SGLF report: net metering perpetuates unfair marketplace
Net metering — the billing mechanism that allows electric utility customers to be compensated for the electricity they sell back to their utility — should be reformed to best support all customers, according to a new study published by the State Government Leadership Foundation (SGLF), a Washington, D.C.-based conservative policy nonprofit.
“Net metering continues to perpetuate an unfair marketplace through large subsidies to the ‘haves’ at the ‘have nots’ expense,” said SGLF Deputy Executive Director Casey Dietrich in a recent statement. “It should be a priority for every legislator with constituents impacted by this disadvantage to remedy the issue and balance the unfair market.”
Utilities may use a variety of compensation schemes to pay net metering customers as much as the full “retail rate” charged to electricity customers, according to the SGLF study, 2020 Update: Net Metering in the States, which points out that the funding used to reimburse these solar customers comes from the revenue generated by regular utility consumers, creating an unfair practice in the marketplace.
Currently, the rate paid to net metering customers varies from place to place and from utility to utility across the United States. And while the original intent of net energy metering (NEM) was to encourage the development of solar at an attractive rate, solar installation has grown during the past 25 years among residential and other electric customers like farms and industrial customers, resulting in reduced costs that make solar more affordable and raise questions about retail rate net metering.
In fact, the U.S. Energy Information Administration reported just over two million electric customers were ‘net metering’ in 2020, up from 140,000 in 2010 for an increase of 1,300 percent. These customers generated and sold back to their respective utility more than 1.59 million megawatt (MW) hours in 2019, or approximately 12 times the 2010 figure, according to the administration.
“These numbers reflect growth rates of approximately 29 percent per year for both the number of customers and the amount of electricity sold back to utilities. These rapid growth rates are largely a result of overly supportive and overcompensated subsidy policies, such as retail rate NEM,” writes study author and independent energy expert Tom Tanton, director of science and technology assessment for E&E Legal, and president of T2 & Associates.
With the Federal Energy Regulatory Commission (FERC) mostly leaving all price regulation of net metering up to the states, some recently have started to move away from retail rate net metering “as policymakers have become more aware of the issue of fairness, and no longer tolerate net metering customers being heavily subsidized by all other customers,” Tanton writes.
However, other states are going in the opposite direction, like expanding NEM at the retail rate, which results in overpayments that harm customers who can least afford it, writes Tanton.
Hence, discussions about the need and usefulness of retail rate NEM going forward are now more important, he writes in the study, which updates an SGLF 2018 report outlining similar issues and making recommendations on how best to correct them.
Tanton said that the new report focuses on net metering developments in six states: Arizona, Arkansas, California, Indiana, Oklahoma, and Wyoming. “We chose these states to ‘bracket’ the policies from most favorable to net metering to most balanced for other customers, and summarize the treatment net energy metering receives in these states,” he said.
Conclusions
In the study, Tanton concludes that the most recent cost-benefit studies do not show net benefits for subsidizing consumer power generation through net metering pricing, and public benefits often may be achieved at less cost.
Studies of benefit and costs should follow best analytic practices, be current, and not subject to preconceived outcomes, said Tanton, who advises that state policymakers consider and acknowledge these specific attributes when evaluating different cost-benefit studies.
“It is important to remember that net metering itself is not a public policy objective. It is a mechanism to achieve a specific policy goal — in this case, a subsidy to incent private solar development,” he writes. “After more than a decade of this subsidy (when set on retail rates), review is needed to determine whether this is the right policy going forward.”
Tanton also concludes that poor customers are subsidizing rich customers. “Beyond mere cost-shifting, net metering can be regressive and disproportionately impact low-income customers, since many low-income customers do not have, do not want, or cannot afford private solar systems,” he writes.
Additionally, net metering represents a significant cost shift from generating to non-generating consumers, raising the overall price of electricity generation, distribution and transmission, Tanton concludes.
“Utility investors and non-generating consumers are being unfairly disadvantaged, paying a large subsidy to generating consumers,” according to the study. “NEM compensation structure does not benefit the grid’s reliability or reduce overall consumer costs.”
