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Kentucky Resources Council, PO Box 1070, Frankfort, KY 40602 Phone [502] 875-2428

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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Debunking The Myth That Solar Customers Are Freeloading  Posted: February 6, 2018
Are Other Ratepayers Paying For Net Metering?[1]

The question was asked during the Committee Hearing, “Why should other customers pay for the difference between the utility avoided cost and the retail credit given to net metering customers?”

They aren't. The "avoided cost" argument is an "apples to oranges" comparison. Currently, a net metering customer gets a credit on their bill, not money, at the same rate at which they purchase power from the utility. The utility can then market that power to others, and at times, profit significantly from the "peak" power that they're getting from the net metering customer at a blended average retail rate.

Net metering customers never get “paid” for their excess solar generation – they earn kWh credits that can be used to offset their bills for future energy consumption. No other customer is "paying" for this transaction, just as no other customer has paid for the installation of those solar panels, or incurred any fuel costs for the solar electricity being fed into the system.

The utility’s actual cost of electricity can vary throughout the day from near zero to a cost far above the rate charged to residential customers. Those variable costs are averaged into the retail rate. The reality is that solar systems often feed power to the grid during times of peak demand when the utility’s cost of energy is high, on sunny summer afternoons. The solar customer supplies high-value energy to the utility, and redeems their credits at night when the utility’s cost of generation is low. The optional Time-of-Use rates offered by Kentucky Utilities illustrates this. KU charges customers 27 cents/kWh at times of peak demand (1:00pm – 5:00pm, April to October) but only 6 cents/kWh at off-peak times. Net metering simplifies billing for that varying value of electricity in the same way typical residential energy charges do.

The only possible economic effect of net metering on other customers would be if, in a future rate case, the utility sought a rate increase on other customers to meet revenue needs for serving net metering customers, because many utilities have part of their fixed costs embedded in their volumetric rates, and the net metering customer purchases less energy from the utility (just as customers who are more energy-efficient). A 2017 DOE study concluded that such rate impacts are and will for the foreseeable future remain "negligible."[2] To date, no Kentucky utility has argued that a rate increase is needed due to the presence of net-metering customers in their service territory.

The bottom line is that other customers aren’t paying for or “subsidizing” net metering customers. If the General Assembly believes further investigation is needed, the responsible approach would be to direct the PSC to open an administrative case, making the utilities parties, and based on their unique rate structures and the value of the net-metered electricity to the utility and other customers, to determine if the “net cost of service” to the net-metering customers needs an adjustment in order to prevent cost-shifting or inequitable rates.

[1] This fact sheet was prepared by the Kentucky Resources Council, Inc.
[2] Barbose, Galen. “Putting the Potential Rate Impacts of Distributed Solar Into Context.” LBNL, US Department of Energy, January 2017, p. 29.


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