California Set to Enact Major Revisions to Utility Ratemaking Structure

Ending a tumultuous battle over the future of electricity in the state, the California Legislature passed a wide-ranging revision of its ratemaking structure last week. Despite the contentious subject, the bill, AB 327, was approved by a broad bipartisan majority and garnered widespread support from the state’s three investor-owned utilities, the residential solar industry, and ratepayer advocates. The final version was sent on Thursday to Governor Jerry Brown, who is expected to sign it into law.

The bill represents the first major change in ratemaking policy since California’s disastrous first attempt at deregulation in the early 2000s, which was widely blamed for creating an energy crisis during 2000–2001 and helped end the political career of then-Governor Gray Davis. That change set in place the current steeply tiered rate structure, which has been criticized for overcharging the largest users of electricity. That often included low-income customers in the state’s inland regions, which typically see the highest temperatures. The new structure would flatten rates so that those users get some relief, while customers in milder climates along the coast will likely pay more. Another provision would allow the California Public Utility Commission (CPUC) to charge a fixed monthly fee of up to $10 to all ratepayers.

These changes are in part an attempt to deal with the rapidly growing popularity of rooftop solar in the state, which utilities have complained is forcing them to subsidize customers with rooftop solar at the expense of less-affluent ratepayers who are unable to afford it. Initially, the solar industry stridently opposed the bill, fearing that the new rate structure would seriously impair its current business models, which are aimed at shaving off high-priced peaks from customers’ utility bills.

Negotiations over the past few weeks, however, brought the solar industry on board with major revisions to the state’s net metering policy. The industry has been living in fear for several years of an impending—but poorly defined—5% cap on the current net metering program. Under current law, net metering would have been suspended at the end of 2014. The new bill removes that deadline, as well as describing specifically how the cap is defined, and lays out a process for the CPUC to create a completely revised, uncapped net metering program by 2017. It also removed the possibility that existing net metering contracts might be suspended.

The Alliance for Solar Choice, a residential solar industry group, said in a statement that AB 327 “helps ensure that the rooftop solar industry can continue to grow and create jobs across California,” as well as correcting a “number of important residential electricity rate design issues in a balanced manner.”

“The bill is a good package that allows the commission flexibility it needs to set rates going forward,” said Mike Campbell, a program manager with the CPUC’s Ratepayer Advocates. “It also includes significant ratepayer protections.”

Among the other changes was giving the CPUC authority to increase the state’s renewable portfolio standard beyond the current 33% by 2020.

Though it has received far less attention, the prospect of greater renewable generation in California means greater demand for highly flexible dispatchable plants. The state took another step in that direction as well on Thursday when NRG Energy commissioned two new units at its El Segundo Energy Center near Los Angeles. The 550-MW combined cycle plant is the second Siemens Flex-Plant in the U.S., (the other is also in California, in Lodi near Stockton) and is capable of reaching 300 MW output in less than 10 minutes. The plant replaces a pair of steam boilers on the same site that were retired in 2001. NRG plans to replace the remaining two boilers at El Segundo with similar units by 2016.

“Flex Plants with fast start technology are an environmentally friendly solution to seamlessly integrating renewable power into the grid. As a result of this project, the El Segundo Energy Center will be able to provide Californians with clean energy for decades to come,” said John Chillemi, president of NRG Energy’s West Region, during the commissioning ceremony.

Sources: POWER, Los Angeles Times, Greentech Media, Siemens

—Thomas W. Overton, JD, gas technology editor (@thomas_overton, @POWERmagazine)