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Net Metering Without A Fight

If a net metering policy is changed and no one is there to object, is that a bad thing? In May, the city council in Logan, Utah passed net metering changes for Logan Power and Light, the municipal utility, without any public opposition.

There were no acrimonious meetings, no angry letters to the newspaper and no headlines or social media decrying heavy handed tactics. At a public workshop, the president of a Utah solar advocacy group mused, “I came expecting the worst…and I’m leaving surprised with a reasonable outcome.” This is in contrast to other Utah utilities’ net metering changes that were met with heavy criticism and endured protracted stakeholder negotiations.

The planning group for net metering changes, which included the utility, the mayor, and several citizens was premised on the belief that reasonable people can agree on reasonable compromises. After all was said and done, this turned out to be the case.

The author presents net metering bill modeling to Logan residents during a public meeting in January 2019.

The Changes
Previously, Logan’s electricity rates were all volumetric with no monthly customer charge, i.e. 100% of a customer’s bill was based on their kilowatt-hour usage.  Any system-wide changes in consumption had an immediate impact on revenues, whether they were from the economy, the weather, or growing customer technologies.

Logan proposed two changes to customer’s bills.  First, all customers would begin to pay a $5 per month customer charge AND electric rates would be lowered so the “average customer” had no net bill change.  In reality most customers would pay a few dollars more or less per month depending on their usage.

Current Proposed
Monthly Charge $0 $5
First 400 kWh 9.49 ¢ 9.0 ¢
Next 600 kWh 11.62 ¢ 10.5 ¢
Next 1000 kWh 13.02 ¢ 11.71 ¢

Second, all solar customers would move from yearly to monthly net metering reconciliation with a solar excess buy-back rate that steps down over time as solar capacity grows.

The first monthly reconciliation occurred in August, when the utility paid out existing solar kilowatt-hour credits at the average retail rate and will continue on a monthly basis.  Once the city reaches 2,000 kW of solar capacity (from 1,100 at the time), the buy-back rate will be lowered to 9 cents/kWh and so on as new capacity targets are met.

The final step at 7 cents/kWh reflects the city’s current average wholesale electricity costs of about 5.5 cents/kWh plus an additional payment for the value of solar, which includes environmental and localized generation benefits.

Other options considered included a solar fee, a pure feed-in tariff, a higher customer charge, a demand charge or a higher minimum bill.  Grandfathering was not considered for two reasons. First, given current solar growth rates, the final solar excess buy-back rate may not take effect for eight or more years. Further, program designers preferred to keep all solar customers in a single class.

Bill modeling of solar customers showed a small impact that varied by the percentage of solar a customer had relative to consumption, i.e. a 50% solar customer’s bill would only increase 5%, while a 95% solar customer’s doubled (because they were paying only a few dollars per month to start).  This sends the proper market signal that encourages a basic solar system for anyone but doesn’t inhibit a high percentage system for those interested in going 100% solar.

The Reaction
During the public workshop and in subsequent comments, some local solar customers opposed the changes.  But, with such modest changes over several years, the utility felt confident to move ahead and address customer’s concerns by slightly increasing the solar targets.  Other customers favored grandfathering, but the utility felt the anticipated long time periods to implement the change acted as a sufficient placeholder.

One unique concern was that lowering electric rates provided less incentive for energy efficiency, and that the utility should keep higher rates in the higher usage tiers to encourage conservation.  In the end, the tiers were approved as proposed.

Interestingly, one solar customer related that they appreciated the change from kilowatt-hour credit to bill credit, saying it was nice that their extra solar energy could now offset their water and garbage bills.  Framing a similar change as offering bill flexibility might be a unique marketing angle for other utilities to consider.

Four Takeaways
For many utilities in high solar penetration service territories, the solar capacity Logan is experiencing might seem trivial.  However, dozens of municipal and cooperative utilities nationally are in a similar position. They have a small percentage of solar customers and are in a net metering holding pattern as they watch the angry discord other utilities experience around the country.  They don’t want to harm solar, but want to be mindful of future revenue and system impacts.

For those utilities, here are four takeaways:

1. Start Early: Start the transition process before reaching critical solar penetration so you can plan for the future rather than react to an immediate issue.

Logan had 300+ solar rooftops, or less than two percent of customers.  There were no imminent fiscal or resource issues, but the timing seemed appropriate as solar installations were growing at a steady pace.

Holly Daines, Mayor of Logan, UT: “My advice would be to take your time to get it right.  Involve the stakeholders in the discussions, and make sure the rationale for changes are realistic, are explained well, and that the changes are implemented slowly.”

2. Be Transparent: Use proactive communication and public meetings to discuss possible changes, rather than a formal policy process.

For the two years prior to implementing changes, the utility required a homeowner orientation meeting as part of the interconnection process. During this meeting, the utility indicated that the current net metering policy could change in the future.  A consultant also performed a rate study for the utility and presented the information twice at city council meetings.

Once the utility decided to move forward, they held a public workshop and notified all solar customers via a personal letter from the mayor.  The workshop was planned and led by the utility director, myself (as a solar-utility ombudsman), and a professional mediator. It also included a presentation by Utah Clean Energy, a renewable energy advocacy non-profit.  Over 100 community members attended and many provided written comments afterward.

Kate Bowman, Utah Clean Energy: “Host a public meeting or workgroup early in the process in order to inform residents and gather feedback. Most people don’t know the details of ratemaking, but a shared foundation of information will lead to more productive conversations, and informed residents can better communicate their concerns and preferences.”

3. Work From The Middle: Propose a reasonable compromise from the start rather than taking extreme positions that cause entrenchment and negative publicity.

Professional negotiators and politicians might call this a “naive” approach, but the planning group decided to propose a compromise from the start rather than an extreme position that would be moderated during negotiations.  The group believed that a straightforward approach would avoid the negative public blowback that other utilities have experienced.

Mark Montgomery, Logan Power & Light Director: “Try to be fair. While most traditional net metering rates leave the utility uncompensated for most fixed costs, there is value there…The response to our proposal was better than I expected.”

4. Make Changes Predictable: Provide a transition path that reaches your utility’s goal, but gives customers and the solar industry time to adjust.

Since there was no imminent problem, the changes could be rolled out slowly over time.  If the market accelerated or slowed, the changes would as well. With annual updates on solar capacity in the city, both homeowners and solar installers can make informed decisions.

Every utility is unique, from their customer demographics to their regulatory frameworks and the city or state’s political leanings.  Logan found a path that worked well and differed in some respects from other nearby utilities. Take pieces from this case study and adjust them to your utility’s situation, hopefully finding the right balance between everyone’s needs going forward.

About The Author

Mike Taylor lives in Logan, Utah and serves on the Logan Power & Light’s board of directors and the city council’s renewable energy board.  He previously worked for SEPA from 2006-2017 and for the Minnesota State Energy Office from 1999-2006. Mike can be reached on Twitter @SolarMikeTaylor.