NRDC, EEI: Mixed Message on Net Metering

Net metering of rooftop solar installations is now a matter of debate across the country. Profit-making investor-owned utilities have been trying to roll back existing net metering rules, and resisting their expansion, in at least 25 states (see the end of this article for a list of battleground states).

The Edison Electric Institute (funded by the electric utility industry) and the Natural Resources Defense Council on Wednesday issued a joint release advising that utility companies adjust their business models to accomodate wider use of distributed and net-metered power sources.

Sounds good. But the statement does not recognize that net-metered, privately owned solar and wind generators already bring cost savings to grid operators, nor does it recognize that net-metering customers in most service areas already pay flat fees for the use of utility connection equipment. Instead, the statement advises that new rate designs be fair to all stakeholders — language that leaves room for specious arguments regarding cost-shifting. See what you think.

EEI/NRDC JOINT STATEMENT TO STATE UTILITY REGULATORS

February 12, 2014

Introduction
The future of America’s vital electricity sector will continue to be a promising one as long as regulatory policies are fair and forward looking. As we move into a new age of innovation, the use of the grid is evolving, facilitating power flows in two directions, so that customers can engage in both purchases and sales of energy, and provide other services such as balancing, voltage support, and voluntary load management. Innovation is providing new incentives for customers to use the grid more effectively and efficiently, optimizing the use of existing infrastructure.

Anticipating as much, we launched a joint campaign in 2008 to accelerate energy efficiency gains and encourage utilities to undertake a host of other cost-effective and clean energy resources and grid enhancements. Together, these changes have done much to promote clean energy and efficient electricity usage, but they also have highlighted the vital need for regulatory policies that will support fair and adequate cost recovery for maintaining the evolving grid.

Recovering the fixed costs of the grid is becoming more challenging. While customers are discovering new opportunities that enhance the value that the grid brings to them, policy makers should rethink how utility costs are recovered, with consideration needed for new rate designs and new approaches that balance the desire to promote innovation while still enabling recovery of the capital investment that recognizes the value of the grid to all customers and their new uses of the grid. Traditional rate regulation can at times incentivize utility retail sales growth; in turn, utilities sometimes leverage that growth between rate cases to meet system-wide needs for cost recovery and capital investment.

Utility customers value electricity for the comforts, conveniences, and productivity it enables such as lighting, cooling, and mechanical drive provided reliably and just-in-time. In 2008, we outlined measures that would keep utilities whole for recovery of authorized non-fuel costs as electricity sales volumes fluctuated. We reaffirm that goal.

If properly done, utilities can adapt to the changing needs of customers, modern electricity systems, and technologies, while continuing to deliver safe and reliable service, maintain financial integrity by allocating costs of service fairly among customers, and continuously improve environmental performance. But utility regulatory and business model changes are necessary to accelerate progress and ensure transparent and equitable attainment of these objectives.

The recommendations listed below reflect our strong belief in the promise of new technologies for enhancing grid performance while lowering emissions (e.g., communications infrastructure, smart grid technologies, distributed generation, demand response, and upgraded controls). This innovation surge is viewed as having potential for grid improvement (including reliability and cost-effectiveness), and increased value of connectivity. Innovation does not threaten the grid; collectively, technology advances are making the nation’s transmission and distribution systems more important than ever as drivers of economic and environmental progress.

Key recommendations:

1. The retail electricity distribution business should not be viewed or regulated as if it were a commodity business dependent on growth in electricity use to keep its owners financially whole. Instead, utility businesses should focus on meeting customers’ energy service needs. Therefore, recovery of utilities’ non-fuel costs should reflect their costs of maintaining and improving the electricity grid, and should not be tied to levels of retail commodity sales.

2. Traditional rate regulation allows non-fuel revenues to grow between rate cases in proportion to growth in commodity sales, which averaged more than twice the rate of population growth between 1973 and 2000 before slowing significantly. If regulators break the linkage between cost recovery and commodity sales, they should provide for reasonable and predictable annual adjustments in utilities’ authorized non-fuel revenue requirements.

3. “Net metering” programs in wide use across the United States have helped valuable “distributed” technologies such as rooftop solar power gain traction and improve performance, but additional approaches are needed now. Although such generation can reduce a grid’s needs for central station generation and other infrastructure, it typically does not eliminate its owners’ needs for grid services. For example, solar generation at a residence typically does not align perfectly with the occupants’ energy use, requiring some use of the grid as the equivalent of a battery.

When they use distribution and transmission systems to import and export electricity, owners and operators of on-site distributed generation must provide reasonable cost-based compensation for the utility services they use, while also being compensated fairly for the services they provide. Customers deserve the opportunity to interconnect distributed generation to the grid quickly and easily.

4. Utilities deserve assurances that recovery of their authorized non-fuel costs will not vary with fluctuations in electricity use. Customers deserve assurances that costs will not be shifted unreasonably to them from other customers. Rate designs will continue to develop that reward customers for using electricity more efficiently. Examples include, but are not limited to, real-time pricing and variable demand charges that take advantage of digital meter capabilities where available.

5. It is appropriate to consider expanding investor-owned utilities’ earnings opportunities to include performance based incentives tied to benefits delivered to their customers by cost-effective initiatives to improve energy efficiency, integrate clean energy generation, and improve grids. In general, business models should include profit opportunities linked to utilities’ performance in delivering safe, reliable, affordable, and clean energy services.

Battleground states

Bills are now pending to limit or expand net metering in the following states:

  • Arizona
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • District of Columbia
  • Hawaii
  • Illinois
  • Kansas
  • Louisiana
  • Maine
  • Massachusetts
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Jersey
  • New York
  • Oregon
  • South Dakota
  • Utah
  • Vermont
  • Virginia

In addition, utilities have petitioned public utility commissions to limit net metering in California, Virginia, Colorado, New Hampshire, Utah, New Mexico and North Carolina.

To find out what’s happening in your state legislature, visit aeltracker.colostate.edu

Take action!  To join the debate and effect change in your region, talk to your local ASES chapter. Click here to find your chapter.

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8 Responses to NRDC, EEI: Mixed Message on Net Metering

  1. Jim Reply

    February 13, 2014 at 12:29 pm

    The EEI/NRDC joint statement seems reasonable. You note that the statement “advises that new rate designs be fair to all stakeholders.” What’s wrong with that?

  2. Joe Schiller Reply

    February 13, 2014 at 2:23 pm

    Regulated utilities (i.e. electric power monopolies) were created as a mechanism to provide the public’s need for affordable, reliable electric power. If the public’s needs have changed, i.e., if technology now allows them to produce some or all of their electric power and they need the grid to provide storage, the utilities should be made to change. The raison d’etre of the regulated utility is to serve the public’s need, not vice-versa. The problem with the EEI/NRDC joint statement, like all statements I have read from utilities, is that it understates the many benefits distributed generation provides utilities and overstates the costs. All customers should share equally for access to the grid and most utilities are compensated for this via a monthly connection fee. If this is not sufficient to cover maintenance of the grid it should be increased slightly for all customers. Note, this need not result in unfair cost shifting because the utilities fuel costs and other costs are simultaneously reduced.

    The implicit assumption underlying the arguments most utilities make, as does this joint statement, is that the regulated utilities are somehow sacrosanct and a should be insulated from technological innovation. This was not true of stagecoach drivers, millers, blacksmiths, or any of a host of professions and institutions that were rendered obsolete by advances in technology, and should not be true of regulated utilities either.

  3. Seth Masia Reply

    February 13, 2014 at 3:09 pm

    Jim, the original net-meter rates were designed by legislators and PUCs to be fair to all stakeholders. The utilities now claim that the rates unfairly burden them, and nonsolar customers. In effect, they want to reset the standard of “fairness” in their own favor.

    The general business press has interpreted the NRDC statement as an endorsement of higher connect fees for solar customers (see for instance this Businessweek story: http://www.businessweek.com/news/2014-02-12/nrdc-and-u-dot-s-dot-utilities-seek-compensation-for-rooftop-solar-cost). Now NRDC is backpedaling, saying they didn’t mean to endorse an attack on solar, but simply to engage EEI and try gradually to shift their business model. See this piece by NRDC blogger Nathanael Greene: http://switchboard.nrdc.org/blogs/ngreene/attacks_on_solar_should_be_rej.html

  4. Sheila O'Keeffe Reply

    February 13, 2014 at 5:32 pm

    New Mexico with its many electric coops who receive their power from Tri-State Generating and Transmission company is held hostage to this entity. We who have invested in solar panels to help control our electric utility costs are constantly met with their increasing costs. The electric coops are not in my opinion working in the best interests of their customer/owner status. Third world countries are better off than we are. It is time to deregulate these companies and give the consumer a fair return for their investments in solar power along with other electric producers. Tri-State has bought a coal plant near their generating facility. Do they care about the pollution, not in my opinion. But they will and have sought further increases in their costs. Does this sound as if they are acting in the best interests of their customers/owners. I think not. Do they care how many individuals will have lung problems escalate due to their poor backward planning. I think not. Yet we are to assume the financial responsibility for their poor judgement and they want to make us pay even more because we chose to do more to decrease environmental contamination they produce. Insanity as far as I am concerned.

  5. Lionel Reply

    February 13, 2014 at 7:12 pm

    “the statement does not recognize that net-metered, privately owned solar and wind generators already bring cost savings to grid operators”

    Actually it does (in the paragraph on net metering)…
    “such generation can reduce a grid’s needs for central station generation and other infrastructure, it typically does not eliminate its owners’ needs for grid services”

  6. Brian Ross Reply

    February 13, 2014 at 11:06 pm

    “. . . does not eliminate its owners’ needs for grid services.” The extraordinary chutzpah of the utility industry, now with the complicity of NRDC, to redefine DG’s grid benefits as a burden, as a cost to the utility and other customers, is breathtaking. Yet they have successfully and repeatedly trotted out this canard, and NRDC and some similar organizations have swallowed the kool-aid. Solar self-generators reduce congestion on the grid by eliminating their demand during daylight hours, when congestion, line losses, and stresses on distribution infrastructure are high. When solar self-generators “use the grid like a battery” they are not using the grid like a battery. The “battery” statement is a metaphor that describes how the billing/credit system works under net metering; it’s not a description of engineering or cost causation. In fact, the battery metaphor is utter fantasy from an engineering or cost causation perspective.

    When my neighbor’s solar system puts energy onto the grid, it’s not “stored,” in some battery that the utility has generously provided but which my neighbor is sneakily not paying. Her extra solar energy is used virtually instantaneously by me, in my home. However, the utility charges me at full rate, as if I was consuming power generated at a distant power plant, transmitted over miles at high voltage, stepped down to the primary distribution system and transmitted to the next substation where it’s stepped down to the secondary distribution system, then transported to my home’s circuit. I pay the utility for the use of all that infrastructure, yet actually I only used the 60 feet of the utility’s circuit between me and my neighbor’s solar system. When my neighbor uses the “credit” (pulls from the phantom “battery”) later in the day, it’s usually when congestion on the grid is lower than when the power was originally put out on the grid – costs are lower. There is no special “grid service” that the utility is providing my neighbor. The entire cost of the grid is being paid for via the rates that I pay and that my neighbor pays for energy not produced by her system. There is no new “cost” that she has imposed on the utility for reducing use of the grid.

  7. Fred L Denby Reply

    February 15, 2014 at 12:24 pm

    I have a rooftop residential Photovoltaic (PV) Solar System attached to my home and link to the utility electrical grid through “Net-Metering.” Any electricity that I do not use is bounced back onto the utility grid and at a later hour of the day and/or another day I will re-consume the electricity through a current credit system as mandated by legislation. I have been an advocate of PV Solar application and Net-Metering for many, many years before I had my PV System installed. I thought that the utilities would had been given permission by the Public Service Commission’s (PSC’s) to set the rate for net-metering “for example” my utility Potomac Electric Power Company (PEPCO) is selling electricity to me for .06¢ a KWH and each KWH that I generate and not used but sent back onto the grid to PEPCO they could buy each KWH from me at a rate that they calculated and approved by the PSC as a fair return on their investment like .04¢ a KWH. This would allow PEPCO to sell that same KWH’s back to me at .06¢ KWH a profit of .02¢ a KWH. PEPCO and electric utilities in general could profit from PV Solar System making .02¢ a KWH which could be gained to the utilities to pay for the use of their grid and offset the cost of fuel and plant equipment and operation to generate each KWH. If this would have been the case everybody should be happy the consumer who is only paying .02¢ a KWH for electricity generated against their PV System on a buyback net-metering program utilizing the utility grid to purchase from the utility, and the utility who is making .02¢ a KWH profit without spending additional money for fuel and operation cost for generating electricity, but unfortunately this is not the case. I somewhat embarrassed to say that my PV System as most PV Systems in the USA or free-loading off the utilities and the Utilities or mad as hell and want to now charge consumers in some cases an added fee to utilize the grid which is taking place nationwide with these added fee surcharges for use of residential roof top PV System like mind. These utilities or proposing to charge consumers like myself up to .70¢ per KWH of design capacity of the system per month. In my case I would have to pay PEPCO a flat .070¢ x 14KW System = $9.80 per month added to my electrical bill every month. I think the advocates who initially promoted this legislation were a little naive and the utilities now or a little too greedy. I feel that legislation nationwide should be promoted and implemented by local government and PSC’s to amended and/or modify legislation to allow utilities to set a cost for buying every KWH back from consumers in line the utility current operating expenses allowing them make a reasonable profit per KWH from consumers using their grid rather than consumer using the grid at no cost based on a current credit system.

  8. Boom Reply

    March 3, 2014 at 6:44 pm

    NRDC allowed themselves to be used by the monopolies for one simple reason: NRDC felt irrelevant (they are since they do no real work) in the greater DG debate.

    So now NRDC allows themselves to be used to get people talking about them again. Good job guys, we are talking about you. About what a pain you are.

    It is the Sierra Club and the leading solar companies that are framing the debate of the transition away from a 100 year old monopoly regulatory compact.

    NRDC has ensured that they are no longer at the table in this discussion. Perhaps they do other fine work in the enviro world and they should stick to that.

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