Vermont's new net metering program

Thursday, September 8, 2016

Acting under a 2014 law, this summer Vermont utility regulators established a revised net-metering program to take effect in 2017. In a pair of orders, the Vermont Public Service Board prospectively changed the rules governing net metering of solar panels and other distributed generation facilities.  The result is a revision of Vermont's net metering program.

Vermont defines what it calls “net-metering” as “the process of measuring the difference between the electricity supplied to a utility customer and the electricity supplied by the customer’s generation system during the customer’s billing period."  Under the current net-metering program, most net metering customers receive bill credits of either 19 or 20 cents per kilowatt-hour of energy produced by their system. Net-metering customers may also retain the associated renewable energy credits or RECs, and may choose to sell those RECs, transfer the RECs to the utility, or retire them themselves.

As noted by the Public Service Board, net-metering offers benefits for Vermont and ratepayers. It can provide renewable energy and support state greenhouse gas reduction goals. It can benefit ratepayers by avoiding line-losses, reducing capacity charges, and reducing transmission costs. Net-metering can also create local jobs for installers of net-metering systems.  As a result, distributed generation is booming in Vermont -- mostly in the form of net-metered solar photovoltaic installations. According to the Board, “The explosive growth of net-metering in Vermont— particularly due to the development of large net-metering projects— is a direct testament to how attractive the current net-metering incentives are.” The Board noted that the prior program will lead to the development of about 130 megawatts of net-metering capacity.

While net metering in Vermont has been governed by statute since 1998, that law changed in April 2014 when the state legislature passed Act 99 of 2014. That law required the Board to establish a revised net-metering program, pursuant to criteria and standards defined by the legislature.  Based on facts including the growth rate of net-metered capacity, the Board concluded that the current pace of net-metering program needs to be moderated so as to be sustainable in the long term and to mitigate associated rate impacts.

After study and a report by the Department of Public Service, workshops and opportunities for public comment in 2014 and 2015, on June 30, 2016, the Board issued its Order Adopting A Revised Net-Metering Program Pursuant to Act 99 of 2014.  That order laid out a vision for a revised program to be effective in 2017.  At the same time, the board emphasized that its decision was subject to a reconsideration period of 10 business days, during which time comments may be filed seeking reconsideration of the net-metering program.

The Board received over 100 comments in response. In its August 29 Order on Reconsideration, and an accompanying Attachment A, the Board made further changes to its program. For example, the June 30 order set an annual limit on the growth of net-metering installed capacity, with each year’s incremental limit defined as 4% of the state’s peak capacity. The Board described this provision as one of several “intended to manage the pace of development of net-metering systems in Vermont.” But many commenters argued that a 4% annual limit would create market disruptions and a “rush to the door” as applicants race to secure space within the annual quota.

With reconsideration now over, the Board's June 30 and August 29 orders define the new net-metering program that will take effect next year.  From the perspective of rates and bill credits, the new program adopted by the Board features three valuation components. The value of a credit is the sum of “(1) the applicable blended residential retail rate, (2) any applicable REC adjustor, and (3) any applicable siting adjustor.”

The Board defined the applicable blended residential retail rate as the lowest of three possible rates: (1) if the electric company does not have block pricing, the company’s general retail rate, (2) if an electric company uses block pricing, then a blend of those rates, or (3) the weighted average of the blended residential rates for all Vermont electric companies. Under this approach, the statewide average rate acts as a cap on the value of net-metering credits.

The Board adopted two adjustors – a REC adjustor and a siting adjustor – “to encourage and discourage certain behaviors through monetary incentives and to adjust the overall value of net-metering credits.” These adjustors are added to (or subtracted from) the applicable blended residential rate to yield the value of a credit.

The REC adjustor is designed to capture the value related to the customer retaining the RECs associated with net-metered energy. The Board set the values of the REC adjustors as positive (+3) cents per kWh for customers who transfer RECs to their utility and negative (-3) cents per kWh for customers who do not, for a net 6-cent difference between the total compensation received by customers who choose to retain RECs and customers who elect to transfer RECs. This difference matches the 6-cent alternative compliance price for Vermont’s distributed generation or Tier II standard under Vermont’s renewable energy standard statute.

The Board also adopted siting adjustors “to encourage net-metering customers to select more environmentally friendly sites for new net-metering systems.” The Board said siting adjustors will “encourage the environmentally beneficial siting of net-metering projects and thereby help ensure that such projects are in the public good,” and that siting adjustors will allow for better accounting of the benefits and costs of net-metering. For example, the initial siting adjustors provide greater financial incentives to construct net-metering systems up to 150 kW with limited environmental impacts, such as systems that are located on previously developed areas like roofs and parking lots. The siting adjustors will allow the Board to pace the development of net-metering systems over time.

The new program includes a biennial update process, by which the Board will determine the values of REC adjustors, siting adjustors, the state-wide blended residential rate, and the criteria applicable to different categories of net-metering systems. The Board described this section as designed “to ensure that: (1) the pace of deployment of net-metering systems is consistent with the state’s renewable energy goals, (2) net-metering does not result in undue rate impacts, (3) the program accounts for changes in costs of technology over time, and (4) net-metering does not result in cost shifts between net-metering customers and non-net-metering customers.” The Board may also conduct an update sooner than biennially at its own discretion or upon petition by the Department of Public Service.

The Board exempted pre-existing systems from certain requirements of the revised net-metering program, including non-bypassable charges, for a period of 10 years from the date the system was commissioned.  Pre-existing net-metering systems will continue to receive their existing incentive for that 10-year period, after which the value of a credit will be the applicable residential retail rate, without siting or REC adjustors.  The Board said it provided this exemption "in recognition that these systems were installed by customers who relied on a certain set of financial assumptions when they decided to engage in net-metering—a behavior the state has expressly sought to encourage in support of its renewable energy goals." After the 10-year period provided for in this section expires, customers using pre-existing systems will be required to pay non-bypassable charges.

The new program will be effective on January 1, 2017, unless or until it is superceded by a duly adopted rule.  The Board is expected to file its revised Attachment A with the state Secretary of State as a new proposed rule in due course.

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