In recent months, Nevada has been the epicenter of the net metering debate nationally. The dispute came to a head on December 23, when the Public Utilities Commission of Nevada (PUCN) approved a new two-part net metering tariff that slashed the existing retail rate and tacked on a higher fixed charge, phased in over four years. The new net metering rules applied not only to new solar customers but existing ones as well. On February 12, the PUCN revised the order, extending the rate phase-in period from four to 12 years, but again without grandfathering existing solar owners. It seemed a watershed moment in the growing conflict over distributed generation connected to the grid - and for the rooftop solar industry that supplies it. But it is far from the last word.
The debate in Nevada can be traced back to July 2013, when Gov. Brian Sandoval signed into law Assembly Bill 428, which required the PUCN to investigate and report back to the legislature on the costs and benefits of net metered renewable generation systems. The PUCN commissioned a study, issued in July 2014, by Energy + Environmental Economics (E3), and filed its own report in September 2014, which asked the legislature for more flexibility in addressing net metering issues.
In May 2015, Nevada passed Senate Bill 374, which allowed utilities to develop a sustainable net metering tariff for after the state reached a 235 MW cap on net metered generation. As a result, on July 31 Berkshire Hathaway’s NV Energy filed a cost of service study and a proposal to cut the net metering credit by more than half, from 10.4 cents per kWh to 4.7 cents per kWh. The proposed tariff included a service charge, a demand charge, and an optional time of use (TOU) net metering rate. NV Energy claimed that the proposed rates better aligned with the costs of serving their net metering customers and eliminated any cost shift between solar and non-solar customers.
The cap was originally not expected to be reached until the end of the year, but it was hit in August. On August 26, the Commission voted to keep the existing net metering rates in place while a new tariff was developed by state regulators for adoption by the end of the year.
NV Energy’s proposal, along with the Commission order, sparked a rush of customers seeking to invest in solar, assuming they would be locked into the existing, higher net metering rate. The number of interconnected systems in NV Energy’s service territory jumped from 10,540 in July to 17,655 by the end of the year.
Falling solar prices, new financing mechanisms, favorable tariffs, and uncertainty over the future of net metering rates all contributed to the surge in net metered generation in Nevada. Then, on December 23, the PUC approved a new two-part net metering tariff, rejecting the proposed demand charge and approving the proposed TOU rates. The PUC lowered the net metering rate from the retail rate to the wholesale rate by 2020 and tacked on transmission and distribution costs for net metering customers (which nearly tripled the fixed charge by 2020). The rates would come into effect gradually over a four-year period, beginning on January 1, 2016.
The Commission’s perspective, as laid out in the February 12 draft order, is that the rate change was needed to remedy what it calculated to be an annual $16M cross-subsidy for net metered customers - the kind of cross-subsidy the Commission was under obligation to do away with under SB 374. The $16M figure is controversial in and of itself, with pro-solar advocates arguing that there was no cross-subsidy at all.
The decision sparked an outrage from many parties, as they claimed it ruined the value proposition for rooftop solar. It quickly led to a 93% drop in solar applications in NV Energy’s southern Nevada service territory. Not only that but the new rules applied not only to new customers, but also to the over 17,000 existing solar customers, who signed on to solar based on the original net metering rate. The order has already led several national solar companies, including SolarCity, Sunrun, and Vivint, to pull out of the state, leading to what the companies called thousands of lost solar jobs.
In the face of growing pressure from the state Bureau of Consumer Protection, solar owners, solar companies, and solar advocates, the PUCN agreed to reconsider. In a revised order issued February 12, the PUCN once again declined to grandfather existing net metering customers but did extend the gradual phase-in of the new net metering rate from four years to 12 years, in order to give solar customers time to adjust to the new rates. The Commission took the position that the extended transition period, coupled with the TOU option, gave the industry a good opportunity to work out a new business model. Whether that assumption proves correct remains to be seen.
Despite the Commission decision, the debate continues. Solar customers have filed a class action lawsuit against NV Energy, and more legal challenges are expected. A ballot question to eliminate the new net metering rule has been proposed for November (although a court ruling may prevent the initiative from going before voters until 2018). Also, Gov. Sandoval, who has said the decision “does not go far enough to protect [consumers] interests,” has urged state legislators to consider new ways to support the solar industry. So there could be a legislative fix, or at least some softening, on the way.
The Nevada net metering debate has even reached the national stage. U.S. Sen. Angus King of Maine and Minority Leader Harry Reid of Nevada have proposed an amendment to the Senate’s comprehensive energy bill - which itself seems unlikely to pass - that would set new restrictions on regulators’ and utilities’ ability to alter existing net metering rules. Also, ahead of the Nevada Democratic Caucuses, presidential hopefuls Hillary Clinton and Bernie Sanders both spoke out against the PUCN decision, with Sanders calling it “just about the dumbest thing I’ve ever heard.”
Coverage in the energy trade press has not been flattering either. David Roberts, of Vox said, “for the state's monopoly utility, [the decision is] a successful attempt to avoid competition. For the well-funded conservative groups fighting the spread of solar around the country, it's the first decisive victory. For most Nevadans, however, it represents an own goal, a senseless act of self-sabotage.” There has also been concern over the precedent that Nevada may have set, with Shayle Kann from Greentech Media saying, “the question of whether the Nevada ruling makes it more likely for another state to take on a similar ruling, especially the grandfathering portion, is an interesting question."
The questions about net metering posed in Nevada are not going away - there, or anywhere else that distributed solar has taken off. The growth of distributed solar has got utilities concerned about lost revenue, and has them raising questions about whether solar customers are paying their fair share for the grid they still rely on. Nearly a dozen states have or have had formal proceedings to get to the bottom of the question, “what is solar worth?” and how to treat both solar and non-solar customers equitably, without pulling the rug from under the rooftop solar industry.
The two leading solar states, California and Hawaii, have recently revised their net metering programs, but neither went as far as Nevada on rates, nor did they change terms for customers who invested in solar under the old rates - they only apply to new customers.
In January, the California PUC adopted a successor net metering program, called NEM 2.0, which keeps compensation at the retail rate, but imposes a one-time interconnection fee of $75 to $150 on new solar customers. In October, the Hawaii PUC adopted below retail rate remuneration, which falls between the utilities’ avoided costs and the retail rate. But Hawaii is unique. Residential solar penetration is at 17% in Hawaiian Electric Co.’s (HECOs) service territory, and with electricity prices more than three times the national average in some areas of the island state, solar is still competitive at the new rate.
Next up is nearby Arizona, which has had more than a few battles over solar already. In 2014, Arizona Public Service (APS) and Tucson Electric Power won approval for utility-owned rooftop solar pilots, despite concerns over regulated utilities participating in the market at an unfair advantage. In 2015, Salt River Project imposed a demand charge, adding up to $50 on a solar customer’s monthly bill. Now the Arizona Corporation Commission (ACC) is studying the costs and benefits of solar, with results due by June 1. That study was prompted by APS’s rooftop solar proposal last year, which sought to raise the interconnection fee for solar customers from an average of $5 to $21 per month. What the ACC finds, and what it does with that information, will be the next round in the net metering wars.
Keep track of these dockets and more from every state by signing up for PowerSuite.
Featured image courtesy of Daxis.