Please attend and participate at the Public Hearing on November 13, 2019 at 9 a.m. EST at the offices of the Kentucky Public Service Commission, 211 Sower Blvd. Frankfort, Kentucky.
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.
Due to concerns from many legislators and overwhelming public opposition to the bill, significant changes were made in the original bill and, instead of legislating a lower value for fed-in solar energy, the Public Service Commission (PSC) was tasked with reviewing utility-proposed changes in net metering tariffs after January 1, 2020 in the context of individual utility-filed rate proceedings.
Recognizing the need for information before the PSC considers the broad issues of setting a rate for crediting fed-in electricity in an individual rate proceeding,
the PSC issued an Order opening a case and inviting public comment that will be compiled into a final Order and Report. The record of this case (2019-00256) will be incorporated by reference into any ratemaking case filed by any utility after January 1, 2020.
What is the Current State of Net Metering?
Kentucky’s current law, in effect until January 1, 2020, requires all PSC-regulated electric utilities to offer net energy metering to customers on a 1:1 basis, so that each kilowatt generated and fed into the grid, and each kilowatt used are “netted” 1-1. If a home, church, business, or other customer generates more energy than it uses in a billing cycle, the customer is credited for the excess generation measured over a monthly period at the same rate as what they pay for energy they use, which is the retail rate. These credits appear on the customer’s next bill and can be applied to the electricity used that month or carried forward, but do not affect the fixed monthly meter charge.
What Changes Does SB 100 Make?
SB 100, which takes effect January 1, 2020, makes several important changes to the current law and, depending on how the PSC rules, could change the relationship between rooftop solar producers and utility companies:
- The law redefines “net metering” so that instead of the difference between the amount of electricity fed into the grid and the amount used, net metering will now be the difference in dollar value between the electricity fed back to the grid and the electricity consumed by the customer generator. The value of the electricity consumed is priced using the “applicable tariff of the retail supplier,” which means utilities could argue that net metering customers should be classified as a separate rate class and could be charged higher fees for being utility customers.
The reason advanced by utilities (and disputed by others) for this disparate treatment of distributed solar customers is that some of the “fixed” costs of service are not in the utility’s fixed meter charge, but are embedded in the “volumetric” rates, so that if one uses less electricity (which utilities have been encouraging for decades!) one pays less of those embedded fixed charges.According to utilities, this use of less electricity causes other ratepayers in the class to pay a higher percent of the fixed charges.
The reality is that within a ratepayer class, the costs are never identical to all customers, since some customers (like those who use CFL bulbs or install conservation measures) use less, and other customers use more.
- Instead of compensating energy produced by customer generators at the 1:1 basis for each kilowatt generated and consumed, SB 100 directs the Public Service Commission to set the rate of compensation in proceedings initiated by one or more utilities. Utilities will likely argue that customer generators should be compensated at far less than the current 1:1 credit at the retail rate and that the utility should not be required to pay more for energy it can get for less elsewhere. For example, utilities recently convinced the Louisiana Public Service Commission to reduce the compensation rate from the retail rate of approximately $0.10/kWh to the “avoided cost” rate of $0.04/kWh.
- Because each utility can institute its own rate proceeding after January 1, 2020, and since the rate design for each utility may be different (particularly how much of their fixed costs are reflected in their volumetric charges for electricity) the value of solar can be different in different service territories and can change in subsequent rate proceedings. This makes it harder for those thinking about adding a solar system to their homes to understand the economics of such an investment
- SB 100 entitles each regulated utility to implement separate rates to recover all costs necessary to serve customer generators.
- SB 100 does not specifically direct the Public Service Commission to consider the benefits of distributed solar generation. However, in a letter sent to Senator Brandon Smith during the deliberations on SB 100, the Commission stated that it had “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.” Recent studies have found that the benefits of customer-sited distributed generation outweigh the costs, but it is unclear whether the PSC will consider these benefits in determining a fair, just, and reasonable rate.
- Customers who begin taking service under the current net metering tariff prior to a final Order by the Commission approving their utility company’s new rates in a case filed after January 1, 2020 under SB 100 will continue to receive the current 1:1 credit for a twenty-five-year period, even if the home is sold.
The PSC Has Opened a Docket to Gather Comments from Interested Stakeholders in Advance of SB 100 Becoming Effective on January 1, 2020.
The Public Service Commission is holding a public hearing on November 13, 2019, to develop a record that it can reference as it considers the implementation of SB 100 to individual utilities as they begin to file ratemaking proceedings to change their net metering rates. Individual comments were received until October 15, 2019 and can be read on the PSC website.
How You Can File Comments, Participate in the Public Hearing, and View Comments Filed In the PSC Case
- While public comments were accepted until October 15, 2019, the Commission has indicated that public comments can be submitted in written form at the public hearing on November 13, 2019. Public comments must include your full name and place of residence.
- Click here to view updated links to documents filed in the PSC case.
- Please attend and make comments at a public hearing to be held on Wednesday, November 13, 2019, at 9 a.m. EST in the offices of the Public Service Commission, 211 Sower Boulevard, Frankfort, Kentucky. Or submit your written comments and any supporting documents at the hearing.
According to the PSC, every public comment submitted in this proceeding will be read and considered. Public comments can affect Commission decisions and your voice matters. The Commission notes that the most useful comments “address specific issues with fact-based discussion or proposals regarding implementation of the new law.”
What Should I Include in My Comments?
Include your full name and address and your interest in the implementation of SB 100. What are your concerns? Here are some we have that are outlined in more detail below. To read the full text of KRC’s comments, click here.
- We appreciate the opportunity for all interested parties to comment in this proceeding, but this proceeding should not serve as a substitute for allowing low-income, solar, environmental interests, and other interested persons full intervention in individual net metering rate cases.
- Imposing additional charges on solar net metering customers is discriminatory since there is no evidence of any cross-subsidization or adverse impacts to non-net metering customers. Modifications to net metering as it currently stands are unnecessary since solar penetration in Kentucky remains at one of the lowest rates in the nation.
- The Commission should consider the full range of benefits, in addition to the costs, in valuing the amount net metering customers should be compensated for the energy they feed back into the grid.
- Numerous studies have concluded that the benefits of solar net metering outweigh the costs to utilities and ratepayers. Excess energy fed back into the grid should be compensated at fair rates that take these benefits into account.
- Several states have recently ended their net metering programs, resulting in catastrophic economic impacts to the solar industries in those states. The Commission should consider potential negative impacts on one of the fastest growing industries in the country and just as it considers economic development in other rate cases, it should consider the impacts to economic development here.
Here are more detailed comments on these points, taken from our filed comments before the Commission:
- This opportunity for comment is not be a substitute for allowing interested parties the right to intervene in individual net metering rate cases filed by utilities.
The Kentucky Resources Council has historically represented low-income advocates in ratemaking cases before the Public Service Commission and has, until recently, consistently been granted permission to intervene in those cases on their behalf. However, last November, the Public Service Commission denied KRC’s request to intervene on behalf of the Metropolitan Housing Coalition in a case where LG&E and Kentucky Utilities requested an average rate increase of $9.63 per month for KU customers. The Sierra Club, Association for Community Ministries, and the Lexington Community Action Council were also denied intervention, while the PSC had no problem letting Kroger, Walmart, and other large commercial interests into the case.
KRC and other groups challenged the denial of intervention as being arbitrary and the Franklin Circuit Court issued a temporary injunction ordering the Commission to allow participation by the groups in the rate case. However, the PSC appealed that decision to the Kentucky Court of Appeals, which reversed the lower court decision and found it lacked jurisdiction to rule on the PSC decision to deny intervention. The case is currently pending before the Kentucky Supreme Court.
Given the Commission’s recent history of denying participation in rate cases to low-income and environmental interests, it is more important than ever that all interested parties that represent a unique interest and will present evidence that might not otherwise be brought before the Commission, are given a seat at the table. The rate structure for net metering can only be decided in a fair manner if the full diversity of stakeholders have the opportunity to provide input in the actual rate cases, where specific data and statistics unique to each utility will be analyzed.
2. There is no significant cross-subsidization occurring between solar net metering customers and non-solar net metering residential customers in Kentucky. The current 1% cap on net metering ensures adverse impacts to other ratepayers and the utility will not occur.
The utility industry has argued in broad terms that solar net metering customers don’t pay their fair share for the costs to upkeep the grid and that other customers, especially those that can’t afford solar, are paying more than their fair share for these costs. While solar net metering customers pay the same meter charge as other customers, the utilities argue that because the solar customers use less electricity from the grid, they are not paying as much towards fixed costs that are embedded in the volumetric rates.
This argument is flawed in its application to net metering in Kentucky and ignores several key facts.
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. These charges have increased drastically in many service areas in recent years and net metering customers are not exempt from these charges. While the costs net metering customers incur for the energy they consume are somewhat offset by energy 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 that any impact to other ratepayers is negligible, if not undetectable. We did an analysis of the economic impact on residential customers from net-metered energy sold back to the grid using 2016 data from the Department of Energy’s Energy Information Administration. The impact of solar net metering to the average Kentucky residential customer’s bill was 4 cents per year when net-metered solar “sold” back to the grid is credited at a retail rate of approximately $0.07 per kWh. That is less than one penny per month. The economic impact to non-net metering customers in the highest case was 4 cents per month. Thus, while the argument that cost shifting is occurring in some jurisdictions, the reality in Kentucky is that any cost-shift or cross-subsidization is undetectable. You can view our data and analysis and more information here
A January 2017 study
by the Lawrence Berkley National Laboratory confirms KRC’s analysis on a nationwide level. 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 kilowatt hour. Kentucky currently has a distributed solar penetration rate of less than 0.1% and many if not all utilities charge a fixed rate in addition to volumetric rates. This means the impact to retail electric prices in Kentucky should be even lower than projected in this report and will remain “negligible” for the foreseeable future.
Finally, because SB 100 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 they could start to have other impacts.
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 just not true in Kentucky. Thus, imposing additional fixed costs on net metering customers above what other retail customers pay is unreasonable and unfair.
3. In determining the dollar value of compensatory credit provided to net metering customers for their excess energy generation, the Commission must fairly consider the full range of benefits, and not just the costs, of distributed energy resources.
SB 100 does not specifically direct the Public Service Commission to consider the benefits of distributed energy resources in determining a value to credit to net metering customers for the excess energy they produce. However, in responding to legislative amendments that would have directed the Public Service Commission to consider specific solar benefits, the Commission stated to the Chair of the Senate Committee of jurisdiction that “The Commission 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.”
There is overwhelming evidence that distributed generation provides numerous benefits and most, if not all, recent studies
assessing the value of these resources assess these benefits in addition to costs. While the outcome of these studies is largely dependent on what variables are assessed and from what perspective (utility, ratepayer, solar generator, society, etc.) the costs and benefits are assessed, an analysis of fifteen (15) recent studies on the value of distributed generation solar found that every study assessed numerous benefits. Benefits to the utility companies, such as avoided energy generation and avoided transmission and distribution capacity were the most common. However, solar net metering can provide numerous benefits to utility companies, other ratepayers, the environment, and society as whole and the full range of benefits should be taken into account. In depth descriptions of potential benefits can be found here
Given that these most recent studies all assessed both the costs and benefits of distributed energy, it would be unreasonable for the Commission to solely assess the costs of distributed energy resources when determining a compensation rate. In addition, the full range of costs and benefits must be assessed in relation to the unique situation in Kentucky and in the utilities’ particular service territory.
What benefits of solar net metering are important to you? What about non-quantifiable benefits like customer ability to choose a preferred source of energy and customer ability to take affirmative action to reduce energy use, utility bills, and make “green energy” choices?
4. A growing majority of studies assessing the value of solar distributed generation conclude that net metering provides a net economic benefit to the utility and non-solar customers.
While an assessment of the value of solar distributed generation necessarily depends on the costs and benefits analyzed and the particular situation in a utility’s service area, a wide variety of studies have concluded that solar provides a net benefit to both utilities and non-solar customers, including studies done by state public utility commissions. A 2016 Brookings Institute report summarizes some of these studies here
, and more are summarized here
. Many of these found that the value of solar was higher than the residential retail electricity rate that Kentucky net metering customers currently receive.
A subsequent study
on the value of distributed generation in Arkansas, a state similar to Kentucky in solar penetration, found that the benefits of solar distributed generation equal or exceed the costs from a variety of perspectives, net metering does not cause a cost shift to non-participating ratepayers, and that modifications to net metering are not needed to recover the utility’s full cost of service over time from net metering customers. The study concluded that the exact changes the utility industry seeks to implement under SB 100 were not needed: “[m]ajor rate design changes for residential DG customers, such as increased fixed charges, the use of demand charges, or two-channel billing to set different compensation rates for imported and exported power, are not needed.”
5. The Commission should also consider the unintended consequences that drastic changes in current net metering policies would have on economic development, consumers, and lawmakers and regulators. Any changes to net metering should ensure stability and regulatory certainty to all parties and dramatic changes that will impact economic development should be avoided.
In some other jurisdictions unexpected and dramatic changes to net metering have resulted in crippling impacts to the solar industry, one of the fastest growing industries in the nation. In addition to significant economic impacts on a viable and growing industry, drastic changes in net metering have also resulted in the need to go back and revise these policies after these unintended consequences become apparent. This puts additional strain on already limited government resources, from legislators, utility commissioners, and judges hearing appeals. Furthermore, it creates even more uncertainty for consumers interested in investing in rooftop solar and stunts an industry that has seen rapid growth in recent years.
For example, in 2015 in Nevada, regulators tripled the fixed charges solar customers would pay over the next four years and reduced the credit received for excess energy supplied to the grid by more than 75%. Prior to these changes, Nevada had one of the most developed solar markets in the country and the industry employed thousands of people. After the new rates took effect on January 1, 2016, major solar companies left the state altogether and hundreds of solar workers were laid off. New solar installations dropped 92 percent in the first quarter of 2016. The fallout from this decision was so bad that the Nevada legislature, almost unanimously, passed new legislation, A.B. 405, in 2017 in attempt to remedy these adverse impacts and the Nevada Public Utilities Commission issued an order later that year implementing the new law and restoring net metering compensation to close to the retail rate. Read more about Nevada and trends in net metering before 2017 here
One of the most important factors in promoting renewable energy, and any business or economic development initiative generally, is stability. As shown by the situation in Nevada, drastic, unexpected, or retroactive shifts in policy could paralyze the solar industry and cause major harm to business owners and workers that made investments in their businesses and careers under existing policies with the expectations that those policies would continue until a 1% cap on net metering was reached, as stated in Kentucky’s former law. Consistent with the regulatory principle of “gradualism,” any changes in net metering policy should provide stability and long-term regulatory certainty to all parties, including utilities, businesses, energy consumers, and independent energy producers. Drastic changes to policies in which heavy investments have been made, will stunt economic development and are unfair to energy businesses that have risked their own capital, and are not guaranteed a significant rate of return on their investments like the utility companies.
Net metering reform is a complex and comprehensive issue that is taking place in various contexts throughout the country, with varying outcomes and results. While states with high solar penetration levels are reforming net metering because caps have been reached or high penetration rates are resulting in various issues affecting utilities and other ratepayers, Kentucky is not anywhere close to reaching the 1% cap on net metering and has one of the lowest solar penetration rates in the nation. In addition, solar net metering customers pay fixed charges each billing cycle for their use of the grid, just like all other customers.
In establishing the compensatory rate for fed-in electricity from solar or other distributed generation, the full range of benefits of that renewable energy must be considered by the Commission.