Power Prices image

With the exception of EPA rulemaking and stimulus, federal energy policy has been at a virtual standstill since EISA 2007. That makes state legislatures and regulators the focal point for new ideas. California, with its aggressive efficiency and renewable targets, has continued to be a key market for addressing the financial and operational costs of configuring a new energy system.

In a previous life, I remember an industry colleague’s advice on drafting energy legislation; “create principles regulators can tweak rather than inflexible legislative fiat”. This expression comes to mind as a litmus test for California’s new landmark energy legislation; Assembly Bill 327.

At first glance, AB 327 – signed into law in October 2013 – seems to represent a big step forward in creating a more equitable system for pricing power. The bill also acknowledges the fixed costs associated with integrating higher amounts of renewable energy into the distribution system. Let’s take a look at three high impact provisions of the bill and with each, consider whether they might pass my colleagues “principles over fiat” test:

Authorizing the regulator to assign fixed monthly charges ($10 or $5) beginning in 2016
Enables the regulator to assign a fixed charge to cover the cost of maintaining a reliable system and ensures all users pay for the value of the grid, but it sets specific dollar limits.

Removing the total system capacity cap and the one megawatt project size limit for solar PV
This provision removes the “cap” on how large solar PV systems can be and how much energy they can generate on the system. In other words, it removes a market cap, very simple but profound consequence.

Making TOU pricing the default rate schedule for residential customers by 2018
This provision seeks to achieve the holy grail of smart metering, which is to enable regular people to see the true cost of energy and empower them to make choices based on those prices.

AB 327 is important nationally because it seeks to address the challenges of integrating distributed generation into the utility business model. It also has the support of a broad base of stakeholders, which has implications for its political viability as a model.

Does California’s new net metering law represent a step forward or does it create new problems? Do these provisions create flexible principles or inject rigidity into state energy policy frameworks?


Disclaimer:  Views expressed are my personal views and do not represent the views of IBM Corporation