Net metering is one of several policies supporting the growth of distributed generation. In many instances, net metered systems receive credit at retail rates for excess generation supplied to the electric grid. Utilities and regulators have begun raising concerns that net metered systems, and rooftop solar systems in particular, are not paying an equitable share of fixed costs required to support the electric grid.

• While net metering concerns are not new, the policy outcomes from 2013 mark a turning point in the net metering debate. Regulators have demonstrated a readiness to evaluate the impacts of net metering and address potential issues. Consider the following examples:
• California Governor Jerry Brown signed legislation requiring a rulemaking process to develop a new standard contract for customer generators beginning on July 1, 2017. The law may result in a new regulatory paradigm as the legislation permits the inclusion of standby charges, which are prohibited in current net metering policies.
• The Idaho Public Utilities Commission denied a proposal from Idaho Power Company to, in part, increase the monthly service charge by four times for residential and small business net metering customers. However, the commission agreed that net metering customers are avoiding some fixed costs and that the issue should be more fully explored in a general rate proceeding.
• The Arizona Public Service Commission ordered the Arizona Public Service Company (APS) to implement a monthly $0.70/kW fixed charge for all new residential distributed generation customers beginning in January 2014. Two of the five commissioners voted against the change, citing the charge too low to cover cross subsidies occurring between customers. The matter will be revisited in more detail when APS files its next rate case in 2015.
• Minnesota passed legislation that allows utilities to apply to the Minnesota Public Utilities Commission for a value-of-solar tariff as an alternative to net metering. The Minnesota value-of-solar tariff will compensate customers through a pre-established credit for the value distributed PV systems provide to the utility, its customers, and society.

A revolution has begun as regulators acknowledge that net metering customers pay less for the fixed costs associated with the maintenance and operation of the electrical grid. Regulators also demonstrated an interest in analyzing the complex net metering issues in a more comprehensive setting such as utility rate cases. Finally, there is a trend toward exploring alternative policy options. The result may be the value of solar tariff or some other rate mechanism delivering a more equitable outcome for all stakeholders. ScottMadden expects these trends to continue into the future as net metering, rate structure, and distributed generation remain important topics for the industry.

ScottMadden understands the issues and opportunities created by the growth of distributed generation. We assist clients in navigating through this changing landscape. For more information or to provide comments on this topic, please contact us.

Sources:

• California Assembly; Assembly Bill 327; signed by Governor October 7, 2013
• Idaho Public Utilities Commission; Case No. IPC-E-12-27; Order No. 32846; July 3, 2013
• Arizona Corporation Commission: Docket No. E-01345A-13-0248; Decision No. 74202; December 3, 2013
• Minnesota Legislature; House File 729; signed by Governor May 23, 2103