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F I S C A L I M P A C T R E P O R T

SPONSOR SCORC

DATE TYPED 3/15/05 HB

SHORT TITLE Net Electric Co-op Metering System

SB 1006/aSJC/aSFL#1

ANALYST Rosen

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB200, SB 627 and HB 748

SOURCES OF INFORMATION

Public Regulation Commission (PRC)

Energy, Minerals, and Natural Resources Department (EMNRD)

Department of Environment (DOE)

Department of Finance and Administration (DFA)

Attorney General’s Office (AGO)

SUMMARY

Synopsis of SFL#1 Amendment

Senate Floor Amendment #1 to Senate Corporations and Transportation Committee substitute, as

amended, for Senate Bill 1006 changes the rate of compensation for electricity returned to the

grid from the retail rate, about 8 cents per kilowatt hour, to the wholesale rate, about 1.5 cents

per kilowatt hour. The amendment also strikes the SJC amendment, thus providing again for in-

demnification and limitation of liability for public utilities and rural electric cooperatives, and

further expands indemnification to include financial compensation or payment of additional

charges against the customer-generator.

Synopsis of SJC Amendment

Senate Judiciary Committee amendment to Senate Corporations and Transportation Committee

substitute for Senate Bill 1006 strikes the section that removed the public utility or rural electric

cooperative’s liability as it related to customer-generator actions and required the customer-

generator to indemnify the utility or electric cooperative with regard to installation or operation

Senate Bill 1006/aSJC/aSFL#1 -- Page 2

of a clean generation source.

Synopsis of Original Bill

Senate Corporations and Transportation Committee substitute for Senate Bill 1006 adds new sec-

tions to the Rural Electric Cooperative Act and directs public utilities and rural electric coopera-

tives to offer net-metering for customer generation of power by renewable energy systems, al-

lowing customers to sell power they generate from renewable energy systems back to public

utilities or rural electric cooperatives.

Public utilities and rural electric cooperatives must make net metering available to customer-

generators with clean energy sources over 10 kW but not exceeding 100 kW, subject to specified

limitations. For public utilities, the limitation is that such net metering cannot increase the cu-

mulative peak generating capacity of all clean energy sources on a utility’s distribution system

above 1% of the average of that utility’s peak retail demand over the past three calendar years.

For rural electric cooperatives, the limitation is that such net metering must not increase the net

metering revenue reduction above 1% of a rural electric cooperative’s average operating mar-

gins.

Relating to this limitation for cooperatives, a new definition of “net metering revenue reduction”

is included and defined as the difference between a public utility’s or rural electric cooperative’s

applicable tariff energy charge and the lower of the entity’s avoided cost or three cents per kilo-

watt-hour multiplied by the total number of kilowatt-hours that PRC estimates has been gener-

ated by all the clean energy generation sources that are net-metered on the utility or cooperative

system. The significance is that the term “net metering revenue deduction” is used in a calcula-

tion to determine whether a rural electric cooperative is required to make net metering available

to a customer-generator with a clean generation source that has a peak generating capacity be-

tween 10 and 100 kilowatts. It is also used in determining whether the Renewable Portfolio

Standard should be reduced due to the cost impact on large electricity consumers.

The bill clarifies that a utility or cooperative may allow additional net metering beyond the

above-specified limits. Rural electric cooperatives may include such additional net metering ca-

pacity upon 30 days’ notice to its customers, provided that customers representing a majority of

the cooperative’s load don’t object during the protest period.

Whenever a public utility or rural electric cooperative makes net metering available, the cus-

tomer-generator is required to pay all costs for acquisition and installation of the necessary me-

tering equipment, as well as all costs incurred by a utility or cooperative for equipment or ser-

vices necessary to meet applicable safety and performance standards. A public utility or rural

electric cooperative is authorized to install additional metering equipment it deems necessary. If

the system is 10 kW or less, payment of the cost of the additional equipment is borne by the en-

tity requesting it; and if the system exceeds 10 kW, the utility or cooperative may require the

customer-generator to pay that cost. The bill specifies that the customer-generator is responsible

for costs associated with operating, maintaining, or modifying a clean generation source.

Public utilities and rural electric cooperatives are directed to credit customer-generators for their

production of electricity in an amount equal to or greater than the applicable tariff rate or charge

for that generator’s customer class (i.e., production credited at the retail rate). If a customer-

generator’s net aggregate bill from a utility or cooperative is less than zero, the credit must be

carried over to future bills. A customer-generator is prohibited from claiming a credit that has

Senate Bill 1006/aSJC/aSFL#1 -- Page 3

already been claimed from another public utility or rural cooperative.

The bill imposes safety and performance requirements on net metering systems. It specifies that

such systems must comply with the Institute of Electrical and Electronics Engineers’ intercon-

nection standards. The substitute also clarifies that utilities and cooperatives are not liable, di-

rectly or indirectly, for any damages or losses caused by installation and operation of a clean

generation source. Moreover, customer-generators must indemnify a public utility for damage to

persons and property incurred as a result of installation or operation of said source. A customer-

generator is required to notify its public utility or rural electric cooperative and PRC of the intent

to install a clean energy source at least 60 days before its installation on an application form pre-

scribed by PRC.

The bill modifies Section 62-16-4 of the Renewable Energy Act, which relates to the Renewable

Portfolio Standard (RPS). Specifically, the amendment changes the calculation of the additional

cost of the RPS to each customer by including the amount of the total net metering revenue re-

ductions (as newly defined, above) that PRC determines should be recovered from that customer.

The significance is that the additional cost calculation determines whether the RPS will effec-

tively be reduced for a public utility.

Significant Issues:

According to EMNRD, this bill will stimulate the installation and operation of clean generation

systems throughout New Mexico, especially in the commercial sector and rural areas of the state.

Such systems include those that use solar, wind, geothermal and biomass. This bill will benefit

New Mexico because:

a)

Utility customers will receive electricity production credit at retail rates for systems

up to 100 kW.

b)

The state will be supporting wider use of New Mexico’s abundant solar resource re-

sulting in a cleaner environment, increased energy security and independence, eco-

nomic development by expansion of New Mexico’s solar industry, and the creation of

35 jobs per megawatt installed.

c)

Nationally and globally known solar businesses based in New Mexico will be util-

ized.

d)

New manufacturing ventures and their high-wage jobs will be attracted to New Mex-

ico.

e)

“Distributed” power generation (generated at or near the electricity demand) helps al-

leviate electricity transmission constraints and reduce future transmission expansion

needs.

According to AGO, PRC already has net metering rules and the need for a statute is question-

able. From a regulatory point of view, the bill mandates that electricity purchased from a renew-

able energy net metered facility be purchased at the utility’s retail prices, rather than some lower

value, such as the utility’s average cost or avoided cost. To the degree that a utility purchases

such power, it may increase rates to other customers. A similar national rule, found in the Public

Utility Regulatory Policy Act in the 1970’s, was responsible for rate increases.

According to DFA, the substitute bill adds the renewable portfolio standard but excludes rural

cooperatives from participating in it. There are 19 rural cooperatives serving rural communities

Senate Bill 1006/aSJC/aSFL#1 -- Page 4

throughout New Mexico, of which 12 are members of the Tri-State Generation and Transmission

Association (TSG), an interstate business. By the definition of "public utility" or "utility" found

on page 5, line 5, it appears the major interstate supplier of electricity, TGS, to the State would

be exempt from participating in the renewable portfolio standard.

DFA indicates renewable energy will have a greater opportunity to develop in rural areas where

land and renewable resources (biomass, solar and wind) are plentiful and/or exist. However, it

appears rural cooperatives and TGS would be exempt from participating in the net metering pro-

grams to these clean generation sources.

DFA reports the bill targets in-situ home or small-scale renewable energy producers with excess

electrical capacity of up to 100 kW to sell. It does not require a public utility to provide net me-

tering for any substantial electrical capacity.

PERFORMANCE IMPLICATIONS

Promotion, development, and implementation of renewable energy programs are key parts of the

strategic plan of EMNRD’s Energy Conservation and Management Division and EMNRD be-

lieves this bill will enhance EMNRD’s related performance in this area.

ADMINISTRATIVE IMPLICATIONS

PRC and its Utility Division staff will have to amend PRC’s existing net metering rule to con-

form to the provisions of this bill.

CONFLICT, DUPLICATION, COMPANIONSHIP OR RELATIONSHIP

EMNRD notes this bill is a duplicate of HB200.

DOE notes this bill relates to SB 627 and HB 748, duplicate bills enacting the Renewable Energy

and Transmission Act and creating a quasi-state agency specializing in electric transmission,

storage and infrastructure financing.

TECHNICAL ISSUES

PRC notes several technical issues:

1.

Page 2, lines 13 and 14: “substantial long-term production potential” is subjective. Is sub-

stantial 5,10,15 or 20 years. What is considered long-term by the producer may not be con-

sidered so by the public utility. Is it better to define long-term as more than 10 years.

2.

Page 3, line 5: Public utility and rural electric cooperative are separated. On page 5, line 4,

public utility is defined to include rural electric cooperatives, which appears redundant and

confusing. Is it better to limit the use of rural electric cooperatives to those sections that only

apply to the rural electric cooperatives.

3.

Page 3, line 10: Is it better to limit the net metering definition to the energy component of the

electricity generated by the customer-generator. Electricity generated generally would cover

both kW and kWh. The kW component may or may not be accommodated under net meter-

Senate Bill 1006/aSJC/aSFL#1 -- Page 5

ing.

4.

Page 6, line 21: Is better to replace “that is a public utility” with “that is also a public utility”.

5.

Page 7, line 6: “long-term production”. Same comment as in item 1 above.

6.

Page 9, line 10: Is it better to add “ and commission rules” at the end of the sentence. The

Public Utility Act may not explicitly state safety and performance standards. PRC rules do.

7.

Page 10, line 4: Same comment as in item 6 above.

8.

Page 10, line 19: Is it better to modify “Act and that” to “Act and commission rules and

that”.

9.

Page 11, line 5: Is it better to replace “Utility Act and that” with “ Utility Act and commis-

sion rules and that”.

10.

Page 12, line 13: Should “customer class” be replaced with “customer class without the cus-

tomer-generator’s generation”, to provide clarity.

11.

Page 12, Lines 14 to 19: A tariff of a utility or rural electric cooperative for customers with

up to 100 kW of load may contain a customer charge (not dependent on energy consump-

tion), an energy charge (dependent upon energy consumption), a demand charge (not de-

pendent upon energy consumption). Sometimes the tariff may contain a KVAR charge

(power factor charge). It is not clear from the language whether customer charge, demand

charge and KVAR charges also are credited. Should the language clarify that non-energy re-

lated charges like customer charge, demand charge and any KVAR charges are not to be

credited or paid back to the customer-generator.

12.

Page 14, line 19: Should “public utility” be replaced with “public utility or rural electric co-

operative”.

AGO notes some terms and usages in the bill are not totally congruent: “renewable energy”,

“clean generation source” and “clean energy source”.

OTHER SUBSTANTIVE ISSUES

According to DOE, it submitted a State Implementation Plan to U.S. Environmental Protection

Agency in December 2003 pursuant to Section 309 of the federal Regional Haze Rule (40 CFR

51.309). According to this portion of the federal rule, the state is obligated to report every five

years its progress in achieving the renewable energy goal of 10 percent of the regional power

needs by 2005 and 20 percent by 2020

.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Net metering requirements will remain governed by PRC Rule 571, which limits the net meter-

ing of clean energy sources to systems 10 kW or less.

JR/yr:lg