PV net metering programs generally follow a basic model. The PV system installed by (or for) the net metering customer produces energy that reduces the customer’s usage and, as a result, the customer’s monthly electricity bill. If the customer’s usage exceeds the energy produced by the PV system, the customer draws additional energy from the grid and is charged for such energy at the applicable rate. If energy produced by the PV system exceeds the customer’s usage, the excess energy is fed into the grid and credited toward the customer’s monthly bill by the utility (typically, at the same rate that the customer would have paid to purchase energy from the grid).
While arguments continue over the policies supporting net metering in legislatures and in other political forums, utilities and other parties have criticized the basic net metering model for its failure to address recovery of the costs incurred in maintaining and operating the electric transmission and distribution system and consequent subsidization of net metering customers by non-metering customers. Distributed solar companies and industry groups argue in response that the industry is still young enough that reducing the economic benefits of distributed solar would make installations uneconomical and slow the penetration of distributed solar resources. This article focuses on two recent decisions impacting such issues—the first by the Public Utilities Commission of Nevada (PUCN) and the second by the California Public Utilities Commission (CPUC). In the first decision, the PUCN approved changes to the model for Nevada net metering. In the second, the CPUC rejected arguments that the model needed to be changed, but accepted the notion that further study of these issues was appropriate.
Before addressing the decisions themselves, some general background on utility ratemaking may be helpful. Utility rates are structured to allow the utility to collect the costs of supplying and/or delivering electricity to utility customers and a return on the utility’s investment in necessary infrastructure (collectively, the utility’s “revenue requirement”). Rates are set by state regulatory commissions in litigated rate cases that group customers into “classes” on the basis of factors such as service voltage, usage, when the usage occurs, and how consistent the usage is over a day, season or year. The utility’s revenue requirement is then allocated to each customer class on the basis of the costs that the class imposes on the utility (and other general allocation factors).
Rates are then “designed’ for each class to reflect a number of social and policy goals. The rate design process determines whether the costs allocated to a customer class will be collected through a fixed customer charge or a rate that varies on the basis of usage or demand. The lower the fixed rate component, the more electricity usage affects revenue requirement recovery. The higher the fixed rate component, the less electricity usage affects revenue requirement recovery. For obvious reasons, net metering programs succeed in markets in which rates are designed with lower fixed charges because the customer can utilize self-generation to offset comparatively higher retail charges.
Nevada
On December 21, 2015, the PUCN voted unanimously to approve a new solar tariff structure that decreased the rate paid to net metering customers for excess energy generation (from the retail rate to the wholesale rate) and increased the fixed service charge for net metering customers. The changes took effect as of January 1, 2016 and apply retroactively to net metering customers who relied on the prior rate structure when deciding to install their PV system. The decision came at the request of Nevada Power Company (NPC) and Sierra Pacific Power Company (SPPC), both of which do business as NV Energy (see Docket Nos. 15-07041 and 15-07042).
The PUCN observed that the existing net metering rates were not aligned with the costs to serve net metering customers and that this misalignment would only grow as the penetration of solar net metering increases. The rate changes were in the public interest, the PUCN said, as it would transition net metering customers to accurate, cost-based, non-discriminatory rates.
In accordance with the PUC’s order, NV Energy subsequently filed new tariff sheets detailing the new proposed rates. If the tariffs are approved, monthly net metering service charges in 2016 will increase from $12.75 to $17.99 for NPC customers and from $15.25 to $21.09 for SPPC customers. The service charges will continue to increase until they reach $38.51 and $44.43, respectively, by 2020. The new tariff sheets also proposed decreases in solar credits in 2016 from 11 cents/kWh to 9 cents/kWh for NPC customers and from 9.4 cents/kWh to 7.6 cents/kWh for SPPC customers, with the credits declining to 2.6 cents/kWh and 2.7 cents/kWh, respectively, by 2020. The decision also approved a time-of-use pricing option, which allows users to take advantage of off-peak demand periods.
Importantly, Nevada is the first state to implement structural net metering reforms on pre-existing net metering customers. The PUCN found that because there would be no difference in the cost to serve or usage patterns of pre-existing customers, the rate making principle of “horizontal equity” supported treating all net metering customers equally. The PUCN also cited administrative concerns with treating similar ratepayers differently.
Solar installers have been vocal in condemning the decision. SolarCity and Sunrun, two of the largest residential solar installers, have announced that they will cease Nevada sales and installations. Other interested parties, including the Solar Energy Industries Association (SEIA), the Alliance for Solar Choice and the Nevada Bureau of Consumer Protection, asked the PUCN to stay the effectiveness of the new rates until petitions for reconsideration and rehearing could be considered, but a stay was denied.
On January 20, the PUCN issued a proposed order saying that it would reconsider the grandfathering issue in light of a request by the Nevada Attorney General’s Bureau of Consumer Protection. Several days later, NV Energy announced that it supports allowing existing customers (and those who submitted valid net metering applications prior to the PUCN’s decision) to continue taking service under the existing program for as long as 20 years. The PUCN has requested supplemental testimony on the issue and intends to hold a hearing on February 8, 2016.
California
On January 28, 2016, the CPUC issued a decision more favorable to solar advocates. The decision preserves the full retail credit for excess solar generation but also passes along certain fixed costs to net metering customers.
The decision comes in response to California Assembly Bill (AB) 327, which directed the CPUC to create a successor program to the state’s existing net metering program. The existing program expires on the earlier of July 1, 2017 and the date when the large investor owned utilities’ (Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E)) reach the program cap of 5% of their peak demand.
The decision was largely a victory for net metering proponents, because the CPUC declined to impose any demand charges, recurring grid access charges, installed capacity fees, standby fees, or similar fixed charges or usage charges on net metering customers. The CPUC did however propose that net metering customers pay certain “nonbypassable charges” for each kWh of electricity they consume from the grid, rather than only on the netted-out volume of electricity they consume (as is the current approach). These nonbypassable charges reflect costs that all utility customers pay to fund low-income and energy efficiency programs and will likely amount to approximately 2-3 cents/kWh. The CPUC also determined that net metering customers (other than Single-Family Affordable Solar Home (SASH) program participants) should pay a one-time interconnection fee (likely $75-$150) to cover the costs for a utility to review and approve solar installations. In the past, net metering customers only paid these charges if they consumed more electricity from the grid than they sold back to it. The CPUC generally acknowledged that, over time, the net metering program should move the economic contribution of net metering customers toward being more consistent with the contribution of other non-net metering customers.
With respect to compensation for excess solar generation, the CPUC noted the wide range of rates proposed by the utilities (ranging from 4 cents/kWh to 11 cents/kWh). This range strongly suggested to the CPUC that “more work is indicated before any major shifts in the paradigm . . . are implemented.”
In direct contrast with the Nevada decision discussed above, the CPUC clarified that existing net metering customers and those customers who interconnect prior to the end of the existing program, will be eligible to continue taking service under the existing net metering program for 20 years from the date of their original interconnection. This grandfathering principle was implemented in a previous CPUC decision and is reaffirmed and applied to the successor net metering program laid out in the decision. This transition period ensures customers a “uniform and reliable expectation of stability under the [net metering] structure under which they decided to invest in their customer-sited renewable DG systems.” The CPUC added, however, that this 20-year period applies only to customers’ ability to continue service under the net metering program, but does not entitle customers to “the continuation of any particular underlying rate design, or particular rates.”
Additional findings in the decision include the following:
- Net metering customers interconnecting under the new program will be required to use their utility’s existing residential time-of-use (TOU) rates or participate in a TOU pilot program. This will incentivize residential customers to adjust their electricity usage to minimize impacts on the grid at times of high demand.
- Systems larger than 1 MW may participate in the net metering program, as long as they meet all other requirements of the program (including being built to the size of onsite load) and the customer pays all interconnection study and distribution system upgrade fees for the facility.
- The CPUC would revisit the net metering program in 2019 to incorporate findings from its ongoing Distribution Resources Planning (DPR) and Integration of Distributed Energy Resources (IDER) proceedings, among other proceedings, with a view to considering an export compensation rate for net metering customers that takes into account locational and time-differentiated values.
- The “minimum bill” established in CPUC Decision No. 15-07-001 for residential customers on the non-generation portion of their monthly electric bills ($5 for California Alternate Rates for Energy (CARE) customers and $10 for non-CARE customers) would be preserved.
In its decision, the CPUC rejected a joint proposal from the large investor owned utilities that would have paid customers a “fixed export compensation rate” of 15 cents/kWh, with an eventual step-down to 13 cents/kWh. The CPUC stated that the timing and structure of the proceeding did not provide adequate opportunity for the parties and the CPUC to consider, analyze and respond to a proposal of this magnitude.
The decision was approved by the CPUC in a 3-to-2 vote. The utilities are required to file new tariffs within 30 days of the decision, which will detail the amount of the new interconnection fees, among other things.
Conclusion
These decisions by Nevada and California energy regulators are early milestones in what is sure to be a long debate between proponents and critics of net metering. Other states’ regulators will continue to consider the issues identified in these decisions and craft net metering programs that attempt to balance support for distributed solar generation with compensating utilities for critical grid infrastructure.
Arizona is expected to be one of the next states to host this debate, with the Arizona Public Service Co. (APS) expected to file its next rate case in June 2016. APS has already indicated in filings with the Arizona Corporation Commission (ACC) that it would like to increase the Lost Fixed Cost Recovery (LFCR) – a monthly charge approved by the ACC in 2013 and paid by rooftop solar customers to compensate the utility for fixed grid costs – from 70 cents/kW to $3/kW. APS asked the ACC to consider this request back in 2015, but the ACC declined to address the issue outside of a full rate case.
The true effect of these decisions on renewable energy penetration on a nationwide basis can only be measured by the passage of time. While a number of rooftop solar companies have announced their departure from Nevada because of the PUCN’s decision, the CPUC’s decision indicates that California is likely to remain a more stable market for customer or third-party owned distributed generation and solar generally. The inconsistent approaches of California and Nevada illustrate that even among states with abundant renewable resources, there lacks a consensus on the right policy to direct investment into the utilization and deployment of renewable resources.