Torquing the levers of international power.

• Published date: 22 March 2016
• Author: Ferrey, Steven
• Date: 22 March 2016

3. Costs

State retail electricity regulatory commissions are required by law to fairly and equitably allocate investments and expenses of regulated utilities. This is their ultimate regulatory responsibility. Public utility law tracks the legal obligation to allocate costs and benefits of electricity service in a manner that is "fair and equitable," "not unduly preferential," "just and reasonable," and "non-discriminatory" among consumers. (154) Regulatory scrutiny is intended to ensure that the only costs passed on to retail rates are "necessary and prudent." (155) The rate charged to one group should not impose a cost burden derived from a different pricing policy of another group. (156)

Electricity rates must reflect the reasonable cost of production and the translation of total cost to "just and reasonable." (157) The allocation of rates among customer classes must be made based on the principles of tracking and reflecting costs of serving each reasonably distinct class of customers. (158) 159 Each specific rate to consumers must be "just and reasonable." (159) A nearly universal obligation imposed by federal and state laws on public utilities is the obligation to furnish service and to charge rates that will avoid undue or unjust discrimination among customers. (160) These principles are embedded in rate decisions of both FERC (161) and state regulatory commissions (162) and are reinforced when courts review the application of these principles by regulatory agencies. (163)

Administratively-set FiT prices for power, whether in California or Oregon, have traditionally been too high, obligating utility customers to pay higher rates for decades of long-term contracts. In 2011, Oregon lowered the price paid under its solar FiT for the third time in its one year of existence, reducing it from its original 65 cents/Kwh to 37.4 cents/Kwh. (164) Each of the prior iterations at higher prices was oversubscribed within less than 10 minutes of its availability, even though each time the tariff was lowered 10-20% from the prior available price. (165) While Oregon officials claimed they were looking for the "sweet spot," the unsweet spots of each of the former tariff iterations are forced into the bills of rate paying customers--essentially everyone else--for the successive 15 years. In an international dimension, as set forth above, Germany slashed its initial feed-in tariffs in several stages to approximately half their values 7 years before. (166)

IV. THE ALTERNATIVE REGULATORY MECHANISMS FOR SUSTAINABLE POWER: NET METERING AND RPS

Net metering and renewable portfolio standards are the most utilized regulatory mechanisms in the U.S. to promote renewable energy. California, for example, has adopted both legal techniques, after being told for the third time in 2010 and 2011 that it was acting illegally in setting wholesale renewable power prices at inflated FiT levels. As a comparison internationally, Denmark net metering only allows excess from one hour to be applied to the next hour. Net metering at above the retail rate is implemented in Ontario, Canada. (167)

A. Net Metering

1. The Legal Mechanism

Net metering has been the most used renewable energy incentive in the United States. FiTs are the most widely employed renewable energy policy in Europe and increasingly, the rest of the world. (168) Approximately 60 countries, including 18 European Union countries, Brazil, Indonesia, Israel, South Korea, Nicaragua, Norway, Sri Lanka, Switzerland and Turkey all used FiTs to promote and support renewable energy. (169)

Under net metering, allowed in some form in 43 U.S. states, when the customer purchases and uses electricity from the distribution company, the meter runs forward; when more electricity is produced from the facility than is consumed by the customer, the excess is sent to the electricity grid, running the meter in reverse direction and reversing the net accounting of power flow. (170) By turning the meter backwards, and because only a single rate applies to a single meter, net metering effectively compensates the generator at the full retail rate (which includes that approximately two-thirds of the retail bill is attributable to transmission, distribution, and taxes) for transferring just the wholesale energy commodity in reverse to the utility--the power itself. (171) A recent federal adjudicatory order casts uncertainty on the legality of some forms of net metering. (172)

In essence, net metering customers receive for that power an amount that could be above the utility's avoided cost, and reflects distribution investments made by the utility, not the QF. Net metering is not designed to allocate the fair or equitable price based on ratemaking law; it is a random price generally equal to the retail price, which has no direct relationship to the value of wholesale power traded in the market. Although established by state regulatory commission, the net metering rate is wholly divorced from ratemaking law and principles. It ignores that the net metering customer uses the distribution grid twice (power going and coming) and the rate supposes that the net metering customer does not use the grid at all. Net metering is more an accounting convention applied to trading power than it is a legal commodity sale according to case decisions, and it typically is applicable by state law and order to renewable sources of distributed power on the customer's side of the retail utility meter. (173) The potential for generation of system electric power by rooftop PV units in each state is shown in Figure 9. The potential is greatest in California.

2. Costs

A 2014 report concluded that net metering in California174

* produces excessively large subsidies for typical residential rooftop solar PV facilities

* cross-subsidies are paid by other residential customers

* most of the burdened customers are less affluent than the rooftop solar PV customers

* the subsidy is substantially larger than the 30% federal tax credit

* An alternative arrangement which would require all rooftop solar PV customers to buy all of their consumed energy under the existing retail tariffs and separately sell all of their onsite generation to their distribution utilities at the utilities' avoided costs. (175)

State utilities wanted stricter limits on the size of net metering units: San Diego Gas & Electric Company alleged that net metering provided an "unfair and unsustainable subsidy" of approximately $34 from each other customer to net metering customers. (176) A study for the California Public Utilities Commission estimates that by 2020 approximately $1.1 billion would be shifted annually to support net metering customers under the existing scheme. (177) The California Public Utility Commission reported that by 2020, net metering could cost non-solar electricity customers $370-$ 1.1 billion per year. (178) It documented that most homeowners with distributed solar systems had an average household income about twice that as the average household. (179) California has preserved net metering for now, but AB 327 directed the state's Public Utility Commission to come up with a new program by 2017 that ensures non-solar customers do not bear an unfair burden. (180)

Both National Grid and Northeast Utilities, the parent company of NStar, the utility which owns Boston Edison Company, submitted testimony supporting the goals of the Massachusetts solar program but raising concerns about its costs. National Grid's Ian Springsteel, the utility's director of regulatory strategy, submitted testimony saying the price supports for solar "are set at very high levels relative to the revenues necessary to incentivize solar installations." (181) "National Grid estimated the cost of $3.95/month per residential customer to pay for the Massachusetts RPS program, expected to rise by $l/month by 2015." (182) National Grid estimated that net metering costs will more than double between summer 2013 and the end of the year ($0.09/month to $0.23/Month), and then more than triple again by the end of 2014($0.93/month). (183) This currently represents 5.4% of the typical residential customer bill, before all the projected increases. (184) This indicates the slope of the trend line on net metering costs on individual bills. National Grid estimated publicly that the separate net metering cost more than doubled between summer 2013 and the end of 2013, and will more than triple from the 2014 amount again by the end of 2015. $4.04 monthly is the cost of the two green energy mandates, which represents 5.4% of the typical Grid customer's monthly bill of $74.38/month, not including the state energy efficiency mandates which cost the typical customer another $4.70 a month. (185)

The manager of power planning and supply for Northeast Utilities stated that solar subsidies at their current levels burden "ratepayers with unnecessary costs while overcompensating solar project owners for reasonable development costs that should more appropriately be borne by the project owners themselves." (186) The vice president for regulatory affairs at TransCanada, which sells electricity in New England, raised concerns about rising costs at a recent State House hearing on solar. "He said after the hearing that commercial/industrial electricity prices in Massachusetts, which are currently fifth-highest in the nation, could rise to number 2 behind Hawaii in coming years due to clean energy mandates." (187) Utility companies in California estimate that net metering may mean as much as $1.4 billion a year in lost revenue, which will have to be added to the bills of non-net-metering customers. (188)

3. Net Metering Energy Storage--The Missing Link for Power

Unlike all other forms of energy, moving electrons cannot be efficiently stored as electricity for more than a second, before they are lost as waste heat. (189) Therefore, the supply of electricity must match the demand for electricity over the centralized...