California’s attempt to rework its solar regulations could be stymied by a flawed and ineffective software planning tool meant to model the cost-effectiveness of proposed policies to replace the state’s current net metering regime.
That’s the scathing conclusion of solar groups, environmental and ratepayer advocates, and utility Pacific Gas & Electric, all of which have submitted harsh criticism of the draft version of the California Public Utilities Commission's “NEM Public Tool” in the past month.
These comments describe a software platform, built by Energy and Environment Economics, or E3, that is “complex, difficult to understand, and time-consuming to run,” according to solar industry groups The Alliance for Solar Choice and Solar Energy Industries Association (PDF). It also contains “several serious flaws that would inevitably result in poorly designed policies and predictions of market outcomes,” according to PG&E (PDF).
In testing the draft version of E3’s software released in March, the groups also found that it yielded solar adoption projections that “are clearly wrong,” according to TASC and SEIA. These include projections that solar installations will drop to below 2014 levels in 2017 and beyond, even when policy changes that might possibly lead to such a drastic turn, such as the end of the federal Investment Tax Credits for solar power and changes to the state’s tiered rate structures, aren’t put into the model.
These criticisms come just a month before utilities, solar providers and other parties expect to be asked to submit their proposals for policies to replace California’s current net metering regime. Under state law AB 327, passed in 2013, the CPUC was tasked with creating a successor “NEM 2.0” tariff, to kick in once the state’s big three investor-owned utilities reach a threshold of 5 percent of nameplate generation capacity under net metering, or in mid-2017, whichever comes first. The CPUC is requiring that these plans use the Public Tool to project their costs and benefits over a 30-year timespan, by modeling future solar growth patterns between 2017 and 2025.
(UPDATE: In response to these criticisms, the CPUC has pointed out that it has been "as inclusive as possible, accepting the vast majority, nearly all of stakeholders requests to modify and/or improve functionality as long as it was technicallly feasible and within budget. We have responded to all stakeholders questions and maintained an extendive FAQ on the CPUC's Web site." The CPUC has also adjusted the adoption models used to predict solar growth, to address the issue of previous versions projecting a decline in solar growth post-2017, and the current version of the tool now predicts increased adoption.)
But according to Brad Heavner, policy director for the California Solar Energy Industries Association, right now, the software platform is incorrectly showing that “net metering has huge costs,” he said.
“There is no one big single problem” with the software, he said during a Thursday protest by solar groups against changes to net metering at CPUC’s San Francisco headquarters. “There are just 100 small problems pushing it the wrong way.”
Some of the bigger flaws include solar cost assumptions that don’t align with reality, he said. As PG&E noted in its comments, the Public Tool’s “projected 2017 levelized cost of energy (LCOE) for solar PV in CA are much higher than prices available today in California from some vendors, and up to 100% higher than LCOEs currently offered by solar vendors in states with lower energy prices.” (UPDATE: CPUC analyst Shannon O'Rourke told us that the Public Tool has the ability for users to input their own solar cost assumptions, while also presenting users with several preset cost projections based on publicly vetted research.)
E3’s tool also assumes that utility costs for maintaining their distribution systems are what utilities request in their general rate cases, rather than the much smaller amounts they're typically approved to spend by the CPUC, Heavner said. The software also “ignores the DRP process,” he said, another CPUC proceeding that will require utilities’ grid investment plans to incorporate distributed energy resources in ways that could lower their infrastructure costs in the years ahead.
E3’s software also fails to properly account for solar’s energy benefits for specific regions of the state, by ignoring the locational marginal prices (LMPs) that set prices at different points on the grid, and “instead assuming one average energy price across the state,” according to comments filed by solar advocacy group Vote Solar (PDF).
“Since urban areas tend to be more congested, have higher LMPs and also have higher concentrations of solar customers, the Public Tool should be modified to allow the use of LMPs or a way to modify locational benefits to reflect them, or the Tool will continue to undervalue avoided energy costs from DER adoption,” Vote Solar wrote.
TASC's and SEIA's comments underscored this problem, noting that "the 50 highest value Locational Marginal Price nodes have more than 10 times the capacity of installed solar as the 50 lowest value Locational Marginal Price nodes" across the state. The filing presented the following "avoided cost solar heat map" from Kevala Analytics to illustrate the point.
(UPDATE: CPUC's O'Rourke said that the new version of the Public Tool allows users to input locational values to help resolve this issue.)
The tool is also very slow, according to comments of those that have used it. “You put the inputs in the tool and press ‘go,’ and it takes four and a half hours just to come up with an answer,” Heavner said. That could make it next to impossible for parties to test out the effects of more than a handful of different variables in the course of coming up with a plan, he said.
These are all huge problems, because “[t]he NEM successor tariff will have significant policy and economic implications (as much as $1 billion per year) for California,” PG&E wrote in its comments. “If, as expected, the policy design is contingent on the Public Tool, then it is critical to ensure that the Public Tool is fully functional and yields reasonable results” -- something the draft platform hasn’t shown it can do, the utility wrote.
“Until these portions of the Public Tool are modified, they should not be used to inform public policy,” PG&E wrote. “Moreover, even with modification, the CPUC should not rely on it as a measure of whether a given proposed NEM successor tariff satisfies the Legislative criteria that eligible customer generation continues to grow sustainably.”
There’s a significant challenge in reworking the Public Tool in time to meet the proposed for NEM 2.0 proposals in late June or early July, however. ”If the Commission is to stay on schedule to meet the statutory deadline to develop an alternative NEM tariff by December 31, 2015, the scoping memo anticipates party proposals (and comments and reply comments on proposals) during the second quarter of 2015,” according to comments from CPUC’s Office of Ratepayer Advocates (PDF).
“In other words, parties will need to prepare proposals, evaluate other parties’ proposals, and simulate alternate proposals on a final Public Tool or a similar but reliable model by the end of June,” ORA wrote. “Parties will struggle to find the resources to prepare proposals and continue to QC the Public Tool all within the next two months.”
This isn’t the first time E3’s work for the CPUC has come under criticism. The company’s 2013 study on the costs and benefits of net metering was faulted by both solar and utility groups, for failing to incorporate up-to-date solar system costs, state regulatory changes and other critical data.
CPUC opened bids for parties to develop its Public Tool in March 2014 and closed them in April. It’s unclear how much competition E3 faced for the project, or what it was paid to develop it.
Nancy Ryan, senior director of public policy and strategy at E3, served as a CPUC commissioner from 2010 to 2011, and began her CPUC career as chief energy advisor and chief of staff for Michael Peevey. Peevey served for 12 years as CPUC president before resigning last year amidst revelations of federal and state investigations into emails that showed a record of improper interactions during his tenure with utilities he was tasked with regulating.