GTM Exclusive: The Solar Industry Establishes Net Metering Principles

With disputes breaking out between utilities and builders of rooftop solar all over the country about net energy metering (NEM), the solar industry has issued guiding principles to make clear what it believes the basic components of NEM must be. GTM has obtained exclusive access to the just-released principles.

After what insiders described as a thorough airing of the NEM controversy, a significant majority of the Solar Energy Industries Association (SEIA) 35-member board approved the seven Net Energy Metering Guiding Principles.

The declaration is unequivocal. “SEIA asserts that these principles are consistent with the imperative of public utility commissions and energy service providers to maintain reliable, cost-effective service to all customers while protecting the right of customers to generate their own energy in a manner that provides many public benefits including environmental protection and economic development.”

“Net metering is a billing mechanism that facilitates distributed generation and gives customers who are putting value on the grid payment for that value,” explained SEIA VP Carrie Cullen Hitt. “There are benefits that cannot go unnoticed. And if a utility is going to set a cost, it must do a transparent analysis that includes those benefits.”

The analysis, Hitt said, is the critical question. Suggested approaches for how a cost-benefit analysis should be carried out are woven through many of the principles. Principle Three makes two key points. One is that “net energy metering customers should not be treated unfairly vis-à-vis other ratepayers and all benefits should be accounted for.” The other is that “a utility should have the opportunity to recover its costs of providing service and earn a return on investment as determined by regulators."

This captures much of the tension between solar and utilities, Hitt said. "Utilities might say they are OK with net metering, but that solar customers are getting overcompensated."

The concern with overcompensation and cost-shifting has led utilities like Arizona’s APS and California’s SCE to propose supplemental bill charges. “Our fundamental principle is there should be no discrimination,” Hitt said. “Solar customers shouldn’t be treated differently. You can’t have some made-up charge that doesn’t reflect the costs and benefits accurately.”

In the light of the utilities’ real concerns, Hitt said, Principle One's assertion of an inherent “right to self-generate, connect to the grid, and reduce grid electricity use” is a bold move.

This goes directly to what Hitt believes is the utilities’ deepest concern: that self-generation will cost them customers and revenues and force them to change their business model.

“Distributed solar has such little market penetration, even in the sunniest states,” she observed. “So why all the dramatics?”

Because, she went on, utilities always think about the long term, and they are reacting to what might happen in five or ten years. Even as “wires providers,” utilities would be concerned about losing newly independent customers. “They seem to be saying, ‘We have to stop this now before it gets more traction.’ But the utilities' long-term thinking seems a little shortsighted, considering what their customers want.”

Another side of the principles, Hitt said, is that utilities are trying to understand how to deal with solar. “These can help them think through how to succeed as transmission and distribution companies and, in some instances, owners of generation. They can share the system with others.”

These principles present to utilities the fundamental structure of net metering, Hitt explained. “It should be for retail credit and it should have these basic components. It also says to them, ‘If you are thinking about some kind of charge, it should not be discriminatory. If you are going to put a charge on ratepayer bills, who is doing the math?’”

More than two-thirds of the SEIA board, including representatives from small installers, big developers, manufacturers, finance, and other facets of the industry, voted to approve.

Off-the-record reports to GTM said the small number of dissenters on the board were concerned with what factors would go into the cost and benefit calculations.

A number of studies have attempted to define those factors, Hitt acknowledged. “The studies have typically been the start of the real conversation.”