There are several ways to view the big changes underway in the US power sector. One is through the lens of the dramatic success of net metering. In 2003, before the Energy Policy Act of 2005 created a federal net metering standard, fewer than 7,000 customers in the entire country were net metered. By the end of 2011, less than ten years later, 43 states adopted net metering policies and the number of net-metered customers grew to more than 225,000—a thirtyfold increase. Net metering policies have been particularly effective in stimulating the deployment of increasingly affordable photovoltaic (PV) power systems on homes and businesses; as of the end of 2012, 99 percent of installed PV systems in the United States were on net metering tariffs.
As with many successes, new challenges emerge in response to a changed world. In this case, what of the sales the utility would otherwise have made but for each PV system, sales that would otherwise cover the costs of vital reliability and service investments?
Does this threaten the utility regulatory system? An indication that it can emerges from a comparison with energy efficiency, another increasingly successful customer resource. With energy efficiency, sales to each participating customer are shaved off. Successful projects eliminate 10, 25, and sometimes 40 percent of a customer’s energy purchases. Over the total service area, sales growth is neutralized. With PV, sales to each participating customer are chopped out in even greater numbers. In many cases 100 percent of utility purchases are replaced under the rules of net metering. With enough participants, PV is a threat to the utility regulatory systems.
Will there be enough participants to realize this threat? Hard to say, but PV deployment is growing exponentially, so the pace will inherently be surprising. And in the places with the highest penetrations already, the pressure is real. I think there will be.
At this early stage, a full range of policy responses remain available. I am intrigued by one approach that would identify a customer connected to the grid and primarily taking energy from onsite generation as a new class of customer, one taking “connection” service. A residential connection customer in this class would be distinct from a “requirements” customer and would see a tariff reflecting the costs of service assigned to it. Some states have been conducting rate design and class cost allocation investigations routinely — these states are ready to face this question. For other states, the siren song of rate stability, along with time and retirements, may have dulled their edge to address these classic regulatory functions, but it is not too late or too difficult to relearn.
What will not help is to turn this conversation into a moral one. Creating conflict among different parts of society, or suggesting that regulators choose sides between the essential service providers and the technology innovation delivery system is unwise and smacks of politics as usual. Regulation must be aware of politics, but is best done when not ruled by politics.
A better way, I think, to view this challenge is to see it in the context of a growing trend of customer empowerment in energy. A host of technologies, increasingly automated, accessible, and affordable, seem all to be leading toward a typical electricity customer that is quite different from the objects of service most are today. A conversation about fully realizing this progress consistent with traditional regulatory priorities about fairness and reasonable rates for services our monopolies deliver is what we need from regulation now.