Santee Cooper sets solar standby charge

The board of South Carolina's state-owned electric utility has approved a plan to increase retail rates and -- controversially -- add new charges for customers who install solar panels.  Santee Cooper is South Carolina's largest power producer, providing electricity for about 2 million people.  Its interim rider for distributed generation includes a "standby fee" charged to customers with rooftop solar projects and other customer-sited generation.  It also declined to adopt a net metering structure similar to those used by South Carolina's investor owned utilities.

Notably, Santee Cooper says it "supports development of solar power resources".  Its Distributed Generation Approach notes that Santee Cooper has generated solar energy for its customers since 2006, including demonstration projects across South Carolina.  Santee Cooper buys solar power from sources including the 3-megawatt Colleton Solar Farm.  The Colleton project, owned and operated by TIG Sun Energy, is South Carolina's largest solar installation.  Santee Cooper also offers its customers blocks of Green Power.
But residential solar projects aren't typically owned by or developed for utilities.  From the utility perspective, this means that the costs associated with serving customers with solar generation need to be recovered from ratepayers.  But the allocation of those costs among ratepayers is an issue.  Should they fall on all consumers equally?  Or should a rider or specific charge be added to recover these costs from the consumers who install distributed solar generation?

In Santee Cooper's case, the board approved a new charge, called a “standby fee,’’ on residential customers of $4.40 per month per kilowatt of installed solar capacity.  It also elected to use rebates and credits to reward customers for solar generation, instead of a net metering rate.  At the same time, the board set the rates for crediting generation at less than its retail rate.

From the utility perspective, it needed to adjust its rates to account for growth in rooftop solar and other distributed generation resources, and to protect customers who don't develop solar projects from unfairly bearing costs imposed by those who do.   Cost-shifting is a typical utility concern; the issue is to make sure that the allocation of consumer costs is fairly related to how the costs were incurred.
  
But from the perspective of advocates for rooftop solar and other distributed generation resources, a "solar fee" would deter people from developing alternative energy projects.  Under this view, these fees and rate structure are unnecessary and "penalize customers for exercising their right to use this clean, renewable resource."

Santee Cooper is not alone in considering how to adjust utility rates to handle more rooftop solar projects.  But its approach differs from that of South Carolina's largest investor owned utilities, Duke Energy Carolinas and South Carolina Electric and Gas, which have agreed to net energy metering and solar development targets.

How should utility rate design allocate the costs and benefits of connecting distributed solar projects to the grid?  How can essential fairness in ratemaking be balanced against policy values like customer choice and renewable energy?

Net metering and utility charges

As more electricity customers are installing solar panels and other distributed generation, many are participating in net metering programs under which they can run their utility meter backwards -- but utilities are complaining that net metering customers don't pay their share of the grid's operating costs.

In states and utility territories where net metering is allowed, customers can use eligible distributed generation (typically renewable generation like solar photovoltaic or small-scale wind, or micro combined heat and power) to offset their consumption of electricity from the grid.  Even if the customer draws power from the grid at some times and injects power back onto the grid at other times, net metering or net energy billing allows the customer to offset distributed generation against purchases. 

While many states embrace net metering as a policy, some utilities complain that net metering customers can be free riders.  If a customer's solar panels produce as much power in a month as the customer consumed, net metering could credit that customer with a zero utility bill - even though at various times times, the customer relied on the grid for imports and exports.  As a result, some utilities are seeking to impose new charges on customers for net metering.  For example, last fall Virginia regulators approved part of utility Dominion's request to impose "standby" charges on certain net metering customers.  Solar advocates and other distributed generation interests typically oppose such charges as roadblocks to achieving the societal benefits of net metering.

The issue continues to simmer around the country.  California utility San Diego Gas & Electric Co. recently proposed adding a "network use charge" onto customers' bills.  SDG&E's concept was that the charge -- about $22 per month for the average net metering customer with a solar PV system -- would properly allocate the cost of maintaining the grid to these customers.  The utility argued that without the charge, net energy metering customers were being subsidized by all other customers.  Earlier this year, California regulators rejected the idea (see the 16-page order at the California Public Utilities Commission website), noting concerns that the proposed charge "may be inconsistent with current law, regardless of whether it is justified by cost causation principles or an analysis of the crosssubsidies inherent in current policies."  As a result, SDG&E refiled its rate application without the charge.

Net metering charges in Virginia

Virginia regulators recently approved an electric utility's request to impose additional charges on net metering customers with rooftop solar panels or other customer-sited generation.

Net metering -- when utility customers can offset their electric bill by using their own generation -- is a tool to encourage the spread of small-scale generating resources.  Under net metering programs, customers are billed not based on how much electricity they buy from the grid over a given month, but rather based on their purchases netted against what they export from their own generation.  For example, a home or business with solar photovoltaic panels on its roof could use net metering to run its utility bill backwards to the point where the customer has no bill at all.  In some areas, customers can even run up a surplus of power through net metering.

Net metering facilitates distributed generation, in contrast to the centralized utility model that has historically prevailed.  Mixing in some distributed grid-tied generation has advantages for the whole system, such as a reduced need for expensive new transmission lines.  To promote the distributed model, Congress directed electric utilities to make net metering available as part of the Energy Policy Act of 2005.

Now, nearly all U.S. jurisdictions have net metering programs.  Each state's implementation of net metering is unique.  For example, under Virginia law, residential net meterers must pay their utility a "standby charge" -- a monthly amount to compensate the utility for the customer's ability to draw electricity from the grid, even beyond what would be charged under its net-metered bill. 

Earlier, I noted that utility Dominion Virginia Power had asked the Virginia State Corporation Commission to approve “standby” charges on residential net-metered solarphotovoltaic systems larger than 10 kW. Last month, the State Corporation Commission approved part of the utility's request.  The Commission approved a standby charge for transmission and distribution service - $2.79 per kW in monthly distribution standby charges and $1.40 per kW in monthly transmission standby charges.  The Commission denied Dominion's request for generation standby charges for now, but encouraged the utility to come back for another proceeding to determine whether a generation standby charge would be proper.

Virginia considers net metering and utility standby charges

Virginia, like many states, allows grid-connected electricity customers to use customer-sited generation to offset its electric bill.  This practice is called net metering.

Virginia regulators are now considering a proposal by utility Dominion Virginia Power to impose two “standby” charges on net-metered solar photovoltaic systems larger than 10 kW.  The policy questions raised by this case appear in other contexts where incentives for clean, distributed generation run up against utility ratemaking considerations.  Utilities typically argue that they need to allocate costs fairly among their customers, while customer-sited generation advocates point to both the value of distributed generation and the array of incentives promoting customer-sited generation.

In June 2011, the Virginia legislature enacted House Bill 1983, directing Dominion to allow residential customers to net meter solar photovoltaicsystems between 10 kW and 20 kW.  Dominion responded by petitioning the Virginia State Corporation Commission (SCC) for approval of tariff changes that it argued are necessary to reflect its actual costs in supporting these customers’ peak loads.  The utility proposed to add monthly standby charges for transmission and distribution service based on each net-metered customer’s highest 30-minute demand.

Utilities often argue that their fixed costs in serving net-metering customers – maintaining wires, transformers, and other infrastructure – are the same as if the customers had no generation.  If a customer can be self-sufficient most of the time, the utility grid must still be of a sufficient size to deliver the customers’ peak demand when it is needed, such as when customer-sited generation fails.  Dominion requested approval of its standby charges to ensure fair cost allocation among customers.

Distributed generation advocates, on the other hand, argue that the standby charges would result in overcharging net-metered customers.  In Dominion's case, a witness for the Maryland, District of Columbia and Virginia Solar Energy Industries Association testified the standby charge would result in higher charges for a net-metered customer than a regular customer consuming the same amount of grid-purchased electricity.  The witness also testified that net-metering customers should receive credits for generating cost-effective energy, and for reducing the utility’s transmission line losses.  Diverse distributed generation may also reduce utilities’ distribution costs.  The solar association argued that Dominion's standby charges ignored these benefits, and would chill distributed solar development in spite of Virginia's net-metering policy.

The Virginia State Corporation Commission held a hearing on Dominion's request last week, and is expected to issue an order resolving the matter.