Important to Get Net Metering Policy Right

Among the many energy issues in the spotlight in state legislatures and public service commissions nationwide, net metering continues to draw attention. In June, PACE wrote about the ongoing debate over the policy, which compensates customers who generate solar power for the value of their electricity generation. Many, including PACE, have argued that smart net metering design helps ensure that non-solar customers aren’t unduly burdened by compensating of solar customers.

Now, according to a report from The Gazette, the Iowa Utilities Board has ruled to allow the state’s two largest electrical utilities, Alliant Energy and MidAmerican Energy, to change their net metering rules. The move comes after a broad effort by regulators to seek input from energy customers. Among the major changes to the net metering rules for Alliant and MidAmerican customers is that solar customers would be charged service fees when taking power off of the grid. Those fees will help to pay the fixed costs of power production such as infrastructure costs.

Customers will also be required to ‘cash out’ excess credits at year’s end, avoiding a situation where a customer could use a credit earned in low-demand periods to offset power used in a much more costly peak period of demand. This ‘cash out’ payment will be calculated at avoided cost, somewhere between one and three cents per kilowatt-hour on average, instead of at the retail rate of around eleven cents. More than 1,600 customers currently take part in the net metering program offered by Alliant and MidAmerican, meaning setting a sustainable course for net metering in Iowa is important.

Of course, Iowa is not the only state taking significant action on solar-related issues. As reported by Andrew Follett of The Daily Caller, Hawaii decided to end its taxpayer support of solar power in July over cost and reliability concerns. State officials repealed the previous program by limiting the number of solar customers eligible for subsidies. Officials hope that such measures bolster the reliability of the grid and help restore equity for non-solar customers.

“It comes down to a financial issue,” Democratic state Rep. Chris Lee, the chairman of the state House Committee on Energy and Environmental Protection, told The Associated Press. “The more distributed generation, the more power that individuals generate themselves, the less of a customer base the utility ultimately has in the long run.”

Getting net metering isn’t just important for customers, though. A new report from Fitch Ratings suggests that overly generous net metering policies can damage the creditworthiness of investor-owned utilities. According to Fitch, improperly balancing payments to solar customers with the need for covering fixed grid costs could lead to a “death spiral” for electric utilities. The findings were published in a report entitled “Net Energy Metering: A Secular Credit Challenge for IOUs.”

“The conundrum for regulators and utilities from an energy policy point of view is facilitating development of distributed … solar and its clean energy attributes without unduly burdening [non net-metering] customers with higher bills due to cross-subsidization,” Fitch said.

“Clearly, getting net metering policy right is among the most important tasks in front of state lawmakers and utility regulators,” adds PACE Executive Director Lance Brown. “Smart net metering policy is crucial not just for the protection of electricity customers, but for the health of utilities too.”