Distributed Generation Rate Reform Around the U.S.
By Nate Larsen, Energy Fellow
The idea of reforming the retail electricity pricing model to more accurately reflect the actual cost of utility services has been around for some time, but the rapid growth of customer-owned distributed generation (DG) has recently brought the issue to the fore. The proliferation of residential solar installations, in particular, has driven some state public utility commissions (PUCs) to take up the issue of reforming retail rates to equitably allocate the costs of providing service to DG and non-DG customers alike. Many utilities, meanwhile, are seizing the moment to attempt to raise fixed charges and impose surcharges on net metering customers. In addition to perceived issues of cost-shifting, utilities worry that significant penetration of customer-sited DG will cut into their profits and potentially leave them with considerable stranded infrastructure costs.
PUCs have, to this point, shown a reluctance to impose significant new costs to net metering customers.
As retail electricity rate reform advances around the country, utilities, policymakers, ratepayer advocates and renewable energy proponents will seek a compromise that provides an equitable allocation of costs across electric customer classes. As with any compromise, the solution will likely lie somewhere in between the current regime of low fixed charges and relatively high net metering compensation, and the significant fixed charges proposed by the utilities. The Green Energy Institute’s Policy Analyst, Nick Lawton, will highlight potential policy solutions and alternative approaches to the issues of cost-shifting and utility unprofitability in a forthcoming blog post.
The following is a brief look at some of the distributed generation rate reforms proposed and adopted around the country.*
In approving a $0.70/kw charge for net metering customers on November 14, 2013, the Arizona Corporation Commission (ACC) rejected recommendations for higher charges from Arizona Public Service (around $8.00/kw), the Residential Utility Consumer Office (around $3.00/kw), and the Commission’s own staff (around $3.00/kw). The Commission left open the possibility of increasing those rates in the next rate case.
Status: The ACC approved a $0.70/kw charge for net metering customers.
An additional fixed monthly charge applied only to new DG customers.
A “Gross Export Purchase model” for export DG.
The HECO Companies’ proposed “Gross Export Purchase model” would effectively supplant net metering in the state.
The HECO Companies’ PSIP recommend that those charges be set at the following levels: a $55/month fixed charge for all customers, a $16/month fixed charge for DG customers, and a $0.16/kwh feed-in-tariff paid to DG customers.
Status: Comments on HECO Companies’ proposed reforms are due to the PUC on October 6.
On September 26, 2014, the Nevada PUC voted to ask the legislature for guidance on changes to the state’s net metering policy. The PUC seems to have requested that the legislature consider whether to allow the PUC to assess charges to net metering customers. Currently, net metering customers are statutorily entitled to the same rates as non-DG customers.
Status: The PUC’s request is awaiting legislative action.
On April 24, 2014, the Department of Public Service issued a straw proposal for sweeping reforms of the electricity industry, Reforming the Energy Vision (REV). One of the recommended changes involved unbundling retail electricity rates to reflect the actual costs of providing the various products and services associated with the provision of electricity service. The REV elaborates:
“Because the transactions between customers and the [distribution utility] will be two-way, the rate designs under REV will need to reflect: the value of grid service to consumers with DER [Distributed Energy Resources]; the value of grid service to consumers without DER; and the value that DER can provide to the grid. Reflecting these energy values in future rates and tariffs will require a greater unbundling of these products and services. Payment structures for DER should reflect the value based on timing, location, flexibility, predictability and controllability of the resource.” REV at 58.
Status: The New York State DPS recommended unbundling retail electricity products and services. The Department will solicit public input on the proposed reforms in a future proceeding.
On April 15, 2014, Governor Mary Fallin signed SB 1456 into law, requiring the Oklahoma Corporation Commission to set up a process for establishing a surcharge for net metering customers. The law applies to net metering customers whose systems are placed in service after November 1, 2014.
Status: The Oklahoma Corporation Commission is awaiting proposals by the state’s electric utilities regarding net metering charges.
Status: The Public Services Commission delayed a decision on Rocky Mountain Power’s proposed fixed charge for net metering customers, pending a conference on the issue on November 5, 2014.
Three Wisconsin utilities—We Energies, Madison Gas & Electric, and Wisconsin Public Service Corp.—recently proposed raising fixed charges for all customers. We Energies proposed an increase from $9/month to $16/month; Madison Gas & Electric proposed an increase from $10.50/month to $19/month; and Wisconsin Public Service Corp. proposed an increase from $10/month to $25/month.
In addition to We Energies’ proposed increase in fixed charges, the utility also proposed a net metering surcharge of $3.80/kw.
Status: Public comments on We Energies’ proposed charges are due to PSC on October 7.
PUCs have taken limited action to date on adopting DG-customer charges, but utilities’ calls for reform are picking up steam. While PUCs should be considering the cost-allocation issues caused by a proliferation of DG customers, so too should they be considering the environmental and avoided transmission and distribution cost benefits that DG customers provide.
Utilities, for their part, should devote considerable attention to adapting their business models to stay relevant in a changing industry, rather than solely advocating for increased fixed rates and the elimination of net metering. Potential adaptations include increased investment in modernizing the distribution system and using utility expertise and access to capital to develop and interconnect customer-sited distributed energy resources. (These concepts will be covered in more detail in Nick Lawton’s forthcoming blog post.)
DG rate reform is just one aspect of the sweeping reforms anticipated by many involved with the electricity industry. As the efforts of early-adopter states like Hawaii and New York begin to produce results, it will become increasingly likely that other states undertake to revise their regulatory regimes to reflect the more distributed electricity system of the future.
* While this list was compiled to present some of the most notable instances of DG rate reform in the country, it is not meant to be comprehensive; utilities and state PUCs are taking action on the issue a dizzying pace.
[For a comprehensive introduction to the issue of retail electricity rates and the need for reform, click over to this (prescient) article from the July 1, 2000 issue of Fortnightly Magazine.]