Navigant Research Blog

Utilities, Regulators Seek Truce in Net Metering Fight

Richelle Elberg — November 11, 2013

In three recent blogs, I’ve discussed the emotional spin attached to the net metering issue in the United States, the unintended consequences that have resulted in Germany due to aggressive renewables policies, and the boom and subsequent slowdown in solar deployment in the United Kingdom as a result of volatile feed-in tariff policies.  The system is broken, and most stakeholders recognize that.  But the question remains, how do we fix it?  Many proposals have been put forth.  Few have been approved.

In a filing by the Arizona Corporation Commission (ACC) in September, ACC staff recommended that the commission reject two proposals made this summer by Arizona Public Service (APS) to address cross-subsidization of solar customers by non-solar customers, and suggested that the debate should be addressed in APS’ rate case deliberations next year.  The staff also put forth two interim solutions.

APS had proposed two modifications to the net metering program in Arizona, which it says is shifting $18 million (growing by $6-$10 million annually) in fees to non-solar customers.  APS’ first proposal suggested that new solar customers would only be eligible for APS’ ECT-2 rate, which is a demand-based rate with time-of-use features.  Alternatively, APS’ Bill Credit Option would allow customers to remain on any APS plan, but instead of net metering, APS would compensate customers through a bill credit based on the forward market at the Palo Verde hub.  According to APS, “This price would send a more accurate price signal for the true cost of the electrical service provided.”

A Little Further

ACC staff calculated that, under the various APS proposals, utility customers would see their savings cut in half, from an average of 68% annually to 34%.  In addition to suggesting that the issue wait until APS’ rate case next year, the commission staff also suggested two bridge solutions.  Both proposals make adjustments to the lost fixed cost recovery (LFCR) mechanism by charging new solar customers a monthly fee ($2.76 per month, which may or may not increase over time).  The ACC staff argued that this will prevent non-solar customers from covering ever more of the LFCR fees, while remaining revenue neutral to APS.

The impact on new solar customers would be a modest reduction in savings (between 59% and 66.5% annually vs. 68% currently).  ACC also suggested that grandfathering should be tied to systems rather than homeowners, which would alleviate concern over the effect that net metering reform could have on home values.  In its response to these proposals, APS said, “The staff report makes it clear that the current net metering structure is not fair for all customers and must be changed,” adding that the staff’s alternatives “don’t go far enough.”

End the War

The ACC staff report  includes detailed discussion of five net metering policy actions proposed around the country; in particular it highlights the Austin Energy solution, which has been adopted and which many in the renewable energy industry like because it includes environmental benefits in its value of solar (VOS) equation.  The Austin Energy formula values on-site generation at $0.128 per kWh, and is adjusted annually based on a factors including the marginal cost of displaced energy, avoided capital costs, line loss savings and environmental benefits.  VOS calculations are gaining traction as a net metering solution, although inputs to the calculation vary widely by region.  It’s a start.

By midyear, the United States had crossed the 10 GW of installed solar capacity threshold, the fourth country to do so.  As solar installations grow, the net metering brouhaha will further escalate; industry stakeholders would be wise to come together on a plan sooner rather than later.  One thing is sure: Utility proposals for dramatic reductions in consumer savings from distributed solar will only perpetuate their “bad guy” image and headlines containing phrases like “War on Solar” and “Tax on Solar.”

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