Utilities, solar advocate squaring off on net metering debate

By Rod Walton, Senior Editor

Distilled to its essence, net energy metering sounds like a simple thing. Those who have their own power generation source, such as rooftop solar, get a break for the energy they don’t use and credit for the kilowatts they send out into the grid. They make the world a better place. Addition by subtraction.

But the simple life ain’t so simple, as Van Halen once proclaimed. Utilities, state regulators, renewable energy advocates and, yes, end users are bound up in a battle where the front line isn’t even always clear.

Sunny states such as Hawaii, California, Arizona and Nevada are trying to figure out ways that distributed generation (DG) customers–those who have installed photovoltaic panels or wind turbines at home, for example–get the benefit of their investment while not fiscally penalizing the utilities or non-DG customers.

But the debate also carries over into cloudier climes. Minnesota, Oklahoma, Massachusetts and other states are trying to figure out the appropriate billing balance when it comes to net metering.

“Everybody is struggling with this change,” said Edwin Overcast, director of Kansas-based consulting and engineering firm Black & Veatch’s management consulting business. “It’s a fundamental change in the base regulatory model because of the ability of people to provide their own generation.”

Even utilities that have been proactive in replacing fossil fuel generation with cleaner sun, wind or geothermal power are asking for their home state’s help in making net metering equitable to all sides. Southern California Edison and Pacific Gas & Electric are crafting plans in response for the California Public Utilities Commission’s request for proposals.

Oklahoma Gas & Electric (OG&E) has asked that state’s Corporation Commission to let it change its rate design based on “embedded cost principles.” Earlier this year, publicly owned Salt River Project in Arizona added a fee for solar customers.

Environmental and renewable advocates, of course, are not always thrilled with the move toward surcharges or tariffs or whatever they’re called in the rate structures. Some see these moves as possibly inhibiting the push toward customer-controlled renewable energy choice. And all of this is happening as the cost for installing rooftop solar is going down.

“We believe the net metering proposals set forth by the utilities would have a significant impact on the solar market in California. Net metering is a cost-effective, successful, smart policy,” Sean Gallagher, vice president of state affairs for the Washington, D.C.-based Solar Energy Industries Association (SEIA), said in a statement about that regulatory battle. “There is no reason to replace something that has been such a huge economic and clean energy success for the state and which has been demonstrably shown to be fair to all utility customers.”

Gallagher described the utilities’ proposals as “punitive” and “untested.” The record of growth for California and overall U.S. solar installation is certainly robust: 73 communities in southern California alone added at least 1 MW each of residential solar in 2014, according to reports. The U.S. overall installed 1,393 MW of solar photovoltaics (PV) in the second quarter of 2015 to reach 22.7 GW of total installed capacity, enough to power 4.6 million American homes, according to a recent report from GTM Research and SEIA.

Salt River Project, the publicly owned utility which provides power to the Phoenix area, has dealt with the challenges of net metering through its E-27 Customer Generation Price Plan. The plan is focused on time-of-use rates and unbundles grid costs from energy costs. This granular response helps SRP tackle some of its biggest concerns with what utilities consider the inequities of net metering.

“In the past, utilities have generally bundled grid costs into each kWh of energy sold. For residential customers, this has worked well because residential customers have typically used energy and the grid in the same way,” SRP spokesman Scott Harelson said. “Self-generation customers, though, often break this pattern and can even have net zero energy while significantly using and placing demand on the grid. Under rate structures that bundle use of the grid with energy, that customer is sending energy to the grid but getting credit for both energy and grid costs even though they are using the grid as much as other customers.”

For bottom-line net metering advocates, it’s mainly about what seems like fair economics to them. The utility pays its customer for the energy that customer sends back into the grid at close to the same rate it charges that customer.

Utilities, such as SRP, would counter that net metering is not apples to apples when it comes to rate charges. Some have argued that DG customers currently are receiving an unfair subsidy for their homegrown generation and putting the remaining financial burden on non-DG customers, who often are poorer and cannot afford personal solar PV or wind power in the first place. It’s also not unreasonable to think that utilities are concerned about their revenue streams, too.

In August, OG&E asked Oklahoma regulators to approve a monthly charge averaging about $15 on those DG customers who have installed their facilities after the November 2014 effective date of state legislation requiring new DG tariffs.

Regulatory consultant Roger Walkingstick, who was hired by OG&E in the case, said in written testimony that utility rates are made up of numerous parts and costs. He opined that those components provide DG customers with more credit than the benefit generated by their facilities.

“Yes, subsidy has been a longtime issue associated with most DG installations,” Walkingstick said, according to the testimony. “DG customers need to be credited at a level that is commensurate with the embedded benefit they provide to the utility and to other customers. The current rate structures as they apply to net energy billing option (NEBO) customers do not meet this standard. These current NEBO related tariffs tend to compensate customers at a level that is too high for the embedded benefit they provide.”

The only way to get around this imbalance, Black & Veatch’s Overcast pointed out, is either to find equitable rates or tariffs, unbundle the various rate components into separate charges or decouple DG facilities from the grid.

“If you say the environmental benefits are in the rate, then those are part of what they could claim as avoided costs,” Overcast said. “But it’s not avoided by the utility.”

Utilities collectively have spent billions of dollars on wind and solar power installations. They also have mammoth costs associated with meeting federal edicts such as the Clean Power Plan and Mercury and Air Toxics rules. They are required to spend more even as customers use less energy.

Many states and utilities already have jumped on the DG bandwagon and encourage net metering through various plans and incentives. The 30 percent federal residential renewable energy tax credit, which is set to expire at the end of 2016, does not hurt, either.

Some states are limiting the amount of electricity that can be sold back into the grid, otherwise known as net metering caps. In August. Nevada regulators voted to keep existing rates in place after the state reached its cap of about 235 MW earlier than expected.

In that state, utility NV Energy also has asked for a new rate structure. NV argued that it’s paying more for the rooftop solar than it’s worth and that it could get solar power more cheaply from its own large-scale solar farms.

Solar advocates celebrated the stand-still decision by Nevada regulators, although the state must mull over new rates and rules by the end of the year.

From Hawaii and California to Massachusetts, coast to coast, state and utilities are taking the same journey as Nevada. Net metering is an exciting and risky thing in many ways, certainly for the customer willing to take that investment, but it’s also one giant challenge for those companies working on the generation, transmission and distribution side of things, trying to be all things to all customers.

“Various states have done different things to try and deal with these issues,” said Black & Veatch’s Overcast. “In my view, nobody has a comprehensive plan to deal with it. It’s been done in a piecemeal way” It’s all over the place.”

 

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