Net Metering: History, Controversies, Evolution

Solar photovoltaic (PV) panels on your house reduce how much electricity you need to buy from your utility. In contrast to centralized electrical production at generation facilities owned by a utility, solar energy produced by individual customers is an example of what is called distributed energy production. That is, the energy is produced at sites dispersed throughout a utility’s service area.

Net metering allows distributed energy facilities like solar panels to connect to a utility’s distribution system. Solar customers are charged the net difference between their total energy use (or “load”, to use the technical term) and their onsite electricity generation each month. Because the customer avoids paying the utility the retail rate for the power they displace with their own generation, this has the effect of providing the customers with the value of the retail rate for electricity from their solar system. For example, if the retail rate you pay your utility is 10 cents per kwh, then that is the value of the solar power generated by your solar system.

Net metering is an incentive for the purchase of solar panels because the utility is covering all the costs of building and maintaining the distribution lines that benefit owners of individual solar systems.

Controversy about net metering stems from the fact that there are hours during the day that the net metering customer is generating more electricity than they are using. In other words, the solar power generated is greater than that customer’s load and that electricity is getting to other homes in the neighborhood using the utility’s distribution system. During other hours, the solar customer is using more power than they generate (their load exceeds the solar generation) and they are receiving power from the utility’s grid.

This sets the stage for some utilities to claim that net metered customers are subsidized because they don’t pay the full costs of their share of the distribution system. However, keep in mind that distribution is a shared system. After all, when somebody with electric heat adds insulation to their home, they are reducing their need for the distribution system, but they aren’t paid a subsidy because they have reduced their share of the distribution system costs. The distribution system is much like our roads and highways which are shared by everyone, but largely funded by gasoline taxes. When someone trades in a gas guzzler for a fuel efficient car, that person pays less for the road and the road maintenance costs are slightly reallocated. Similar dynamics are in play with net metering of solar systems.

Net energy metering was established in Oregon by the 1999 Legislature for customers of both consumer-owned utilities like electric cooperatives and investor-owned utilities like Portland General Electric. In our state, net metering is not an option for residential systems that exceed 25 kilowatts (kW) or for commercial or industrial systems that exceed 2,000 kW or 2 megawatts (mW). To put this in perspective, residential electricity consumption in Oregon averages 957 kWh/month.

Net metering rules, however, typically don’t require an electric utility to purchase energy from a customer whose solar system produces more power they need. In Oregon if a net metered customer has generated more than the needed load on an annual basis, the utility uses the avoided cost rate to value those unused kWh and transfers to low-income assistance programs a dollar amount equivalent to that value. Avoided cost is what a utility would have had to pay if it had supplied that power itself or paid another source for that energy.

Under Oregon law, the Public Utility Commission (PUC) can limit an electric utilities obligation to provide net metering once the aggregated generation capacity of net metered solar systems reaches one half of one percent (0.5%) of a utility’s historic single-hour peak-load. According to data provided to the PUC, Portland General Electric net metering customers account for 1.05 percent of their historic single-hour peak-load as of the end of 2015. For Pacific Power by the end of 2015, net metering customers account for 1.36 percent of their historic single-hour peak-load. This sets the stage for re-evaluating net metering, since though net metering was established for all utilities in our state, Portland General Electric and Pacific Power provide electricity to almost 75 percent of customers in Oregon.

Net metering controversy is surfacing across the country. As more and more individual customers have installed PV panels, they are buying less electricity to supply their own needs. All the while utilities are still covering all the costs of the distribution grid that these decentralized PV systems are using for net metering. The result is that many states are revisiting their net metering rules.

In 2013 Arizona had one of the first fights over net metering. Arizona Public Service, that state’s major electric utility, proposed a new $50 monthly fee for rooftop solar systems. Not surprisingly solar proponents were dismayed and their advocacy led to reducing that monthly fee to $5. New rates for rooftop solar in Nevada are cited as the cause for a dramatic drop in new installations in that state, though grandfathering in systems built under the previous net metering rules have mollified those customers who made solar panel investments that were no longer economically viable when net metering rates changed. The politics of these net metering debates has been interesting. For example, the conservative American Legislative Exchange Council (ALEC) has drafted model legislation with input from some electric utility players to weaken net metering, while several Tea Party groups, typically conservative allies, support solar and defend net metering.

Right now in Oregon, the future of net metering could be affected by a PUC docket on the resource value of solar (RVOS) intended to provide a way to more definitively determine the economic value of solar. CUB is active in the RVOS docket and commenting in other venues about the future of net metering. In both settings, our major concerns are ensuring value for ratepayers and clarity for solar customers. But this is a continuing debate so stay tuned….

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