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The Solar Net Metering Battle Moves to Colorado

The battle over net metering between Colorado’s Xcel Energy and rooftop solar advocates could make the recent impassioned debate in Arizona seem tame.

Xcel Energy, Colorado’s dominant electricity provider, will have its 2014 Renewable Energy Standard Compliance Plan reviewed by the state Public Utilities Commission in February.

In its filings, the utility proposed to change net energy metering (NEM) to a “net metering incentive.” To validate the request, Xcel filed a value of solar study that puzzled Colorado solar advocates.

“They presented a draft study to the stakeholder review committee, asked for feedback, and then just filed it with the PUC with no discussion,” said Rick Gilliam, Vote Solar Initiative Research Director. “Xcel said they want a conversation about solar, but they won’t return phone calls.”

“There are two main arguments,” according to Meghan Nutting, SolarCity Policy Director. “One is that Xcel wants to recover infrastructure costs from the Renewable Energy Standard Adjustment fund.” Xcel’s net metering incentive is the difference between what the study concluded are distributed solar’s cost and benefits, Gilliam explained. “They want to deduct that from the RESA fund.”

In Xcel’s formulation, taking the net metering incentive from the RESA fund would make it as “transparent” as other performance-based incentives, Xcel VP Karen Hyde testified to the PUC in July.

“But it is questionable whether that is legal,” Gilliam said. “State law says RESA is to incur costs for implementing the RES.“

Xcel’s concern is a cross-subsidy, according to Robin Kittel, Xcel’s Director of Regulatory Administration. With NEM, solar owners can sharply reduce their electricity bills and avoid much of the prorated Electric Commodity Adjustment (ECA) bill charge. This shifts system costs to non-solar-owners.

This makes it transparent that “every solar customer continues to receive benefits from the utility system that are the same or greater than the benefits received by his or her non-solar neighbor,” Hyde testified.    

“It is not clear significant revenues are lost,” Nutting said, because few solar owners actually zero out their bills and completely avoid ECA charges. “There is no cost shift. APS, Arizona’s dominant utility, reported that the average monthly bill for solar owners in its territory from July 2012 to June 2013 was $71.27. Part of that pays for infrastructure.”

“It would be different in Colorado because, overall, the average customer use there is higher,” Gilliam acknowledged. Sunrun reports its average Colorado customer pays more than $20 per month to Xcel.

Of Xcel’s 16,000 Colorado solar owners, 1,700 received checks for producing more electricity than they consumed, Kittel said, and the “average residential solar customer serves 90 percent of load” with onsite production.

“The other argument,” Nutting said, “is that the 2014 Compliance Plan should only apply to 2014 and renewables, but this decision will impact future compliance plans, integrated renewables planning and what other utilities in the state do.”

Cost-benefit studies are complicated,” Gilliam added. “To try to go over those details in a litigated process is a poor way to get a reasonable outcome.”

“The present NEM incentive was implemented as part of the RES legislation. It is appropriate to bring it to this proceeding,” Kittel said. “It only applies to 2014, but we are asking the Commission to be aware of the cross-subsidy, because Colorado solar advocates have a 1-million-solar-roofs target.”

Motions by solar groups to remove the current debate from Compliance Plan proceedings were rejected.

Xcel’s study, which Nutting called “unvetted,” applied an “avoided costs” method. It concluded that the revenue lost to net metering is the retail rate of $0.104 per kilowatt-hour, according to Kittel. The system’s avoided cost, or benefit, is $0.046 per kilowatt-hour. Xcel wants the $0.058 per kilowatt-hour difference shifted from the RESA fund to Xcel’s ECA account to compensate for revenues lost to solar owners.

The solar industry critique of the study identified specific aspects of distributed solar’s benefit that were either undervalued or not considered by Xcel’s study. As a result, the critique concluded, “the annual net benefits of solar DG on the [Xcel] system are $13.6 million per year.”

“Xcel would say that overvalues solar,” Gilliam said. The way to get beyond the debate over which study is right, he explained, is to have a state-agency-facilitated stakeholder discussion about costs and benefits, item by item.

Future “facilitated discussions among stakeholders could define how to quantify and incorporate system costs and benefits into new rate designs,” according to Xcel VP Hyde’s testimony.

“The other alternative is we end up in a fight,” Gilliam said. And this could be the first in a series of moves by Xcel, he added. The next would be a rate change request based on the lower cost valuation. And if Xcel is compensated from the RESA fund, it would effectively cap NEM at the RESA fund’s 2 percent of utility bills cap. Finally, Xcel would, as Hyde’s testimony acknowledged, pursue a legislative change to NEM.

After proposed NEM rollbacks failed in Arizona and other states, Gilliam said, Xcel seems to have “decided to try something more subtle and creative.” A confrontation at the PUC is nearing, he warned. “The only way to stop it now would be a settlement. But I have made offers to Xcel and there has been no substantive response.” 

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Bob Meinetz's picture
Bob Meinetz on Dec 30, 2013

Herman, Meghan Nutting of SolarCity says

“It is not clear significant revenues are lost,” Nutting said, because few solar owners actually zero out their bills and completely avoid ECA charges. “There is no cost shift. APS, Arizona’s dominant utility, reported that the average monthly bill for solar owners in its territory from July 2012 to June 2013 was $71.27. Part of that pays for infrastructure.”

Of course the disconnect here is that Xcel can’t send part of its staff home on sunny days, then call them back when clouds move in. Regular maintenance can’t be temporarily suspended at noon when the sun is shining. While solar owners may not be zeroing out their bills, they’re liable for the readiness for which all customers pay – not just a part of it.

Xcel is pursuing the wise option of handing this off to Colorado’s PUC instead of having a “discussion”, where solar advocates can present emotional (and characteristically inaccurate) pleas before a public audience in an attempt to sway policy. Some of SolarCity’s claims are disputable (avoided generation, grid support services, grid security & resiliency), others are not (avoided health impacts). The economic development & local taxes line item is an interesting one; a local designation avoids accounting for generous federal subsidies which, if included, would likely turn this into a net negative.

If cooler heads prevail, which is more likely at the PUC level, the ECA will be a flat and reasonable connection fee charged across the board. SolarCity may be bringing in externalities at their own peril; there are a number of solar externalities which, whether accurately or not, Xcel may parlay into a higher ECA.

All of this squawking from solar advocates would be more tolerable if solar’s contribution in Colorado was significant – it’s not. Solar produces one-tenth of one percent of Colorado’s electricity, less than half of the national average. Meanwhile CO coal plants churn out 660 times as much energy as solar, with corresponding emissions. A wise PR investment for Colorado’s coal industry would be to help prop up solar, although right now it appears to be a diversion which largely sustains itself.

Schalk Cloete's picture
Schalk Cloete on Dec 29, 2013

Like the external costs/benefits of fossil fuels, the external costs/benefits of intermittent renewables will probably also be the subject of much talk and little concrete action over coming years, the reason being the substantial amount of subjectivity in the analysis. 

This case is a good example where the utility lobby values distributed solar at $64/MWh (about 20% of its LCOE) and the solar lobby values it at $164/MWh (about 50% of its LCOE). The biggest difference is the estimation of capacity displacements by distributed solar which the solar lobby values 5 times higher than the utility lobby at $51/MWh. 

According to EIA estimates, an advanced combustion turbine (peaking plant) operating at 30% capacity factor has a levelized capital cost of $30.4/MWh. Thus, according to the solar lobby, every kW of non-dispatchable solar capacity can safely displace about 1.7 kW of dispatchable gas peaker plants – a rather bizarre notion… 

All the other points are also highly debatable, but the primary point remains: why the push towards small scale distributed generation that is twice as expensive substantially less flexible than utility scale? Solar PV is a highly inefficient CO2 abatement mechanism as it is. Insisting on doing it at double the already high cost just makes no sense. 

 

Bob Meinetz's picture
Bob Meinetz on Dec 30, 2013

Karl, in response to your points:

1) My argument has always been that distributed solar is inordinately expensive on a cost/benefit basis, so the tautology you describe is irrelevant. The boundaries which define “levelized” cost are largely subjective and molded to fit an ideology rather than the other way around, and I don’t see a lot of purpose in them. There is one exception – the U.S. Energy Information Administration Levelized Cost figures represent a reasonably objective attempt at providing relative values of various energy sources.

2) I don’t know the details of the distributed generation debate in Colorado so perhaps the utilities have not acted in good faith. In my experience in California energy activists who feel marginalized typically resort to attention-grabbing or stalling tactics which are non-productive and expensive. While these antics are going on, utilities have a duty to provide a service to their customers. They could very well have decided that since the matter would have gone to the PUC anyway, there’s no purpose in deciding the matter twice.

3) The phrase ‘ad hominem’ is one of the most misused in all of Latin and you provide another example. There’s no personal attack here, and although I have no idea what point you were trying to make, it’s obvious you didn’t understand mine.

Mine is a valid one. If you’re a utility customer, forcing utilities to buy your generation at market rate is no different than showing up at a supermarket and demanding they buy your homegrown corn to sell. The store still has to pay for lights, employees, land use, and all the other expenses a business must pay to stay open, but they’re not making any money on you. In fact, they have to deal with the added accounting of paying you and all the other home-growers, and not knowing if you’ll show up with corn or not. They have to buy your corn even if they have too much already – more than they can sell. Meghan Nutting’s comment

Part of that pays for infrastructure.

is equivalent to saying, “While I’m at the store, I’m going to buy some coffee so that should cover those expenses you’re complaining about.” Any business owner would kick this customer out of their store yesterday.

In regards to your comment

Not only do solar customers not AVOID paying their fair share, they help EVERYONE save money on costs associated with operating and maintaining generation and the grid.

I’ve heard a lot of crazy inflated claims about solar energy but I admit I haven’t  the slightest idea how you think my neighbor with PV is saving me money while I’m subsidizing his panels and the generation he needs, on average, 85% of every 24-hour day.

4. Solar would not exist without incentives, period. That this money shows up as a local tax benefit is just a shell game, shifting the burden of tax incentives and rebates, paid for by all citizens, to local tax surpluses. And t’s quite a stretch to suggest that distributed solar is “customer-owned” when taxpayers are contributing thousands of dollars to every residential solar installation.

Regarding the avoided facilities theme: can you cite just one example of a generation facility which was cancelled because of a wealth of available solar energy?

I’m convinced that most distributed energy advocates are completely ignorant of the history of utility electricity, as well as the complexities of providing a reliable power supply to hundreds of millions of customers. In truth, we’ve already been through the distributed generation scenario – it was a nightmare of outages and fraud –  and what you consider an “old and worn playbook” is actually a crowning achievement.

Thomas Garven's picture
Thomas Garven on Dec 30, 2013

As usual Bob you make some very good points.  But as a resident of Arizona WITHOUT solar PV my current OTHER costs associated with my electric bill amount to 39.7% of that bill.  These other costs are; Delivery Services, Power Supply Charges and Green Energy Charges.  That percentage does NOT include State, County, City, RUCO and ACC assessments.  A typical bill for me is $61.37 for actual kW h’s out of a total bill of $109.78.  

I worked for a public utility for about 22 years.  During that time I participated in the downsizing or rightsizing of the company and its transition to a different business model.  During the 1990’s we went from 18,000 employees to about 15.000 employees so many utility employees were as you stated “sent home”.  The companies stock tanked from about $18/share to about $12/share during the rightsizing process which took about 2-3 years.  After that the stock recovered in about a year or so and is now significantly more valuable.  

The company today is a diversified mix of different business groups made up of many different technologies and business technologies.  Energy production from wind, solar and renewable energy investments.  Energy transmission and energy marketing, energy financial services, maintenance and technical services and has customers throughout the United States and several overseas countries. Its current business models are healthy and diversified.  

And that to me is where other utilities like APS and Excel need to go.  They need to stop whining about oh this solar thing is going to ruin us and get on with diversifying they business models because try as they might – solar is not going to go away.  While solar is now only a very small percentage of the overall power generation scheme today; it iwll continue to grow.  Utilities can either develop complementary services, diversify their business models or die and its up to their management team to determine which path each utilitty will take.  There are so many new opportunities in our electric society that trying to preserve utility models through further guaranteed profits is a horrible waste of financial resources.

I believe what we are witnessing is the slow and orderly death of the existing protected service territory utility business models created generations ago.  New technologies like new home construction with solar PV installed during construction is now being mandated in at least one city that I know of and more will surly follow.  And simple things like charging ports for electric vehicles are now required by many local building Codes in parking areas and garages.  

Utilities have a choice.  They can try and hold on to their existing business model until their product becomes too expensive for the residential market or they can diversify.  Homeowners will soon be able to leave the grid and switch to local storage and PV generated power.  In short they will no longer need their local utility to keep the lights on.     

Maybe the bottom line is this.  In another decade or so residential services could be a very small part of the utility business model.  That is certainly true in my case since I don’t believe my existing 39.7% tipping fee on my electric bill is fair and I am actively seaking other alternatives.

Bob Meinetz's picture
Bob Meinetz on Dec 30, 2013
Thomas, contrary to popular renewables industry myth, storage does not relieve the need for dispatchable generation (all it takes is a week or so of cloudy weather and a few ice cold showers to make the point). The vast majority of 180,000 Americans who are living off the grid rely on burning biomass, propane, and/or diesel generation to supply heating and cooking needs, as well as most electricity. Apparently some believe the environmental damage caused by the inefficiencies of their independent generation is a God-given right; personally I don’t believe anyone has the right to make me breathe their excess smoke or support their contribution to climate change, and this ethos is moving 180° degrees opposite the direction of where we need to be going.

In every state of the union, utilities are able to charge customers in excess of their expenses, and if utilities aren’t profitable they’ll simply charge everyone more to compensate. In short, the idea they’ll “die” is another myth. Customers can expect more green charges on their bills, like the ones you are experiencing, until they figure out that distributed generation is responsible. That will be the end of it.

Thomas Garven's picture
Thomas Garven on Dec 30, 2013

I find it difficult to ignore stories like the one below. I also find it increasingly difficult to believe in a business model that in a decade or two will no longer make sense.

http://seekingalpha.com/article/1713802-are-the-lights-going-out-for-ele...

Only time will tell which of the projections we both believe in will come true.  

John Miller's picture
John Miller on Dec 30, 2013

The net-metering debate continues.  Hopefully at sometime in the future, the State PUC’s, Power Utility Companies, Distributed Solar Companies and Consumers will recognize that overall Power Supply payment models will need changing.  Since providing uninterruptable power to essentially all Consumers is a service, those connected to this service need to initially and at minimum cover the fixed costs of the Suppliers’ system(s) required to provide on-demand power.  This should apply equally to those Customers without roof-top solar power and those with solar power.  Such a business model is very common for other services throughout the Country including private internet connections, cell phones, water &sewer, vehicle leases, etc.  The level and timing of services usage or consumption to cover variable costs should be the second cost billed all connected Customers.  Variable costs should be proportional to Supplier’s actual, real-time costs, plus a reasonable profit margin, as needed to cover operating expenses incurred to meet constant and variable Customer demand over a given 24-hour period.

With current and developing ‘smart gird’ technologies, those Customers with excess solar power generation should be credited real-time ‘wholesale’ costs of a Utilities’ purchases for a given time period.  What is often overlooked is the fact that Customers with solar power systems who provide excess power to local power distribution segments do so only during the day, which has an excellent synergy with routine peak power demand.  However, few if any of these ‘net metering’ Customers have installed batteries, that can also cover their power demand at night or on cloudy days.  Only those Customers who are truly off-the-grid should not be charged the service connection fees (Power Companies fixed costs).  Unfortunately, nearly all Customers with solar are must rely on their Power Company to provide their power needs when the sun does not shine, and therefore should be billed for service connection fees and power consumption during non-peak and peak periods.

Covering connection costs/fixed expenses is often debated by Distributed Solar Companies who most often lease the units to Private Consumers.  Due to the high costs of actual roof top solar installations, those Customers who lease the systems most often only realize marginal power cost + solar lease savings on the order of $10 per month compared to their billings without the solar panels (data based on the recent AZ APS analysis).  The Power Company(s’) fixed cost connection fees are very likely to equal or exceed $10 per month in most States, which puts the Solar Installation/leasing Companies’ business models (i.e. profitability’s) at risk.

Nathan Wilson's picture
Nathan Wilson on Jan 2, 2014

“…Utilities can either develop complementary services, diversify their business models or die and its up to their management team to determine which path each utilitty will take. …”

What exactly are you advocating?  That utilities should embrace residential solar, and build their business around selling electricity at night and on cloudy days?  That is exactly what the net-meeting debate is about: updating the regulatory structure so that this service is offered at a price that is fair to solar and non-solar utility customers (i.e. it’s solar advocates versus acountants as to the most fair valuation of solar power and grid service).

If you want to argue that utilities should design their business to offer free time-shifting of energy for solar customer, you’ll need to explain who is supposed to pay for this, since utilities will inherently incure a cost when they provide the service.  Note that that utilties can build solar generation for half the cost that home owners can (and can often build wind for even less), so why should utilities buy solar energy from residential customers at a price premium?

Advocates of residential solar are basically asking the rest of us to subsidize their systems, so that the net effect is replacing cheap electricity with expensive electricity, and you basically are asking the regulated utilites to evolve to this environment.  Ok, so what service would you agree to pay them to provide?  Should they focus on customers that want cheap power?  That won’t work either, if solar advocates require those customers to help pay for the expensive solar energy.

Are you advocating that home owners use PV and storage and go off grid?  Fine, no new regulation is required for this.  Should such home owners use fossil fueled backup generation for extended cloudy periods?  Should such backup generation be subject to pollution control regulations?  Should we continue to fight oil wars to garantee uninterrupted access to fuel for this backup generation?  What about winter heating?  Should we use fossil fuels for that or burn down our forests?

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