Net Metering in Play in Multiple US States

Publication April 12, 2016

Adjustments to standard net energy metering policies are possible in eight, and likely in another two, US states during the remainder of 2016.

Net metering programs, which have been adopted in 45 states plus the District of Columbia and three US territories, have played a key role in the rapid growth of US rooftop and other forms of distributed solar. Residential solar installations increased 66% in 2015 over the year before. Such development has generally been opposed by local electric utilities since distributed solar disrupts the traditional business model by reducing the amount of power purchased from the grid. Net metering requires utilities to compensate customers for any excess generation, usually at retail rates. The programs are called net metering because the customer utility meter effectively runs backwards.

The utilities have succeeded in scaling back net metering benefits in three states. Net metering programs in Arizona, Hawaii and Nevada have been revised, including by reducing the amount paid for excess electricity and imposing fixed monthly charges or other new charges on customers to help maintain the grid. In contrast, the California Public Utilities Commission reaffirmed the current net metering framework and adopted a similar successor tariff. However, California will revisit the successor tariff in 2019.

Another 13 US states have either recently enacted or proposed new or revised net metering rules. (This number includes the 10 states in which action is possible or likely later this year.) A number of the proposed rule changes favor rooftop solar.

Background: Hawaii, Nevada, California

The first generation of net metering programs — as opposed to variations such as virtual net metering or community solar — credited customers at the full retail value for any excess electricity exported to the grid against the amount of electricity drawn by the customer from the grid when its energy usage exceeds its on-site system output. Essentially, a utility customer is billed for its “net” energy use. This paradigm is shifting.

The Hawaii Public Utilities Commission decided last October, in Order No. 33258, to close the net energy metering program of three HECO Companies utilities to new participants. The commission approved two alternatives: a self-supply option or a grid-supply option. It also instructed the utilities to bring back to the commission a third, time-of-use option for customers. Unlike what happened in Nevada, existing net metering customers and those who applied to participate in the program by the date of the commission order remain eligible for the prior program.

Under the “grid-supply option,” customers can receive credits for energy exported to the grid that offset monthly utility energy charges. The credit is a fixed rate reflecting the 12-month average on-peak avoided cost for the relevant island grid, ranging from approximately 15¢ a KWh to 28¢ a KWh depending on the utility service territory. The credit amount will be fixed for a period of two years. Aggregate participation in the net metering program is capped initially at 25 megawatts for customers on Oahu and at five megawatts for customers in each of the Maui Electric Company and Hawaii Electric Light Company service territories. Any monthly generation in excess of the customer’s utility bill is not credited or carried over to a future month.

The self-supply option is designed for customers who intend to use all their own electricity without exporting any to the grid.

Under both options, residential customers will be required to pay a minimum bill of $25 a month, and small commercial customers will have to pay a minimum of $50 a month, to help maintain the grid. A lawsuit filed by solar advocates in state court last October, challenging the order on procedural grounds, was dismissed in January.

In Nevada, the Public Utilities Commission approved, in late December 2015 in docket Nos. 15-07041 and 15-07042, a successor tariff that overhauls the existing net metering structure for customers of NV Energy and its two utility subsidiaries, Nevada Power Company and Sierra Pacific Power Company. This new tariff increases monthly basic service charges, reduces solar export compensation by replacing retail rates with an avoided energy cost rate structure and establishes a separate rate class for residential and small commercial systems and a time-of-use pricing mechanic for net metering customers.

The commission reaffirmed the revised net metering tariff in mid-February and retained a controversial provision applying the new requirements to the approximately 17,000 existing net metering customers, but with a 12-year transition period to implement the revised rate structure fully under the new tariff.

During the transition, the basic service charge increases for net metering customers every three years (by NV Energy’s estimates, from $12.75 a month to $38.51 by 2028 for residential systems located in certain service areas), with a corresponding decrease in export compensation to customers.

In response, major solar developers have exited the Nevada market and the debate has moved to the state courts. In January, net metering customers filed a class action lawsuit against the Nevada Power Company alleging various tort claims and deceptive practices, and solar industry group The Alliance for Solar Choice (TASC) filed suit in mid-March against the Public Utilities Commission in an effort to overturn its decision. A proposed referendum backed by the solar industry aimed at restoring the prior net metering rate regime has been challenged in state court by utility interest groups. Meanwhile, Tesla is reportedly backing a ballot initiative aimed at opening the electricity market and overturning the retail sales monopoly enjoyed by the Nevada utilities.

In contrast, the California Public Utilities Commission adopted a successor net metering tariff — called “NEM 2.0” — by a 3-2 decision in late January that favors the solar rooftop companies. The docket is No. R14-07-002. The new tariff generally retains the existing net metering structure that links customer compensation to retail rather than wholesale rates through 2019, but with certain modifications. The modifications involve certain time-of-use rate requirements, an interconnection fee and a requirement that customers pay all specified non-bypassable charges for electricity imported from the grid. (Non-bypassable charges are utility charges that appear on a customer’s bill, even if it buys its electricity from another supplier.) The revised tariff applies starting July 1, 2017 to new net metering customers of the three largest investor-owned utilities in California: San Diego Gas & Electric, Southern California Edison and Pacific Gas & Electric. However, such requirements may take effect sooner if certain megawatt thresholds are reached under a utility’s net metering program (for example, when total net metering capacity reaches 5% of aggregate customer peak demand for the utility).

In early March, each of the three utilities asked the commission to reconsider the decision. The requests are pending.

Mississippi, Pennsylvania and Virginia

The Mississippi Public Service Commission voted 3-0 in December to put a new net metering program in place in that state. The decision is in docket No. 2011-AD-2.

The commission directed utilities to value and credit excess energy generated by customers into the grid on a monthly basis, with unlimited carryover of bill credits.

The credit amount is a compromise between the local utilities and the solar industry. Excess energy is not credited at the full retail rate (approximately 10¢ a KWh), but rather at the wholesale rate, plus a temporary adder of 2.5¢ a KWh leading to a rate of approximately 7¢ to 7.5¢ a KWh, depending on the utility service territory.

The temporary adder is recognition of the unquantifiable benefits of net metering, such as increased generating capacity. The adder will be replaced within three years by a value reflecting the “actual benefits” of distributed generation, as determined by an independent consultant study. Local investor-owned utilities must offer an additional adder of 2¢ a KWh to the first 1,000 qualifying low-income customers, for the first 15 years of service, in an effort to deal with the distributional effects of net metering. The program could leave grid costs being disproportionately borne by customers unable to install solar panels.

The rules limit the size of residential installations to 20 kilowatts. Participation in each utility’s program is capped at 3% of the total distribution system peak demand. Several requests for clarification (from interest groups such as the Sierra Club, who otherwise notes general support for the rules, and TASC) and for rehearing (from electric power associations) have followed. To date, the Mississippi Public Service Commission has taken no action on such petitions, and it is not expected to do so.

The Pennsylvania Public Utility Commission voted 3-2 in mid-February to retain net metering at the full retail rate of approximately 8¢ a KWh, while amending certain other net metering provisions. The commission action can be found in docket No. L-2014-2404361.

The commission reaffirmed statutory restrictions on nameplate capacity of residential systems at no larger than 50 kilowatts and on non-residential systems at no larger than three megawatts.

It added a new requirement that any system participating in net metering cannot be sized to generate more than 200% of the utility customer’s historic annual electric consumption. This percentage is significantly higher than the percentage originally proposed by the commission in February 2014. No applications for rehearing had been filed with the commission as of the end of March. The new rules now pass to the Pennsylvania Independent Regulatory Review Commission for review, which has scheduled a public hearing in mid-May on the changes.

Virginia revised its net metering rules in November.

The Virginia State Corporation Commission issued an order approving updated rules that double the system capacity limit for nonresidential customers from 500 kilowatts to one megawatt. The order also limits the capacity of any facility installed after July 1, 2015 to the expected annual energy consumption of the customer based on the previous 12 months of billing. It also requires new net metering customers to notify and get approval first from the local utility. The Virginia order is in case No. PUE-2015-00057.

No immediate action on the legislative front seems likely as proposed bills addressing net metering in both houses of the Virginia legislature have been tabled until 2017.

Currently in Play

Local utilities in Arizona are continuing to try to reduce customer compensation for exported power and increase monthly fees.

The Arizona Corporation Commission authorized the Arizona Public Service Company in late 2013 to assess a fixed charge on distributed generation systems in response to concerns that the burden of maintaining the grid was being shifted to customers without solar on their roofs.

Tucson Electric Power Company and UNS Electric, both owned by Fortis, have requests pending before the commission to follow the same path as Arizona Public Service to revise rate structures. The requests are in docket Nos. E-01933A-15-0322 and E-04204A-15-0142.

Ohio is another current battleground.

AEP Ohio has a lawsuit pending before the Ohio Supreme Court to have the amount it is required to credit net metering customers declared unlawful. The case is 2014-1290. It has been on hold, after both sides asked for a joint stay, to give the Ohio Public Utilities Commission a chance to revise its own rules.

The commission proposed new net metering rules in November 2014. The new rules allow utilities to offer net metering contracts on terms determined by the parties to the contract, including compensation at the “utility’s standard offer rate.” The rules stipulate that excess credits can be carried forward for up to 36 months. They also limit system size to 120% of customer load, calculated using the average amount of electricity supplied by the utility to the customer annually over the previous three years.

Solar interest groups such as TASC have filed comments in support of the rules, but local utilities, including AEP Ohio, are opposed. The docket is No. 12-2050-EL-ORD.

Regulatory bodies in other states, such as Illinois and Louisiana, are working to revise existing net metering programs including by capping total participation.

The Illinois Commerce Commission proposed new net metering rules in April 2015. The rules are part of docket No. 15-0273.

The commission wants to increase the net metering enrollment cap to 5% of utility load and base compensation rates on whether a customer is considered “competitive.” Residential customers are not considered “competitive,” so they would continue to receive credit at retail rates unless they contract otherwise with the utility.

The commission sent a second notice about the rulemaking to the administrative rules committee of the state general assembly in November. The new rules will be adopted if there are no objections from the committee. At least two utilities — Commonwealth Edison and Ameren — want changes.

The Louisiana Public Service Commission initiated a two-phase rulemaking in December that would reduce bill credits for customers after a utility reaches a net metering cap.

Two local utilities — Entergy Louisiana and Southwestern Electric Power — have already reached their caps. The Louisiana commission proposed that once a utility reaches 0.5% of its monthly retail peak load, any excess energy exported to the grid by net metered customers would be credited at the avoided cost rate.

Existing customers would not be grandfathered.

A recommendation on grandfathering is expected from commission staff, but none was issued as of the end of March.

A number of states in the northeastern US are also reconsidering their net metering rules.

The Maine state legislature directed the state Public Utility Commission in July 2015 to convene a stakeholder group to suggest an alternative to net metering.

Under a bill pending in the state legislature — LD 1649 — new residential and small business customers installing distributed generation systems of up to 250 kilowatts in size would enter into long-term contracts with the local utility for net metering. The Maine Public Utilities Commission would set the rates to be paid under such contracts. The rates would decline as the total level of residential and small business capacity approaches certain statewide capacity targets.

Existing net metering customers in Maine would remain eligible for compensation under the current tariff for 12 years.

The bill would direct the commission to adopt implementing rules by the end of 2016.

A public hearing was held in the legislature on March 16. The bill is expected to be reported out of committee once certain amendments, not yet available as of publication, are incorporated. Some modified version of the bill seems likely to pass, although the current legislative session will end on April 20. Whether the governor will sign it is a separate question: he opposes it.

In Rhode Island, the state legislature directed the Rhode Island Public Utilities Commission in January 2015 to open a docket to consider rate design and distribution cost allocation among rate classes. The legislation directed the commission to issue an order by March 2016, with any new rates to take effect in April. No such order on rate design or cost allocation had been issued as the NewsWire went to press.

In New York, the Public Service Commission temporarily suspended the state’s net metering caps (currently 6% of each utility’s 2005 load). The commission has a REV proceeding — “Reforming the Energy Vision” — underway in part to address net metering issues. Utilities have been instructed to continue accepting interconnection applications for from solar customers who want net metering until the policy is addressed in the REV proceeding. The commission asked in December for comments on an interim successor to the existing net metering program. The request for comments is in Case 15-E-0751. Comments are due in April.

The Vermont legislature directed the Vermont Public Service Board to convene workshops to design revised net metering rules.

The most recent draft rules as of March 2016 would compensate new net metering customers at a “blended residential rate” that is either the retail rate or an average of the retail rates for utilities that charge progressively higher rates as consumption increases. The draft rules also allow utilities to charge net metering customers a “reasonable” fee to cover certain fixed costs. Bill credits may be carried forward for up to 12 months and current customers would be grandfathered into their existing rates for 20 years.

The draft rules are silent on an aggregate cap for net metering participants. Public hearings on the draft rules are scheduled for early May.

Local utility Green Mountain Power reached its statutory cap in early November 2015, and petitioned the Vermont Public Service Board for permission to offer net metering above this cap. The board is not reviewing any applications currently for projects above 15 kilowatts that submitted interconnection requests to Green Mountain Power after the cap was reached. It asked the utility for more information in March.

Massachusetts and New Hampshire

The net metering debates in the states discussed earlier balance two competing interests: solar rooftop customers and solar companies who want to preserve bill credits at retail rates and avoid monthly back-up service fees and utilities who want to pay less for customer-generated electricity and charge monthly fees from all customers to ensure the cost of maintaining the grid is equitably borne.

While definitive action on net metering revisions in these states is difficult to predict, two other states are moving quickly to revise their rules.

Massachusetts acted as the NewsWire was going to press. The state legislature voted to increase the net metering cap by 3% and to reduce payments to large privately-owned systems above 25 kilowatts feeding excess power into the grid once the new cap is reached. Utilities are permitted to impose a minimum monthly fee on customers to help pay for the grid. Customers who qualify for net metering before the cap is reached would be grandfathered for 25 years. The Republican governor is expected to sign the bill.

The new cap on net metering participation is expected to be reached quickly. Massachusetts has raised the cap four times in the last six years.

Facilities installed after Massachusetts reaches capacity would be credited at the wholesale rate, a difference of approximately 12¢ to 14¢ a KWh.

The issue of caps on installed net metering capacity has also arisen in New Hampshire.

In response to local utilities reaching or nearing statutory caps on net-metered systems of all sizes, the New Hampshire Public Utilities Commission issued an order in docket No. DE 15-271 in late March directing utilities to implement new customer-generator interconnection and net metering queue management procedures. The new procedures (including certain revised application requirements and project milestones) apply to both proposed and existing projects, giving the latter 30 days to demonstrate compliance with the new requirements once the procedures are implemented. No reconsideration period is provided for and no comments had been filed as of the end of March responding to the decision.

Meanwhile, efforts to increase the state-wide 50-megawatt cap on net-metered facilities have gained widespread support before the state legislature. SB 333, which passed the Senate in February 2016, would raise the cap to 75 megawatts, while HB 1116 would raise the cap to 100 megawatts. The House bill passed the full House in March and is expected to pass the full Senate in early April. The New Hampshire governor issued a statement strongly in support of lifting the cap.


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