California SB 1399 Proposes to Expand Renewable Energy Opportunities for Non-Residential Customers

Mar 23 2018

Introduced in February by State Senator Scott Wiener (D-San Francisco), California Senate Bill (“SB”) 1399 would create a new program in which non-residential customers could facilitate the development of off-site renewable energy projects of up to 20 megawatts (“MW”) to satisfy their energy needs.

Traditionally, California’s “over the fence” rule limits distributed solar producers to selling power directly to two or fewer properties and only if such properties are located immediately adjacent to the property where the power is produced. [1] These restrictions, along with California’s net metering tariffs, have historically deterred property owners from installing distributed energy generation beyond what is necessary to service their on-site electricity needs. Properties with little electricity demand but large generating potential (like warehouses or parking lots) are therefore provided little incentive to invest in on-site solar projects without a willing (and often large) buyer.

SB 1399 aims to address these historical limitations by expanding access to renewable energy projects by allowing businesses, schools, nonprofits, and municipalities to partner with already developed or underused sites with high renewable energy potential, including universities, ports, parking lots, commercial properties, warehouses, and brownfields. In its current form, implementing SB 1399 would require each of California’s three large investor-owned utilities (San Diego Gas & Electric (“SDG&E”), Southern California Edison (“SCE”), and Pacific Gas & Electric (“PG&E”), collectively “IOUs”) to establish a tariff providing bill credits for non-residential customers who get electricity from their neighbors’ behind-the-meter renewable energy projects—essentially extending net metering benefits to non-residential customers without on-site solar. SB 1399 is the latest in a series of legislative efforts to promote local generation and consumption of renewable energy, and its success could depend on avoiding some of the issues plaguing California’s Green Tariff Shared Renewables program under SB 43.

Difficulties With Previous Off-Site Renewable Energy Programs
For a variety of reasons, many California ratepayers cannot own or lease a solar array to generate their own electricity or export it back to the grid. For example, a condominium owner or a renter may not control the rights to their roof, or a homeowner may be precluded from installing panels because their roof is shaded by a large tree. California’s IOUs have implemented programs, such as the Green Tariff Shared Renewables program and the Renewable Energy Self-Generation Bill Credit Transfer (“RES-BCT”) program, to promote the benefits of distributed generation and overcome such challenges. Those programs, however, have enjoyed mixed results.

In 2009, California legislatures established the RES-BCT program (formerly Assembly Bill (“AB”) 2466 and modified by AB 1031 and AB 512) allowing local governments and universities with renewable generating facilities to export energy to the grid and receive credits to benefitting accounts of the same local government or university. The program allows local governments and universities to build systems up to five (5) MWs and apply the net metering credits across multiple meters, making renewable energy investments more cost effective for large government or university campuses. Across all the IOUs, the program currently has at least 100 MWs interconnected or in the midst of the interconnection process.

Another attempt to spur renewable and distributed generation, California’s Green Tariff Shared Renewable program, allows residential and non-residential customers to procure up to 100 percent of their energy needs through off-site solar generation under two options:

Green Tariff. SB 43 required each California IOU to develop a tariff allowing customers to buy 50 percent or 100 percent of their energy demands through renewable energy from the IOU above and beyond the IOU’s Renewable Portfolio Standard obligation. Ratepayers usually purchase this “extra” renewable power at a modest premium; for example, SCE’s “Green Rate” tariff offers energy costs at an estimated 3.8 cents higher for each kilowatt hour (“kWh”) of usage for residences, 3.20 cents more per kWh for eligible small businesses, and from 3.62 cents to 5.23 cents per kWh more for all other business customers depending on their rate schedule.
Enhanced Community Renewables (“ECR”). The ECR Program is a community solar model that allows customers to enter into agreements directly with third-party project developers to purchase local renewable energy generated off-site. Before receiving IOU approval, a project developer must show a minimum number of subscribed customers and meet other marketing requirements. After the project is operational, subscribed customers receive a credit on their utility bill reflecting their enrollment level.

Both the Green Tariff and ECR program under SB 43 have faced headwinds in certain parts of the state due to the burdens associated with developing and purchasing power under non-traditional arrangements. In December 2017, SCE asked the California Public Utilities Commission (“CPUC”) for permission to terminate its Green Tariff program, stating that the low ratepayer enrollment did not justify the high marketing, education, and outreach customer acquisition costs. While PG&E and SDG&E are moving forward with Green Tariff, both have sought a variety of changes they believe could spur greater interest in their respective programs.

The ECR Program has fared worse, with neither SCE, PG&E, nor SDG&E approving a single community solar ECR project in their service territories. The primary legal issue facing ECR developers is the CPUC’s marketing requirements meant to ensure compliance with state and federal securities regulations. Depending on a developer’s customer acquisition strategy, the U.S. Securities and Exchange Commission (“SEC”) could potentially classify a subscription, benefit, or ownership interest in a community solar project as a security. A major obstacle has been the CPUC’s requirement that developers provide a legal opinion on the applicability of securities registration and other consumer protection requirements before a project can be approved.

SB 1399 — A Fresh Approach?
SB 1399 offers a fresh attempt to simplify the process and requirements for non-residential customers to access off-site distributed renewable resources. It potentially provides new incentives for distributed solar to be developed on underused sites, allowing more electricity to be generated and consumed locally, which could result in a more resilient and reliable distribution grid. By requiring each IOU to implement SB 1399 through a CPUC-approved tariff, however, it is not difficult to imagine the shared renewable energy tariffs being subject to similar administrative burdens of the Green Tariff Shared Renewable program, including SEC-related concerns.

While SB 1399 remains in committee, utilities, property owners, developers, and energy consumers should try to anticipate issues early in the legislative process to fully address the concerns that have plagued earlier distributed generation efforts. Familiarity with the types of business models, contract structures, and an analysis of active projects can help companies and counsel provide input on legislative and administrative solutions. The best version of SB 1399 could allow utilities, developers, and ratepayers to structure transactions to secure low-cost energy, meet economic objectives, and further California’s progressive environmental and carbon reduction goals. K&L Gates attorneys will continue tracking the bill’s progress, so stay tuned.

Notes:
[1] Cal. Pub. Utilities Code §§ 218, 2868.