Interconnection and Net Metering of Small Renewable Energy Generators in Texas: Final Report of the Texas RE-Connect Project

Transcription

1 Interconnection and Net Metering of Small Renewable Energy Generators in Texas: Final Report of the Texas RE-Connect Project Prepared by: The Texas Million Solar Roofs Partnership Managed by CSGServices, Inc., Austin, Texas Prepared for: Million Solar Roofs Project U.S. Department of Energy Under Contract #DE-FG48-03R Project Team: Steven M. Wiese, CSGServices, Inc. John E. Hoffner, PE, CSGServices, Inc. Erin Scott, CSGServices, Inc. Jane Pulaski, Interstate Renewable Energy Council Russel Smith, Texas Renewable Energy Industries Association

2 Executive Summary The Texas RE-Connect Project began in October 2003 as an effort of the Texas Million Solar Roofs Partnership (TMSRP), a voluntary collaborative consisting of Texas utilities, renewable energy companies, public advocacy organizations, renewable energy companies, and other renewable energy stakeholders. CSGServices, Inc., an Austin-based renewable energy consulting and project development firm and one of the TMSRP s founding members, served as the lead entity for the project. The Texas RE-Connect project concluded in April 2005 with the publication of this Final Report, yet the TMSRP will continue its engagement in activities that extend the project beyond its defined objectives, such as presenting findings and conclusions at industry conferences and other events, after the April 2005 completion date. Purpose The purpose of the Texas RE-Connect project was to gather, document, and share information on how Texas electric utilities handle requests to interconnect and net meter small renewable energy generating systems in the hope that such information-sharing would encourage more consistent approaches statewide. Scope The Texas RE-Connect project focused exclusively on the interconnection and net metering of small, distributed, renewable energy generating systems specifically, customer-sited, grid-connected wind or solar electric systems with nameplate capacities not larger than 10 kilowatts (kw). These systems are entirely integrated with and deliver energy on the customer s side of the electric meter, and are capable of feeding energy through the meter and onto the grid whenever the customer s production exceeds consumption. Typically, such systems are sized so that monthly (or annual) production rarely exceeds monthly (or annual) consumption. 1 We limited our scope to cover small renewable energy generating systems with key components (such as solar panels and inverters) that meet current IEEE operational and safety standards and that are tested to current Underwriters Laboratories testing protocols (i.e., they are UL-listed). We also limited our scope to systems that are installed by competent professionals in a manner compliant with the National Electric Code and applicable local codes. Objectives The Texas RE-Connect Project was undertaken with the following objectives: Document the status of Texas laws and regulations pertaining to the interconnection and net metering of small renewable energy generators prior to and since the state began restructuring the electricity industry in Describe how current laws and regulations apply to different types of electric utilities (municipals, rural electric cooperatives, vertically-integrated IOUs, retail electric suppliers, transportation and distribution utilities, etc.) now operating within the state. Identify current implementation practices, key issues and challenges faced by utilities when confronted with customers seeking to interconnect and/or net meter small renewable energy generating systems. Recommend best practices on issues where there seems to be a lack of consensus among utilities. Identify/circulate model interconnection and net metering tariff language. 1 While there are no technical barriers to building systems that are net exporters to the grid, there are economic barriers that discourage such installations. We are aware of no small renewable energy generating systems in Texas that have, on a net basis over a month or year, exported energy to the grid. Interconnection and Net Metering of Small Renewable Resources in Texas Final Report of the Texas RE-Connect Project Prepared by CSGServices, Inc., June 2005

3 Conduct outreach efforts to gather and foster peer-to-peer exchange of information (workshops, survey, report dissemination, presentations at conferences). Pursue the entire project through a non-confrontational, non-threatening process that seeks and results in the voluntary adoption of best practices. Methods The following methods were employed during the course of the Texas RE-Connect project: Legal/policy research, interviews with utility, regulatory, and national experts; Regional workshops; Surveys of municipal and cooperative utilities; Public presentations; Publication of results in paper and conference proceedings. Results and Accomplishments The following bullets describe some of what we accomplished during the course of the project. Published and circulated a white paper describing the evolution and current status of interconnection and net metering policies in Texas. Surveyed Texas municipal and cooperative utilities to learn whether, and if so, how, they were implementing interconnection and net metering for small renewable energy generating technologies. Published and circulated findings. Held workshops bringing together municipal, cooperative, and IOU utility personnel with regional and national experts on interconnection and net metering issues, renewable energy industry representatives, and interested stakeholders. Identified model tariffs, agreements, and other documents that can be used by utilities new to or revisiting interconnection and net metering issues. Presented findings at numerous conferences, including: o The 2004 annual conference of the American Solar Energy Society in Portland, Oregon; o The 2004 World Energy Engineering Congress in Austin, Texas; o The 2004 Texas Renewable Energy Congress in Austin, Texas; and, o Rural Alliance for Renewable Energy (RARE) events in Corpus Christi and Waco, Texas. Offered free technical assistance on interconnection, net metering and tariff-related issues to utilities, utility employees, and other stakeholders including New Braunfels Utilities, Pedernales Electric Cooperative, Kerrville Public Utilities Board, Austin Energy, and others. Key Findings Our work on the White Paper revealed that electric industry restructuring activities in Texas since 1997 have strengthened the right of most Texans to interconnect small renewable energy systems to the grid, but have weakened the right of most to net meter those systems. Nevertheless, required and voluntary actions by investor-owned utilities, large municipal utilities, and some rural electric cooperatives have had promise in preserving and extending these rights. Our work surveying municipal utilities and rural electric cooperatives revealed that customer requests for interconnecting and net metering small renewable energy systems are least common among the smallest rural electric cooperatives and all but the largest municipal utilities. And not surprisingly, these utilities are the least likely to have existing tariffs in place addressing the issue. When faced with a customer request, these utilities Interconnection and Net Metering of Small Renewable Resources in Texas Final Report of the Texas RE-Connect Project Prepared by CSGServices, Inc., June 2005

4 might be encountering the issue for the first time, and need quick and easy access to high-quality information covering the technical, legal, and implementation issues involved. On the other hand, medium- and large-sized rural electric cooperatives and the largest municipal utilities tended already to have tariffs covering interconnection and net metering of small renewable energy systems in place. Despite the existence of such tariffs, utilities still expressed considerable variation and confusion about how to actually implement interconnection and net metering for small renewable energy systems. Issues involved in implementation included: How to meter the customer (i.e., through true net metering versus dual metering); How to integrate net metered customers with automatic meter reading (AMR) and utility billing systems; Whether to require the customer to obtain liability insurance, and if so, in what amount; and many others. Our work developing Principles and seeking consensus on Model Tariffs, Agreements, and Other Documents revealed that utilities are unwilling to commit themselves to any standards or forms of agreement without a requirement to do so. This finding suggests the best strategy for moving forward, short of legislative or regulatory measures, may involve providing information resources to utilities on an as-needed basis and encouraging peer-to-peer exchange of information. Recommendations for Further Action The RE-Connect Team makes the following recommendations for further action. 1. As a next step, the Texas RE-Connect Principles document and model tariffs could be developed into an easy-to-use implementation kit that spells out the critical decisions to be made and provides model tariff documents and customer agreements. Both utilities and customers might benefit from the availability of shared rules creating clear expectations on both sides. 2. Utilities that already have some experience with interconnection and net metering might best be served through the development of a peer-to-peer continuing education forum that encourages information and experience sharing. Such a forum would likely be most effective if coordinated through the utilities statewide associations. 3. Texas utilities should consider voluntarily adopting the Principles for Interconnection and Net Metering of Small Renewable Energy Systems in Texas when offering to interconnect small renewable generators (less than 10 kw-ac). 4. Texas utilities should study and, where appropriate, use the model interconnect guidelines and standards by City Public Services in San Antonio and the City of Denton. These guidelines offer clear, fair rules and efficient procedures that protect the interests of both utilities and their customers. 5. Texas utilities should form a Distributed Generation Interconnection and Net Metering Collaborative Work Group to formally develop and adopt renewable distributed generation principals and standards for interconnection. The group should create a companion document to the existing technical DG interconnection guidelines to reflect the financial rights and responsibilities involved in net metered renewable generating resources. The goal should be to adopt general standards and guidelines by the end of Funding/Participation Statement The Texas RE-Connect project was made possible with funding from U.S. Department of Energy s Million Solar Roofs program, through the Texas Million Solar Roofs Partnership, with CSGServices, Inc. of Austin acting as the lead. Interconnection and Net Metering of Small Renewable Resources in Texas Final Report of the Texas RE-Connect Project Prepared by CSGServices, Inc., June 2005

5 Acknowledgements The Texas RE-Connect project team would like to acknowledge the following individuals and organizations for their assistance in completing this project: Chris Cook of E3 Energy Bill Brooks of Endecon Engineering Erin Scott, CSGServices intern Mark Zion of the he Texas Public Power Association (TPPA) and many of its member utilities Margie Bates of the US Department of Energy Numerous Texas rural electric cooperatives and municipal utilities Thank you for your help! Interconnection and Net Metering of Small Renewable Resources in Texas Final Report of the Texas RE-Connect Project Prepared by CSGServices, Inc., June 2005

6 Table of Contents Executive Summary Acknowledgements Table of Contents 1. Status of Interconnection and Net Metering in Texas 1 2. Survey of Municipal and Cooperative Utilities 2 3. Principles and Model Documents 3 Interconnection and Net Metering Principles 3 Model Tariffs, Agreements, and Implementation Documents 3 Other Model Efforts 3 Texas DG Guide 3 FERC Small Generator Interconnection Rules 3 Massachusetts DG Collaborative 4 4. Outreach Efforts Workshops and Public Presentations 5 Workshops 5 Workshop #1 5 Workshop #2 5 Public Presentations 6 Other Outreach Activities 6 5. Conclusions and Recommendations 8 Conclusions 8 Recommendations 8 Appendices Appendix A Texas Interconnection/Net Metering White Paper A-1 Appendix B PUCT Substantive Rules Related to Interconnection and Net Metering B-1 Appendix C Activities Affecting Development of Interconnection and Net Metering Policies C-1 Appendix D Survey of Texas Utilities Final Report D-1 Appendix E Principles Document E-1 Appendix F CPS Tariff Documents F-1 Interconnection and Net Metering of Small Renewable Resources in Texas Final Report of the Texas RE-Connect Project Prepared by CSGServices, Inc., June 2005

7 1. Status of Interconnection and Net Metering in Texas As part of the RE-Connect project, we drafted a White Paper briefing to lay out the current state of knowledge about Texas requirements on interconnection and net metering of small renewable energy systems. The White Paper was intended to educate, inform, and serve as a basis for discussion. It was revised throughout the project term to incorporate new ideas and information. Appendix A presents our analysis of the evolution and current status of interconnection and net metering policies in Texas. The white paper presented in the Appendix was first drafted in early 2004, but has undergone frequent revisions as we have learned more throughout the project. Appendix B contains references to Texas state utility commission rules that pertain to interconnection and net metering. Appendix C contains links and references to other work related to interconnection and net metering at the Texas state and national levels.

8 2. Survey of Municipal and Cooperative Utilities After we completed the White Paper, the project team realized that although we understood clearly the regulatory requirements interconnection and net metering, we did not well understand how, or even whether, many utilities were implementing such policies in the field. We decided that a survey of rural electric cooperatives and municipal utilities would allow us to gather baseline data on the different approaches taken by utilities with regard to interconnection and net metering of small renewable energy resources. Although the survey was not an original goal of the Texas RE-Connect project, the resulting information will prove invaluable to future efforts at standardizing practices in Texas. In addition, in the process of conducting the survey and sharing its results, we were able to communicate our efforts to nearly every municipal.and rural electric cooperative utility in the state. Appendix D presents the final survey report.

9 3. Principles and Model Documents Interconnection and Net Metering Principles At several meetings the advisory team for the Texas RE-Connect project discussed the need for a list of agreed-upon Principles that should be considered when utilities and distribution companies develop and implement interconnection and net metering guidelines for small renewable generators. The intent of the Principles document was to establish common understanding of what terms should be incorporated into utility guidelines that would comply with applicable law and rules, be objective and consistent in the treatment of renewable generation technologies, reflect the current state of renewable energy generation technologies, and protect the safety of the grid and consumers. Six principles were drafted by Texas RE-Connect staff and discussed with the Core Collaborative Group (CCG, the Texas RE-Connect project s steering committee) at two of the general meetings. The CCG, which included utility members, did not wish to officially endorse or approve the list of Principles. Therefore, the Principles document is presented here as having been discussed by the CCG and incorporating their feedback. However, the Texas Million Solar Roofs Partnership recommends that the Principles be adopted by utilities and other stakeholders throughout Texas. Appendix E presents the Principles document. Model Tariffs, Agreements, and Implementation Documents Texas RE-Connect staff members examined and reviewed interconnect standards and guidelines of municipal utilities and electric cooperatives throughout Texas. Most of the guidelines were received directly from members of the CCG or through the phone survey process. Using the list of Principles as a guideline for selecting model documents, it was determined that City Public Service (CPS) in San Antonio and the City of Denton had adopted exemplary interconnection tariffs, guidelines and standards for small renewable generators. The CPS and Denton guidelines and procedures are relatively simple yet comprehensive, and could easily be adopted and implemented by other utilities. The CPS tariff is shown in Appendix F. (The City of Denton s tariff was not available electronically. A copy is on file with CSGServices in Austin.) Other Model Efforts Texas DG Guide The Public Utility Commission of Texas (PUCT) prepared this manual to guide the inclusion of distributed generation into the Texas electric system. It is intended for use by utility engineers processing distributed generation interconnection applications, as well as those persons considering or proposing the interconnection of distributed generation with a transmission and distribution utility (TDU). While the manual specifies technical requirements and processes that are legally applicable only to utilities regulated by the Commission, it serves as a useful platform for development of equivalent requirements and processes for all utilities in Texas. The Texas Distributed Generation Interconnection Manual can be obtained at this web site: FERC Small Generator Interconnection Rules In May 2005 the Federal Energy Regulatory Commission issued rules establishing standard procedures for the interconnection of generators no larger than 20 megawatts a move that removes barriers to the development of needed infrastructure by reducing interconnection uncertainty, time and costs. The FERC ruling contains streamlined procedures for inverter-based generators with a generating capacity of less than 10 kw. While Texas ERCOT utilities are outside FERC s jurisdiction, the FERC rule provides an excellent example of the direction small generator interconnection is taking at the national level.

10 FERC s Small Generator Interconnection Rule is available here: Massachusetts DG Collaborative The State of Massachusetts implemented an aggressive process to develop and implement comprehensive distributed renewable generation rules. The process was conducted through a collaboration of industry, utilities, government agencies and end-users called the DG Collaborative, and resulted in a statewide model tariffs for connecting distributed generators to the grid. Each utility in Massachusetts has now adopted the model agreement (with modifications where necessary and appropriate) AND is implementing the standards with their customers. Texas RE-Connect staff have reviewed the model agreement and the DG Collaborative process and recommends that a similar process be undertaken in Texas. The goal would be to develop voluntary, or if necessary mandatory, interconnect guidelines and standards that would promote consistency among interconnection and net metering implementation by all utilities in Texas. Consistent, safe standards would encourage more production of energy from distributed renewable generators and help the State of Texas meet its goals for renewable energy as established by the Legislature. Information on the DG collaborative can be obtained at the web site: collab_overview.htm)

11 4. Outreach Efforts Workshops and Public Presentations Workshops We held two workshops on interconnecting and net metering small renewable energy systems. Workshop #1 The first workshop was held in Austin in January The daylong workshop attracted 15 participants representing utilities, industry, advocacy groups, and other stakeholders. The following presentations were delivered: John Hoffner introduced everyone and established goals and an agenda. Russel Smith provided a historical overview of net metering in Texas. Steve Wiese described the current status of interconnection and net metering rules in Texas since restructuring. His presentation is included in Appendix G. Representatives of City Public Service of San Antonio described their processes for interconnecting and net metering small solar generators. Their presentation is included in Appendix G. Chris Cook discussed technical aspects of interconnection and net metering. His presentation is included in Appendix G. Chuck Wright gave his perspective as a system owner who had recently interconnected with Oncor. His presentation appears in Appendix G. Bluebonnet Electric Cooperative also described how it is implementing net metering. Complete notes from the workshop are presented here: \\WBDCAUS2K\ shared_projects\adva Workshop #2 Our second workshop was also held in Austin in July 2004 and attracted 17 participants. Bill Brooks of Endecon Engineering presented about utility safety issues with small interconnected renewables. His presentation is in Appendix G. Complete notes from the meeting are presented here: \\WBDCAUS2K\ shared_projects\adva Public Presentations We made a number of public presentations, many of which are included here: Steve Wiese presented to about 120 attendees and solicited input on the process and project at NRECA conference in Austin in March The presentation is included in Appendix G.

12 Steve Wiese delivered the Texas net metering paper and presentation at ASES in Portland in July. Jane Pulaski moderated the panel and Steve Wiese presented findings from these efforts in Texas. Committed to making a presentation on net metering/interconnection during September meeting of the Texas Rural Alliance for Renewable Energy in Corpus Christi. His presentation is in Appendix G. John Hoffner made a presentation about the Texas net metering project at the World Energy Engineering Congress meeting on September 22. Steve Wiese delivered the Texas net metering paper and presentation at First Annual Texas Clean Energy Congress meeting in Austin, TX. Other Outreach Activities Texas RE-Connect project team members also worked with various Texas utilities to supply current information on interconnection and net metering on an as-needed basis: Project team leaders John Hoffner and Russel Smith visited with the head of the Kerrville Public Utilities Board, which has been involved in a net metering dispute with a customer for several years. In the private meeting, KPUB s director agreed that his technical concerns over small PV systems were invalid, and agreed that KPUB could proceed to develop a tariff to cover very small interconnected PV systems (<10kW). Hoffner made follow-up phone calls to other members of the KPUB board of directors after the meeting, and felt that it was unlikely KPUB would bother to create a PV tariff, even though there is strong support among board members and director had agreed that he would have no objections to doing so. On a separate occasion, Steve Wiese met with a representative of Pedernales Electric Cooperative, the nation s largest electric cooperative, to exchange information, findings, and discuss strategies for the coop. Steve Wiese and John Hoffner provided technical support to Austin Energy in establishing its interconnection requirements for solar generators as part of Austin Energy s solar rebate program. The project team provided support to a solar energy installer who was working with New Braunfels Utilities to encourage adoption of an interconnection and net metering tariff.

13 5. Conclusions and Recommendations Conclusions Our work on the White Paper revealed that electric industry restructuring activities in Texas since 1997 have strengthened the right of most Texans to interconnect small renewable energy systems to the grid, but have weakened the right of most to net meter those systems. Nevertheless, required and voluntary actions by investor-owned utilities, large municipal utilities, and some rural electric cooperatives have had promise in preserving and extending these rights. Our work surveying municipal utilities and rural electric cooperatives revealed that customer requests for interconnecting and net metering small renewable energy systems are least common among the smallest rural electric cooperatives and all but the largest municipal utilities. And not surprisingly, these utilities are the least likely to have existing tariffs in place addressing the issue. When faced with a customer request, these utilities might be encountering the issue for the first time, and need quick and easy access to high-quality information covering the technical, legal, and implementation issues involved. On the other hand, medium- and large-sized rural electric cooperatives and the largest municipal utilities tended already to have tariffs covering interconnection and net metering of small renewable energy systems in place. Despite the existence of such tariffs, utilities still expressed considerable variation and confusion about how to actually implement interconnection and net metering for small renewable energy systems. Issues involved in implementation included: How to meter the customer (i.e., through true net metering versus dual metering); How to integrate net metered customers with automatic meter reading (AMR) and utility billing systems; Whether to require the customer to obtain liability insurance, and if so, in what amount; and many others. Our work developing Principles and seeking consensus on Model Tariffs, Agreements, and Other Documents revealed that utilities are unwilling to commit themselves to any standards or forms of agreement without a requirement to do so. This finding suggests the best strategy for moving forward, short of legislative or regulatory measures, may involve providing information resources to utilities on an as-needed basis and encouraging peer-to-peer exchange of information. Recommendations for Further Action The RE-Connect Team makes the following recommendations for further action. 1. As a next step, the Texas RE-Connect Principles document and model tariffs could be developed into an easy-to-use implementation kit that spells out the critical decisions to be made and provides model tariff documents and customer agreements. Both utilities and customers might benefit from the availability of shared rules creating clear expectations on both sides. 2. Utilities that already have some experience with interconnection and net metering might best be served through the development of a peer-to-peer continuing education forum that encourages information and experience sharing. Such a forum would likely be most effective if coordinated through the utilities statewide associations. 3. Texas utilities should consider voluntarily adopting the Principles for Interconnection and Net Metering of Small Renewable Energy Systems in Texas when offering to interconnect small renewable generators (less than 10 kw-ac).

14 4. Texas utilities should study and, where appropriate, use the model interconnect guidelines and standards by City Public Services in San Antonio and the City of Denton. These guidelines offer clear, fair rules and efficient procedures that protect the interests of both utilities and their customers. 5. Texas utilities should form a Distributed Generation Interconnection and Net Metering Collaborative Work Group to formally develop and adopt renewable distributed generation principals and standards for interconnection. The group should create a companion document to the existing technical DG interconnection guidelines to reflect the financial rights and responsibilities involved in net metered renewable generating resources. The goal should be to adopt general standards and guidelines by the end of 2006.

15 Appendices

16 Appendix A: Texas Interconnection/Net Metering White Paper

17 Interconnection and Net Metering of Small Renewable Energy Systems in Texas A White Paper of the Texas RE-Connect project * The Texas RE-Connect Team, Final Draft, June 2005 Background Texas was one of the first states in the nation to recognize the right of electricity customers to interconnect small generation to the electric distribution system with a single, bidirectional meter, and to receive compensation for the electricity they supplied to the grid. Texas net metering rule, 2 approved by the Public Utility Commission of Texas (PUCT) in 1985 (and amended thereafter), originally applied to the state s investor-owned utilities and rural electric cooperatives, both of which were regulated by the PUCT. The rule required interconnection and net metering of on-site renewable generators under 50 kw with a single meter that runs forward and backward, effectively enabling these resources to earn a retail price for energy production that offset on-site consumption, and a lower, wholesale price for Definitions Interconnection The right of an electricity customer to physically interconnect an onsite generating system to an electricity distribution system, and the technical requirements, rules and/or processes by which that interconnection is to be made. Net Metering The right of an owner of an on-site generating system to be compensated for energy generated by that system, whether used on-site or exported to the electricity distribution system, and the rules and/or procedures which govern this financial relationship. excess energy exported to the grid. And although municipal utilities and river authorities were exempt from the rule, the 1990s witnessed progress statewide as many utilities, regulated and unregulated, developed innovative net metering programs of their own. Effects of Restructuring Electric utility industry restructuring legislation enacted by the Texas Legislature in 1999 aimed to preserve this progress, stating: A customer is entitled to have access to on-site distributed generation. 3 The legislation de-integrated the state s largest investor-owned electric utilities into new and distinct entities - retail electric providers (REPs), transmission and distribution companies, and generation companies to which application of the existing net metering rule was uncertain. The task of sorting out this uncertainty while creating a competitive marketplace for energy lead to four main outcomes for interconnection and net metering: On the positive side, the restructuring process spurred development of new and revised rules regarding the interconnection and parallel operation of on-site distributed generation (DG). 4 These rules strengthened the right to interconnect and streamlined the process for interconnecting small generating systems to the grid for utilities still under PUCT jurisdiction. * The Texas RE-Connect project is an effort of the Texas Million Solar Roofs Partnership, whose members include electric utilities, energy services companies, non-profit organizations, renewable energy companies, and individuals. It is funded by the U.S. Department of Energy s Million Solar Roofs program under contract #DE-FG48-03R and managed by CSGServices, Inc., a national energy services company and an affiliate of Conservation Services Group (CSG 2 PUCT Substantive Rule Arrangements Between Qualifying Facilities and Electric Utilities. 3 PURA (b)(3), Texas legislative session 76(R), enrolled version, available at accessed 1/8/ PUCT Substantive Rule Interconnection of On-Site Distributed Generation (DG) and Technical Requirements for Interconnection and Parallel Operation of On-Site Distributed Generation. Texas RE-Connect A-1 CSGServices, Inc.

18 On the negative side, the net metering rule revisions weakened existing customer protections by exempting the state s largest utilities 5 from having to pay for any energy supplied to the grid by small generators (less than 100 kw), whether fueled by a renewable energy source or not, and by putting an expiration date of 2007 on required purchases from larger generators. 6 The net metering rule revisions also failed to maintain the requirement for a single meter that spins forward and backward for small (less than 50 kw) renewable energy systems connected to the state s newly competitive investor-owned utilities. 7 The removal of this requirement allows these utilities to impose metering conditions that could prevent small renewable generators from earning retail prices for the portion of their generation that offsets on-site energy consumption. They also open the door for utilities to impose additional metering fees including one-time fees for installing a second meter and recurring fees for reading that meter that were not applicable under the old rule. Such conditions and fees can entirely eliminate the economic benefits small renewable generators had been able to capture under the previous rule. Finally, restructuring legislation exempted rural electric cooperatives from PUCT jurisdiction outright, meaning the existing net metering rule, and the newly strengthened interconnection rules, no longer applied to them. In sum, as Figure 1 shows, the process of restructuring Texas retail electricity markets strengthened the right to interconnect small renewable energy systems to the grid for about 80% of Texans (those served by investorowned utilities inside and outside ERCOT), but eliminated interconnection rights for about 10% of Texans (those served by rural electric cooperatives). Restructuring also weakened or eliminated the right to net meter these resources for about 70% of Texans (those served by investor-owned utilities inside ERCOT and rural electric cooperatives). Issue Importance Small-scale, customer-sited renewable energy generating systems today make up only a tiny fraction of total grid-connected generating capacity, both in Texas and nationally. However, a number of factors are working to increase their contribution, including declining costs, 8 improving efficiency, 9 the introduction of renewable energy credit markets, 10 and favorable new policies like renewable portfolio standards. 11 Add to this the long-standing 5 This refers to all of the formerly-integrated investor-owned utilities that operate within the ERCOT region, including the operating companies of TXU, Reliant, and American Electric Power. 6 PUCT Substantive Rule The net metering requirement applies to retail electric providers with a price-to-beat obligation, or PTB- REPs. When the price-to-beat obligation expires in 2007, PTB-REPs will cease to exist, and the requirement to net meter will no longer apply to these utilities. 7 The requirement for a single meter that runs forward and backward still applies to investor-owned utilities outside ERCOT that have not entered the competitive retail marketplace, however. 8 Paul Maycock, The State of the PV Market, Solar Today, January/February Actual prices of PV modules declined more than 22 percent between 1990 and 2000, from $4.50/watt to $3.50/watt. An industry survey in 2002 showed an additional decline in price to $3.25/watt. 9 Ibid. Efficiency of the most common type of production PV modules (single crystal silicon) increased from percent in 2000 to percent By 2010, production module efficiency is forecast to increase to 22 percent. 10 Renewable energy credits, or RECs, are tradable certificates that represent the environmental attributes of energy produced. Each REC embodies the unique characteristics of a unit of energy provided to the grid, such as the amount of pollutants emitted into the air in its production. The value of a REC trading in a free market can serve as a proxy for the market value of cleaner air or a cleaner environment. To the extent these attributes are positively valued, their sale can provide an additional source of revenue to renewable energy generators. 11 A renewable portfolio standard (RPS) is a requirement for retail energy suppliers to source some portion of the total amount of energy they sell from qualified renewable generators. Texas RPS, enacted by the legislature in 1999, phases in purchase requirements with the goal of adding 2,000 MW of new renewable energy generating capacity in the state by Texas RE-Connect A-2 CSGServices, Inc.

19 support for small-scale renewable energy technologies expressed at both the state and federal levels, 12 and the market for small-scale renewable energy systems seems poised to grow in the next decade and beyond. One forecast predicts sales of residential- and commercial-scale solar electric systems (systems with capacity less than 100 kw) to experience a seven-fold increase worldwide between 2002 and However, this market growth may not be realized unless barriers to development of the industry are removed. Renewable energy industry representatives argue that consistent application of interconnection and net metering rules, procedures, and agreements throughout a large geographic region statewide or nationally is a necessary precursor to full development of their industry. Industry representatives point to the existence of long-standing standards ensuring safe operation of small renewable energy systems 14 and a flawless safety record 15 as evidence of the industry s technical maturity, and they argue that widely varying utility policies on interconnection and net metering are evidence the policies arbitrary nature. They argue that these policies pose a barrier to an industry that promises to provide new jobs, cleaner air, and a more reliable electric system for all Texans. Voluntary Measures Taking Hold Despite the lack of legislative or regulatory clarity on the issues, Texas has witnessed considerable progress by rural electric cooperatives, municipal utilities, and investor-owned utilities on a voluntary basis. For example, the state s two largest municipal utilities, Austin Energy and City Public Service of San Antonio, have adopted interconnection and net metering policies that are friendly to small. These policies generally allow interconnection and parallel operation of UL-listed equipment installed in accordance with the National Electric Code and local codes. If the equipment meets listed requirements and passes local inspections, it is allowed to interconnect. Both cities also allow these systems to be net metered with a single meter, essentially treating the interconnected system as Options for Resolving the Issue This section presents an overview of options for resolving interconnection and net metering problems facing small renewable energy generators in Texas. Voluntary, regulatory, and legislative options are considered. Voluntary Options Work with stakeholders statewide to develop voluntary, consistent interconnection and net metering standards. Voluntary options would be the most effective means for reaching municipal utilities and rural electric cooperatives, since these utilities are exempt from state regulation. Specifically, work to provide the following: 1. Promote efforts to educate and inform utility personnel with facts and information about interconnection and net metering. 12 Texas laws and regulatory policies contain a franchise tax deduction for solar energy devices (1981), a franchise tax exemption for companies that manufacture them (1981), a property tax exemption for solar and wind energy systems (1981), a net metering rule (1985), and distributed generator interconnection rules (2002), among other provisions. Federal law recognizes the right of small generators to interconnect with the grid and to be paid a utility s avoided cost for energy supplied to the grid in the Public Utility Regulatory Policy Act (1978). Despite these protections, most Texas electric consumers today do not in fact have a meaningful right to both interconnect and net meter small renewable energy generating systems. 13 Paul Maycock, The State of the PV Market, Solar Today, January/February Virtually all PV modules, small wind turbines, and inverters sold in the U.S. market carry a UL listing, meaning they have been tested and determined to meet the technical requirements for safe operation as defined by IEEE standards. 15 In thousands of pages of testimony delivered to the Federal Energy Regulatory Commission (FERC) on its proposed standards governing small generator interconnection in , not one respondent cited even a single case in which the interconnection and parallel operation of a small renewable energy system caused damage to the local distribution system or resulted in an injury to utility line workers (see FERC Docket No. RM ). Texas RE-Connect A-3 CSGServices, Inc.

20 2. Consolidate high-level agreement among stakeholders on principles related to interconnection and net metering of small renewable resources. Also, create a checklist that can be used to evaluate whether utility net metering programs conform to these principles. 3. Create a library of model interconnection and net metering processes, rules, tariffs, and agreements, and make this library widely available. 4. Encourage adoption of model language by utilities throughout the state. In fact, voluntary measures have already shown promise among all utilities in Texas. After restructuring, for example, Texas investor-owned distribution utilities within ERCOT were no longer covered by the net metering rule, yet in implementing interconnection guidelines for distributed generation resources, most of these utilities have embraced net metering as a standard operating practice for small generators. State Regulatory Options For entities of the state under PUCT jurisdiction, work to amend language in the Texas distributed generation and net metering rules. Specifically, work to address these issues: 1. Amend the net metering rule to reapply the requirement that renewable energy systems less than 50 kw be interconnected through a single meter that spins forward and backward to all TDUs under PUCT jurisdiction. 2. Amend the net metering rule to maintain the net metering obligations of PTB-REPs after the PTB rate freeze period expires in Amend the net metering rule to eliminate the requirement that utilities or REPs purchase excess energy from small renewable energy systems at avoided cost. This would simplify the process of net metering from a utility billing standpoint while encouraging small renewable energy systems to be built at a scale that would only offset on-site consumption. State Legislative Options For all areas of the state, work with the Texas Legislature to ensure the rights to interconnect and net meter small renewable energy systems. Specifically: 1. Reestablish the right of owners of small renewable energy systems to connect to the distribution system with a single meter that spins forward and backward. 2. Ensure that this right is applied to all utilities in the state, not just those regulated by the PUCT. The Texas RE-Connect Project The Texas RE-Connect project aims to promote consistency in utility interconnection and net metering policies affecting small renewable energy resources in Texas through a voluntary process involving utilities, the renewable energy industry, and other interested stakeholders. The Texas RE-Connect Project is and effort of the Texas Million Solar Roofs Partnership, funded by the U.S. Department of Energy. Texas RE-Connect A-4 CSGServices, Inc.

21 Figure 1. Effect of Restructuring on Interconnection and Net Metering of Small Renewable Resources in Texas Type of Utility Before Restructuring After Restructuring Investor-Owned Utility Companies Outside ERCOT 16 Serve ~20% of Texans Examples: AEP-SWEPCO, El Paso Electric Co., Entergy Texas, and Xcel Energy. Investor-Owned Utility Companies Inside ERCOT Serve ~60% of Texans Examples prior to restructuring: AEP Central Power & Light (CP&L), AEP West Texas Utilities (WTU), Texas Utilities Electric (TXU), Houston Light & Power (Reliant), Texas-New Mexico Power Co. Examples after restructuring: TDUs 18 include AEP Texas North, AEP Texas Central, CenterPoint Energy, Oncor, and Texas- New Mexico Power Co. PTB REPs 19 include TXU, Reliant, AEP. Interconnection: Customer right to interconnect up to 50 kw 17 renewable energy system with single, bi-directional meter. Net Metering: Requirement for single, bi-directional meter means customer is entitled to earn retail price for energy produced up to the amount consumed on-site, wholesale price for excess energy exported to the grid. Interconnection: Same as above. Net Metering: Same as above. Interconnection: Maintains previous rights. Process for interconnection is more clearly defined and streamlined through new interconnection rule. Net Metering: No change. Interconnection: Interconnection obligation now falls on the affiliated distribution company (TDU). Process for interconnection is more clearly defined and streamlined, but requirement for a single, bi-directional meter no longer applies. Net Metering: Net metering obligation for systems larger than 100 kw now falls on affiliated PTB REP and expires after No obligation to net meter any systems under 100 kw. Provision for single, bi-directional meter no longer applies, meaning customer s ability to earn retail price for energy produced up to the amount consumed on-site is at the discretion of each utility. 16 Defined as electric utilities under PURA, they are the remaining integrated utilities operating in Texas. They are all located outside the ERCOT footprint. PURA 25.5 (41). 17 PURA (h). 18 TDUs include the distribution arms of formerly integrated utility companies. PURA 25.5 (139). 19 PTB REPs are retail electric providers with a price-to-beat obligation established under the Texas restructuring legislation. These are the retail arms of the formerly integrated utility companies. They are all located within the ERCOT footprint. Their price-to-beat obligation will expire in 2007, meaning the net metering rule will no longer apply to them after that time. PURA 25.5 (87) and (115). Texas RE-Connect A-5 CSGServices, Inc.

22 Figure 1. Effect of Restructuring on Interconnection and Net Metering of Small Renewable Resources in Texas (continued) Type of Utility Before Restructuring After Restructuring Rural Electric Cooperatives Serve ~10% of Texans Examples: There are over 70 rural electric cooperatives in Texas. Other Utilities (Municipals, River Authorities, etc.) Serve ~10% of Texans Interconnection: Same as above. Net Metering: Same as above. Interconnection and Net Metering: No state regulatory obligation to interconnect or net meter. Policies are at the discretion of each utility. Interconnection: No state regulatory obligation to interconnect. Interconnection is at the discretion of each utility. Net Metering: No state regulatory obligation to net meter. Net metering is at the discretion of individual utilities. Interconnection and Net Metering: No change. Examples: There are over 70 municipal utilities in Texas, the largest of which are City Public Service of San Antonio and Austin Energy. Texas RE-Connect A-6 CSGServices, Inc.

23 Appendix B: PUCT Substantive Rules Related to Interconnection and Net Metering

24 PUCT Substantive Rules Related to Interconnection and Net Metering A Resource of the Texas RE-Connect project * The Texas RE-Connect Teams, Final Draft, June 2005 CHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS Subchapter I. Transmission and Distribution DIVISION 2. TRANSMISSION AND DISTRIBUTION APPLICABLE TO ALL ELECTRIC UTILITIES Interconnection of On-Site Distributed Generation (DG) \\WBDCAUS2K\ shared_projects\adva Technical requirements for Interconnection and Parallel Operation of On-Site Distributed Generation \\WBDCAUS2K\ shared_projects\adva Subchapter J. COSTS, RATES AND TARIFFS DIVISION 1. RETAIL TARIFFS Arrangements Between Qualifying Facilities and Electric Utilities \\WBDCAUS2K\ shared_projects\adva * The Texas RE-Connect project is an effort of the Texas Million Solar Roofs Partnership, whose members include electric utilities, energy services companies, non-profit organizations, renewable energy companies, and individuals. It is funded by the U.S. Department of Energy s Million Solar Roofs program under contract #DE-FG48-03R and managed by CSGServices, Inc., a national energy services company and an affiliate of Conservation Services Group (CSG Texas RE-Connect B-1 CSGServices, Inc.

25 Appendix C: Activities Affecting Development of Interconnection and Net Metering Policies

26 Activities Affecting Development of Interconnection and Net Metering Policies A Resource of the Texas RE-Connect project * The Texas RE-Connect Teams, Final Draft, June 2005 This Appendix outlines activities currently taking place at the state, regional, and/or national levels that may affect the future of interconnection and net metering practices in Texas. Activities in Texas o Activities by Municipal Utilities Austin Energy. Austin Energy announced in December 2003 plans to achieve 100 MW of solar photovoltaics over the next 15 years. Link: ates/index.htm. City Public Service (of San Antonio) initiated a net metering program for small renewable energy systems in Link: o Activities by Coops Several rural electric cooperatives have tariffs that allow interconnection and net metering of small renewable energy generating systems. Typically, these tariffs require installation of a second meter to record generation and the use of a non-detent meter to record consumption. o Activities by Investor-Owned Utiltiies ONCOR TXU s distribution company has a tariff that allows interconnection and net metering. o Public Utility Commission of Texas Distributed Generation Interconnection Manual. Link: o Texas State Energy Conservation Office (SECO) SECO s Renewable Energy Demonstration Program funds installation of small renewable energy systems for educational and demonstration purposes. Link: o Rural Alliance for Renewable Energy (RARE) A group formed in 2003, it aims to bring rural stakeholders together to promote development of renewable energy resources as an economic development opportunity. Link: National Standards Development o IEEE 1547 Interconnection Standard. Adoption of the IEEE 1547 Standard for Interconnecting Distributed Resources with Electric Power Systems in 2003 culminated several years of work by over 350 participants. It is likely to be referenced for years to come in federal legislation and rulemaking, state PUC deliberations, and by more than 3,000 utilities in formulating technical * The Texas RE-Connect project is an effort of the Texas Million Solar Roofs Partnership, whose members include electric utilities, energy services companies, non-profit organizations, renewable energy companies, and individuals. It is funded by the U.S. Department of Energy s Million Solar Roofs program under contract #DE-FG48-03R and managed by CSGServices, Inc., a national energy services company and an affiliate of Conservation Services Group (CSG Texas RE-Connect C-1 CSGServices, Inc.