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Electric Power Politics: Net-Metering Gets Nasty

Electric-Grid---SchematicElectric utilities may as well have declared war on distributed generation today.

“Distributed generation” is one of a half dozen or so terms used to describe technologies that produce electric power at or close to the point of consumption. Unlike traditional utility-scale power plants, DG technologies, which include rooftop solar photovoltaics, microturbines and so forth, interconnects to the electric power grid south of the substation. In other words, DG is connected directly to the distribution network – or connected through the customer’s meter.

In an Intelligent Utility editorial, Rick Tempchin, the executive director for retail energy services at the Edison Electric Institute, a Washington D.C.-based trade association for investor-owned electric utilities, expressed “concerns” about the long-term implications of existing net-metering policies, which give consumers who generate their own electricity a credit for excess electricity they sell back to the grid. Currently, 43 states and the District of Columbia have created net-metering policies.

Tempchin writes:

For electric utilities, net metering holds great implications. The most obvious is the potential effect that net metering will have on a utility’s revenue stream. When customers generate their own electricity, they’re of course buying less of the utility’s electricity, which leads to revenue losses. Lower revenues in turn affect a utility’s growth prospects.

Growth is important for electric utilities because it enables them to access capital markets at reasonable costs. This is essential if a utility is to continue making investments in its electric system—investments that help to further expand DG opportunities for self-generating customers, as well as to ensure continued system reliability for all customers.

Lower growth prospects, though, aren’t the only downside to net metering for utilities. A drop in revenues also makes it more difficult for utilities to meet their fixed cost obligations. These fixed costs can include customer service costs, system maintenance costs, investments in distribution wires and equipment, and if the utility generates its own power, investments in generating plants. It’s important to point out that even when self-generating customers begin generating a portion or even all of their electricity, the utility continues to incur fixed costs on their behalf by standing by to provide back-up electricity service when the self-generating customer’s facilities aren’t operating, or aren’t meeting their full needs.

In many states, the value of the credits consumers get is different for solar than other forms of distributed generation like fuel cells or microturbines. For example, in California or Massachusetts, customers with solar receives the “retail rate” for net-metered electricity while combined heat and power fuel cells or gas turbines receive the “wholesale rate.” The wholesale rate is virtually always significantly below the retail rate.

Electric power gridPer Tempchin: “Paying credits at the full retail rate costs the utility money because that cost will be higher than the cost that the utility actually avoids by purchasing the DG power. For example, in centralized markets, a utility can buy all of its power needs at the wholesale rate. This rate will always be less than the full retail rate it would have to pay to buy the same power from a customer.”

Ironically, the cost of natural gas needed to produce electric power onsite is frequently higher than the value of the credit received for net-metered power. As a result, net metering with gas-fired DG becomes a net loss for the consumer. As far as I know, the rooftop solar industry has not supported net metering price parity for natural gas DG.

Unlike natural gas DG, the rooftop solar industry would probably not exist – or, at least not exist at its present scale – without favorable net-metering policies.

Rooftop solar PV installed on a home or apartment building will usually generate electric power when it is least needed by the homeowner. Five days of the week, nobody is at home when solar PV is generating most of its electric power. Without net-metering policies allowing you to sell back to the grid, installing solar PV on the roof of your house would be little more than a vanity project.

The rooftop solar industry’s leaders, including SolarCity, Sungevity, Sunrun, and Verengo, established the “Alliance for Solar Choice (TASC)” a few weeks ago to do battle on behalf of net-metering policies.

Surprisingly, I tend to agree with Tempchin that net-metering may have perverse economic consequences, especially in the context of rooftop solar in the residential sector. Why should your neighbors pay you more than the market rate for electricity generated on your roof during the day? They shouldn’t and that is the pickle for many net-metering policies.

Nevertheless, I disagree with Tempchin and anyone else who suggests that we should roll back net-metering policies for solar or any other form of DG.

Let’s treat the disease, not the symptoms. Net-metering policies are the latter, not the former. The electric utility business model is broken. Rather than burn the Earth in political battles over net metering, we should be reimagining the regulatory compact between utilities and ratepayers and regulators.

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  • The first step is to get all the distribution systems seperated from the generation systems. Then the TRUE cost of both can be determined.

    This is needed so whatever price is set for the PG (power generators) to buy power from the DG’s will actually be at least the same as the PG’s are spending to build, maintain and operate their generators.

    The next piece of the puzzel is to decide if the DG’s are going to pay the distribution systems for delivering the sold energy to the guy across the street who has no DG capability. If the DG’s is going to be billed, at what rate? If the guy across the street is also paying to get the juice delivered to him, why is the DG going to be charged at all?

    I am in Texas.. As best I can figure it out. To set up to be a DG, I am required to have seperate meters for the incomeing and outgoing electricity. That means I will pay the 30$ a month “meter service fee” for each meter.

    Next, no matter HOW I generate the electricity, the PG is allowed to pay me for that electricity at rate of it’s LOWEST cost production facility. So while my Retail rate is about 9 cents/kw,, my sales rate is going to be probably less than 3 cents/kw.

    Next, it appears that the distribution system is going to charge me for every kw no matter which way it goes in the wires. This means that they are getting a windfall since they are cahrgeing for to send the power to my neighbor and they are charging him to get the power sent to him.

    The economics of this arrangement simply don’t work for a small (less than continuous 10 KW production) DG. I live simple in a small house and do a bit of electric conservation so I generally only use about 1000kw a month. It would be ludicrus for me to spend $40,000.00+ to be able to average sending 10KW continuously to the grid when it looks like I can spend $4-5,00-.00 to get self-sufficient and tell the power distributor to come take their meter.

  • cs fdsfsd cs fdsfsd 1 year ago

    Great points!

    Complaining about roof top generators not paying for the fixed costs of the grid is like complaining about a company that charges you for shipping. If YOU want the product, YOU pay to have it shipped. Period.

  • Karl Rabago Karl Rabago 1 year ago

    Most of Tempchin’s arguments are wrong without the important limiter “between rate cases, when utility poorly forecast distributed generation DG penetration.” Worse is the implied argument that utilities are suffering major revenue loss due to DG. Vast majority of utility earnings problem is due to slow economy and low gas prices. Conclusion here is solid – business model is flawed when DG, which brings great value to utility and ratepayers, is seen as a threat to utilities.

  • William Pentland William Pentland, Contributor 1 year ago

    @karlrabago, Thanks for your comments. Cost of service rate-making is not effective model for socializing the cost of today’s electric grid.

  • Well BOO HOO for the power companies. You have been getting paid for about 100 years now and consumers have finally a method to recoup some of that. Tough Noogies, boys. If Tesla had not been thwarted by Morgan and Chase, you never would have made your trillions, so be thankful for what you have made up to this point. Tech is out there that could allow consumers to generate ALL their own power needs, and then some, without needing your grid or your monthly billing. Take a lesson from the Buggy Whip industry that whinned about what was happening to their industry when Henry Ford got his assembly plants moving. One way or another, consumers will find a way OFF your grid, and when they do, you can sell all that excess power to?…..well now that is your problem, isn’t it?….. not the public’s.

  • shrug shrug 1 year ago

    QUICKLY! Sacrifice everything for growth!

  • Eric Fisher Eric Fisher 1 year ago

    Very one sided article. Since the power from solar comes at peek power demand periods the utility is benefiting by not buying the lung damaging, green house gas contributing type power at high prices. Will the utility pay the extra for the damage they caused to peoples health. That would more fairly reflect the true cost of this type of power.

  • There is a more fundamental issue here – Why should net metering be required AT ALL?! What free market principal demands that a company (monopoly or otherwise) buy what I produce? Consumers that have the land and structure to install DG have had that same ability for a long time, it has just been (and still is) too damn expensive, not to mention aggravating. Solution – make the allegedly greedy power company (‘my neighbors’, especially if its a coop) pay for my overpriced and inefficient power generation.

  • cs fdsfsd cs fdsfsd 1 year ago

    You don’t understand how DG works. I am generating peak electricity during the hottest hours of the day, my neighbor’s A/C turns on and he then uses that electricity. I didn’t force him to set his A/C at the current level, he chose to set it at that level.

    Furthermore, I paid for the electrical grid through all the years I have been paying for electricity from the power plant, why shouldn’t I be able to use the grid I paid for?

  • If I grow my own food, and then have extra, should I be allowed to walk into the grocery store and force them to buy the extra? The groceries I have bought in the past paid for the store, shouldnt I be able to use their tables and shelves? As for your neighbor – Hope you like getting called to fix your neighbor’s power when lightning strikes the transformer – you paid for the grid and are providing the power, right?

  • Eric Fisher Eric Fisher 1 year ago

    Your thinking is very confused. You are trying to justify your thinking but it is not working. Utility company’s are monopolies, food production is not a monopoly business and are handled differently in a free enterprise economy.

  • William Pentland William Pentland, Contributor 1 year ago

    . . . and free enterprise has been a boon for agriculture. I wonder what the productivity gains are compared to the electric industry over the past 50 years.

  • NEM does impact other, nonparticipating utility ratepayers, because a minority of the power produced is exported to the grid. Below is the link for study on NEM’s benefits for utility companies and it clearly shows that SCE and SDGE is benefiting from NEM and there is a slight lost for PG&E but very insignificant compared their $25B revenue in 2011. Besides their argument on their ” revenue stream” Net Energy Metering gives customers control over their electricity bills and creates jobs and encourage private investment. I strongly believe NEM also protect their electric grid because NEM create smooth demand curve for electricity and allow utilities to better manage their peak electricity loads.


  • jameskirk jameskirk 1 year ago

    Thank you William for the thoughtful article. This is a disruptive area of the economy and is only going to get more so. What you term DG, the Edison Inst. calls Distributed Energy Resources. They predict it will put utilities out of business. It will unless utilities take some drastic steps TODAY to position themselves for the new energy business. That is, customer abandonment of the present grid in favor of DER and district & neighborhood microgrids.

    Centralized power generation is an environmental hazard, insecure, vastly expensive, inefficient. DERs (DG) are being prepped for market that will immediately allow small business and home owners to drop off grid or subscribe to independent microgrids. Smart utilities will see DERs and microgrids as new revenue potential. But they must forget their central grid model and focus on manufacturing (licensing) installing and maintaining DER systems. If they do not – they will go the way of the horse trade. Their big central grid will become a stranded asset, just like $4T in oil fields predicted by Sir Nicholas Stern of London School Economics.


    Energy independence is already here. Utilities are just waking up to that fact.

  • A small home solar system is generating power when businesses including factories and retail outlets are operating. The article seems to imply that home generation is only used by homes. The simple and honest way to fix the problem that with net metering, the power company is paying the same rate per kWh to the small generator as he charges him is to have a line charge. This is right and proper. The power company must make a differential in order to be able to maintain the lines.

  • What you neglect to acknowledge in your piece is that the home owner foots the capital and maintenance costs of the on site production infrastructure. Additionally, in order to determine the true costs attributed to conventionally produced utility power, you need to include all the variables. In my district, as with much of North America, electricity is produced by burning coal which is unsustainable, incredibly carbon intensive and inefficient when compared with PV solar (just to mention a few variables). The overarching problem is that power production and distribution has become largely “corporatized” which means that short term shareholder return is the only concern of the utility. Social, environmental and long term economic sustainability are not part of the conventional corporate model.