Supplemental Comments on the Consideration of Net Metering

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During the legislative session in 2019, the General Assembly passed Senate Bill 100, a utility-sponsored effort to devalue energy produced by rooftop solar customers. By making rooftop solar uneconomical for new customers, the utility companies hope to “corner the market” on the sun and extend their monopoly status to include renewable energy.
On November 13, 2019, Kentucky's Public Service Commission held a public hearing to hear from individuals and organizations across Kentucky about the issue of net-metering.
Kentucky Resources Council Director, Tom FitzGerald, and Staff Attorney, Liz Edmondson, on behalf of KRC, its members, and all those interested stakeholders in the matter, submitted supplemental comments on the implementation of the 2019 Net Metering Act.

The Kentucky Resources Council (“Council”) appreciates this opportunity to submit these supplemental comments in response to the Commission’s Order dated July 30, 20191 requesting comments from interested stakeholders to develop a record which the Commission can look to in its consideration of the implementation of the 2019 Net Metering Act (“Act”) as it applies to individual utilities. Because data specific to each utility will be necessary to fully assess the questions before the Commission, these supplemental comments continue to focus (as did the preliminary comments of the Council) on several overarching themes the Council believes will be at issue in these proceedings and should be applied across all net metering rate cases brought before the Commission after January 1, 2020. Due to variance among individual utility characteristics and rate designs, any rate changes will of necessity be utility-specific; however, the methodology must be sufficiently robust in calculating costs and valuing benefits associated with grid-connected customer-generators of renewable electricity.

As a preliminary matter, the Council applauds the Commission for seeking comments from all interested stakeholders on the implementation of the 2019 Act in advance of the filing of a specific case pursuant to the Act, when (as noted by Commissioner Matthews at hearing), there is a time constraint on the ability to thoroughly explore the numerous complex issues surrounding the proper determination of costs and benefits attributable to the small class of net-metering customer-generators.
The Council reiterates a point made in the preliminary comments that this opportunity to provide comment should not and cannot be considered as a surrogate or substitute for allowing those individuals, organizations, or businesses that seek intervention and satisfy the standards in the Commission regulations for intervention, from being made parties to individual rate cases brought pursuant to the Act. As noted by the Commission in a February 18, 2019 Letter to Senator Brandon Smith, Chair of the Senate Natural Resources and Energy Committee, regarding a proposed (and ultimately rejected) floor amendment to Senate Bill 100, the rate cases are the processes by which jurisdictional utilities could propose, and the Commission could evaluate, a change in the valuation of the electricity fed into the grid by an customer-generator:

The original provisions of Senate Bill 100 create a transparent process that would have allowed broad participation among all stakeholder interests with the ability of the Commission to fulfill its statutory directive to establish rates that are fair, just and reasonable to all ratepayers.
February 18, 2019 Letter to Senator Brandon Smith, annexed as Attachment 1.

The Council concurs with the Commission that broad participation among all stakeholder interests should be part of any such rate case and anticipates that the Commission will grant liberally intervention to stakeholders reflecting a range of interests in order to assure such broad participation, just as it did when the initial model net metering tariff and interconnection guidelines were developed following adoption of net metering by the Kentucky General Assembly.
The Council also concurs with the comments of the Kentucky Office of Energy Policy that in determining the value of the credit that is to be accorded electricity fed into the grid over a billing period from a distributed generator, the Commission should create a “robust stakeholder process” to assure that the resulting changes, if any, in rates charged by a jurisdictional utility to participating customers, are fair, just, and reasonable.
The Council hopes that this comment period has assisted the Commission in framing the issues and understanding the concerns of other stakeholders in advance of the filing of a specific rate case, and the Council holds out hope that the utilities will begin to work collaboratively toward developing reasonable, fact-based policies that are fair to all stakeholders, and to develop rates for crediting of distributed generation under the Act that are fair, just, and reasonable to participating and non-participating customers. Collaboration, and not “clobberation,” will generate a far better and more acceptable end-product than the raw politics of power that has marked the development and passage of SB 100 and has brought us to this point.
As discussed in the Preliminary Comments submitted by the Council, there are a few key points that should guide the Commission’s review of any proposed tariff pursuant to the 2019 Act.
First, the Commission must assess the full range of costs and benefits specific to each utility in establishing the rate at which energy fed into the grid by net metering customers will be credited. As noted by the Commission in the February 18, 2019 to Senator Brandon Smith:

Utilities and the territories they serve have quite distinct differences, and it is because of these variations that the ratemaking process should reflect a utility’s unique characteristics and the specific cost of serving that utility’s customers. The same holds true for examining the quantifiable benefits and costs of net-metered systems. - February 18, 2019 Letter to Senator Brandon Smith, Attachment 1.
Second, KRS 278.466 allows utilities to use the ratemaking process to recover costs necessary to serve its net metering customers, “without regard for the rate structure for customers who are not customer generators.” The utility proposing an alternative rate structure for customers taking service under the replacement tariff bears the burden of demonstrating through sufficiently robust data and appropriate analysis, that any changes to the rate design, including the current fixed charge currently applicable to both participating and non-participating ratepayers of that class, are fair, just, and reasonable, and properly allocate costs of service and credit for benefits (including avoided costs). Despite spending copious amounts of money to convince legislators and ratepayers to the contrary, no empirical evidence has been produced to date by any jurisdictional utility in Kentucky that net metering customers cost more to serve than other residential customers, or that any material cross-subsidization is occurring intra-class or inter-class between participating and non-participating ratepayers. The Council’s own analysis, which did not account for any benefits provided by net metering customers to other customers, the grid, or the utility, showed no evidence of cross-subsidization occurring between customer classes at any more than a miniscule level. This finding is consistent with the 2017 Lawrence Berkeley National Laboratory Report Putting The Potential Rate Impacts of Distributed Solar Into Context, which concluded that “for the vast majority of states and utilities, the effects of distributed solar on retail electricity prices will likely remain negligible for the foreseeable future.” The 2017 LBNL Report, authored by Galen Barbose, was appended to KRC’s Preliminary Comments as Attachment 2.
Additionally, while utilities deserve an opportunity to seek to recover their costs and a fair rate of return on prudent investments for providing reliable service through fair, just, and reasonable rates, abrupt changes to the current net-metering relationship would violate the rate-setting principle of gradualism and could dramatically slow the rate at which distributed generation from renewable sources is incorporated into the grid.2 A significant reduction of the dollar value of the credit provided for fed-in electricity from distributed generators under the net-metering tariff, could encourage those customers to exit the grid entirely, to the detriment of the system, the financial health of the utilities, and other customers remaining grid-connected. Changes to net metering valuation necessarily have policy implications that affect economic development, utility customers, both participating and not, and the environment; all of which deserve consideration. The Bonbright principles regarding rate design and rate setting are as applicable here as in any rate case and counsel against radical changes in rate design or fed-in solar valuation.
Finally, as the Commission noted in the February 18, 2019 letter, it has “broad authority to consider all relevant factors presented during a rate proceeding, which would include evidence of the quantifiable benefits and costs of a net-metered system.” (Emphasis added). The consideration of “quantifiable” benefits of distributed solar should include all those benefits recognized and asserted by the jurisdictional utilities when they have proposed and requested Commission approval for utility-installed solar capacity despite the existence of sufficient coal-fired capacity within those utility systems.

In KRC’s Preliminary Comments, three significant points were raised. First, net metering reform is a complex topic and a wide variety of stakeholders with unique interests should be given the right to intervene in individual rate cases to ensure full consideration of the issues.
Second, in determining the dollar value of the credit to be provided to net metering customers for their excess energy generation, the Commission’s analysis should be thorough and transparent and assess the full range of costs and benefits provided by distributed technologies.

Finally, available empirical data does not support the utilities’ argument that net metering customers are causing cost shifting within any ratepayer class or that net metering customers are not paying their “fair share” of the fixed costs of service to ratepayers within that class, relative to non-participating ratepayers within that class.
[Supplemental Comments continued in link.]
Continue reading the supplemental comments in full by clicking here.
By Kentucky Resources Council on 11/14/2019 4:19 PM
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