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Net metering: Many directions for national debate

The recent announcement of the Massachusetts compromise on net metering reform —  hammered out by solar industry, utility and state regulatory representatives — has turned public attention to what’s happening on the issue nationwide.

The Solar Electric Power Association (SEPA) has been tracking state-by-state developments on net metering, which range from initial cost-benefit studies on customer, utility and social impacts to full legislative and regulatory reform proposals.

A word here on terminology, specifically the use of the term “rate” as it applies to net metering. In the world of utilities and the agencies that regulate them, the word has a very specific meaning -- a rate, such as the per-kilowatt-hour rate residential customers pay for electricity, is the result of a public regulatory proceeding that takes into account a range of factors.

While net metering compensation is often discussed in terms of rates, even in some net metering laws and regulations, in most cases it is not a rate in that strict, technical sense, although it may be based or overlaid on specific rates. To avoid this confusion, we use the general terms compensation or levels of compensation to discuss net metering, rather than rate.

And with more than 40 states having some form of net metering — with differing levels and structures of compensation — the initiatives we can currently confirm on the map below are predictably varied.

Netmetering Map 6-27

The proposed law coming out of the Massachusetts negotiations hits a number of fundamental points being debated across the country.

Notably, it would preserve net energy metering (NEM), the basic compensation structure under which residential or commercial customers with solar installations can use the power they feed into the grid to offset the power they take from it. Generation and consumption are “netted,” generally on a monthly or yearly basis, and individual customers may receive a bill credit or cash payment if they generate more power than they take from the grid.


Other provisions of the bill would uncap net metering, removing any limits on the amount of rooftop-generated solar power utilities must accept. It would also allow for “virtual” net metering for multi-unit residences, commercial or community solar installations where multiple customers could benefit from a single installation.

The proposed law establishes a statewide solar goal of 1,600 MW by 2020 and, as a means to achieve this, a separate declining block grant incentive program, similar to California’s successful rebate program. Such programs, administered through utilities, provide a per-watt incentive for customers installing solar, with the incentive rates falling as certain set amounts of solar are connected to the grid.

It would allow for a monthly minimum bill for all utility customers, including a “minimum monthly contribution . . . that ensures each customer contributes each month a reasonable amount toward the costs of the electric distribution system.”

The amount of this monthly charge will be determined by the state’s Department of Public Utilities.

“The actual impact of the compromise — whether it represents a solid step forward — will depend on the details of how it is implemented,” said Julia Hamm, SEPA’s president and CEO. “What’s truly important here is that multiple stakeholders worked together, meeting dozens of times, to negotiate the proposed law. It’s a collaborative model for the growing list of states grappling with these complex issues.”

Costs, benefits and the value of solar

Taking a larger look at solar compensation programs across the nation, an increasing number of jurisdictions are opting for cost-benefit studies that look at the impacts and value of solar distributed generation in general and net metering in particular. Such reports aim to provide utilities, policy makers and solar proponents with the facts and figures needed to decide if and how to continue net metering programs, replace them or, in some cases, design rate reforms that are fair and balanced for all stakeholders.

Such studies have been either proposed, mandated or are underway in Arizona, Colorado, Iowa, Louisiana, Maine, Michigan, Mississippi, Oregon, South Carolina, Tennessee, Utah and Wisconsin.

A California study on the ratepayer impacts of net metering was released last October, and Oregon’s could be submitted to the legislature July 1.

South Carolina’s S. 1189, a recent law also mandating a cost-benefit study, was another collaborative effort, developed by electric cooperatives, investor-owned utilities, solar power proponents and conservationists with the goal of promoting distributed generation in the state.

More overt reform efforts seem to fall into two basic camps, with regional variations.

Following the Massachusetts model, one approach focuses on preserving net metering in some form, but adding on a solar or stand-by charge to ensure utilities recover their transmission and distribution system costs without unintended revenue shifts to nonsolar customers.

The Arizona Corporation Commission last year adopted a solar charge for Arizona Public Service, the state’s largest investor-owned utility. Following intensive debate, the commission voted to maintain net metering, but added on a 70-cents per kilowatt monthly fee to be paid by customers with solar installations.

In California, a legislative compromise passed last year, Assembly Bill 327, coupled the preservation of net metering with the possibility of a monthly charge of up to $10 to be paid by all utility customers and more substantial rate reform of both the net metering compensation levels and the state’s current four-tier system.

The first step in the reform process — how to transition from current net metering levels to a new formula to be set by the California Public Utilities Commission — will allow rooftop systems installed before 2017 to continue on the existing compensation plan for 20 years.

Debate is swirling in Utah, where Rocky Mountain Power has filed a request with the state’s Public Service Commission to add a monthly charge of $4.25 to the bills of rooftop solar customers. The utility also proposed rate changes that would also increase minimum monthly bills and basic customer charges for all ratepayers.

The second approach some states and utilities are exploring sets up a “dual-rate” structure, leaving retail rates unchanged while adopting a “value-of-solar” rate based on the economic, environmental and other impacts distributed solar has for utilities and their customers. Solar customers are billed for all the power they use at regular retail rates and then receive a bill credit, based on the value-of-solar rate, for the electricity produced by their solar systems.

The use of the term “rate” is here appropriate since value-of-solar compensation is generally set through an official rate-making process.

Austin Energy replaced its net metering program with a value-of-solar rate in October 2012. The initial 2013 purchasing rate was set at 12.8 cents per kilowatt hour (kWh). The rate is recalculated annually, resulting in a 2014 decrease to 10.7 cents per kWh for all solar customers, largely because of a decline in natural gas price outlooks.

The solar industry has expressed concern about the annual rate adjustment process, saying it creates uncertainty for solar owners.

Minnesota also adopted a value-of-solar methodology earlier this year, the first state to do so. Investor-owned utilities there can now voluntarily apply to offer solar customers a value of solar rate in lieu of net metering, although to date, none have done so.

Looking ahead, SEPA expects that states will continue to develop diverse approaches to customer compensation for excess solar generation based on the specific characteristics of their solar and energy markets. Stakeholder collaboration and compromise will continue to be essential, as will gradual transitions to avoid major market disruptions.

That net metering discussions and studies are occurring in states that are not considered major solar markets is yet another sign of the ongoing growth of distributed solar and the need for innovation in ratemaking and solar compensation.

In this context, it is important to stress that the focus on net metering, and the resulting public debates, can at times obscure the bigger issues of the impact of distributed solar on energy reliability and affordability that some utilities and industry analysts are raising.

Eran Mahrer, SEPA’s executive vice president for strategy and programs, notes that only about 15-20 percent of all distributed solar generation is actually eligible for net metering in the strictest sense of the term. He believes the focus of the debate must widen to encompass both net metering and the offset of real-time consumption solar energy provides.

“To ensure that customers with distributed solar are appropriately compensated, we should be looking at the totality of the transaction,” he said. “The way solar resources interface with utility rates and utility distribution systems must be considered, as well as the value that solar returns to the electric grid.”



September 30, 2014 12:41

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