Controversial Assembly Bill 327 Jeopardizes Renewable Energy Investments: New Law Amends Net-Energy Metering Laws

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Yesterday, California Governor Jerry Brown signed into law Assembly Bill 327 (AB 327), the hotly debated net-energy metering (NEM) law that generated customer protests at utility headquarters throughout the state. Schools, cities, special districts and other customers with existing renewable energy projects should be aware that AB 327 makes several significant changes to existing NEM law. AB 327 impacts solar, biogas, wind and fuel-cell NEM customers. Most notably, AB 327 subjects renewable energy customers’ current NEM contracts to review and potential changes by the California Public Utilities Commission (CPUC).

NEM is a program that allows renewable energy customers to essentially run their electricity meters backwards, using the grid as a kind of battery and “netting” out the energy produced by their systems to the grid against the energy they consume from the grid. AB 327 directs the CPUC to change the tariff for those existing NEM customers at a future date, which is extremely problematic for public entities that have made renewable energy investments. Industry groups such as the School Energy Coalition and the California Special Districts Association took positions opposing the bill unless amended, citing the risk that their member agencies’ long-term renewable energy investments could be completely upended by a revision to existing NEM contracts. Unfortunately, amendments to AB 327 did not directly address these concerns. In signing AB 327 into law, the governor stated, “I expect the Commission to ensure that customers who took service under net metering prior to reaching the statutory net metering cap on or before July 1, 2017, are protected under those rules for the expected life of their systems.” However, such directive is not set forth in the statute itself.

AB 327 directs the CPUC to determine the grandfathering period for existing NEM customers and requires that the state agency consider a “reasonable expected payback period based on the year the customer initially took service under the NEM contract.” What the CPUC should consider to be “reasonable,” given the vastly differing payback periods for renewable energy projects between customers, is unclear and not specified in AB 327.

AB 327 also requires the utilities to apply to the CPUC in a rulemaking proceeding to alter rates and tariffs applicable to NEM customers. In any such proceedings, AB 327 requires the CPUC to “ensure customer generators are provided electric service at rates that are just and reasonable.” Again, “just and reasonable” are not defined and no further guidance is set forth in the new law.

Both directives shift considerable responsibility and authority to the CPUC. AB 327 will require NEM customers to participate before the CPUC in order to protect their investments. The resources and expenses required to participate before the CPUC can be cost-prohibitive for public agencies and, unlike organizations that represent residential customers, public agencies are ineligible to receive reimbursement for participation before the CPUC.

In order to ensure that public agencies have a seat at the table before the CPUC, Best Best & Krieger LLP has formed a NEM Public Agency Coalition or “NEM PAC,” which public agencies may join as clients for a flat, fixed fee. The NEM PAC will gather and submit data regarding its renewable energy clients investments, such as expected payback periods, to ensure that the CPUC receives and considers such information in formulating its proposed grandfathering period.