Investor-owned utilities await net-metering reform decision in Kentucky
An order is expected on or before May 14 by Kentucky utility regulators that investor-owned utilities hope will reform net metering in the state — the billing system that credits utility customers for the excess power they put on the electric grid.
The potentially precedent-setting order due from the Kentucky Public Service Commission (PSC) is its first proceeding in which new net-metering rates are proposed under Senate Bill (SB) 100, passed and signed into law in 2019 dictating that net-metering customers receive a “dollar-denominated bill credit” for their excess energy. While utilities may propose the rate, SB 100 requires the PSC to determine the value of solar net-metering.
The proceeding is based on a rate case filed in June 2020 by Kentucky Power Co., an electric utility subsidiary of the investor-owned American Electric Power Co. Inc. (AEP), which is challenging SB 100 and seeks to lower the rates utilities pay residential solar customers for the power they produce, a.k.a. net metering.
Kentucky Power argues that solar net metering should be credited at a rate consistent with the avoided cost rate, which is the amount utilities pay to purchase electricity at the wholesale rate. Solar advocates, on the other hand, contend that the credit should be at least the retail rate because distributed generation benefits the utilities and the grid.
In January, the Kentucky PSC issued an order and chose to carve out net metering from Kentucky Power’s base rate case and established the current separate process and hearing that just wrapped up earlier this month.
During the commission’s remote hearings held April 6 through 8 on the Kentucky Power proceeding, CEO Brett Mattison pointed out that with the way net metering is currently structured, utilities pay the retail rate to net-metering customers for the energy they produce and put on the electric grid. And Kentucky Power has fewer than 100 net-metering customers in its service area of roughly 168,000 customers across eastern Kentucky, he said.
“Until rates are set in accordance with the net metering reform of 2019, utilities are required to pay approximately three times the market value of energy derived from net-metering customers,” Cynthia Wiseman, vice president of external affairs and customer services at Kentucky Power, explained on Tuesday in an email sent to Daily Energy Insider. “Reducing the amount that a utility pays for generation from net-metering customers reduces the subsidy paid by other non-net metering customers.”
Net-metering reform, wrote Wiseman, “is necessary to help protect the rest of Kentucky Power’s customers from subsidizing net-metering customers.”
Shelby Linton-Keddie, senior director of state energy and regulatory policy at the Edison Electric Institute (EEI), which represents all of the nation’s investor-owned electric utilities, said there’s no longer a need to pay net-metering customers the retail rate for the power they generate, and a lower rate would address the extra costs Kentucky Power’s customers are paying for net-metering electricity.
“Kentucky is not alone in making these reforms. There is now a clear recognition of the need to protect non-generating customers from this policy and find a path that works for all customers, as well as utilities, by following the dictates in SB 100 that allows utilities recovery of “all costs necessary” to serve customer-generators,” Linton-Keddie wrote in April 22 comments on the case sent to Kentucky PSC regulators.
And while various intervenors in the Kentucky Power proceeding have suggested that any new tariff would undermine the distributed solar market in Kentucky and diminish customers’ options for generating their own power, Linton-Keddie basically called that inaccurate. “There is no hard evidence that supports any of these claims; and in fact, some states that have transitioned away from retail NEM [net energy metering] have continued to have active participation by customer generators,” she said.
SB 100 provides a roadmap for reform, Linton-Keddie said, and addresses “the inequities created by retail net metering now, rather than continuing to force non-generating customers to pick up the cost.”
Advocates of renewable energy, however, argue that lowering the rate would make solar less financially feasible for customers — thereby stifling its growth — and doesn’t consider the customer-generated power benefits provided to both utilities and the environment in this age of climate change.
Yes, solar power is an important part of the energy future, said EEI’s Linton-Keddie, but it’s equally important that policymakers and regulators, including the Kentucky PSC, consider approaches that best recover costs and eliminate subsidies when looking to reform outdated net-metering policies to ensure a sustainable future for solar that benefits all electricity customers.
“As the PSC continues to evaluate NEM rates and seeks to ensure compliance with SB 100, it should take this opportunity to eliminate, to the greatest extent possible, the subsidies that have been created to date through retail NEM,” Linton-Keddie said. “Correcting this inequity is not only better for customers, both generating and non-generating, but also embodies the intent and direction of SB 100.”
If Kentucky PSC commissioners approve Kentucky Power’s proposed net-metering rates, then only new solar customers would be impacted, according to Wiseman, who said that current net-metering customers would continue to receive the full retail rate for the next 25 years.
