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By Jocelyn Durkay

Net metering is a hot topic this year. State lawmakers, utility officials and renewable energy advocates are discussing how small-scale renewable energy generation is both challenging and changing the face of the electricity market.

A worker installs rooftop solar panels. On-site renewable generation—often referred to as distributed generation—is a renewable energy source that is located at a house, school or business rather than on utility-owned property. These generation sources are most often solar panels, but can be micro-turbines or other renewable energy sources. By allowing individual homeowners or entities to generate electricity on-site, customers can provide their own electricity from the energy source they choose. And more are choosing to do this: U.S. solar capacity has increased 418 percent since 2010 and more than half of this increase comes in the form of solar panels on homes and businesses.

Generating your own electricity, however, still requires reliance on the utility since the sun does not shine at night when many people are at home using electricity to power lights and appliances. Most distributed generation users remain connected to the electric grid to ensure they have electricity around the clock.

In recent years, state legislatures have taken an active role in navigating policies to allow individual homeowners or entities to generate their own electricity and even sell excess electricity back to the utility. These policies, known as net metering, are in place in 43 states, Washington, D.C., and four territories. While net metering policies have been responsible for expanding access to the benefits of renewable energy, they have generated questions of equity.

All electricity users pay for the value of the grid that supports electric infrastructure through charges on their utility bill. When users are able to meet a portion of their electricity needs through distributed generation and gain credit for selling electricity back to utility, they inadvertently do not pay these charges but still benefit from using the electric grid. The question is: Do solar owners receive a monetary benefit that outweighs the value that utilities receive?

Numerous state legislatures and public utility commissions are debating best way to balance customer demand for distributed generation with the impacts new technologies have on the electric power grid. Below are some examples of recent state action:

  • Arizona: In November 2013, the Arizona Corporation Commission voted to establish a 70 cents-per-kilowatt surcharge on residential net metering customers beginning in 2014. This decision will result in a charge of approximately $4.90 per month for most customers who own rooftop solar generators.
  • Minnesota: Legislation in 2013 required the Minnesota Department of Commerce to develop a “value of solar” methodology for the Minnesota Public Utilities Commission. This marked the first statewide utility tariff—an alternative to net metering—that gives customers credit for energy generated by solar panels that is sold to the electric grid. Notably, the tariff is required by legislation to incorporate the projected economic impact of carbon emissions.
  • Oklahoma: Governor Mary Fallin recently signed Senate Bill 1456, which directed utilities to develop a new rate class for distributed generation customers to cover infrastructure costs. The measure will take effect in November 2014 and does not apply to customers with distributed generation as of November. The new rate class and any associated tariffs must be created by the end of 2015 and approved by the state’s Corporation Commission. Fallin also issued an executive order stating that the legislation is not a mandate for utilities to implement a tariff system for distributed generation. 
  • Utah: In March, the Utah legislature enacted a bill to amend the state’s net metering policies, requiring the Public Service Commission and electric cooperatives to seek public comment and determine the costs and benefits of net metering programs to both utilities and customers. These entities may then impose a charge, credit or ratemaking structure (including a tariff) based on these findings.

Net metering and distributed generation debates are just beginning in many states and more action is likely to follow.

Join NCSL for a free webinar on May 1 to hear experts share their thoughts on how to capture the value that distributed energy and solar provide, while recognizing the value of the electrical grid.

Jocelyn Durkay is a research analyst with the NCSL Energy Program. 

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About the NCSL Blog

This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.

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