Solar customers add power to utilities, don’t hurt low-income customers

Tom FitzGerald
Tom FitzGerald

I’m writing to clear up some misinformation circulating around the Capitol that low-income customers are “subsidizing” solar “net metering” customers.

As one who has represented, 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.

There is no empirical support for the suggestion, and a 2017 Department of Energy study that specifically asked and answered the question concluded any rate impacts are “negligible.”

House Bill 227 is about the utilities controlling the solar market, and not about protecting vulnerable ratepayers.

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. HB 227 would devalue the electricity fed into the grid by some 70 percent.

The question was asked during a committee hearing on HB 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.

There is other value that the net metering customer provides to the utility and other customers, and yet those benefits are ignored except when the utilities themselves seek Public Service Commission approval for the solar installations that they are charging all customers to build, in which case they argue that the benefits to all customers justify approval of their plans even if they are not the least-cost option.

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).

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. They are, however, going to pay for the legion of utility contract lobbyists that have been pushing HB 227.

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.

Based on the unique rate structures and the value of the net-metered electricity to the utility and other customers, the PSC could determine if the “net cost of service” to the net-metering customers needs an adjustment, considering the costs and the benefits of rooftop solar to the grid and to other customers.

Tom FitzGerald is director of the Kentucky Resources Council.