Where’s the Real Utility Leadership on Net Metering?

Yesterday, the utility trade association EEI and NRDC released a Joint Statement to State Utility Regulators that has created some attention for being a purported “kumbaya” moment in the debate around rates and net metering in our increasingly solar powered electricity landscape. While we appreciate efforts to move the debate forward, it’s concerning that much of this statement relies on the same old utility playbook for its premise. It largely focuses on assuring utility recovery of fixed costs for the rising threat of distributed solar. Let’s be clear: customer investment in solar is not the problem. Utilities that make questionable decisions about their businesses and our electricity sources in the interest of maintaining the status quo – that’s the problem.

We do appreciate that the joint statement acknowledges that the energy landscape is indeed changing as demand-side technologies, such as rooftop solar, storage, demand response and energy efficiency, get more affordable and more sophisticated.  It’s exciting to see utility interests recognize the need to change with the times, but many of the solutions proffered – in this paper and in real world action by utilities – fall short of this promising rhetoric.

We agree with the paper that we should encourage regulators to help utilities move towards being the ‘utilities of the future,’ that we so desperately need if we are to mitigate climate change and create a cleaner, healthier economy. In particular, we support the view that instead of utility revenue being directly tied to selling more electricity, utilities should ‘focus on meeting customers’ energy service needs,’ and be compensated for being an energy service provider, not just an electricity provider.
We also support the concept of ‘performance based incentives,’ where utilities revenue would be directly tied to delivering services that their customers want – such as increased energy efficiency, and more clean energy generation – versus what they don’t want, say, dirty climate change inducing coal fired power plants. This concept is already being implemented in the U.K.

In short, we support new and innovative rate structures that properly align with the true costs and value of all electricity generation – whether it’s coming from behind or in front of the customer’s electricity meter. But the EEI side of the net metering debate has put the cart well before the horse. The trade association and its electric utilities have been trying to wrangle new charges and fees for solar customers out of legislatures and regulatory commissions across the country without due process. The hand waving of the utilities about net metering has been largely without substance and supporting evidence. Individual investment in rooftop solar delivers real cost savings including the reduced need for new fossil power generation and transmission. Given proper valuation and a rate structure that truly reflects that value, the net benefits of rooftop solar would be evident, but rarely in rate design does cost recovery match cost incurrence. Rate design needs to be addressed first before net metered solar is attacked .

What is the problem they are trying to solve? Are utilities losing money due to DSG? More importantly, are utilities losing earnings due to DSG? Even in states with high solar penetrations, weather variations have far greater impacts on earnings than does DSG. The same is true of sales reductions due to increasingly efficient use of electricity. We are supportive of thoughtful review and analysis of the costs and benefits of DSG across all customer classes, not just residential, that have deployed DSG, but frankly we are tired of all the public gnashing of teeth and wringing of hands from the utilities.

The recommendations go on to promote the utility position that DSG owners will always need grid services no matter how much solar a residential customer installs, effectively using the grid as a battery. To unpack this view requires looking at the DSG that simply reduces consumption instantaneously, and the portion that is in excess of the customer’s consumption. We believe that every retail electric customer has a right to use as much or as little grid electricity as they would like. Utilities cannot dictate that. The method by which a customer reduces consumption – be it energy conservation or rooftop solar – should be irrelevant to the utility.

But what happens to the portion of self-generated electricity that leaves the customer’s premises? Does the utility gather it up and store it? Absolutely not. In fact, utilities don’t even know that it has happened. As a matter of physics, exported energy serves a neighboring customer. Energy pushed back out of one residence for example follows the path of least resistance to the nearest load and is consumed there. This happens instantaneously and there is no incremental cost to the utility. Indeed, the utility has no control over the flow and never sees it happen. For example if a customer with a 5kW system is only using 4 kW, the other kilowatt leaves the home and serves the non-solar neighbor. The utility only sees a 5 kW reduction at that point in time, but does not know the mix of loads and energy. Moreover, the extra kilowatt reduces the load on the distribution system at a time of higher utility costs in the middle of the day, a benefit for all.

But what does the neighboring customer see? Nothing different. The neighbor does not know whether the electricity he is consuming came from the utility or his solar neighbor. Either way, he pays full retail prices for the electricity to the utility. As a result the utility receives full retail revenue for solar electricity that is exported to the neighboring home.

This brings us to the last point. EEI and NRDC frame the benefits and values provided by DSG as “services” for which DSG customers should be compensated. We appreciate the acknowledgement that some value is provided by the DSG to the utility, but – unlike utilities – it is wrong to think of these customer generators as service providers. This would imply that these services could be procured from DSG customers or from other vendors. That is not what is happening here. When a retail customer installs solar for her own reasons, she simply wants to be treated fairly. They are not installing DSG to sell services to the grid, but their investment does provide value to the grid in terms of reduced, avoided and deferred costs for everyone.

The bottom line is that net metering is a simple arrangement that provides fair value to solar customers for the very real system-wide benefits of their power production. It begins to level an electricity playing field that is still overwhelmingly stacked in favor of centralized utility generation. U.S. energy customers want to increase the amount of solar powering our nation, and they deserve a fair opportunity to take action and lead where utilities continue to lag.