Net Metering: Opportunities on the Road to Reform

Net metering: Opportunities on the road to reform

October 18, 2016

Although the year began with the end of retail net metering in Hawaii and Nevada, there have been positive developments for net metering in other key solar states.

By the first half of 2016, Massachusetts, New Hampshire and Pennsylvania had for the most part extended existing retail net metering and, in the case of Massachusetts and New Hampshire, raised statewide net metering caps. New York has focused at the same time on reaching consensus about the level of compensation for net metered customers as part of the state’s broad review of its renewable energy policies.

Hawaii

Hawaii was the first US state to pivot away from retail net metering. In October 2015, the Hawaii Public Utilities Commission closed the net energy metering program to new participants. Customers of the Hawaiian Electric Companies applying to net meter after the decision were left with two alternatives. 

The first — a “grid-supply option” — resembles traditional net metering. It credits a customer’s utility bill for excess energy exported to the grid. The credit is set for a two-year period and equals the 12-month average on-peak avoided cost for the relevant island grid and varies based on utility service territory: from approximately 15¢ a kWh on the island of Oahu to 28¢ a kWh on the island of Lanai. Any credit in excess of a customer’s monthly utility bill is not carried forward to the next month. The commission capped participation in this new grid-supply option at 35 megawatts across the state, including a sub-cap of 25 megawatts for net metered systems on Oahu and a sub-cap of five megawatts for systems located in each of the Maui Electric Company and Hawaii Electric Light Company service territories.

The second approach — a “self-supply option” — is designed for customers who consume all of their own electricity on site and is intended mainly for systems that incorporate energy storage. There is no cap on the number of self-supplied systems.

The commission also directed the Hawaiian Electric Companies to develop a third option in the form of a new time-of-use tariff. The utilities are supposed to initiate a two-year pilot program to test the interim time-of-use rates, broken down into three distinct time and rate periods that will be open to voluntary enrollment for residential customers. The tariff is supposed to be filed by the end of October.

Data from the last 11 months indicates that customers across the state have expressed an overwhelming preference for the grid-supply option. By the first week of September, installed and approved grid-supply systems totaled almost 23 megawatts out of the 25-megawatt cap for such systems on Oahu, while each of Maui Electric Company and Hawaii Electric Light Company had hit its respective five-megawatt cap. By contrast, fewer than two dozen self-supply systems had been installed or approved during the same time period.

Nevada

Several months after the net metering decision in Hawaii, the Public Utilities Commission in Nevada made waves when it approved a successor tariff that restructured net metering in the state by increasing monthly service charges, reducing rates from retail to avoided cost and creating a separate rate class for residential and small commercial systems and a time-of-use pricing mechanism. The commission reaffirmed the tariff in mid-February 2016, including a controversial provision applying the new rates to existing net metering customers of NV Energy and its two subsidiaries, Nevada Power Company and Sierra Pacific Power Company.

The lack of “grandfathering” for existing customers was successfully challenged in state court and separately addressed before the commission. In mid-September, a state district court determined that the commission’s decision to affect existing net metered customers’ rate design was a denial of fairness and due process because of inadequate notice, since the notice provided by the commission as to the scope of the hearings leading up to the decision did not accurately reflect the subject matter.

Shortly thereafter, the Public Utilities Commission issued an order adopting a compromise worked out among the commission staff, SolarCity, the Nevada Bureau of Consumer Protection and NV Energy that would grandfather existing customers. The commission also approved a proposal by NV Energy to establish a separate net metering rate class for grandfathered private generation customers through a tariff rider labeled “NMR-G.”

The new rider applies to all customers who had installed a system or had an active net metering application as of December 31, 2015 or withdrew or let a reservation expire between December 23, 2015 and December 31, 2015. Net metered customers who have already interconnected will automatically receive service under the new tariff, while other eligible customers may opt in by the end of February 2017. The new tariff takes effect on December 1, 2016 for a 20-year period.

Massachusetts

Massachusetts has opted to manage net metering through statewide caps, including on certain categories of net metered projects. In April, Massachusetts raised statewide net metering caps from 4% to 7% for projects with private offtakers and from 5% to 8% for projects with public sector offtakers. This affects mainly the commercial and industrial subsector rather than residential projects, as the caps generally do not apply to systems at or below 25 kilowatts.

Final implementing regulations went into effect on July 29 and preserve close to retail rates for new systems at or under 25 kilowatts and those with public offtakers, but provide that other new private systems are credited for only 60% of excess generation.

The new rate regime is triggered when the total number of net metered systems statewide hits 1,600 megawatts (dc), which happened by the end of June. This threshold is separate from the statewide cap discussed below. The new regime applies to net metered systems that apply for a cap allocation after September 26, 2016. Thus, to remain under the old regime, a project must have applied for a cap allocation by the September 26 notification date, be told that its application is complete and receive the cap allocation by January 8, 2017.

Around 400 megawatts (ac) remain available under the overall statewide net metering cap, subject to certain sub-limits.

The statewide cap is broken down both by utility service territory and category of offtaker: for example, projects with a public entity offtaker under the “public cap” versus projects with a private sector offtaker under the “private cap.” Within the National Grid service territory, only nine kilowatts of net metering capacity remain available under the private cap, and there are approximately 17.8 megawatts of projects on the waitlist. By contrast, around 44.5 megawatts of capacity are available under the National Grid public cap. Thus, opportunities remain for developers looking to enter into agreements with public entity offtakers.

New Hampshire

New Hampshire has seen recent movement favorable to net metering, but more changes are on the way.

The state doubled the statewide cap on total capacity of owned or operated systems eligible for net metering from 50 megawatts to 100 megawatts in May. The law allocates 40 of the 50 megawatts of additional capacity to small projects at or below 100 kilowatts, while the remaining 10 megawatts were allocated to larger projects up to one megawatt.

The new law also requires the Public Utilities Commission to develop new net metering tariffs. The commission opened docket DE 16-576 shortly after the new law was enacted to develop alternative tariffs. Initial filings are due in late October and a final order is due by March 2, 2017.

New Hampshire had roughly 29 megawatts of installed solar capacity at the end of 2015, approximately two thirds of which is residential. While this places it in the bottom half of US states in terms of total amount of solar installed, ranking 30th, recent data indicates solar in New Hampshire is on an upward trajectory that is in line with the state’s renewable portfolio standard of 24.8% renewable energy by 2025. Comparing New Hampshire to a state of similar population size such as Hawaii (with a total of 117 megawatts of installed solar as of 2015), installations across New Hampshire last year increased by 400% versus a 10% increase in Hawaii.

However, there is limited room under the revised caps for new large projects.

New Hampshire’s largest utility, Eversource, for example, was allocated approximately 7.8 of the 10 megawatts of new capacity reserved for large projects, and around three fourths of the 40 megawatts of new capacity reserved for small projects. Under Eversource’s small project sub-cap, about 21 megawatts of capacity remain available, while Eversource’s large project sub-cap is oversubscribed by one megawatt. The commission directed utilities in March to implement new net metering application procedures aimed at ensuring only projects at an advanced stage of development are allocated capacity under the statewide net metering cap in an effort to allocate space under the cap to projects that are actually moving forward.

New York

New York remains a state to watch for developers looking to enter the distributed solar market and for other state commissions searching for a common ground approach to net metering reform.

New York is moving away from the binary discussion of retail versus wholesale net metering rates and focusing instead of the value of net metered solar as interpreted by all parties involved.

Net metering in New York is being addressed as part of Governor Cuomo’s “Reforming the Energy Vision,” or “REV,” strategy.  The New York Public Service Commission established a clean energy standard last August as part of the REV strategy. The overall goal of REV is to reach 50% renewable energy by 2030. To place New York developments in context, the California renewable portfolio standard also requires 50% renewable energy by 2030 while the Hawaii standard requires 100% renewable energy by 2045. New York has set interim targets of 26.32% renewable energy by 2017 and 30.54% by 2021.

New York is well on the way. It is currently at about 25%. It must double renewable energy generation in the next 13 years.

However, the rate for net metered electricity remains uncertain.  The New York Department of Public Service suspended net metering caps in New York and instructed utilities to continue to accept interconnection applications from prospective net metering customers while REV proceedings are ongoing.

The major New York utilities and three large solar developers submitted a compromise proposal in April. The proposal expands on a white paper issued by commission staff that would have calculated the net metering electricity rate using a formula known as LMP + D. The coalition adds a value “E” to this equation.

“LMP” in the equation is the locational marginal price, which includes the wholesale electricity price of energy plus transmission congestion charges and transmission line losses. “D” is the additional value provided by the net metered system, to be calculated using a handbook developed by each utility. The “additional value” is the value of the solar system to the distribution system (rather than just the wholesale system). An example is local load relief. “E” is the value of external benefits associated with the net metered system, including renewable energy certificates and emissions reductions. The proposed compromise also contemplates that customers who install systems that are eligible for net metering before the interim program begins will be grandfathered at their previous rates.

Several collaborative meetings discussing an interim net metering policy were held in August aimed at issuing a report for consideration by the commission by the end of the year.

Pennsylvania

The future of net metered projects in Pennsylvania remains uncertain.

The Public Utility Commission voted in February to retain net metering at the full retail rate. Controversy arose over a new requirement approved concurrently by the commission to limit the sizing of any new net metered system to 200% of a customer’s historic annual electric consumption. This figure is higher than the 110% figure initially proposed by the commission, and was an attempt by the commission to strike a balance between allowing load growth, limiting oversizing of systems and ensuring least-cost service to customers over time.

In June, the five-member Pennsylvania Independent Regulatory Review Commission, which is tasked with overseeing Public Utility Commission decisions, rejected the new rules, citing a lack of clear statutory authority for the 200% size limit.

Soon after, the Public Utility Commission dropped the 200% size limit. Its revised rules were again rejected by the review commission in July.

Notwithstanding the two review commission disapproval orders, the PUC approach may still go into effect. The Pennsylvania legislature failed to block implementation. It had 14 days to do so. The rules now move to the Pennsylvania attorney general for review, although the scope of this review is limited to form and legality.