Utah: Monthly Net Energy Metering Fees Debated

Aug. 28, 2014 by Alexandra Aznar

This is the second blog in a four-part series of articles in which we discuss either the valuation of solar to the grid and various stakeholders or value-of-solar (VOS) tariffs and policies. For background and definitions of these terms, please see the "Louisiana: Net Metering Cost/Benefit Study Authorized" post.

Should utilities charge solar energy system owners a monthly net energy metering (NEM) fee to account for transmission and distribution costs that some consider avoided by those with photovoltaic (PV) systems? Utah is one of several states investigating how to appropriately value the benefits and costs of solar as it tries to answer this question.

In 2002, Utah enacted a net metering policy that required qualifying electric co-operatives and Rocky Mountain Power (RMP)—the state's only investor-owned utility—to accept residential renewable energy systems up to 25 kilowatts (kW) and commercial systems up to 2 megawatts (MW) until the utilities reached 0.1% of their 2007 peak demand (DSIRE 2014). In 2009, the PSC raised the 0.1% cap to 20% and said that NEM customers must still pay a minimum bill charge that RMP charges all of its customers (DSIRE 2014).

Over the years, the falling price of solar photovoltaic technologies has combined with both state and federal tax incentives to drive 30% annual growth in RMP customer-owned solar. Earlier this year, the Utah legislature passed SB 224-Renewable Tax Credit amendments. The amendments established a production tax credit for 25% of the cost (up to $2,000) of a commercial solar energy system with a capacity between 600 kW and 2 MW, along with an investment tax credit of 10% for commercial solar projects with a capacity greater than 600 kW (S.B. 224, 2014). By allowing the choice between two different tax credits for projects between 600 kW and 2 MW, this bill aims to incentivize a range of PV project sizes (Barrett 2014). Currently, more than 2,700 customers own solar panels in the RMP service territory (Maffly 2014).

In January 2014, when RMP requested a rate increase from the Utah Public Service Commission (PSC), the utility also asked for permission to charge NEM customers a $4.25 (later changed to $4.65) monthly fee (IREC 2014). Issues such as those highlighted in Edison Electric's 2013 report, Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, may have motivated RMP to approach the PSC with a base rate increase and monthly NEM fee request (Barrett, 2014). The Edison report warns of the "financial risks created by disruptive challenges [e.g. distributed generation] including declining utility revenues, increasing costs, and lower profitability, particularly over the long-term" (Kind 2013, p. 1).

The rate increase request was settled, but discussions on the NEM fee continue as stakeholders await a ruling from the Utah PSC, which is expected in September (Hayes 2014). During the discussions, Governor Gary Herbert signed Senate bill 208 in March, allowing "the Commission to determine a fee, credit, or other ratemaking structure after conducting a cost-benefit analysis of net-metered systems" (IREC 2014). To date, Utah has not completed any comprehensive study of the costs and benefits of net metering (Barrett 2014).

During the 2014 PSC process, four interveners filed testimony in opposition to the NEM monthly fee (Hayes 2014). Groups including the Sierra Club and Utah Clean Energy have filed testimony about the quantifiable benefits of solar energy to aid the PSC in its assessment of RMP's current rate case, but there isn't enough time to conduct a formal cost-benefit analysis within the timeframe of the rate case (Hayes 2014). Solar supporters, like Utah Clean Energy, believe that distributed solar generation provides quantifiable benefits to utilities and customers alike. They prefer that a formal cost-benefit analysis be conducted with input from a wide range of parties so that a robust methodology can be developed and applied in future rate cases (Hayes 2014). Solar advocates believe that the PSC should not issue a monthly NEM fee until it conducts its own cost-benefit analysis.

Utilities and their supporters think that the PSC could authorize RMP's monthly NEM fee as part of the rate case and then conduct the full cost-benefit analysis at a later date (Hayes 2014). RMP contends that the monthly NEM fee allows the utility to collect for the cost of transmission and distribution infrastructure that both NEM and non-NEM customers use (Taylor 2014). Utah utilities have been paying attention to the national NEM conversation, particularly the push from utilities to impose NEM fees and protect their business model from the changes posed by distributed generation (Hayes, 2014). Like other states, debate about Utah's NEM has touched on cross-subsidization concerns in addition to potential utility revenue decline.

As in much of the country, the rhetoric surrounding recent NEM issues in Utah has been heated. The PSC's ruling will be high profile and widely discussed, given that there have already been nearly a dozen editorials about RMP's proposed NEM fee (Barrett 2014). Utah Clean Energy has also received many phone calls about the issue since January (Hayes 2014). RMP's January rate case request mobilized interested citizens to create a group called Utah Citizens Advocating for Renewable Energy (Hayes 2014).

RMP, like other utilities nationwide, is conceiving of ways to align rates with utility system use as more customers choose to purchase solar PV and enter NEM programs. The Utah PSC may decide to conduct deeper analysis into the costs and benefits of distributed solar generation while sifting through utility and stakeholder concerns, tax credits supporting solar PV expansion, heightened media attention, and growing demand for solar among Utah residents.

According to Jeffrey Barrett at the Utah Office of Energy Development, RMP recognizes customer interest in solar and is considering additional options to their current "Blue Sky" renewable energy credit (REC) program (Barrett 2014). At the moment, RMP representatives are seeking feedback from selected Utah opinion leaders about how to alternatively serve this customer need without adopting a third-party power purchase agreement model (Barrett 2014).

Sources

Barrett, J. Phone Interview. Utah Office of Energy Development. June 25, 2014.

Database of State Incentives for Renewables and Efficiency (DSIRE). 2014. "Utah: Incentives/Policies for Renewables and Efficiency."  Accessed June 30, 2014.

Hayes, Sophie. Phone Interview. Utah Clean Energy. July 2, 2014.

Interstate Renewable Energy Council (IREC). 2014. "Utah Enacts Net Metering Legislation, Avoiding Customer Penalties." http://www.irecusa.org/2014/04/utah-enacts-net-metering-legislation-avoiding-customer-penalties/. Accessed June 25, 2014.

Kind, Peter. 2013. Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business. Prepared for Edison Electric Institute.

Maffly, Brian. May 22, 2014. "Utah's solar power homeowners fight proposed utility fee." The Salt Lake Tribune. http://www.sltrib.com/sltrib/news/57966967-78/power-solar-customers-net.html.csp. Accessed June 27, 2014.

S.B 224. "Renewable Energy Tax Credit Amendments." 2014. Utah Legislature.

Taylor, Dave. Phone Interview. Utah Regulatory Affairs, Rocky Mountain Power. July 7, 2014.