No More Free Lunch: Recent Pushback Against Net Metering

You decide to go for it.  You double down on your enthusiasm for clean energy and shell out $30,000 to put a photovoltaic system on your rooftop.  It’s a lot of money, but you know it’s a wise investment: payback periods average just 7-9 years.  (“That’s better than Wall Street!” you tell your friends.)[1]  You look forward to watching your electric meter spin backward during those bright summer days, and find yourself fantasizing about what that first electric bill will look like.  Or better yet: will they even bother sending one?

If you live in Nevada, Arizona or Wisconsin, there’s a good chance that you’re going to be disappointed when you open your mailbox at the end of the month.  Last year, public utility commissions in these states approved measures that will charge solar energy producers a fee for the privilege of net metering—in some cases as much as $50 per month.[2]  Solar producers are furious, and understandably so: such fees can dramatically extend the payback period for a new system.  Not only is this maddening for the homeowner who dutifully calculated his investment in advance, but it could also stifle the growth of the booming solar industry.

Net metering is a billing mechanism used by utilities that provides credit for customers who generate their own electricity.[3]  Its appeal is in its simplicity: customers take what power they need from the utility, give back any excess they generate and are charged for the net amount.  The Public Utilities Regulatory Policy Act (PURPA) set the stage for net metering when it was passed in 1978, requiring the Federal Energy Regulatory Commission (FERC) to adopt rules that would encourage small power generation.[4]  One such rule is the requirement that utilities purchase power from small producers, and net metering is a common way of doing just that.[5]

It has not proven too popular, however, with utilities.  They argue that because solar producers remain connected to the grid and draw power at night when the sun is not shining, they ought to pay their fair share for maintenance of the system.[6]  Under net metering, solar producers add to the wear and tear on transmission lines but do not pay the true cost of the traffic they produce.

An additional, less obvious point made by utilities is that these costs fall disproportionately on middle and lower class customers who cannot afford to go solar themselves.[7]  Lower bills for solar generators mean lower revenues for utility companies, while maintenance costs remain constant.  Somebody has to foot the bill.  Indeed, a 2015 Louisiana study showed that rooftop solar shifted $2 million in maintenance costs onto the backs of traditional, non-solar customers.[8]  In 2013, similar concerns in Hawaii prompted utility commissions to close their net metering programs to new applicants and seek out more equitable strategies.[9]

Utilities have long been wary of the costs that net metering programs impose on them.  In 2001, Midland Power Cooperative, an Iowa-based utility, defended a suit from local wind energy producers to avoid offering net metering.[10]  The utility preferred to charge such clients using a process called “independent billing,” which uses two separate meters to measure power: one for power drawn from the grid by the customer, and one for power produced by the customer and sent back into the grid.[11]

At first glance, it is hard to see what all the fuss was about.  But independent billing, as advocated by Midland, enabled the utility to see exactly how much energy the customer was supplying.  This differed from net metering, where the backward-spinning dials delete telltale usage history.  Distinguishing between the two types of power allowed Midland to charge its retail rate for the power it supplied to distributed generators while buying back power at a much lower rate.[12]

The plaintiffs in the case claimed that the utility’s refusal to offer net metering violated PURPA.[13]  The Court disagreed, pointing out that FERC had left implementation of the statute up to state agencies and public utility commissions.[14]  Without a specific requirement from one of these regulatory bodies, net metering remained only one of many different models that utilities could use to comply with PURPA.[15]

Nevertheless, mounting enthusiasm for solar has prompted many states to adopt laws requiring net metering, with South Carolina becoming the 44th state to come aboard early last year.[16]  With laws like these taking the teeth out of such alternative strategies as Midland’s “independent billing,” utilities are left with few methods to recuperate their lost revenues.  A net metering surcharge is a direct approach, albeit one that is engendering significant controversy.  So great is the controversy, in fact, that two senators have recently proposed an amendment to PURPA that would outlaw fees and other rate changes that apply retroactively to solar producers.[17]

One of the main goals of PURPA when it was adopted in 1978 was to encourage the development of independent energy generators.[18]  Policies such as net metering make solar a smart investment, thus encouraging adoption and going a long way toward achieving this goal.  But net metering has its costs, and until better laws are passed to internalize them, utilities appear ready to solve the problem the old-fashioned way: by sending you a bill.


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

Adam Osielski is a General Member on MJEAL.  He can be reached at osielski@umich.edu.

[1] Austin Brentley, What is the Average Payback Period of a Solar Installation?  Direct Energy Solar Blog (Aug. 11, 2014), http://www.directenergysolar.com/blog/post/what-is-the-average-payback-period-of-a-solar-installation/.

[2] Joby Warrick, Utilities Wage Campaign Against Rooftop Solar, Washington Post (Mar. 7, 2015), https://www.washingtonpost.com/national/health-science/utilities-sensing-threat-put-squeeze-on-booming-solar-roof-industry/2015/03/07/2d916f88-c1c9-11e4-ad5c-3b8ce89f1b89_story.html.

[3] Solar Energy Industries Association, Net Metering, SEIA: Issues & Policies, http://www.seia.org/policy/distributed-solar/net-metering.

[4] 16 USCS § 824a-3(a).

[5] Id.

[6] Aaron Orlowski, Should Homeowners with Solar Panels Pay to Help Maintain the Electrical Grid?  Orange County Register (Oct. 13, 2015), http://www.ocregister.com/articles/solar-686920-customers-rules.html

[7] Warrick, Utilities (2015).

[8] Id.

[9] Revolve Solar, Hawaii Ended Net Metering for Solar Energy – Which State is Next? Revolve Solar Blog (Oct. 31, 2015), http://learn.revolvesolar.com/hawaii-ended-net-metering-for-solar-energy-which-state-is-next.

[10] Windway Techs., Inc. v. Midland Power Coop., 696 N.W.2d 303 (Iowa 2005).

[11] Id. at 305.

[12] Id.

[13] Id. at 306.

[14] Id. at 307.

[15] Id.

[16] N.C. Clean Energy Technology Center, The 50 States of Solar (Q1 2015), https://nccleantech.ncsu.edu/wp-content/uploads/50-States-of-Solar-Issue2-Q2-2015-FINAL3.pdf.

[17] Joseph Bebon, King-Reid Amendment Would Protect Against Retroactive Solar Net-Metering Changes, Solar Industry (Feb. 3, 2016), http://solarindustrymag.com/king-reid-amendment-would-protect-against-retroactive-solar-net-metering-changes.

[18] Windway, 696 N.W.2d at 306.

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