LEGAL ISSUES IN DISTRIBUTED ENERGY & NET METERING Dan Clearfield, Esq. Energy Law & Policy...

LEGAL ISSUES IN DISTRIBUTED ENERGY &

NET METERING

Dan Clearfield, Esq.

Energy Law & Policy Institute

University of Pittsburgh School of Law

August 2, 2013

Presented by:

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What’s Coming

Distributed Energy – Basic ABC’s Net Metering Basics Net Metering Legal Issues

Who can install net metering? Eligibility/generation types Can a net metering customer shop? How is net output price calculated? What are the longer-term prospects for net

metering?

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What is Distributed Energy?

Distributed energy resources are parallel and stand-alone electric generation units located within the electric distribution system at or near the end user

Examples of Distributed Energy Systems: Combined heat and power Photovoltaic Wind Geothermal Hydroelectric

Source: The California Energy Commission

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Projected Growth in Distributed Energy

Distributed generation is approximately 5% of total U.S. power generation.

In a recent survey by Black and Veatch, more than 40% of the responding utilities indicated that they expected to see distributed generation to be about 10% (or more) of total U.S. power generation by year 2020. 

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Benefits of Distributed Energy

Cost savings for owner/customer (Potential) increased reliability of grid

overall Increased energy efficiency (line

losses) Environmental benefits

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Distributed Energy Concerns

Makes generation and transmission planning difficult

Shifts costs of central station generation and transmission system Remaining customers responsible for costs of

system

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Distributed Energy – What’s the Best Configuration? Utility Side/Wholesale

Sell @ Wholesale Interconnect to transmission and/or distribution Clearly have right to sell ancillary services More complicated Requires developer to be LSE in PJM (or other

ISO)

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Distributed Energy – What’s the Best Configuration?

Customer Side/Retail Net Metering Usually provides pricing subsidy Limits use of output

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What is Net Metering?

Net energy metering is an important incentive program that can maximize the amount of distributed energy on the grid.

Net metering allows customers with distributed generation systems to be compensated when their systems generate more electricity than the customer is using onsite.

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What is Net Metering

Net Metering “Customer Generator” receives full retail rate credit for outflow (each kWh generated)

Amount purchased by customer generator @ same rate

Customer generation receives payment at some level for net annual outflow

Source: U.S. Energy Information Administration, based on Database of State Incentives for Renewables and Efficiency

Source: U.S. Energy Information Administration, Electric Power Annual

Source: U.S. Energy Information Administration, Electric Power Annual

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Net Metering Legal Issues: Who Can Install Net-Metering ? General Rule: Retail Customers Only

Generally, retail customer must be an owner or operator

States may allow third party financing/ ownership Pennsylvania will allow third-party owner/operator

in limited circumstances Third-party owned and operated systems are limited to

110% of the utility customer’s annual electricity consumption.

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Net Metering Legal Issues: Eligibility of Net Metering Requirements States may limit net-metering to certain

technologies to reflect policy choices Systems typically sized to on-site load (or a

little more) Generally, limited to small-scale systems States may limit aggregate capacity, based on

utility peak load

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- Eligibility TechnologiesSola

rWind CH

PFuel Cell

Biomass

Geothermal

Coal

MD √ √ √ √ √

NJ √ √ √ √ √

NY √ √ √ √ √

OH √ √ √ √ √

PA √ √ √ √ √ √ √

TX √ √ * * √ *

WV √ √ √ √ √ √ √

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Summary of Net- Metering

State System Size Cap

Suppliers Required to Offer ?

ApplicableScenario

Monthly Carryover Rate

CA 1 MW; 10 MW for 3 biodigesters

No Dual-Bank, if supplier offers net-metering; likely Partial Netting otherwise

Monetized credit on full retail rate

CT 2 MW Yes Utility-Side Netting 1:1 kWh credit

D.C. 1 MW No Dual-Bank Netting Retail for 100 kW or less; generation rate for 100 kW to 1 MW

DE 2 MW Yes Utility-Side Netting 1:1 kWh credit

IL 40 kW Yes Dual-Bank or Utility Side Netting

1:1 kWh credit

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Summary of Net- Metering (Cont.)

State System Size Cap

Suppliers Required to Offer ?

ApplicableScenario

Monthly Carryover Rate

ME 660 kW No Utility-Side Netting 1:1 kWh credit

MD 2 MW Not addressed

Utility-Side Netting(current)

1:1 kWh credit

MA 10 MW for gov’t2 MW for others

Not addressed

Hybrid Monetized credit based on calculation( ~ retail rate)

MI 150 kW Yes Utility-Sde up to 20 kW

1:1 kWh credit

NH 100 kW No Unclear, probablyPartial Netting

1:1 kWh credit

NJ Customer’s average annual load

Yes Utility-Side Netting 1:1 kWh credit

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Summary of Net- Metering (Cont.)State System Size

CapSuppliers Required to Offer ?

ApplicableScenario

Monthly Carryover Rate

NY 2 MW Not addressed

Utility-Side Netting 1:1 kWh credit

OH No specific limit No Hybrid or Partial Unbundled generation rate

PA 5 MW for commercial systems

No Unclear, probably Partial Netting

1:1 kWh credit

RI 3.5 MW Not addressed

Unclear, possiblyHybrid

Monetized credit, based on calculation( ~ retail rate)

TX No state-wide rules for net-metering

Source: Justin Barnes & Laurel Varnado, “The Intersection of Net-Metering & Retail Choice: An Overview of Policy, Practice and Issues,” Interstate Renewable Energy Council (2010), at p. 7-8, Table 1 (footnotes omitted)

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Net Metering Legal Issues: Net Metering Customer – Shopping or Non-Shopping? Rules vary from state whether competitive

suppliers are required to offer net metering and, if so, does competitive supplier need to provide subsidy?

PA: EGS not required to offer net metering; if EGS does, the rate it charges/pays for generation is up to parties.

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Are Net-Metering Customers Shopping?

PPL Electric Utilities had the following numbers for net-metering customers as of April 30, 2012:

Rate Class Number of Customers Using Net Metering in Conjunction with:

Totals

Default Service from PPL

Service from EGS

Residential 1,430

(64.44%)

789

(35.56%)2,219

Small C & I 284

(62.56%)

170

(37.44%)454

Large C & I 1

(3.57%)

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(96.43)28

Totals 1,715

(63.50%)

986

(36.50%)2,701

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Net Metering Legal Issues: Calculations of Net Output Price PA (and other states) current rule: customer

generator receives yearly net output at “price-to-compare” (“PTC”)

PTC is default service price PLUS transmission

What happens when there is no more default service?

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Net Metering/Distributed GenerationLegal/Policy Issues

What Are the Longer-Term Prospects for Net Metering

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Net Metering Arguably Produces Benefits

Lower, more predictable energy bills Reduces strain on electric grid Encourages alternative energy production Net metering customers may be more aware

of consumption

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Net Metering Creates Issues

Tilting market in favor certain resources Remaining ratepayers paying subsidies to

encourage net metering E.g., California’s three major electric utilities

estimate that burden that will be shifted is about $7.6 million – an extra $185 per year if evenly spread “Death Spiral”

With advent of abundant domestic natural gas supply some question need to continue to provide regulatory incentives

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Will Net Metering Incentives/Subsidies Continue: Net metering key part of encouraging “all of the

above” strategy Like Twitter and crowd sourcing, net metering is

(increasingly) popular Unlikely that grid will move back towards more

centralization Home owners/small business/developers can make

money More of them than utilities

But, future of rich subsidies in doubt Especially as generation pricing becomes more

market reflective and competitively sourced

Questions?

Dan Clearfield, Esq.(717) 237-7173 | dclearfield@eckertseamans.com