The Zeitgeist of Net Metering and Distributed Generation

Zeitgeist is a German word that roughly translates to the mood or spirit of a period of time.  A few commissioners at the recent National Association of Regulatory Utility Commissioners (NARUC) event in Denver used the term in discussions about regulatory policy for electricity. Essentially, the utility zeitgeist for our time regarding electricity is based on whether they see Smart Grid and other transformations as an opportunity or threat.  For some consumers, it’s the same dichotomy.

Undoubtedly, there’s much to threaten the electricity status quo.  Technology, finance, and regulatory drivers are putting pressures on it.  But transformations of regulated utility business models, allocations and management of distributed energy resources, and new possibilities in transactive market designs mean new opportunities for existing and new businesses.  That means jobs creation, market participation, and new benefits to a greater number of consumers  – both business and residential.

Are the sum total of these technology, finance, and regulatory policy innovations a threat or opportunity for utilities?

Fitch, one of the credit ratings companies that found all mortgage-backed securities to its liking leading up to financial melt-down, released a recent rating statement that worries about the impacts of distributed generation on utilities.   Solar photovoltaic (PV) arrays are proliferating on rooftops.  In the last three years, there’s been a 75% drop in costs, and a 600% increase in installed megawatts in the USA.  There’s no doubt that distributed generation (DG) is a growing part of the electricity supply.  The Fitch statement referenced two recent regulatory decisions that rejected utility requests to increase service charges for net metering customers.   They recommended eliminating cash payments in favor of credits for excess generation, fixed interconnection charges, plus capping total net metering production.  And while the report is correct to note that net metering rate structures need some changes, they are wrong in their recommendations about capping its production.

Net metering garnered quite a lot of discussion at the NARUC conference.  It is one of the causes of the net reduction in electricity sales revenues – a decline that has been more pronounced in the last ten years, according to the Energy Information Administration (EIA).   That worries utilities and regulators, because utility costs are increasing for a variety of reasons – including the need to harden grid infrastructure to withstand the more extreme weather events triggered with global warming.

Net metering has also been criticized for a “reverse Robin Hood” effect.   Typically, it is affluent ratepayers (residential and business) that deploy any form of DG and enjoy the benefits of reduced electricity bills and payments for excess electricity generated by their systems.  However, utilities sometimes have to upgrade the distribution grid to accommodate DG, and even when they don’t, they still have to maintain the distribution grid to be available for supplemental service to these customers anytime they need additional electricity, or standby service when their DG is out of service. Today’s rate structures don’t factor in these types of costs, which means those of us who do not have DG are shouldering a larger burden of the costs without the benefits of reduced electricity bills.  DG and distributed energy resources (DER) challenge traditional thinking, traditional rate making models, and traditional cost recoveries.

It’s a problem if the utility and regulatory zeitgeist is to treat DG as a threat.   They completely miss the opportunities to make DG another source of electricity supply at the distribution grid level.  Here are a few suggestions to create a zeitgeist that leverages DG and DER as the opportunities they can be:

1. Analysis of the distribution grid can reveal the most brittle points – where reliability suffers the most.  Why not offer incentives to residential and business ratepayers served by those parts of the grid to install DG that can be islanded to maintain at least partial service?
2. Integrated Resource Plans (IRPs) traditionally focus on large-scale, centralized electricity generation from fossil fuel and renewable energy sources.  Why not mandate that utilities must consider the contributions that DG can deliver into these plans?
3. 90% of outages occur within the distribution grid.  Why not require that critical infrastructure plans should create resiliency metrics that can supplement existing reliability metrics?  Resiliency metrics could identify how many critical infrastructure points have their own DG or microgrid configuration to maintain operations in the event of a service disruption.
4. The existing net metering rate structure doesn’t accommodate the fact that the utility is always the electricity source for standby or supplemental power when privately-owned DG needs it.  Why not create fixed charges for grid interconnection covering supplemental and standby services that fairly allocates grid expenses but does not discourage ongoing investments in DG?

Net metering rate discussions are a wonderful venue to have a real cost/benefit analyses that gauge the real value that DG can deliver to utilities, businesses, and consumers.  Transparency in these discussions will be the best way for everyone to agree that we are best served with a zeitgeist of opportunity, not threat.

Photo Credit: Distributed Generation/shutterstock