Small Utilities Say Subsidized 'Net-Metering' Projects Could Trigger Rate Increases

Sep 4, 2018

Small electric utilities around Vermont are concerned their customers will face higher bills to pay for a boom in solar projects. Last month, the utilities complained to regulators about the subsidies they have to pay for certain solar projects.

Hardwick Electric — a small, publicly-owned utility that serves 4,300 customers in 11 rural towns — is feeling the impact of the solar surge.

General Manager Mike Sullivan is a 30-year veteran of the utility industry, and he said solar projects that qualify for a program known as "net-metering" cost ratepayers money.

“We want to serve our customers as best as we can and give them quality, reliable power for the lowest price we can — and net metering doesn’t really help us accomplish that mission,” Sullivan said.

Under Vermont’s net-metering program, a utility essentially has to buy the output of a project at above market rates, although the amount varies depending on size and location.

"We want to serve our customers as best as we can and give them quality, reliable power for the lowest price we can — and net metering doesn’t really help us accomplish that mission." — Mike Sullivan, Hardwick Electric general manager

Sullivan said Hardwick Electric credits power from large, net-metered installations at about 17 cents a kilowatt hour. He said that's twice the cost of power from a solar project that Hardwick Electric is developing on its own.

“It’s right here in our grid, made locally, and it saves all our ratepayers money instead of driving all our ratepayers' expenses higher for power, which is what net-metering does because it’s so heavily subsidized,” he said.

Sullivan was one of several utility executives who spoke to the state’s Public Utility Commission last month about a number of financial and regulatory challenges they face, including the high cost of net metering.

The Public Utility Commission this spring lowered the rates for various net-metered projects. In a news release explaining its decision, the PUC said it must balance promoting renewable energy with the need to protect customers against rate increases.

Net-metering is "the most expensive of Vermont’s renewable energy programs because the utility is essentially ‘buying’ the net-metered output at substantially more than market rates for comparable renewable energy,” the PUC said in its release.

The Public Utility Commission this spring lowered the rates for various net-metered projects. In a news release explaining its decision, the PUC said it must balance promoting renewable energy with the need to protect customers against rate increases.

But utility executives report that the new rates set by the PUC had the unintended consequence of triggering a land rush of sorts for solar projects.

“We saw a real push just before the new rules came into effect with people trying to apply to get in under the wire,” said Ken Nolan, the general manager of the Vermont Public Power Supply Authority, which represents the state's 12 small, publicly-owned utilities.

Nolan said the boom includes home-sized projects. But utilities also saw a surge in proposals for much larger, 500-kilowatt projects where developers pool people together to benefit from the net-metering program.

“We had a couple of developers that seemed to go around and lock up land, or option land in each of our member territories, and get applications filed so that they had 500-kW projects grandfathered under the old rules,” he said.

Nolan said for smaller utilities, the subsidies required for a single large net-metering project could lead to a rate increase for all other customers.

“If they get one 500-kW project in their territory, and that project signs up group net-metering customers, that can cause a 1.5 to 2 percent rate increase – or rate pressure to that effect – for all the rest of the customers,” he said.

But while utilities complain about the cost of these projects, solar energy companies and their advocates say the state needs to do more to promote renewable energy development. They say the projects create local jobs and are needed to help meet the state's greenhouse gas reduction goals.

Solar trackers like these, pictured in South Burlington in 2011, are often used in projects that qualify for the state's net-metering program.
Credit Toby Talbot / Associated Press

James Moore is president of SunCommon, a Waterbury-based solar company. He pointed to a recent report his company commissioned that says solar energy helped all ratepayers save money during the recent July heat wave.

“These relatively small number of homes and businesses, really producing kind of 2 percent, 3 percent of the region’s electricity, decreased electricity costs by 14 percent for all ratepayers during that week,” he said. “It was $20 million [in savings] for ratepayers across New England.”

The savings happen because when the weather gets hot, demand for electricity soars as homes and businesses turn on air conditioners. But solar power is also at peak production during those hot days, and it replaces the demand for more expensive – and dirtier – electricity.

“So what we need to do is figure out how do we maximize those kind of savings, and do more of that, and make sure that all of our utilities are actually accounting, doing their correct accounting on both sides of the ledger,” Moore said.

Before he got into the solar business, Moore pushed for renewable energy incentives as a Statehouse lobbyist for the Vermont Public Interest Research Group.

But Tony Klein — the lead lawmaker who steered many of those programs through the Vermont Legislature — said he now regrets some of his work.

“We made a couple of mistakes, and I take responsibility for it,” said Klein, who represented East Montpelier in the Statehouse and for years was the powerful chairman of the House Natural Resources and Energy Committee.

“This is not what we envisioned," he said. "We should not be bringing our utilities, our smaller utilities, to the brink of bankruptcies if that’s what it’s going to be." 

Klein said he now believes the Legislature should not have allowed the projects to expand in size much beyond those used by homes or businesses, and he said lawmakers should have left it up to regulators to set the rates.

“The second thing that we really did wrong was, what jump-started solar and solar net metering was when we created the premium price that net metering would be paid above and beyond the retail price – [a] 6-cent adder,” he said. “We put it into statute instead of the realm of rulemaking.”

Klein said that as the cost of producing solar electricity has declined, there should be more periodic review of the program to protect utility customers.

At Hardwick Electric, Sullivan said he hopes his message got through to state regulators.

“These large developers, it’s all about the money, and that money doesn’t stay in Vermont,” he said. “It goes wherever that developer is from, or wherever their investors are from.”