In the early days of distributed generation, utilities would sell power to consumers at the retail rate but, if customers were able to sell excess power they generated back to the utility at all, the utilities would only pay the much-lower wholesale rate. This systematically undervalued the benefits of distributed energy resources (DERs) like solar power and provided very little incentive to invest in such systems. Today, most states require some form of “net metering” to ensure customers are more fairly paid for their generation. Even where it is not required, state regulators must at least consider rules to make net metering available¹.

A number of different generation technologies can qualify for net metering, but grid-tie solar systems on homes and businesses are probably the most common. They use a device known as an inverter to turn the low-voltage DC the solar panels produce to the higher-voltage AC we use to power lights and appliances. Such systems are designed to draw power from the local electricity distribution grid whenever they need it and send power back when they have excess. This type of system is often much simpler to install and much less expensive than off-the-grid alternatives that require batteries or other backup generation.

Unfortunately, a recent study found that overall, “grid-tied utility customers are being grossly undercompensated in most of the U.S. as the value of solar eclipses the net metering rate².”  

The value of net metered solar generation

Most consumers recognize the value of buying from local businesses, even when big online stores might offer lower prices. Buying local supports the jobs that were created in the community to build and operate that business, and the money consumers spend locally is more likely to stay in that community. Operating a small solar system shares many of these same benefits.

A small solar system installed on a home or business should easily pay for itself in avoided energy costs over the life of the equipment. But, these systems have more value than just the direct energy savings that they provide to their owners—they provide benefits to all ratepayers throughout the community.

Because most of our electricity is purchased  through wholesale market auctions, adding any new behind-the-meter generation³ results in less demand and, therefore, lowers the market clearing price. This lowers wholesale prices for everyone—even on days when the solar panels aren’t sending any power back to the grid⁴. Solar generation can magnify this effect when more power is produced on the same hot summer days that electricity demand, and wholesale prices, often peak.

Besides moderating wholesale energy prices, having more distributed generation can lead to lower spending on reserve generating capacity and infrastructure. Nationally, we spend over $100 billion a year to maintain and upgrade our grid—avoiding even a small fraction of those costs can result in significant savings.

In addition to savings on energy, capacity, and infrastructure, newer technologies like smart inverters can also provide a wide range of valuable grid services. These include things like load following, reactive power support, demand response, and other services that consumers never need to think about but are important to grid operators who need to keep the system functioning smoothly and efficiently.

The benefits of additional clean generation go far beyond direct savings for ratepayers and grid operators. Every megawatt of avoided fossil fuel generation means less pollution—including smog-forming chemicals, cancer-causing air toxics, and the carbon pollution driving climate change. Less pollution means less spending on medical care and increased productivity.

Fairness demands that we pay net-metered solar generators for the full value of the services they provide.

Net Metering in Pennsylvania

Pennsylvania’s Alternative Energy Portfolio Standards Act includes a requirement that “excess generation from net-metered customer-generators shall receive full retail value for all energy produced on an annual basis⁵.” That is a strong standard but, to date, neither our Public Utility Commission (PUC) nor our courts have fact-based determination on what “full retail value” actually is. Moreover, there is reason to believe that the PUC’s current proxies for full retail value may understate actual full retail value.

PUC rules specify that customers get a bill credit for the “full retail rate” (emphasis added) for net generation month-to-month and, that where a customer has not been compensated for all of its igeneration at the end of the year, the customer should be paid for that net generation the “price to compare” (i.e. the amount that customers who do not shop on PA Power Switch pay for electricity  generation and transmission)⁶.  

There are two problems with this framework. First, retail rates are a very coarse approximation of value. Value depends on factors that rates do not fully take into account. As one study put it, an accurate value of solar requires  “evaluating economic development costs, the avoided fuel hedge costs, the avoided voltage regulation costs, secondary health and environmental effects such as increased crop yields from PV-reduced pollution, and accurate estimations of the value of avoided GHG liability costs or avoided GHG emissions liability insurance.⁷” These are not things typically reflected in retail rates and particularly not in the lower price-to-compare

Defending Net Metering

When SolarReviews looked at state net metering policies in early 2021, Pennsylvania earned fairly high ratings compared to other states but had some room for improvement⁸. Keeping the gains we’ve made hasn’t been without its challenges. Utility trade associations like the Edison Electric Institute, and anti-regulatory groups like ALEC have been leading the attacks.

They generally start by ignoring the non-energy values of solar generation and then push the false narrative that paying net metered generators anything more than wholesale prices always represents a cost shift that impacts other ratepayers. When distributed solar levels become high, as they have in California, cost-shifting can become an issue. But critics of net metering routinely make these claims even where distributed solar levels are low, as they are in Pennsylvania, and despite the lack of actual evidence.

Back in 2016, Pennsylvania’s own PUC fell victim to these arguments and attempted to create more barriers to net metered generation. PennFuture and other solar advocates were successful in preventing new caps on the size of net-metered systems, arguing that the PUC simply didn’t have the authority to substitute their judgment for that of our Legislature. Still, problems remained.

One of the most obvious problems was the Commission’s view on virtual meter aggregation. AEPS specifically allows a net metered generation system to be attached to a separate electric meter, provided it’s within two miles of the primary meter. This is particularly useful for farms where a nearby field is a more suitable location than the existing house or barn. PUC tried to add the arbitrary restriction that any such remote site needed a pre-existing independent electric load. 

The Commision said at the time this was necessary to prevent “utilities” from qualifying for net metering. This never made any sense. Since Pennsylvania’s Electricity Generation Customer Choice and Competition Act passed in 1996, utilities have divested of all their generation assets⁹ and, as we pointed out at the time, utilities are prevented from qualifying for net metering because the AEPS defines a net-metered customer generator as a “non-utility”¹⁰. Moreover, we argued PUC just doesn’t have the authority under Pennsylvania law to create new restrictions that go beyond what the Legislature provided. 

Even though the Independent Regulatory Review Commission agreed with our position and disapproved the new restrictions, the PUC went forward and promulgated the faulty rules. I wrote back at the time that “people may be denied interconnection for their solar systems in situations where the legislation gives them the right to install that generation.”  Not surprisingly, that is exactly what happened.

A Belated Victory

On Feb 17, the PA Supreme Court upheld a May 2020 decision by the Commonwealth Court¹¹ regarding the PUC’s attempt to regulate net metering and virtual net metering. That ruling made it clear we were correct on several important points when we made comments to the PUC and IRRC back in 2016.

The court held the PUC’s authority related to net metering is exactly what the AEPS statute says—they may enact “technical and net metering interconnection rules,” not address broader questions of energy policy. The Legislature set specific limitations regarding the size of net metered systems along with other policy decisions and it’s not the PUC’s role to second-guess the laws.

The court also made it clear that, while the PUC has broad authority to regulate utilities, that doesn’t grant them the power to limit net metered generation because "the AEPS Act applies to 'customer-generators,' which by definition are not public utilities.”  Also, the PUC’s attempt to redefine the term utility to include companies that are not public utilities is unenforceable as it "attempts to redefine statutory eligibility standards.”

Finally, the independent load requirement for virtual net metering was specifically rejected as it has no basis in the statute and beyond the PUC authority. It took a number of years, but it’s encouraging to know our reading of the legislation was correct.

What this means going forward

While this ruling fixes the glaring problems with the PUCs rules, there are still some parts of the existing legislation that can be improved.

A significant number of Pennsylvania’s households and businesses don’t have effective solar access. This is particularly true for renters and those living in multi-family households, but there are a number of other issues that can make it difficult for homeowners to generate their own clean energy.

Many states have fixed this problem by enabling community solar. Under these rules, a family or business may buy or lease a share of a larger solar system and receive a credit on their energy bill for the power their share of the system generates.

While this is similar to “virtual meter aggregation” as defined by AEPS, the existing rules have additional restrictions that will keep community solar from happening. The current rules say that the remote site hosting the solar system be owned or leased by the same entity as the primary electric meter it is to be netted with. In addition, that remote site must be within 2-miles of the primary meter.

There is a fix on the horizon—Sen. Scavello recently introduced SB 472 in the Pennsylvania Senate and we expect a similar bill to be introduced by Rep. Kauffer in the House that will specifically enable community solar generation. This will allow qualifying systems to share their generation among a number of subscribers.

The one piece that is still outstanding is whether or not customer generators are actually getting the full retail value for the energy they generate and the services they provide.  A fair and independent analysis that includes all the energy and ancillary benefits of distributed generation and clean renewable energy would go a long way to filling this gap.  Then PUC Vice Chairman Andrew Place was correct when he said “consumers are best served by getting the ‘retail value’ price right¹².

Footnotes

1. Sec. 1251, Energy Policy Act of 2005, P.L. 109-58 (Aug. 8, 2005) 
2.  K.S. Hayibo and J.M. Pearce, A review of the value of solar methodology with a case study of the U.S. VOS, Renewable and Sustainable Energy Reviews, (Mar. 2021)
3.  Behind-the-meter systems produce power to offset demand at a specific location.  Only when generation exceeds demand at the site  is power exported to the distribution grid
4.  The Brattle Group, The Potential Impact of Solar PV on Electricity Markets in Texas, (Jun. 19, 2012) available at: https://www.seia.org/sites/default/files/brattlegrouptexasstudy6-19-12-120619081828-phpapp01.pdf
5.  Sec. 5, Act of Nov. 30, 2004, P.L. 1672, No. 213
6.  52 Pa Code § 75.13(d)
7.  Hayibo and Pearce at 28.
8.  Solar Reviews, State of Net Metering US, 2021, available at: https://www.solarreviews.com/blog/the-state-of-net-metering-usa-2021
9.  See 66. Pa.C.S. § 2801 et seq.
10. Comments of PennFuture et. al. to the Independent Regulatory Review Commission, 57-304, (Jun. 27, 2016). 
11.  Hommrich vs PUC, No. 674 M.D. 2016 (Pa Cmwlth Ct., May 12, 2020) (Affirmed Feb. 17, 2021).
12.  Statement of Vice Chairman Andrew Place, Docket No. L-2014-2404361 (Feb. 11, 2016)