Utilities and regulators are taking an incremental approach in changing solar subsidies
Energize Weekly, November 22, 2017
After failing at frontal assaults on the “net metering” credit for residential solar arrays, utilities are adopting an incremental approach to their concerns about home rooftop solar.
Small transitional steps in dealing with rooftop solar are being taken in dozens of states across the country, according to the NC Clean Energy Technology Center’s “50 States of Solar” 2017 third-quarter report.
“I think regulators are looking to see data and evidence before changing policies,” said Autumn Proudlove, a senior analyst at the center. “In many cases, there hasn’t been comprehensive studies of the value of solar, and they are reluctant to make dramatic changes that have impact on the solar market.”
Recent initiatives have included changing the way the net metering kilowatt-hours are counted, moves to create a separate rate class for residential solar customers and stepping down the credit gradually.
The goal, however, is the same, contends Rick Gilliam, director of distributed generation policy for Vote Solar, an advocacy group, to blunt the growth of residential solar.
“This is part of a multi-step process that utilities are using to segregate this technology and not in a positive way,” Gilliam said.
Still, some analysts and experts say the credit has outlived its usefulness. “Net metering is an inefficient and opaque way to support the growth of low-greenhouse-gas technologies, and should be replaced with more direct and transparent subsidies,” Severin Borenstein, a professor at the University of California at Berkeley’s Haas School of Business, wrote in his energy blog.
Net metering has been a “proxy valuation measure” that worked because it was simple and easy, Proudlove said. “Now we can get more granular and compensate customers on the true value of solar.”
Starting in 2014, there were a number of high profile battles over net metering—a program in 43 states and the District of Columbia in which residential solar units get a credit for each kilowatt-hour of electricity they put on the grid. It is usually equal to the rate charged residential customers.
Utilities argued that the credit is too high and sought to abolish or reduce it to something close to the wholesale rate for electricity, which in some cases would have cut the credit by 75 percent.
These moves came at a time when there was dramatic growth in rooftop solar. Between 2011 and 2016, the number of net metered customers grew nearly eightfold to 1.3 million, according the federal Energy Information Administration.
The growth of small, distributed solar could pose challenges to stability of the grid, potentially undermining electricity sales and shifting costs for grid upkeep to non-solar customers, utilities said.
“What we are seeing are utilities stuck in this antiquated way of doing business and it isn’t even their fault. That’s the way they are regulated,” said Jennifer Gardner, an attorney with the environment policy group Western Resource Advocates. “They need to build new stuff to put in the rate base, but how can you build stuff when demand is flat and rooftop solar is cutting even further into that demand?”
Initial efforts to abolish or scale back net metering met with little success. For example, after Nevada regulators eliminated net metering in 2015, last June, the state legislature passed and Gov. Brian Sandoval signed a bill restoring it.
Legislative efforts in Washington state and Utah to do away with it failed, and after a lengthy proceeding initiated by Xcel Energy, the Colorado Public Utilities Commission decided to keep the program in place.
Utilities are also trying, with limited success, to add demand charges or additional monthly fees on the bills of solar customers. The utilities contend these will ensure that solar customers pay their fair share for the upkeep of the grid.
“Fixed charge increases have been the most common action we’ve seen in quarter after quarter,” said Proudlove. “It is interesting that the majority of those increases are not granted, 80 percent rejected or only granted in part.”
And so, utilities and state regulators are now looking at incremental changes, and in some states, negotiations among stakeholders, including the utilities, solar industry and environmental and consumer groups, are underway.
In September, such a negotiated settlement, promoted by Gov. Gary Herbert, was approved by Utah’s Public Service Commission.
By getting everyone at the table and finding some common ground, “the steam was taken out of some of the tough talk that has been happening around the country,” said Spencer Hall, a spokesman for Rocky Mountain Power, a division of PacifiCorp.
Under the agreement, current rooftop solar customers would keep their net metering credit of about 10 cents a kilowatt-hour for 18 years. New rooftop customers, in a three-year interim period, would receive 9.2 cents a kilowatt-hour for 15 years.
During those three years, Rocky Mountain Power will do a detailed study of costs and benefits to set a solar credit for future installations.
The utility also gained approval to spread some of the interim costs out over the rest of the customer base through a rate pass-through.
“We learned some lessons from around the country where the utility doubled down on the traditional model,” Hall said. “This model is something other groups around the country can take a look at.”
The Utah agreement has its critics. “The transition period creates a lot of uncertainty,” Gardner said, as does a change in the “netting” period.
Net metering credits have generally been tallied up on a monthly basis along with monthly bills. Rocky Mountain Power was able to reduce the netting period to every 15 minutes. Generally, the longer the netting period the more advantageous it is for the customer.
“It causes concerns for us,” Gardner said. “We don’t know how this will impact customers. It is harder to figure out the economics.”
In the 10 days before the Nov. 15 deadline for getting the full net metering credit, 4,300 applications for rooftop solar units were filed with Rocky Mountain Power, compared with 16,951 applications in all of 2016.
A push to change the netting period is another of the new incremental initiatives. In a net metering docket this year in New Hampshire, utilities sought “instantaneous netting.”
The New Hampshire Public Utilities Commission (PUC) rejected the idea saying, “The potential effects of instantaneous netting are difficult to understand and virtually impossible to model.”
In June, the New Hampshire PUC adopted a few incremental changes to its net metering policy—which came out of negotiations between utilities and the solar industry—while further studies are conducted.
Setting up a separate customer class for solar customers is another initiative gaining traction. In September, the Kansas Corporation Commission ruled that residential distributed generation customers could be placed in a separate class and their rates should be cost based.
Solar advocates say this sets the stage for Westar Energy to file for targeted rates on solar customers.
“We do feel like it was a real loss,” Dorothy Barnett, executive director of the Climate + Energy Project, based in Hutchinson, told The Topeka Capital-Journal. “But I will say we are not giving up.”
In July 2017, Idaho Power filed a proposal with state’s PUC to create a separate customer class for residential and general service customers with onsite generation, while not proposing any rate changes. Legislation in Montana would also open the way for a separate solar rate class, according Proudlove.
Interstate Power and Light in September asked the Iowa Utilities Board for permission to establish two new rate classes for “partial requirements” customers—those who generate some of their own energy.
“The proposal to create new rate classes seems to aim to discourage solar investment,” Karl Rabago, executive director of the Pace Energy and Climate Center at the Pace Law School, said in testimony submitted to the regulators this summer.
These incremental steps are meant to erode the economics of rooftop arrays and “push solar out of the picture as a viable resource,” Gilliam said.
Gilliam also takes a wary view of the ongoing studies in states, such as Utah and New Hampshire, to fix a better credit for solar. So far studies done by utilities have set the credit lower and those done by solar advocates higher.
“Value of solar studies, depends who pays for it,” Gilliam said. “Does value exceed the retail rate? It is a constantly changing marketplace.”
“I don’t think this is going to go away any time soon,” Gilliam said. “Until there is a solution the utilities feel they can live with, and I am not sure what that is, we will continue to see these initiatives.”