Docket No VIRTUAL NET METERING PROGRAM PROCESS AND SPECIFICIATIONS

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1 Docket No VIRTUAL NET METERING PROGRAM PROCESS AND SPECIFICIATIONS Order No. 1: Report to the Public Utilities Regulatory Authority on Resolution of Common Technical Issues Dated April 16, 2012 Overview Order No. 1 of the Public Utilities Regulatory Authority s (Authority)Decision in Docket No dated February 1, 2012 requires that docket participants form a working group (WG) to develop a collaborative agreement for the resolution of the common technical issues regarding the Virtual Net Metering (VNM) program identified during the proceeding in this docket. The Order also requires that the WG submit a progress report by April 16, that lists the issues identified by the participants, their proposed resolution and revised VNM Riders with a proposed effective date. Subsequently a WG was formed by docket participants to identify and pursue resolution of these issues. The WG held several meetings and developed the following report on its progress toward resolution of those issues. In conjunction with this report, proposed revised VNM Riders that incorporate changes and a proposed effective date as ordered in the Decision are being submitted via separate correspondence by The Connecticut Light and Power Company (CL&P) and the United Illuminating Company (UI) (collectively, the EDCs). Executive Summary Following receipt of the Decision, CL&P and UI representatives conducted a working session and subsequently invited all docket participants to form a WG to address technical issues associated with the VNM program. WG participants conducted technical conferences on March 5, 12 and 19, 2012 to identify and discuss issues, provide and collaborate on the development of details regarding VNM program specifications and implementation, and establish which issues are either resolved or remain open from a WG perspective. The following table provides a listing of the issues identified by the WG in these conferences, grouped on the basis of whether consensus was reached or the issue remains open. As shown in the table, the WG identified a total of 11 issues and reached consensus on seven of these 1 This date was established by the Authority in granting a request submitted by The Connecticut Light and Power Company to extend the report submittal date of April 2, 2012 ordered in the Decision. 1 P a g e

2 issues while four issues remain open. Details of the WG s discussions to address each issue are provided below. Consensus Reached Virtual Net Metering Work Group Issues Availability and Applicability o Municipal Customer Accounts and Generation Ownership o Eligibility of Existing Customer Facilities VNM Credit Calculation and Allocation o Calculation of Assigned VNM Credits o Calculation of Unassigned VNM Credits o Allocation of VNM Credits EDC Cost Recovery o Recovery of VNM Credit Costs Supplier Load Settlement vs. Retail Billing Determinants o Settlement Obligations and Retail Billing of Beneficial Accounts Open Issues Qualifying for VNM o Queuing Application of VNM Cap o Assignment of Individual Customer Caps o Options Once An Individual Customer Cap Is Reached Supplier Load Settlement vs. Retail Billing Determinants o Settlement Obligations and Retail Billing of Customer Host Account Issues Addressed by the VNM Working Group The following describes each of the issues addressed by the WG and provides the points of agreement reached by the WG. Where consensus was not reached recommendations of the WG for potential solution are provided. Availability and Applicability of VNM Municipal customer accounts and generation ownership: Agreed. The WG participants discussed and collectively confirmed that for purposes of implementing VNM under current statutes and regulation the VNM program calculations and allocations applied to only municipal customers of the distribution companies, and that the VNM facilities associated with this program are to be owned by the municipal customer. WG participants may continue to pursue legislative or other changes related to VNM applicability for non-municipal entities and 2 P a g e

3 municipal ownership requirements outside of this docket. There are no remaining questions or issues to be addressed by the WG on this matter. Eligibility of Existing Customer Facilities: Agreed. The WG addressed the question of whether VNM applies to only new class I renewable resources or to both new and existing resources. CGS Sec. 121 does not differentiate eligibility based on in-service date or similar criteria for VNM facilities. Subject to satisfaction of other requirements for VNM, the EDCs are not opposed to existing municipal owned facilities applying for VNM under their proposed riders. No other participants were in opposition. This issue is resolved from a WG perspective with a recommendation to seek review and confirmation by the Authority. VNM Credit Calculation and Allocation Calculation of Assigned VNM Credits: Agreed. The use of prevailing, otherwise applicable SS or LRS rates for the customer host was discussed and reviewed by the WG. Once an understanding of how the methodology, as provided in each EDC Rider, was reached there appeared to be no outstanding questions or issues. Calculation of Unassigned VNM Credits: Agreed. The WG reviewed the use of prevailing SS or LRS rates applicable to the customer host during the course of the year (as specified in the proposed Riders), with no residual questions or issues. Allocation of VNM Credits: Agreed. The EDCs provided a working example and discussed with the WG the allocation of assigned VNM credits to beneficial accounts. The WG clarified that credits would be applied to beneficial accounts on a prorated basis each month, based on the determination of assigned kwh for all beneficial accounts and the proportion of historic sales for such beneficial accounts. Differences in billing systems would result in UI providing a total VNM credit to the customer host for allocation to beneficial accounts, whereas CL&P would apply the allocated credit to each of the beneficial accounts at the time of billing for the customer host. EDC Cost Recovery. Recovery of VNM credit costs: Agreed. The EDCs restated the issue of cost recovery that was raised in their comments in this docket, and restated for discussion that the non by-passable FMCC (NBFMCC) rate provides the appropriate basis for recovery of costs associated with credits paid under the VNM program. WG participants agreed that this was an appropriate mechanism, subject to filing and verification by the Authority as part of the semi-annual FMCC filing. 3 P a g e

4 Supplier Load Settlement vs. Retail Billing Determinants Settlement Obligations and Retail Billing of Beneficial Accounts: Agreed. The WG discussed the differences between the hourly MWH load values reported to ISO-NE for settlement obligation (which are determined in accordance with the appropriate FERC-approved wholesale market rule and manuals)and the monthly kwh values used in retail billing of supplier service (which are determined in accordance with retail tariffs approved by the Authority). The WG determined that there was no concern from a supplier perspective 2 with respect to these values for beneficial accounts. The WG further determined that the allocation of VNM credits, as described above, is not expected to affect the values reported to ISO-NE or the values used in retail billing of beneficial customers. Qualifying for VNM Queuing: Open issue. The WG identified the issue of needing a queuing process in recognition of each EDC s annual limit on total VNM credits and of the need to establish the timing and deadlines that each VNM applicant should satisfy to establish and maintain a position in the queue and ultimately qualify for individual customer VNM credits. The WG relied upon comments filed by the EDCs in this docket regarding the queuing process 3 to address this issue. Despite extensive discussion of options, the WG has found that the queuing process can be complex and difficult to apply in the same manner to all projects. In an attempt to establish a less complex solution that inevitably resulted in secondary issues, the EDCs suggested a solution during WG meetings that reduced some of the requirements of the proposed queuing process. This alternative required a potential VNM customer to submit only a request to participate in the VNM program and a completed application for interconnection, with no requirement for proof of financing and contracts for construction, and no consequences for not becoming commercially operational within a specific time period. However, the applicant would not be permitted to tie up credits and would be eligible to receive VNM credits only if and when it actually went into commercial operation, and only if 2 Conclusions resulted from discussions with TransCanada and other WG participants during WG conference sessions. 3 Re: Docket No , Virtual Net Metering Program Process And Specifications, Joint Comments of The Connecticut Light and Power Company & The United Illuminating Company, September 12, P a g e

5 there were sufficient funds remaining under the cap (see below) at that time. This customer would not have assurance that it would be eligible for VNM credits or payments upon application, e.g., if other projects became operational and used up the cap first, or if it took longer to construct than projected and was jumped over in the queue by a project reaching operation sooner. While the WG participants generally agreed that a simpler process was desirable, they could not agree on any particular process, and the WG has unfortunately not reached final resolution of this issue at this time. The WG hopes that the Authority will assist in establishing a fair and workable queuing process before customers become eligible for VNM. Application of the Annual VNM Cap There are several issues that relate to how to assign or otherwise determine the VNM credits payable to an individual VNM customer relative to the total annual cap for each EDC. The WG has not reached final consensus on these issues, but has narrowed the options as discussed below. Assignment of individual customer caps: Open issue. Assuming that no more than a total annual VNM credit of $1M will be paid to VNM customers in a given calendar year ($800k for CL&P and $200k for UI), the EDCs have proposed and discussed within the WG a mechanism that assigns an individual annual cap to each customer that would apply once that customer is accepted into the VNM program and becomes operational. Assuming, further, that the magnitude of this cap for each customer is established upon initial application for participation in the program (or at a later date, such as the date of acceptance into the VNM program, date of commercial operation, etc.), the EDCs have proposed calculating an annual cap for a given customer that is determined by multiplying the then current Standard Service (SS) or Last Resort Service (LRS) rate for that customer by the estimated annual net output (excess output remaining after netting total surplus generation delivered to the grid against total load received from the grid) of their VNM facility. Within a given calendar year, once the cumulative calculated VNM credits and VNM payments, if any, reach the VNM cap for that customer for that year, no further VNM credits or VNM payment would be issued to that customer that year. For the remainder of that calendar year, three options were discussed: (1) allow the customer to receive payments under the respective EDCs power purchase tariff, (2) allow the customer to convert to regular net metering under the respective EDC s net metering tariff, or (3) pay nothing more for any output delivered to the grid (but, potentially, allow for a bilateral sale from the customer to a third party). Under this option, the VNM customer could maintain its 5 P a g e

6 eligibility for VNM credits at the same annual cap level in subsequent years, i.e., resetting payments on January 1 st of each subsequent calendar year. Option (1), listed above, was proposed by certain WG participants and, upon preliminary review, appears workable to CL&P and UI. Option (2) is limited, in that it requires initiation of net metering kwh banking midyear and, given that the net metering annual period runs April through March, net metering and banking would be discontinued on January 1 st of this annual period. Furthermore, the banked kwh would not apply to billing commencing January 1 st of each year, and it is not clear whether payments for residual banked kwh would be credited to the customer at that time or at the end of the annual period, i.e., March. Option (3) appears unacceptable by WG participants who seek to receive payment or credits of some kind for all kwh produced. Pros: Cons: In years where prices or excess output are lower than that of the initial annual cap, there is more room in the cap to receive VNM credits later in the year than when prices or excess output would be higher; Provides assurance of annual cap levels, with opportunity to further achieve value and benefit under option (1) from power purchase payments through end of year once cap is reached; Reduces prospect of lower annual cap if prices or projected excess output are less, to the extent recalculation of the cap is performed subsequent to the initial cap determination. In years where prices or excess output are higher than that of the initial annual cap, there is less room in the cap to receive VNM credits later in the year; Doesn t allow for higher annual cap if prices or projected excess output are greater, to the extent recalculation of the cap is performed subsequent to the initial cap determination. Alternatives discussed: A. Allowing initial calculation of cap to be used primarily to qualify a customer for VNM, but pay customers based on actual excess output (i.e., after netting surplus delivered to the grid from load received from the grid) through the end of the calendar year, even if credit exceeds individual or total company cap. While this option may eliminate some of the issues identified above, it would result in payments that could exceed levels specified by statute and Authority and, if allowed, would assign higher cost recovery responsibility to other customers. This alternative has been rejected by the WG. 6 P a g e

7 B. Variation of A. that allows update (more frequent, such as annually) of the calculation of the annual cap. Issues include those identified in A., plus inability to know rate to be applied until just prior to each quarter for LRS customers. Rejected by WG. C. To the extent VNM program is not fully subscribed, VNM customers may be eligible for additional credits beyond their individual cap level. This release of total company cap amounts would be subject to determining a method for allocation of differences between total customer VNM credits paid and total company cap. This does not address the prospect of a potential customer seeking to become a VNM customer later in the year. Based on complexity of issues with this alternative, further pursuit of this option was rejected by the WG. The assignment of an annual cap based on the date of initial application for participation in the program or later date, and calculating the cap on the basis of the then applicable SS or LRS rate, as discussed above provides a workable solution that also provides a level of VNM credits that approaches the total company cap level as the VNM program becomes fully subscribed. When the power purchase option is included (which would require further investigation to ensure this option is available and can be implemented), this approach also provides fuller utilization of customer output (though it is not clear whether this provides greater economic value to the customer). Options once cap is reached: Open issue. As described above, the WG has identified one option that would be implemented in conjunction with assigning a customer an individual annual cap, whether this is performed only initially, or is also updated subsequently. Specifically, the implementation of Option (1) power purchase payments may be workable within existing tariff and billing/payment system processes. Subject to further review, this option could be incorporated as a solution along with the setting of the individual customer cap. Supplier Load Settlement vs. Retail Billing Determinants Settlement Obligations and Retail Billing of Customer Host Account: Open Issue. The WG reviewed the issues raised and proposal submitted by TransCanada in this docket regarding the differences between the hourly load values reported to ISO-NE (summed over a monthly retail billing period) and the monthly retail billing quantities for a net metered customer. Options discussed for potential resolution of these differences included the TransCanada proposal as 7 P a g e

8 submitted in their comments in this docket for applying netting of load and surplus generation on an hourly basis rather than monthly; and a UI proposal for providing metered quantities prior to netting to competitive suppliers who would direct bill the customer host based on the sum of hourly netting. Both options were rejected, because hourly netting is contrary to the statutory requirements of net metering and VNM to apply netting on a monthly (billing cycle) basis, and the direct billing of customers is also not consistent with monthly netting and would result in a bill for supply that is much higher than what customers would expect or want, given the opportunity to be billed at retail based on the net billing quantities. Ultimately the WG could not reach a resolution on this issue. However, some participants indicated that a solution might be available through an ISO-NE reporting change while others indicated that it is more appropriate to pursue a solution within the context of state net metering legislation and policy. The WG acknowledged that a solution from a retail billing perspective would need to be pursued with the Legislature either directly by stakeholders or through the Authority. Conclusion The participants in the VNM WG identified 11 common technical issues regarding the VNM program, and worked collaboratively to resolve these issues. While the four most complex issues addressed by the WG remain open, this report provides the analysis and options for resolution of those open issues that have been developed by the WG. For the two open issues associated with the VNM Cap, the WG has narrowed the options in order to provide a basis upon which it believes the Authority can bring closure. The issue of queuing is important for determining which customers can qualify for the VNM program under the respective CL&P and UI VNM riders. Together the processes for qualifying customers, setting the VNM cap and having a clear option for treatment of generation once the cap is reached are critically important for customers and developers in terms of electric service rate applicability and project economics. Ultimately, resolution of these issues is necessary in order for the EDCs to be able to enroll customers and administer the VNM program. The open issue of customer host settlement obligations and retail billing is particularly relevant to competitive suppliers seeking to serve any type of net metered customer, including the customer host under the VNM program. As discussed above, despite their efforts the WG was not able to resolve the issue, nor was it able to provide options outside of legislative changes that appear to have a ready 8 P a g e

9 solution. This is an important issue for competitive suppliers and for VNM customers who wish to take supply service from competitive suppliers, as detailed further in this report and comments submitted in this docket. In compliance with the Order No. 1 of the Authority s Decision in this docket, the VNM WG hereby submits this report. Also in compliance with Order No. 1 the EDCs are submitting proposed revised VNM Riders via separate correspondence to the Authority. For purposes of implementing those riders and the VNM program, the EDCs note that it is essential (a) to have received approval by the Authority of the proposed riders; (b) to have received approval by the Authority to implement the VNM program on the basis of the issues identified in this report as resolved and agreed to; and (c) to have resolution of the four critical, open issues identified above and, in turn, to have approval by the Authority to implement the VNM program on the basis of resolutions of these issues. 9 P a g e