Monday, November 3, 2014

Net metering, consumers and utilities: a second look, Part II

By Patty Durand, Executive Director, SGCC

My topic today is a continuation of my last blog post about net metering policies in a time of transition between current utility grids and business models, and the near future when transactive energy markets come into play.

Policies for industries in transition, as electricity is today, must address today’s realities yet take into account current trends that will shape tomorrow.

After reading the position paper issued last fall by the Regulatory Assistance Project (RAP), titled, "Designing Distributed Generation Tariffs Well: Fair Compensation in a Time of Transition," and discussions with thought leaders in the energy industry, I now think that demands for reforming net metering policies are premature. My view is that the total value of DER and net metering policies across all stakeholders, now and into the near future, requires a deeper and broader discussion.

The fundamental point made in the position paper quoted above can be captured by the old saying that one size doesn’t fit all. Too many factors affect the gamut of stakeholders to make any general statements about which stakeholder is benefiting and which is being burdened. It is incorrect to broadly say that net-metering is a cross-subsidy from wealthy home-owners to middle and lower classes. Costs and benefits change based on time, location, technology, policy and other factors.

Before we look at RAP’s specific recommendations, here is a quote from the paper which nicely summarizes a call for fairness and transparency for DER and net metering policies:

“There is tremendous uncertainty regarding how and when we will collectively learn how to take advantage of the tremendous opportunities that technology offers. In short, we are in a time of transition where we can see the two-way and multi-party transactive future but we still live with legacy infrastructure and legacy institutions…

“The regulator’s challenge in this time of transition is to support policies that use the legacy systems wisely while nurturing the evolution of the systems that will facilitate the transition to a far more efficient, environmentally benign, transactive electricity sector.”

RAP makes specific recommendations regarding net metering policies and I point the reader to page 51 in the paper. Its analysis points in the opposite direction of arguments that says net-metering policies are a cross-subsidy and eroding utility profits.  The analysis calls for avoiding fixed monthly charges (which are already rolling out across the US) to address/eliminate the cross-subsidy while supposedly creating fairness for customers to pay fixed costs for grid services and variable costs for quantity of electricity consumed.  Here is their argument against all that:

“Modifying retail rate designs to collect distribution costs in a fixed monthly customer charge is not a preferred path. Rate design of this type tends to penalize apartment dwellers and other urban residents, who typically impose lower distribution costs on the utility than the average customer.”

“Setting the tail block of an inclining block rate structure at the long run marginal cost is more equitable than increasing the fixed monthly charge because it does not discriminate against low income and low volume electricity consumers, it does not discriminate against urban and apartment dwelling consumers and it is consistent with valuing the avoided cost component of DG at the long run marginal cost.”

RAP makes three other points, among many, that I would like to mention in this context.
  1. Recognize that value is a two way street. Customer-side meter resources such as distributed generation, energy efficiency, demand response and storage are resources that produce value for the electric system. Likewise, the grid offers valuable services to DG customers … Therefore, customers, the utility and third-party participants in exchanges should all be fairly compensated for the services they provide each other with due consideration of the full range of benefits and costs associated with each service delivered.
  2. Remember that cross-subsidies may flow to or from distributed generation owners. Regulators should remain objective and allow for the possibility that the value provided to all customers by DG may be greater than the costs incurred to support the presence of distributed generation tariffs. Conversely, regulators should be open to the possibility that non-participating customers may be getting less value from distributed generation than they are paying to support those tariffs.
  3. Subsidies have acquired a pejorative cast in the net metering discussion. Yet infant-industry subsidies are a long tradition ... At some point an industry becomes mature, and should compete without subsidies, but regulators should be mindful that financial assistance to prove up promising new industries is a long-established practice.

I’ll end this blog by reiterating that fairness, transparency, objectivity and a methodology for assessing DER/DG’s costs and benefits among all stakeholders should prevail. That approach is likely to have diverse outcomes depending on local factors for utilities and their stakeholders. Let’s not jump to conclusions because one stakeholder has been first to start the discussion.

If you would like to widen the debate about this, please join us for our 5th annual Consumer Symposium in San Diego on February 2, 2015. We will have a full day of presentations, speakers and discussion on the changing utility business model, the consumer value proposition, and will be releasing our annual 2015 State of the Consumer research report. Register for the event now and take advantage of the Early Bird discount rate by clicking here.