, Solar Net Billing, without allowing oversizing, would increase monthly bills . However, with the 150 percent oversizing allowance, monthly are comparable to those with the NEM 1.0 rate. Payback periods increase but are well within the lifetime of the solar system.
To establish a new solar net billing program that fairly and equitably compensates solar customers, encourages better management of solar energy during peak periods, and keeps solar economically viable for BWP customers, BWP staff and the BWP Board unanimously request that Council approve BWP’s Solar Net Billing program, including the proposed rate structure and determination of the avoided cost of energy (ACOE) , and allow the General Manager of BWP to make administrative changes to the ACOE methodology.
ATTACHMENTS
Attachment 1 – Solar Net Billing Rate Design
Attachment 2 – New Interconnection Agreement
Attachment 3 – Revised Rules and Regulations