Bills and Rates

Report details how net metering programs are changing

A new report by the National Regulatory Research Institute, the research arm of the National Association of Regulatory Utility Commissioners, provides a summary of state efforts to find alternatives to net metering rates that are used to compensate ratepayers for distributed energy resources, particularly residential customers for rooftop solar installations.

The report notes that at least 48 states and the District of Columbia have either implemented alternatives to net metering or are in the process of doing do.

Among the alternatives are various combinations of compensating for energy delivered to the grid at a price other than the retail service rate, increasing fixed charges or imposing minimums on bills, varying rates depending on the time of day, and adding demand charges to customers’ bills.

In addition, several states have considered creating a separate rate class for customers with distributed generation while others have made provisions for utility ownership of distributed generation under certain circumstances. In many cases, existing net metering customers are allowed to continue to receive those rates even after new, replacement rates take effect.

The changes outlined in the report were prompted by the fact that many utilities believe that net metering is causing cross subsidies to be paid by non-participating customers to participating customers. In addition, cost declines for solar power have led to rapid adoption to the point that some parties have argued that net metering has served its purpose.

In most net metering programs, customers are paid a credit at their retail price of electricity. The fairness of that arrangement is “a complex question, which cannot be answered without detailed analysis, utility by utility,” the report says. Many states have,

in fact, conducted studies on the longer-term benefits of distributed solar to arrive at a better understanding of the benefits and costs of distributed energy resources.

In particular, the report notes that 14 states are in the process of reviewing their rate design for both customers with and without distributed generation, 34 state regulatory commissions have changed fixed charges for small customers, 11 states have added capacity-based demand charges, and six states are moving toward treating customers with distributed generation as a separate class of customer.

The report does not reach a definitive conclusion but it does make several recommendations for the continuation of research and analysis that is already under way. Among those recommendations are further study of how changes to net metering programs affect the rate of adoption of distributed generation and distributed energy resources. That analysis should also include an evaluation of the maturity of the market for distributed resources and to what extent they still require subsidies.

The report’s authors also recommend further study of the potential market for community solar programs and evaluation of which types of programs work best for low- and middle-income customers. There are also lessons to be learned about the usage patterns in states that have created a separate rate class for distributed generation customers, the report says.

The report also notes that there is still more research necessary on issues that are at the core of the debates about net metering. Specifically, are studies of the value of solar or the value of distributed energy resources measuring the right benefits and costs? And are they measuring those costs and benefits accurately?

In closing, the report recommends that policy makers and other interested parties view successor tariffs to net metering as “one piece in a much larger puzzle.” The authors note that other parts of that puzzle are beginning to come into view in the efforts of many states’ interest in grid modernization, including rate reforms, changes to the utility business model, and changes to integrated resources planning.

The report is available here.