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Sustainable Energy And Sustainable Utilities

Sustainable Energy And Sustainable Utilities. Paul T. Hunt, Jr. Director of Regulatory Finance and Economics Southern California Edison Company*. Society of Utility and Regulatory Financial Analysts 45 th Financial Forum April 19, 2013.

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Sustainable Energy And Sustainable Utilities

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  1. Sustainable EnergyAndSustainable Utilities Paul T. Hunt, Jr.Director of Regulatory Finance and EconomicsSouthern California Edison Company* Society of Utility and Regulatory Financial Analysts45th Financial ForumApril 19, 2013 * All opinions expressed herein are those of the author and do not necessarily represent the positions, strategies or opinions of Southern California Edison, its parent company Edison International, or any of their affiliates.

  2. Questions • What do we mean by “sustainable”? • Does investing in sustainable energy increase the cost of capital? • How does the cost of solar energy compare with central station power? • Does rate design change incentives; should it change incentives? • Is there a “green divide”? What should we do about it?

  3. California Energy Action Plan and Related Activities • Energy Action Plan originally enacted in 2003; modified in 2005 and 2008 • “Loading Order” • Energy efficiency and demand-side resources • Renewable resources • “Clean conventional energy supply” • Assembly Bill 32, the California Global Warming Solutions Act of 2006 • Integrated Energy Policy Reports (California Energy Commission) • Renewables Portfolio Standard (procure 33% of retail sales from renewables by 2020)

  4. 2011 SCE Energy Portfolio

  5. Increased Cost of Capital? • Governmental mandates increase risk of non-compliance and related penalties • Are renewables a superior technology from a performance or cost perspective? • Inferior capacity value • Integration of renewables • 2006 SCE study on purchased power found a 53-59 basis point higher cost of equity for high purchased-power utilities (purchased power exceeding 30% of total disposition of energy) and low purchased-power utilities (purchased power less than 30% of total disposition of energy) • Credit rating agencies may impute additional debt and interest payments in financial metric calculations, depending on the form of a renewable power contract. • Markets for Greenhouse gas emission allowances

  6. Residential Solar Installations Are Becoming Cost Competitive • Today, residential solar is cost competitive with SCE’s highest rate tiers • In California, solar incentivescan reduce the installed cost to a homeowner by 38% • More than 600 MW of residential solar have been installed in the United States since 20051 Without incentives 31.1¢ 29.9¢ With incentives 3 2 • Solar Energy Industries Association (SEIA) U.S. Solar Market Insight 2010 Year in Review • SCE residential rates as of February 2011 and April 2013 • Solar costs estimated based on National Renewable Energy Laboratory’s (NREL) Simple Levelized Cost of Energy Calculator assuming gross capital costs of $7.55/W, 38% combined Federal and state subsidies, 25-year life, 18% capacity factor and 7% discount rate

  7. SCE Residential Net Metering Rate Structure

  8. Residential Rates and Residential Costs of Service 30 Rates Someone who uses 1,200 kWh a month is paying more than $1,000 over cost each year because the user is subsidizing low-usage customers 25 Low-usage customers getting subsidized Cents/kWh 20 Cost of Service 15 10 600 1200 1800 Average Monthly Usage (kWh)

  9. Net Energy Metering • Net Energy Metering (NEM) allows a customer to receive a financial credit for power generated by his or her on-site system that is fed back to the utility. The credit is an offset to the customer’s electricity bill. • In California, the vast majority of customers will solar photovoltaic systems choose to be on an NEM rate. • NEM credits customer-generated power at the full bundled retail rate, not at the utility’s avoided cost rate. • “Most NEM projects pay little to no charges to interconnect to the utility grid.” Non-bypassable charges are paid based on net consumption rather than gross consumption. • As shown on a later slide, NEM power savings are concentrated in the higher rate tiers.

  10. Income Distribution for NEM Customers % of Customers

  11. Residential Solar Accounts– Average Monthly Usage Before and After PV Installation Without subsidies With subsidies Tier 5 Tier 3 Weighted average of PV generation distribution and tiered rate levels provides an average retail benefit of $0.24/kWh. Average residential retail rate (all rate components) is $0.16/kWh. Tier 2 Tier 1

  12. Rate Design Issues • Little Hoover Commission Report, “Rewiring California: Integrating Agendas for Energy Reform,” December 2012:“A rate freeze enacted by the Legislature during the energy crisis in 2001 (AB X1) to protect California from the skyrocketing electricity prices remained unchanged, until recently, preventing the CPUC from increasing rates in Tier 1 and Tier 2. As costs of electricity generation have increased over the past decade, the higher rate tiers have had greater increases, at least doubling and in some cases more than tripling. An unintended consequence of the rate freeze on the lower tiers is that customers who reach the higher rate tiers increasingly are subsidizing those in the lower tiers. As the higher priced renewables come online and are factored into the rates, the higher tiers will increase even more, making the cross subsidy even greater.“At the same time, the state has promoted distributed electricity generation, typically rooftop solar, and current law allows residents to sell electricity back to the investor-owned utilities thereby reducing or avoiding costs associated with upkeep of the distribution system. As a result, those who can afford solar panel installations are increasingly being subsidized by those who either cannot afford solar, renters and those whose homes are not optimal for solar generation.”

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