Recent and ongoing regulatory proceedings on net metering highlight the role of state Public Utility Commissions (PUCs) in setting the terms of advanced energy growth in the United States.
Net metering — which is offered in over 40 states — requires utilities to credit households and businesses that install small distributed generation systems (such as solar, wind, biogas, fuel cells, small hydro, combined heat and power, and others) for the surplus electricity that they generate. Despite variation in policy design between states, net metering is credited with accelerating the deployment of distributed generation (DG), particularly residential solar photovoltaic (PV) systems. While the incentive level and certain policy design elements (such as caps on total net-metered capacity within a state or utility service territory) are usually set by statute, other key components are determined by PUCs in regulatory proceedings, typically involving extensive stakeholder comment.
As net metering has grown — net-metered capacity jumped 63% from 2010 to 2011, with at least 226,000 customers nationwide participating — more and more utilities have openly opposed further expansion in the amount they are required to accommodate (typically a percentage of peak demand). Utilities argue that net metering reduces their revenue collections and shifts the cost of maintaining the transmission and distribution infrastructure to other customers, even though net metered customers rely on that system for backup power.
Proponents counter that DG reduces the need for expensive investments in new generating capacity and helps utilities manage peak electricity loads, when electricity prices are highest, thereby providing benefits to the system greater than the avoided payments. DG can also relieve bottlenecks in transmission and distribution systems. Nevertheless, utilities are challenging the policy across the country, proposing changes that would limit or reduce the economic benefit provided to customers with distributed generation systems.
At least eight state PUCs are currently reviewing their net metering policies or have recently rendered decisions. These rulings could profoundly impact the growth of distributed generation in the United States, as net metering is a significant part of the value proposition for customers. Solar PV is particularly at risk, as it comprises about 93% of all net metered systems; 99% of solar PV systems installed last yearwere net metered.
So far, state PUCs have come down on the side of net-metered customers. In Idaho, the PUC denied a request by the Idaho Power Co. to increase monthly service charges on net metering customers, establish a load capacity charge, and have the net metering credit expire at the year’s end. In affirming its support for the policy, the PUC also removed the existing cap — previously set at 2.9 MW, among the nation’s lowest — arguing that a cap “may disrupt and have a chilling effect on the investment in and installation of distributed generation.” Similarly, the Louisiana Public Service Commission rejected, by a 3-2 vote, a motion by one commissioner to reduce compensation for solar generators from the retail electricity rate to the “avoided cost” wholesale rate. The commission did, however, vote to maintain the current cap at 0.5% of retail peak demand.
Meanwhile, some other state utility commissions are proposing to expand the scope of net metering. The Public Utilities Commission of Ohio (PUCO) has proposed changes to extend net metering to individuals that lease, but do not own, solar photovoltaic systems (PV), as is the case in many states where third-party solar offered by companies like Sunrun and Solar City have taken hold. Another PUCO proposal would allow electricity customers with multiple facilities to aggregate their electrical loads and apply solar generation credits from a single solar installation to all of their accounts. In Arkansas, the state Public Service Commission (PSC) has also taken up net metering aggregation and recently issued a draft order allowing the practice.
The fight over net metering is just beginning, however. In Arizona, home to the second largest solar market in the United States, the Arizona Corporation Commission (ACC) is set to consider two proposals by the state’s largest power company, Arizona Public Service, which would reduce the average benefit for solar customers by more than half. In Colorado, Xcel Energy, the state’s largest utility, is looking to scale back solar incentives and recently raised questions about net metering in a filing with the Colorado PUC. And in California, the nation’s solar leader, the California Public Utilities Commission (CPUC) will soon release an analysis assessing the benefits and costs of the state’s net metering policy that could influence future considerations across the country.
With utilities on one side and the solar industry, in particular, on the other, the net metering battle will be waged on many fronts, including legislatures in states around the country. But PUCs, as the regulators and rule-makers that implement the laws passed by legislators, will continue to be an important venue for this and many other policies that determine the potential for advanced energy growth in the United States. AEE’s PUC Engagement Program, with its new PUC Portal, will be following these developments closely. Stay tuned.