Commentary

House Bill 227 would effectively end "net" metering in Kentucky

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I'm writing regarding state Rep. Jim Gooch’s recent article concerning his bill to end net metering, to clear up some misinformation that has been circulating around the Capitol that low-income customers are "subsidizing" net metering customers. 

As one who has represented, and does represent, without charge, low- and fixed-income Kentuckians for 34 years before the Public Service Commission on utility matters, I disagree with the baseless suggestion that such a subsidy is occurring.

Under current law, the 1,000 or so customers among the state's regulated electric utilities "net" the value of solar power they generate and that which they consume from the utility. Any excess is "credited" and can be applied to future bills. House Bill 227 would devalue any solar-generated electricity by close to 70 percent, effectively ending "net" metering in Kentucky.
The question was asked during a committee hearing on House Bill 227: “Why should other customers pay for the difference between the utility avoided cost and the retail credit given to net metering customers?”

They aren't. The "avoided cost" argument is an "apples to oranges" comparison. Currently, a net metering customer gets a credit on their bill, not money, at the same rate at which they purchase power from the utility. The utility can then market that power to others, and at times, profit significantly from the "peak" power that they're getting from the net metering customer at a blended average retail rate.

Net metering customers never get “paid” for their excess solar generation – they earn kWh credits that can be used to offset their bills for future energy consumption. No other customer is "paying" for this transaction, just as no other customer has paid for the installation of those solar panels or incurred any fuel costs for the solar electricity being fed into the system.

The utility’s actual cost of electricity can vary throughout the day from near zero to a cost far above the rate charged to residential customers. Those variable costs are averaged into the retail rate. The reality is that solar systems often feed power to the grid during times of peak demand when the utility’s cost of energy is high, on sunny summer afternoons. The solar customer supplies high-value energy to the utility and redeems their credits at night when the utility’s cost of generation is low. The optional Time-of-Use rates offered by Kentucky Utilities illustrates this. Kentucky Utilities charges customers 27 cents/kWh at times of peak demand (1:00pm – 5:00pm, April to October) but only 6 cents/kWh at off-peak times. Net metering simplifies billing for that varying value of electricity in the same way typical residential energy charges do. And the net metering customer is feeding in excess generation often at peak times when the actual value to the utility and other customers far exceeds the retail rate at which the net metering customers contribution of electricity is credited. There is other value that the net metering customer provides to the utility and other customers, and yet those benefits are discounted except when the utilities themselves seek PSC approval for the solar installations that they are charging all customers to build.

The only possible economic effect of net metering on other customers would be if, in a future rate case, the utility sought a rate increase on other customers to meet revenue needs for serving net metering customers, because many utilities have part of their fixed costs embedded in their volumetric rates, and the net metering customer purchases less energy from the utility (just as customers who are more energy-efficient). A 2017 Department of Energy study concluded that any such rate impacts are and will for the foreseeable future remain "negligible." To date, no Kentucky utility has argued that a rate increase is needed due to the presence of net-metering customers in their service territory.

The bottom line is that other customers aren’t paying for or “subsidizing” net metering customers. If the General Assembly believes further investigation is needed, the responsible approach would be to direct the PSC to open an administrative case, making the utilities parties, and based on their unique rate structures and the value of the net-metered electricity to the utility and other customers, to determine if the “net cost of service” to the net-metering customers needs an adjustment in order to prevent cost-shifting or inequitable rates.

Tom FitzGerald is director of the Kentucky Resources Council.

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