The Six Principles of Distributed Solar Policy and Rate Design

With distributed solar generation (DSG) and energy efficiency applications becoming more accessible and affordable, we are seeing an increased adoption of technologies that manage and reduce customers’ use of electricity from the grid. States nationwide are grappling with what this new energy paradigm means for utility regulation and rate design.

As we’ve seen in a number of high-volume debates, these changes can have significant implications for net metering, electricity tariffs and other policies that form the backbones of our state energy markets. While the end game of these important state-level conversations is yet to be determined, this much is clear: we should be striving for regulatory structures that ensure fairness for all customers and support the clean energy transition that an overwhelming majority of Americans want to see.

To help guide good decision-making during this time of significant change, Environment America, Environmental Law and Policy Center, Greenpeace, Pace Energy and Climate Center, Sierra Club, Southern Environmental Law Center, and Vote Solar have come together in support of the following DSG rate design policy guiding principles. These principles are designed for solar but are generally applicable to other distributed energy resources as well. We urge lawmakers, regulators and our fellow advocates to only consider implementing policies and electric rate design options that adhere to these six principles.

1. Preserve individual customers’ rights to self-determination:  Each customer can choose the amount of energy to purchase from the grid, the amount to self-produce and consume, and the amount to save through efficiency measures that reduce consumption. These rights include the installation of solar generation equipment at the customer’s site, and interconnection to the utility grid without discrimination. While any electrical devices connected to the grid must not compromise safety, reliability, or power quality, utilities do not have the right to restrict the decisions of customers regarding how to manage energy use on their own property.

Most electric utilities operate under a regulatory compact where the electric utilities are required to do business within the confines of the public interest and are required to serve the needs of all customers within their territory in exchange for an exclusive monopoly franchise. Utilities are required to provide as much or as little electricity as the customer desires to purchase and consume. Notable exceptions are made for very large, usually industrial, customers that require significant investments in infrastructure and sometimes generation. Such customers could have significant impacts on a utility were they to move or shut down.

2. Capture the Full Range of DSG Benefits and Values: Customer-sited solar generation offers many benefits to the electric utility system and by extension to non-solar customers. These include avoiding current variable utility costs such as fuel costs, near to long term demand-related utility costs such as building new power plants and other energy infrastructure including transmission and distribution investments, and societal costs including but not limited to health costs resulting from fossil fuel-generated air and water pollution. The values and benefits should be quantified, and solar customers should be adequately compensated for the value their solar energy is delivering to all customers.

3. Promote Policies and Rates Favorable to Next Generation Distributed Technologies: Regulatory policies and electric rate design should not inhibit the deployment of DSG, demand response, combined heat and power (e.g. fuel cells), storage or other innovative technologies that are currently available or will be available in the foreseeable future. Thus, when discussing changes to current rate structures, the ability of a customer to integrate DSG with storage to avoid fees and charges should be considered. Such a technology package could mitigate the effect of demand charges, but not increased fixed monthly customer charges. Tariffs and policies that create roadblocks to customer adoption of next generation technologies (e.g. customer-sited storage) should not be adopted.

4. Insist Upon Non-Discriminatory Rate Practices And Policies: Utility rates should treat reductions in energy sales and utility revenues due to net metered solar and other DSG in a manner that is fully comparable to, and non-discriminatory relative to, reductions due to other consumer behaviors including energy efficiency and demand response. Any rate treatment not generally applied to all similarly situated customers must be cost-justified and seek to avoid unintended consequences. 

Furthermore, any utility charges created specifically for the purpose of recovering embedded fixed costs from customers with DSG systems must be cost-based, and should only recover net fixed costs, after accounting for all benefits and offsetting cost reductions due to the distributed solar. Similarly, any utility credits created for the purpose of assuring that economic benefits resulting from the deployment of DSG systems are properly assigned back to the DSG customer(s) should only reflect net benefits, after accounting for all utility costs

5. Due Process Is Essential: Facilitating the deployment of distributed solar generation is critical for developing the energy structure of the future.  Thus, it is of paramount importance that DSG rate policies be determined in regulatory forums guided by the rules of law where stakeholders have access to transparent and verifiable data.  Claims of intra-class and inter-class cross-subsidies, and the comparative benefits of larger scale wholesale PV systems can be addressed most effectively where adequate data is available and transparent, and due process prevails.

A transparent and data driven analysis that assures stakeholder due process rights are protected is likely to optimize the chances for an outcome that is best for customers.  Utilities should not be able to undermine a regulatory proceeding by limiting data access or proposing an overly aggressive schedule that limits meaningful stakeholder participation.

6. Ensure Benefits of Solar Are Shared with Low-income Customers: Within resource and grid planning processes, regulators must ensure that utilities effectively realize the present and future benefits that distributed solar provides in terms of freeing up capacity on the distribution and transmission system and reducing the need for infrastructure upgrades. These cost savings must be equally shared among all energy customers, including low-income ratepayers, through thoughtful rate design. 

A one-page summary of these guiding principles is available here.

Lead image: Solar panels via Shutterstock

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Rick Gilliam is Vote Solar’s DG Regulatory Policy Program Director. He was formerly Vice President of Mountain West Government Affairs for SunEdison and held prior roles at Western Resource Advocates, the Public Service Company of Colorado and the Federal Energy Regulatory Commission (FERC).

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