20190614Steward Direct.pdf

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I i-S C0f'{i'1 ISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF ROCI(Y MOUNTAIN POWER TO
CLOSE THE NET METERING PROGRAM
TO NEW SERVICE & IMPLEMENT A
NET BILLING PROGRAM TO
COMPENSATE CUSTOMER
GENERATORS FOR EXPORTED
GENERATION
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CASE NO. PAC-E-19.08
DIRECT TESTIMONY OF
JOELLE R. STEWARI)
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ROCKY MOUNTAIN POWER
CASE NO. PAC.E-19-08
o June 2019
o 1 a.Please state your name, business address, and current position with PacifiCorp
dlb/a Rocky Mountain Power ("Company").
My name is Joelle R. Steward. My business address is 1407 West North Temple, Suite
330, Salt Lake City, Utah 84116. My title is Mce President of Regulation for Rocky
Mountain Power.
QUALIFICATIONS
Please describe your education and professional background.
I have a Bachelor of Arts degree in Political Science from the University of Oregon and
a Masters of Public Affairs from the Hubert Humphrey Institute of Public Policy at the
University of Minnesota. Between 1999 and March 2007,I was employed as a
Regulatory Analyst with the Washington Utilities and Transportation Commission.
Ijoined the Company in March 2007 as the Regulatory Manager responsible for all
regulatory filings and proceedings in Oregon. From February 2012 through May 2016,
I was a Director in charge of the work for the cost of service, pricing, and regulatory
operations groups for the Company. In 2016, I became the Director of Rates and
Regulatory Affairs and added responsibilities for regulatory affairs for Rocky Mountain
Power. In November 2017, I assumed my current position as Mce President of
Regulation for Rocky Mountain Power.
Have you testified in previous regulatory proceedings?
Yes. I have filed testimony in proceedings before the public utility commissions in
Idaho, Oregon, Utah, Washington, and Wyoming.
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o 1 PURPOSE AND SUMMARY OF TESTIMONY
What is the purpose of your testimony?
The purpose of my testimony is to introduce and support the Company's Application
to establish a successor program for customer generators to the existing Net Energy
Metering program ("Net Metering program") offered under Electric Service Schedule
No. 135 - Net Metering Service ("Schedule 135"). I give an overview of the
Company's filing, explain why the Company's proposals are in the public interest and
identify the witnesses who support the details of the proposed changes.
Please provide a summary of the Company's proposals in this Application.
The Company proposes closing Schedule i35 to applications received after
December 31, 2019; allow existing customer generators to remain on Schedule 135
until June 1,2029 when they would be moved to Net Billing Services; approve a new
program to enable customer generation, Electric Service Schedule 136 - Net Billing
Services ("Schedule 136"), to begin February 1,2020 and, authorize recovery of export
credits through the energy cost adjustment mechanism.
Alternatively, if the Commission does not allow existing customer generators
to remain on Schedule 135 as the Company proposes, the Company proposes
modifications to Schedule 13 5 to provide a three-year transition to a net billing services
program applicable to all current and future program participants.
Why is the Company recommending to close Schedule 135, cap it at levels effective
on mid-night December 31,2019 and open a new net billing program for customer
generators at this time?
The Company is recommending to replace the Net Metering program on Schedule 135
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o I with a new net billing program on Schedule 136 in order to minimize cost shifting and
send appropriate price signals to the growing population of customers interested in
installing on-site generation. Because of the design of Schedule 135, non-participating
customers are paying customer generators the retail volumetric rate for excess energy
exported to the grid when that energy is available at much lower wholesale prices. The
Company supports the development of cost-effective renewable energy and its
customers' desire to install on-site generation, but simply wants to ensure that other
customers are not adversely impacted through higher rates.
What does the Company propose regarding current Net Metering program
participants who currently take service under Schedule 135?
Recognizing their investments in on-site generation systems, the Company proposes to
allow current Net Metering program participants to remain on Schedule 135 for
approximately ten years. As of June l, 2029, these Schedule 135 customers would be
moved to Schedule 136.
Has the Commission previously recognized the probability of cost shifting to occur
as a result of net metering?
Yes. When Schedule 135 was approved in 2003, the Commission recognized program
participants would probably shift costs to other customers. For that reason the
Commission capped initial participation at 714 kilowatts and ordered the Company to
monitor and report on the customer impacts of the program. The Commission's 2003
order states.
The Commission finds that the proposedT14 kW cap is a reasonable initial cap
for PacifiCorp's net metering program. We also find it reasonable, however, that
the cumulative capacity limit be reviewed after that limit is reached. As part of
that review, we expect a report from the Company regarding the required level
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of subsidization by non-participants. The Commission recognizes that the full
cost of the program we approve today may not be borne only by participants....
As part of its report to the Commission, the Company should provide the
differential between the net metering purchase price it pays at retail sales rates
and the wholesale cost of alternative power supplies. We also expect further
information from the Company regarding cost shifting and the Company's
ability to recover customer costs from program participants.l
a. Has the Company evaluated if cost shifting is occurring?
A. Yes. As demonstrated in the direct testimony of Company witness Mr. Robert M.
Meredith in this Application, the Net Metering program for current customer generators
shifts costs to non-net metering customers. The primary driver of the cost shift is that
net metering customers are compensated at the full retail rate for excess output from
their on-site generation.
In order to mitigate this cost shift, the Company proposes to compensate
customers for energy exported to the grid from their customer generation system at a
level that fairly reflects that energy's value to the system and holds other customers
economically indifferent. To do this the Company proposes a new program, Electric
Service Schedule No. 136 - Net Billing Services. Schedule 136 establishes time
varying export prices to send accurate price signals to customers in order to maximize
benefits to the utility's system, while protecting other customers from unfair and
unexpected cost-shifting.
BACKGROUND AND STATUS OF NET METERING
a. What is net metering?
A. Net metering is a billing construct for customers with customer generation systems
I In the l[atter of the Petition of NIt' Bteryv Coalition and Renev'able J{orthv,est Project to Establish Net
A,Ietering Schedules for PacifiCorp, Case No. PAC-E-03-04, Order No. 29260 at 7 (June 20, 2003).
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interconnected to the grid that allows them to net their energy exported to the grid
against the energy for which they are billed. In other words, net metering customers are
compensated for their exported energy at the retail energy rate.
a. Has the Company experienced significant growth in its Net Metering program?
A. Yes. For the first several years after implementation of the program growth was very
slow. However, from 20l2to 2015 the program grew between l0 to 20 percent ayear.
In2016 participation jumped 40 percent, then by 65 percent in2017 and most recently,
the Net Metering program participation increased by 90 percent in 2018. In addition to
significant growth with customer participation the size of customers' generation
facilities is also increasing. Table I summarizes the number of customers and kilowatts
of customer-owned generation interconnected to the Company's system.
Table 1 - RMP Interconnected Customer Owned Generation
ldaho NEM History
December 2OL2 to May 2019
Dec-12 Dec-13 Dec-14 Dec-15 Dec-15
..,a-Custome6 .--kW
Dec-17 Dec-18
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How has customer generation changed since the Company first implemented its
Net Metering program in 2003?
The cost of customer generation systems, particularly photovoltaic solar, has fallen
precipitously since 2003. In 2003, the national median cost of a customer sited
residential solar systemwas about $10 perwatt. In 2017 that median price had fallen
to about $3.70 per watt. Table 2 shows this trend of lower prices for customer solar
generation.
Table 2 Installed Price Trends for Distributed
Photovoltaic Systems in the United States: 2000-20172
Resirential Non-Resilential 3500 kWDc Non-Resitlenthl >5U, kWDc
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-Median
ln$alled Price
oNi@@oN?@ N*@@oN!@ @ @ O N ! @6o6OOFOOOOFTOCT-oooaooooo oooooooo o o o o o o6lNNNNNNNN NNNNNNNN N N N N N N
Notes: Solid lines are medion prices, ond shadetl orcos ore 2dh4o-8fr percentile ranges. Stotistics shovn only il ot
leost 20 obsenations are availoblefor a given 1,ear and arctoma' segment. Sec Table I for annnol sample si:es.
The factors contributing to lower prices for customer solar photovoltaic installations
include reductions in the cost of equipment like panels and inverters as manufacturers
have gained greater economies of scale as well as reductions in soft costs like labot
marketing and overheads. Nationally, customer sited solar has grown dramatically from
a relatively fringe technology to a more mature market. When there were very few
2 GeLr,N BRRsosE & NAIM DARGHoUTH, LAWRENCE BsnxrEv NAT'L LABoRAToRY, TRACKING THE SLrN,
INsrelr,so PRrcE TRENDS FoRDrsrpJBr..nED PHorovolrArc SysrEMS rN THE UNTTED STATES at l8 (2018),
availab le al https ://emp.lbl.eov/trackins-the-sun.
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o 1 installed customer generation systems, it may have made some sense for the Company
to offer its Net Metering program. However, the current Net Metering program that
pays customer generators a price for their exports to the grid far in excess of its value
is no longer sustainable without adverse impacts on other customers.
What is the scope of the cost shifting that occurs under the current Net Metering
program?
Net metering compensates customers with on-site generation that provide excess
energy back onto the grid at the full retail energy rate. For smaller customers such as
residential, most of the fixed costs to pay for and maintain the Company's system are
recovered through these volumetric energy charges. The figures below show the split
between fixed charges and energy charges for residential customers based on the cost
of service study from the last general rate case updated for costs from the 2017 Results
of Operations report.3 While 73.9 percent of the costs to serve residential customers are
essentially fixed costs for recovery of operations and investments already made to serve
customers, only 7.8 percent of those costs are recovered through fixed charges.
Therefore, approximately 89 percent of the fixed cost recovery is subject to the
customer' s volumetric kilowatt-hour usage.
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I Case No. PAC-E-I1-12
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Residential Cost of Senice
*: Demand- and Customer-Related
Costs
r Energy-Related Coats
26.1o/o
73.9o/o
Residential Charges
7.80/o
e Fixed Clmrges r Energy Charges
92.20/o
Why is such a large percentage of fixed costs recovered through volumetric energy
charge?
Largely due to policy decisions made to incent conservation a majority of fixed costs
are recovered through the volumetric energy rate. Average retail energy charges range
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from 14.94 cents per kilowatt houra to 3.99 cents per kilowatt hour.5 A large part of the
explanation for the differences in energy rates between Schedule I and Schedule 6 is
that the majority of fixed costs are recovered through the customer charge and demand
charge rather than volumetric energy rate.
How do retail rates compare to the value of energy exported to the grid from
customer generation?
The actual value of the energy from customer onsite generation, as presented in
Company witness Mr. Daniel J. MacNeil's testimony, is only 2.486 cents per kilowatt
hour.6 To better understand the extent of cost shifting caused by the current Net
Metering program, Mr. Meredith presents a cost of service study showing that the
Company under-collects, relative to the cost of service, approximately $378 per year
from residential customers and approximately $651 per year from Schedule 23
customers on the current net metering program. 7 The under-collection relative to the
cost of serving these customers will result in higher rates to all customers. With no
change to the net metering program this subsidy from non-net metering customers to
net metering customers will continue to increase with each new system that gets
installed.
Has this cost shifting been recognized by the Staff of the Idaho Public Utilities
Commission?
Yes, Commission staffpreviously raised a concern about this issue:
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{ See the Compaqv's Schedule I taritr From Mav through October, all energy in excess 700 kilowatt hours in a
monthly billing period is priced at 14.9382 cents per kilorvatt hour for Schedule I residential customers.
s See the Company's Schedule 6 tariff. Energv is priced at 3.9880 cents per kilowatt hour for Schedule 6
customers.
6 Direct Testimony of Daniel J. MacNeil, Exhibit PAC 201.
7 Direct Testimony of Robert M. Meredith at 8.
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Staffbelieves the proposal to credit customer generators at full retail rates will
pay customers more than the actual value of the generation.... Net metering
allows PacifiCorp to avoid some generation costs and perhaps some
transmission costs, but few, if any, other costs. Under the proposed new tariff,
customer generation is not credited based on the avoided cost of generation and
transmission, but at the full retail rate.
For the Commission to accept a net metering tariffwhere customer generation
is credited at full retail rates, it must be willing to accept the fact that PacifrCorp
may not recover its full costs of providing service from net metering customers.
Those costs that are uncollected must either come from PacifiCorp through its
shareholders or from other customers collectively. Initially, the subsidy for net
metering customers is paid by PacifiCorp through shareholders. After a general
rate case, the subsidy of net metering customers would presumably be shifted
to the general body ofratepayers.8
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15 a. Has the Commission taken other actions recently around net metering?
16 A. Yes. This Commission recognized net metering customers' usage warranted creation of
17 a separate class and opened an investigation into the valuation of excess energy for
18 Idaho Power.e
19 a. Are other states taking action to address net metering?
20 A. Yes. With declining solar panel prices and the resultant boom in rooftop installations,
2I other parts of the country have taken notice of the unsustainable cost shifting that net
22 metering presents. Across the country, there are numerous regulatory proceedings
23 underway to investigate net metering. Several commissions have approved changes to
24 address the cross subsidization related to their states' net metering program. The
25 Arizona Corporation Commission has approved a transition away from retail net
26 metering to a structure where export credits are based upon the cost of purchased power
t ht the t\,Iatter of tlte Petition of ilII'Energy Coalition and Renev,able Northv,est Project to Establish Net
t\'Ietering Schedulesfor PacifiCorp, Case No. PAC-E-0344, Staff Comments at 3-4 (Mav 2. 2003).
e See In the l\,Iatter of tlrc Application of ldaho Power Company for Authori| to Establish |rtrev, Schedules for
Residential and Small General Sen,ice Customers v,itlt On-Site Generation, Case No. IPC-E-17-13, Order No.
340-16 at 16 (May 9,2018).
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agreements for large scale solar.l0 In Hawaii, net metering is no longer available and
new customer generators must enroll in alternative programs.ll The Kansas
Corporation Commission approved a three-part rate plan for distributed generation
customers.12 Closer to home, in accordance with a multi-party settlement in Utah, net
metering was closed to new applications November 15,2017, and a new transition
program was initiated for new customer generators.13 In the transition program new
customer generators are compensated for their exported energy at a price that is lower
than retail energy rates. Anew proceeding will be undertaken in Utah in2020 to set an
export credit value for future customer generators.
REQUEST FOR RELIEF
What is the Company requesting in this Application?
The Company requests that the Commission:
1) Approve closing Electric Service Schedule No. 135 - Net Metering Service to
new applications received after midnight December 31, 2019;
2) Allow existin! net metering customers and those that apply belore January 1,
2020, to continue to stay on Schedule 1 3 5 until no later than June | , 2029 .
3) Approve Electric Service Schedule No. 136 - Net Billing Services for new
customer generators effective February 1,2020;
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10 Iulia Gheorghiu, 14 rizona regulators approve lov,er rooftop solar credits for TEP, LTNSE custonrcrs,
ruuitQjailii$diJi:ti'jl:\rli:-ilu !i.$i!l !:, i--llltii.tt |Vet Brcrgv |t[etering,HewatteN EI-ECTRIC, $.t$S-:i.i:ul\\:.!:-.Il-i:i.t$rr,!SEifiQ.-Clirtjl$$li!]!i,s.Lil.+.
le.{\:Lit8s\$tl$-(:-tLQllQs:i]l]si$-Lilsjjt.Niiirgls$sisj;ii5leijriir.t2 KCC approves settlernett agreenrcnt lov,ering rates for lllestar Customers, KeNsaS CoRpoRertoN
CopnrarssroN (Sept. 27, 2018), ht+..,r:irrril.loi.tiir{q.Lnsv-ir-<ltl:*:l-?:l,{.
13 See Investigation of the Costs and Benefits of PacifiCorp's Net lvfetering Progranr, OrderApproving
SettlementAgreement,DocketNo. 14-034-ll4beforethePublicServiceCommissionofUtah(Sept.29,2017)
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4) Approve an $85 application fee and a compensation for exported energy at a
fair cost-based level, as described in Mr. MacNeil's testimony, that reflects its
value such that other non-participating customers are held economically
indifferent,
5) Approve the creation of separate customer classes for residential and Schedule
23 customer generators for the cost of service study to be used in future
ratemaking proceedings in order to evaluate if the characteristics of customer
generators are sufficiently different from other customers to justify changes in
retail rate design.
If the Commission determines that there should be no distinction between existing
and new customer generators and both should be subject to the same program, the
Company recommends that all customer generators be subject to a Net Billing
program whose export credit price transitions over a three-year period from average
retail energy charges to the cost-based level, as described in Mr. Meredith's
testimony ("Alternative Transition Plan").
Why is Rocky Mountain Power proposing closing Schedule 135 to new service?
As noted from prior orders the Commission and staff have acknowledged, and the
Company's cost of service studies have demonstrated, that the current Net Metering
program shifts costs to non-net metering customers. Schedule 135 compensates net
metering customers at their full retail rate, well above the fair value of the exported
energy provided. This erroneous price signal along with the other factors I've discussed
is incenting customers to install on-site generation at accelerating rates each year. The
Company believes it is time to protect non-participating customers from cost shifting
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o 1 and send the appropriate price signal to customers so they can make better informed
financial decisions when they decide if they want to invest in on-site generation. In this
Application, the Company respectfully asks the Commission to approve a new program
to enable customer generation and to determine the fair value of exported energy
provided by customer generators.
Why is now the right time for the Commission to take action on net metering?
As shown above, customer generation is growing fast and taking steps now to address
the unsustainable subsidy that net metering creates will help alleviate most of the cost
shifting from occurring. As the cost of photovoltaic solar systems continues to decline,
we can only expect more customer generation installations. Without the appropriate
price signal, customer generation adoption in Idaho could accelerate at an
unprecedented rate, similar to what happened with qualified facilities. Pricing exported
energy appropriately will send the correct price signals to customers and help ensure
that customers do not invest tens of thousands of dollars in home generation systems
based upon erroneous information about the value of that generation.
Why would it be appropriate for the Commission to make the Company's
proposed changes outside ofa general rate case?
The Company is not proposing changing retail rates for service from the Company at
this time; it is recommending a new net billing program to provide compensation at the
fair value for the exported energy provided to the grid. Net metering incentivizes
customer generation much like demand-side management programs incentivize energy
efficiency. As conditions change for the economics of energy efiiciency, the Company
files for changes to its demand side management tariffs and does so outside of rate
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a cases. Similarly, the conditions for customer generation have changed since the time
when the Company's first net metering tariff was approved. It is prudent for the
Commission to approve these changes at this time without waiting for the Company's
next general rate case.
a. IIow does the Company propose to treat current net metering customers?
A. The Company supports keeping the current net metering customers on the existing Net
Metering program Schedule 135 for approximately l0 years. Current customers made
investments based on the current structure, this respects the customers' need for
reasonable certainty for recovery of their investments. Mr. Meredith shows that 10
years will provide a reasonable amount of time for customers to recover their
investment. As of June 1,2029, the Company would move all Schedule 135 customers
to the applicable customer generation program in effect at that time.
a. Why would it be appropriate for current Net Metering program participants to
continue taking service under Schedule 135 even though the Company proposes
to close Schedule 135 to new participants?
A. The compensation structure of the new net billing program is substantially different
from the structure within the Net Metering program under Schedule 135. Requiring
current Net Metering customer generators to transition immediately to a new
compensation structure would produce adverse bill impacts for them. Many existing
net metering participants likely purchased their systems at much higher prices than a
new prospective buyer could purchase today. New customers would make their
decision to invest in customer generation facilities based on the compensation structure
under proposed Schedule 136.
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t 1 a.How does Schedule 136 achieve a fair and balanced outcome for all customers?
A customer with on-site generation should be paid for the exported energy at a rate that
is competitive with what customers pay for other energy with similar characteristics,
instead of the full retail rate. The Company does not propose paying less than market
value for exported energy-it just does not believe non-participating customers should
subsidize customers with on-site generation. A fair and balanced solution is achievable
while maintaining Idaho's low energy rates, which are among the lowest in the nation.
The Company's request is simple, customers should pay the cost for the energy they
use and exported energy from a customer's on-site generation should receive a fair
value for that energy.
What is the proposed structure for the new Net Billing program?
The Company proposes the implementation of a Net Billing program that would
provide credits to customer generators for all energy exported to the grid from their
generation system. Compensation for exported energy will vary based on the time at
which energy is exported with different prices for summer and winter and on- and off-
peak times. All energy usage provided by the Company will be at customers'
applicable electric service schedule rate, which is applicable to all similarly situated
customers. Energy generated and consumed on-site will offset kilowatt-hours that
would otherwise have been provided by the Company.
Please explain the Company's proposed Alternative Transition Plan.
In the event that the Commission determines that current and future customer
generators should be subject to the same compensation rates as matter of law or
policy, the Company recommends a three-year transition period, applicable to all
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o 1 customers, from current net metering to the proposed net billing program. This
transition approach would mitigate bill impacts on curent customers and set
appropriate price signals for future program participants. Mr. Meredith explains the
proposed transition rates in more detail.
Please identify the witnesses supporting the Company's filing and the subject of
their testimony.
This filing is supported by Company witness Mr. MacNeil, who describes the valuation
of excess exported customer generation, and Mr. Meredith, who demonstrates the level
of cost shifting from net metering customers to other customers and presents the
Company's proposed rate design, application fee and other program details.
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What is your recommendation for the Commission?
The Company requests that the Commission approve the proposals set forth in this
Application which address the current problems with the Net Metering program and
offers needed changes that balance the interests of all customers.
Does this conclude your direct testimony?
Yes.
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