Bills and Rates

Net metering leads to ‘substantial’ subsidies to DG customers: report

Residential net metering raises “substantial” subsidy issues between customers with distributed generation like rooftop solar and those without it, according to a report from the Brattle Group.

By looking at 16 utilities ranging in size and location, the consulting firm found that net energy metering subsidies range from $20 a month to $100 a month, representing about a quarter to 200 percent of the monthly bills for residential DG customers.

“While the NEM policy has successfully provided the nourishing support to get rooftop [photovoltaic] out of its cradle when the cost was high, continuing it at a time when rooftop solar cost has come down creates an unfair treatment for non-DG customers and needs to be revised to ensure a more equitable compensation method for DG customers,” said the report’s authors: Sanem Sergici, Yingxia Yang, Maria Castaner and Ahmad Faruqui.

Typically, under net metering, customers with DG can sell their excess electricity to the utility at a retail rate. By reducing their own electric use, DG customers avoid any fixed costs that are embedded in their electric rates.

The report — Quantifying Net Energy Metering Subsidies — looked at net metering offered by Arizona Public Service, Pacific Gas & Electric, Southern California Edison, Idaho Power, Indianapolis Power & Light, Kansas City Power & Light, Westar Energy, Louisville Gas & Electric, Xcel Energy-Minnesota, Ameren, Nevada Energy, Public Service Co. of New Mexico, Consolidated Edison, Duke Energy, Oklahoma Gas and Electric and Rocky Mountain Power.

The largest net metering subsidies are paid for by PG&E and SCE non-DG customers at $340 million and $250 million a year, respectively, driven by high subsidies and a rooftop solar penetration rates, according to the report.

Net metering annual subsidies for APS and NV Energy are at $42 million and $19 million each, reflecting large monthly NEM subsidies and high DG penetration levels.

Rocky Mountain Power, PNM and ConEd net metering subsidies range from $4 million to $9 million a year.

Subsidies for the rest of the utilities are less than $1 million per year because of low solar DG levels, the report said, warning that they will increase as homeowners add rooftop solar.

“Non-DG customers are currently paying tens of millions to hundreds of million dollars per year more than they should be paying,” the authors said in the report. “This cross-subsidization issue will get exacerbated over time as solar penetration increases because more cost will be shifted to less non-DG customers.”

States like California, Arizona and Utah have lower DG incentives, but the new policies typically apply to new customers while existing customers are allowed to keep their initial incentives.

“This implies that the cross-subsidy problem will persist until these [older] systems complete their useful lives highlighting that the positive and negative implications of these polices are long-lived,” the authors said. “This is a good reminder for the states that have not experienced large penetrations of DG resources to revisit their net metering policies and adopt cost-based compensation methods before the problem gets worse.”