In spring 2019, the Kentucky General Assembly passed SB100
, redefining net-metering in Kentucky. The bill was signed by the Governor in March and the Kentucky General Assembly
summarizes the action as:
"specify[ing] that the ratemaking process to set the amount of compensation for electricity produced by eligible customer-generators be initiated by a retail electric supplier or generation and transmission cooperative on behalf of one or more retail electric suppliers; prohibit eligible customer-generators who close their net metering accounts from receiving any cash refund for accumulated excess generation credits; require the net metering tariff provisions for eligible customer-generators in place when they started taking net metering service to remain in effect for 25-years for eligible generating facilities, including the one-to-one kilowatt-hour denominated credit provided for electricity fed into the grid; specify that eligible customer-generators shall be subject to all changes in energy rates, rate structures, and monthly charges as nonparticipating customers during that 25 year period; specify that eligible customer-generator installations are transferable to other persons at the same premises."
A major argument against net-metering has been that solar net metering customers do not pay their fair share for the costs of service and that non-participating customers, and particular low- or fixed-income customers, are being required to subsidize the participating ratepayers. The utility industry makes these same arguments across the country and would have consumers and policy makers believe that these arguments are true regardless of the unique situations in each state. While some states with high levels of distributed energy penetration may have legitimate concerns that cost shifts do or could occur, the assertion that distributed energy customers in Kentucky are not paying their fair share or are being subsidized by other ratepayers has not been supported by any data provided by the utility companies in Kentucky. Absent such evidence, there is no basis in this state and at this time for imposing additional charges on customer-generators. Instead, the Council’s own analysis using publicly available data shows that any cross-subsidization is negligible.
First, all residential customers in each utilities’ service area pay the same fixed service charges that are designed to recover the costs to maintain the grid, including net metering customers. These charges have increased drastically in many service areas in recent years, and utilities continue to request increases in fixed charges for all customers to compensate for a lack of customer growth and a reduction in per capita energy usage across the board, a trend that is anticipated to continue.22 While the costs net metering customers incur for the electricity they consume are offset by electricity they supply back to the grid, these credits count only against energy consumed, not other fixed charges. Thus, net metering customers pay the same fixed charges as all other residential customers every month, regardless of any credits they receive for energy produced.23 As the utilities continue to seek upward adjustments in their fixed customer charges and to move costs from the volumetric to the meter charges, any perceived intra-class “subsidization” will become all the more marginal.
While the costs net metering customers incur for the electricity they consume are offset by electricity they supply back to the grid, these credits count only against energy consumed, not other fixed charges. Thus, net metering customers pay the same fixed charges as all other residential customers every month, regardless of any credits they receive for energy produced.
Second, solar net metering has such low penetration rates in Kentucky, (which under the now “hard” cap of 1% will remain low), that any impact to other ratepayers is negligible, if not undetectable. The Kentucky Resources Council did an analysis of the economic impact on residential customers from net-metered energy sold back to the grid at retail rates using 2016 data from the Department of Energy’s Energy Information Administration. The analysis looked at the cost to each utility for crediting net metering customers at the retail rate rather than the avoided cost rate, with an assumed difference between the two of roughly seven (7) cents per kilowatt-hour, for excess power supplied to the grid. Contrary to the utilities’ arguments that crediting net metering customers at the retail rate results in cross-subsidization, our analysis found that for 2016, the economic impact for any non-participating customer ranged from a high of 4 cents per month, or 48 cents per year, to a low of 0.1 cents per month, or 1.3 cents per year. The average economic impact on non-participating customers was 4 cents per year. Thus, while the utilities argue that cost-shifting is occurring in some jurisdictions, the reality in Kentucky is that any cost-shift or cross-subsidization is negligible.24
A January 2017 study by the Lawrence Berkley National Laboratory confirms this analysis on a nationwide level.25 According to this report, at a solar net-metering penetration rate of 0.4% and with purely volumetric rates, the impact to average retail electricity prices is no more than three one-hundredths of one cent per kWh. Kentucky currently has a distributed solar penetration rate of less than 0.1% and utilities charge a fixed rate which is not subject to reduction through net metering, in addition to volumetric rates. This means the impact to retail electric prices in Kentucky should be even lower than projected in this report for the foreseeable future. Furthermore, because the 2019 Net Metering Act caps net metering at 1% of a utility’s peak load, utility companies are not required to offer net metering when penetration rates rise to a level where retail rate net metering is projected to have impacts on non-participating ratepayers.
Further, while Kentucky utilities may have a monopoly in their service territories, that monopoly status does not prohibit customers from seeking to reduce their energy consumption or reliance on energy from the grid. Utility customers have always had the option to take whatever measures they see fit to control their own energy use and reduce their bills by using less energy. To compensate net metering customers at anything less than the retail rate for energy they produce and which is used behind the meter to reduce their own energy consumption is contrary to this principle and treats net metering customers differently than all other customers that seek to reduce their energy usage. This is unreasonable, unfair, and contrary to longstanding rate-making principles.
In conclusion, the utility industry’s argument that solar net metering customers are not paying their fair share to upkeep the grid and that their decreased energy usage and utility credits they receive for energy produced are creating an unfair burden on other ratepayers is simply not true in Kentucky. As the analysis above makes clear, there is no need to raise rates on net metering customers to recover for any cross-subsidization because net metering customers’ effect on other customers is negligible. Imposing additional fixed costs on net metering customers above what other retail customers pay or putting net metering customers in a separate rate class is contrary to the requirement that rates be fair, just, and reasonable, and is not supported by any evidence provided by the utilities to date. Any assertion by the utility industry that cost shifts are occurring or that net metering customers impose additional costs on utilities must be supported by valid, transparent data.26
SB100 is scheduled to take effect on January 1, 2020. This action becoming reality could slow the development of solar energy in Kentucky. The above is a selection from our preliminary comments on net-metering, that was filed with the Public Service Commission on Tuesday, October 15.
The next event is the PSC Administrative Hearing on Net Metering on Wednesday, November 13 at the PSC office at 211 Sower Blvd, Frankfort, Kentucky 40601.
Solar Kentucky, Kentuckians for the Commonwealth, Homeless and Housing Coalition of Kentucky, Kentucky Interfaith Power & Light, Inc, Kentucky Solar Energy Society, and the Sierra Club - Mammoth Cave Chapter, have posted the Administrative Hearing on Facebook and are requesting that those interested in attending RSVP.
22 See, e.g., In the Matter of: Electronic Application of Kentucky Utilities Company for an Adjustment of its Electric Rates, Case No. 2018-00294; In the Matter of: Electronic Application of Louisville Gas and Electric Company for an Adjustment of Its Electric and Gas Rates, Case No. 2018-00295.
23 While the utilities will argue that these fixed costs do not capture the total cost of service and that some costs are built into the volumetric rates, that is not a net metering issue, but an overarching ratemaking issue that implicates the continuing problem of a utility business model built largely around selling increasing amounts of electricity while demand continues to decline. Isolating and according disparate rate treatment for customers who use less electricity because of generation of electricity from solar panels, than is accorded other customers in the same class who may use less electricity due to efficiency investments or weatherization, for example, is hardly fair, just, or reasonable.
24 Tom FitzGerald, “The Economic Impact on Kentucky Residential Customers of Energy ‘Sold’ To Utilities From Net Metering Solar Customers in 2016,” (February 28, 2018) annexed as Attachment 4.
25 Galen Barbose, “Putting the Potential Rate Impacts of Distributed Solar into Context” (Lawrence Berkeley National Laboratory, Jan. 2017) available at: https://emp.lbl.gov/sites/all/files/lbnl-1007060.pdf
26 Note also that cross-subsidization within a class is inherent in flat rate electricity pricing. Ahmad Faruqui, The Ethics of Dynamic Pricing, 23 Electricity J. 13, 19 (July 2010) (“A flat rate that charges the same price around the clock essentially creates a cross subsidy between consumers that have flatter-than-average load profiles and those that have peakier-than-average load profiles. This cross subsidy is invisible to most consumers but over a period of time it can run into the billions of dollars.”).