By - Michael Drost

Report: Ratemaking subsidies could imperil grid reliability

Energize Weekly, July 15, 2015

A new study released by the Electric Markets Research Foundation says that the concept of affordable and reliable electricity for all might be imperiled due to subsidized ratemaking policies like net-metering, and that failure to mitigate the unintended consequences of integrating distributed generation resources like microgrids and rooftop solar could create a two-tiered electricity system.

The report, prepared by Steve Mitnick of Build Energy America, says that electric customers will remain reliant on the grid for at least some, if not all of their electricity needs. This will remain so even as distributed resources become more integrated with main grid. As a result, if not properly planned implemented, the changing use of the grid can risk the reliability and safety of the grid, and could seriously affect utilities ability to afford a prudent level of upkeep and expansion.

One method of encouraging adoption of distributed generation that the report says is not sustainable is net-metering. Essentially a way of pricing rooftop solar energy, net-metering is a policy of compensating rooftop solar owners for the extra electricity they provide to the grid. Most of the 600,000 U.S. households with net-metering are paid the full retail value of the electricity they sell back to a utility. This policy is unsustainable, according to the report, as the full retail value covers only a part of the costs to integrate a rooftop solar system into the grid, and that the full retail value is a payment of more than twice what a utility actually saves. Furthermore, paying full retail value for the electricity provided by rooftop solar owners means other customers must make up the difference of the costs to the utility.

“Net metering is a double whammy to the utility. It is an incentive for customers to partially leave the grid, thereby reducing their contribution to the fixed costs of maintaining the grid. And it imposes additional costs on other customers, most notably the increased costs of integrating customer-owned generation into grid operations,” the report noted.

While net-metering is just one policy that the report says, if left unchecked, could lead to a utility paying more to provide a service than what it actually costs, a combination of policies designed to improve customer choice of electricity providers could also lead to utilities having less revenue available to make necessary upgrades and expenditures. This would inevitably result in a two-tiered system of electricity usage, according to the report. A privileged minority that is able to afford working around grid-based electrical service, and a dependent majority that is receiving electricity from utilities which now have less revenue to provide for grid upkeep.

The report notes that there are practical options available to prevent the “funding squeeze”, including a change in the mix of fixed and variable charges in electric bills to better reflect utilities’ costs without significantly burdening low-income households or weakening incentives for efficiency improvements.   Another option is to have end-users pay for the electricity they take from the grid, based on the rate all users pay, while the grid pays for electricity it takes from those generating on-site, based on avoided costs to the grid.

“Having prices reflect the real costs to serve customers is one of the fundamental principles of good regulation,” the report says.

 

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