Kentucky net metering proposals would explore subsidy issue
Kentucky legislators continue to wrestle over a plan to sharply reduce the amount utilities pay customers who sell excess solar power to their local utilities.
The bill, which has been approved by the House Natural Resources and Energy committee but has yet to be debated and voted on by the full House of Representatives.
A major question is whether, under the state’s current net metering law, the vast majority of ratepayers are subsidizing the cost of maintaining the regional grid for the relatively few customers with solar energy systems who are connected to it.
Lawmakers have proposed a variety of amendments to the bill to address the question, including a net metering fee to ensure that solar system owners are paying a fair share of the utility’s fixed costs for the regional system of poles and wires.
Rep. Kelly Flood (D-Lexington) said she doesn’t believe solar customers are being subsidized but she’s willing to study the issue. “Let’s go ahead and test that theory,” she said.
Under her proposed amendment, the state Public Service Commission (PSC) would launch an administrative case to determine if solar system owners are being subsidized. If they are, the commission could impose a net metering fee.
She believes the issue is being politicized and should be removed from the Legislature and resolved by the state’s utility regulators. “This issue is in the wrong lane,” she said. “We need to put it back into the right lane.”
Flood believes the bill in its current form would hurt the solar industry by taking away a major financial incentive for consumers to install private solar systems.
“These are real middle class jobs,” she said. “Losing them is such a foolish move and I’m not going to stand for it.”
Rep. Jim DuPlessis (R-Elizabethtown) has proposed a $15 per month net metering fee. His amendment would have the PSC study the issue starting in 2022. Based on the findings, regulators could then adjust the fee if necessary.
Under existing law, Kentucky utilities must credit customers a retail rate for their excess solar generation, the kilowatt hours above what they use to power their homes and businesses. The current retail rate, in general, is more than 9 cents per kilowatt hour and includes the utilities fixed costs for maintaining the grid.
Under the Republican proposal, the credit would be scaled back to a wholesale rate, which is currently above 3 cents per kilowatt hour, a reduction of more than 60 percent in the credit to owners of private solar systems.
With a significant drop in the cost of solar panels, regulated utilities have experienced a surge in rooftop residential solar installations and state lawmakers across the nation have had to contend with the retail net metering issue.
Supporters of Kentucky’s House Bill 277, including utilities, argue that the current retail net metering laws benefit owners of solar systems, who tend to be more affluent, at the expense of less-affluent ratepayers.
“It’s not only a subsidy, but a socially regressive subsidy,” said Ashley Brown, executive director of the Harvard Electricity Policy Group. “Basically lower income people are subsidizing higher income people.”
Brown, who has provided expert testimony in various states, supports the intent of Kentucky’s House Bill 277. “Paying the wholesale rate is a step in the right direction.”
But he suggested that policymakers could go further by adopting a method that would reflect the competitive market, whose price can vary throughout the day as demand for electricity ebbs and flows.
“You want to give people an incentive to be much more efficient,” he said.
Indeed, Kentucky Utilities and Louisville Gas & Electric, which supports HB 227, have posted information on their websites seeking to counter opponents of the bill, emphasizing that they pay a premium for power produced by net metered customers and those costs are borne by other ratepayers.
“The state’s energy companies are currently required by law to purchase excess energy — even if it’s not needed — from private solar net metered customers at a premium that is subsidized by other customers: roughly 300 percent what energy companies would pay any other supplier for the same electricity,” the website says. “With House Bill 227, excess energy from private solar net metered customers is valued the same as energy from any other supplier.”
Many state net metering laws were adopted when solar generating equipment was significantly more expensive and the industry needed a financial incentive to take root. Since, then however, prices have fallen dramatically and policymakers are finding that the industry no longer needs the favorable treatment.
Brandt Hershman faced this issue last year when he served in the Indiana state Senate.
“Our goal was not to kill the solar market and I don’t think there’s any indication we have. The goal was to acknowledge the declining cost of the technology and put a rate in place which better reflects the economic reality,” he said. “I’m not anti-solar. This is just a reflection of changes in the market place.”
Hershman, now a lawyer in Washington, D.C., called the retail rate “an unreasonably lucrative benefit.”
Ultimately Indiana decided it will phase out retail-rate net metering. After 2022, solar generators will be paid essentially a wholesale rate plus 25 percent, he said. “We just simply said it was too lucrative to be sustainable over the long term.”
