Policy Documents

Research & Commentary: Net Metering

February 3, 2014

In 43 states and the District of Columbia, utility customers who purchase their own generation source (also called distributed generation, most often a rooftop solar panel) can sell any excess electricity they produce to a utility for resale to other customers, a process known as net metering.

Utilities currently pay significantly more to purchase customers’ excess electricity than they can charge when reselling to other customers, so they are calling for more balanced rates for net metering. Five states introduced bills reforming net metering in January 2014 alone, and many groups, including the National Association of Regulatory Utility Commissioners, National Policy Alliance, National Conference of State Legislatures, National Black Caucus of State Legislators, Southern States Energy Board, and American Legislative Exchange Council have called for net metering policy reform this year.

Currently, utilities must pay the retail price for electricity instead of the wholesale price, which means solar owners are getting reimbursed not only for the electricity they provide but also for the costs associated with building and maintaining the electric grid. As a December 2013 paper from the Harvard Business Law Review Online noted, “net metering causes a re-allocation of transmission, distribution, and reliability costs to those customers who do not own distributed generation.”

Such cost-shifting impedes social equity because rooftop solar owners have generally higher incomes than others, so lower-income ratepayers end up paying extra to subsidize higher-income customers. A California Public Utilities Commission study found customers who installed net metering systems since 1999 had an average median household income of $91,210, significantly higher than the state’s median income of $54,283 and the investor-owned utilities service territories’ median income of $67,821.

Solar power advocates oppose aligning net metering rates with wholesale electricity prices. Although owners of rooftop solar panels should be paid for the electricity they sell back to the grid, they should be paid at the same rate conventional sources are paid, reflecting the true wholesale cost of electricity. It is particularly unfair for solar owners to be paid for the costs of maintaining the grid because the intermittency of solar power actually increases those costs.

The following documents provide additional information about net metering.

 

Ten Principles of Energy Policy
http://heartland.org/policy-documents/ten-principles-energy-policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to deal with ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography.

Net Metering 101
http://www.instituteforenergyresearch.org/2014/01/14/net-metering-101/
The Institute for Energy Research provides an instructive explanation about the fundamentals of net metering, net metering policies, and renewable energy. According to IER, 43 states and the District of Columbia have net metering policies. 

California Public Utilities Commission Reports High Costs for ‘Net Metering’
http://heartland.org/policy-documents/california-public-utilities-commission-reports-high-costs-net-metering
In this November 2013 Heartlander story, Bonner Cohen, Ph.D., covers a recent California Public Utilities Commission Report that found net metering policies are raising electricity prices throughout the state and particularly harming low-income residents. The report states rooftop solar customers have an average household income of about $91,000 per year, well above the state average of about $54,000 per year. Under the pricing mechanism of net metering, utilities pay artificially high prices to rooftop solar customers for the excess electricity they produce, the cost of which is paid by other customers.

How Wind and Solar Power Are Polluting the Commons
http://seekingalpha.com/article/938671-how-wind-and-solar-power-are-polluting-the-commons
Private lawyer and accountant John Petersen states our electric grid is an essential commons no less important to an industrial society than our air or water. Regarding renewable power, he writes, “the electric current they generate is inherently unreliable and intermittent, which makes it fundamentally destabilizing to the grid. That introduction of massive intermittency into a system that requires absolute stability is, by definition, pollution.”

Updating Net Metering Policies Resolution
http://heartland.org/policy-documents/updating-net-metering-policies-resolution
On December 6, 2013, the American Legislative Exchange Council’s Energy, Environment, and Agriculture Task Force adopted a model resolution calling for net metering policies to be updated to address cost-shifting and stabilize the grid and financial solvency. The resolution was approved by the ALEC Board of Directors on January 9, 2014. The National Association of Regulatory Utility Commissioners, National Policy Alliance, National Conference of State Legislatures, National Black Caucus of State Legislators, and Southern States Energy Board have passed similar statements calling for reform of net metering policies in the states. 

2014 Top Five Energy & Environment Issues To Watch
http://knowledgecenter.csg.org/kc/content/2014-top-five-energy-environment-issues-watch
This January 2014 Council of State Governments blog post outlines the top five energy and environment issues for 2014, one of which is net metering. The blog states, “energy analysts expect the popularity [of net metering] to grow as more interconnected features of the Smart Grid are implemented and more familiarity or customer acceptance grows.” 

Bright Consumers: Cost Inequity in Solar Power Generation
http://heartland.org/policy-documents/bright-consumers-cost-inequity-solar-power-generation
Stateside Associates, a state and local government relations firm, covers the basics of net metering, how it works, and how it distorts balanced markets. Of the 43 states currently offering generous incentives for solar power, Arizona, California, Idaho, Louisiana, and New Mexico are currently revising their rules, the study found. 

The Regulatory Challenge of Distributed Generation
http://heartland.org/policy-documents/regulatory-challenge-distributed-generation
This December 2013 paper from the Harvard Business Law Review Online summarizes much of the latest research on distributed generation and net metering. Net metering is described as a “controversial regulatory practice,” mainly because of the huge subsidy it creates for distributed generators that is “over and above the tax subsidy provided to all renewable generation.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith at tsmith@heartland.org or 312/377-4000.