Looming decision to shape Mich. solar rooftop market

Source: Jeffrey Tomich, E&E News reporter • Posted: Monday, April 2, 2018

After a year of debate, Michigan is poised to abandon net metering and change how solar owners are credited for excess energy they push onto the grid.

The Public Service Commission is expected to rule within weeks on a proposal to adopt an “inflow-outflow” billing method. Solar advocates are urging regulators to leave existing policy intact, at least while there’s an ongoing case to decide the appropriate value for customer-generated energy.

While the net-metering debate in each state is unique, the core issues — whether solar owners are being subsidized by their neighbors and the right value of customer-generated energy put on the utility’s grid — are constants. Michigan is no different.

Unlike Hawaii or Arizona, though, there’s yet to be a rooftop solar boom in Michigan. According to the most recent PSC annual report for 2016, there were just over 2,500 customers participating in utility net-metering programs, representing just 0.024 percent of the state’s total retail electricity sales.

In Lansing, the push to replace net metering was triggered by an overhaul of Michigan’s energy laws in late 2016 (Energywire, Dec. 16, 2016). The laws call for the PSC to approve a cost-based distributed generation tariff by April 20. Utilities would then submit the tariff in a rate case filed after June 1, or they could propose something else.

Any new tariff would apply only to customers who install systems after the replacement distributed generation (DG) tariff is implemented. Others would be grandfathered under previous net-metering policies (Energywire, July 17, 2017).

The PSC staff’s proposal for a replacement follows a year of meetings and written comments.

Robert Ozar, assistant director of the staff’s Electric Reliability Division, said the tariff proposal pending before the commission “strikes the right balance” between solar owners and other ratepayers and enables utilities to recover costs of operating the grid.

The proposal presented in a 121-page report last month separates power used from the grid and outflows from customer-owned generating systems, producing independent sets of meter data. Under more opaque net-metering tariffs, consumption is netted against excess production.

Ozar said the inflow-outflow method is “beautiful in its simplicity” because it provides clearer pricing signals. It’s also flexible and supports further deployment of new distributed energy resources, such as energy storage, and is adaptable to new rate designs, such as time-varying rates.

“These are all things in Michigan and throughout the country that are on the front burner,” he said. “It makes what we want to do and where we want to head with DG policy make sense.”

Renewable advocates disagree. They said it doesn’t make sense to ditch net metering unless there are data and analysis to show it’s justified.

That hasn’t happened, they said. While the energy law requires approval of a fair, cost-based distributed generation tariff, there’s been no evidence that net metering doesn’t meet the statutory requirement.

“To eliminate net energy metering before having a data-driven framework and methodology in place is misguided,” said Amy Heart of the Alliance for Solar Choice, an advocacy group. “This action could destabilize Michigan’s growing solar industry and put the 4,000-plus solar jobs in the state at risk.”

Making the math work

While the commission staff’s report last month said net-metered customers aren’t paying enough for their use of the utility grid, there hasn’t been actual analysis of Michigan utility data to support the conclusion.

The groups are more concerned about the proposal to significantly reduce what solar owners would be credited for energy they put on the grid.

Under the original net-metering tariffs, customers are credited for excess electricity at the retail rate. On average, that’s about 14 cents per kilowatt-hour in Michigan.

At least temporarily, staff’s proposal would compensate customer generators for surplus energy at the same rate received by independent power producers under the federal Public Utility Regulatory Policies Act (PURPA). The amount would vary by utility, but solar advocates said it would be about half the retail rate.

They said such a sharp reduction in compensation for excess energy would fundamentally alter the economics of rooftop solar.

“It gets harder to make the math work,” said Becky Stanfield, senior director for Western states at Vote Solar, an advocacy group.

Again, Stanfield said no analysis was done to justify the rate included in staff’s proposal.

“Our strongest objection is just randomly picking the PURPA rate,” she said. “There’s no data suggesting it’s any more equitable than the net-metering rate.”

By contrast, in comments filed with the commission, utilities DTE Energy Co. and Consumers Energy said the avoided rate proposed by PSC staff is flawed for other reasons. The utilities largely say the value is too generous.

Julie Baldwin, renewable energy manager for the PSC staff, said the PURPA rate represents a placeholder value for customer-produced energy sent to the grid and includes the core components of the final value to be decided by the commission in a subsequent proceeding.

Because there wasn’t enough time for a detailed analysis before the April 20 deadline, the staff recommended a separate contested case to determine a permanent value for distributed generation.

The distributed generation tariff wouldn’t take effect until the commission approves it as part of a 10-month utility rate case, meaning the soonest it would take effect would be next April, Baldwin said.

If utilities file rate cases before June 1, they would have to wait until a subsequent rate case to seek approval of the new distributed generation tariff. That means it could be 2020 before the new tariff takes effect.

Groups challenging the staff proposal say it makes more sense for the commission to complete its case to determine the appropriate value for customer-generated energy before making a change that would confuse the market.

“We have no real data showing there’s any cross subsidy or any real reason to move away from net metering,” Stanfield said.

Heart, of the Alliance for Solar Choice, said doing so would kill Michigan’s nascent rooftop solar market and deprive the state of the economic benefits that go with it.

Ozar disagrees. While the proposal is less generous for distributed generation owners and lengthens the payback for customers who invest in rooftop solar, the systems still pay for themselves over a 20-year period even without the federal investment tax credit.

“That’s important,” he said. “It’s not something that’s a solar killer.”