LEGAL ISSUES IN DISTRIBUTED ENERGY & NET METERING

1. LEGAL ISSUES IN DISTRIBUTED ENERGY & NET METERING Presented by: Dan Clearfield, Esq. Energy Law & Policy Institute University of Pittsburgh School of Law August 2, 2013

2. What’s Coming • Distributed Energy – Basic ABC’s • Net Metering Basics • Net Metering Legal Issues • Who can install net metering? • Eligibility/generation types • Can a net metering customer shop? • How is net output price calculated? • What are the longer-term prospects for net metering?

3. What is Distributed Energy? • Distributed energy resources are parallel and stand-alone electric generation units located within the electric distribution system at or near the end user • Examples of Distributed Energy Systems: • Combined heat and power • Photovoltaic • Wind • Geothermal • Hydroelectric

4. Source: The California Energy Commission

5. Projected Growth in Distributed Energy • Distributed generation is approximately 5% of total U.S. power generation. • In a recent survey by Black and Veatch, more than 40% of the responding utilities indicated that they expected to see distributed generation to be about 10% (or more) of total U.S. power generation by year 2020. 

6. Benefits of Distributed Energy • Cost savings for owner/customer • (Potential) increased reliability of grid overall • Increased energy efficiency (line losses) • Environmental benefits

7. Distributed Energy Concerns • Makes generation and transmission planning difficult • Shifts costs of central station generation and transmission system • Remaining customers responsible for costs of system

8. Distributed Energy – What’s the Best Configuration? • Utility Side/Wholesale • Sell @ Wholesale • Interconnect to transmission and/or distribution • Clearly have right to sell ancillary services • More complicated • Requires developer to be LSE in PJM (or other ISO)

9. Distributed Energy – What’s the Best Configuration? • Customer Side/Retail • Net Metering • Usually provides pricing subsidy • Limits use of output

10. What is Net Metering? • Net energy metering is an important incentive program that can maximize the amount of distributed energy on the grid. • Net metering allows customers with distributed generation systems to be compensated when their systems generate more electricity than the customer is using onsite.

11. What is Net Metering • Net Metering “Customer Generator” receives full retail rate credit for outflow (each kWh generated) • Amount purchased by customer generator @ same rate • Customer generation receives payment at some level for net annual outflow

12. Source: U.S. Energy Information Administration, based on Database of State Incentives for Renewables and Efficiency

13. Source: U.S. Energy Information Administration, Electric Power Annual

14. Source: U.S. Energy Information Administration, Electric Power Annual

15. Net Metering Legal Issues: Who Can Install Net-Metering ? • General Rule: Retail Customers Only • Generally, retail customer must be an owner or operator • States may allow third party financing/ ownership • Pennsylvania will allow third-party owner/operator in limited circumstances • Third-party owned and operated systems are limited to 110% of the utility customer’s annual electricity consumption.

16. Net Metering Legal Issues: Eligibility of Net Metering Requirements • States may limit net-metering to certain technologies to reflect policy choices • Systems typically sized to on-site load (or a little more) • Generally, limited to small-scale systems • States may limit aggregate capacity, based on utility peak load

17. - Eligibility Technologies

18. Summary of Net- Metering

19. Summary of Net- Metering (Cont.)

20. Summary of Net- Metering (Cont.)

21. Net Metering Legal Issues: Net Metering Customer – Shopping or Non-Shopping? • Rules vary from state whether competitive suppliers are required to offer net metering and, if so, does competitive supplier need to provide subsidy? • PA: EGS not required to offer net metering; if EGS does, the rate it charges/pays for generation is up to parties.

22. Are Net-Metering Customers Shopping? • PPL Electric Utilities had the following numbers for net-metering customers as of April 30, 2012:

23. Net Metering Legal Issues: Calculations of Net Output Price • PA (and other states) current rule: customer generator receives yearly net output at “price-to-compare” (“PTC”) • PTC is default service price PLUS transmission • What happens when there is no more default service?

24. Net Metering/Distributed GenerationLegal/Policy Issues • What Are the Longer-Term Prospects for Net Metering

25. Net Metering Arguably Produces Benefits • Lower, more predictable energy bills • Reduces strain on electric grid • Encourages alternative energy production • Net metering customers may be more aware of consumption

26. Net Metering Creates Issues • Tilting market in favor certain resources • Remaining ratepayers paying subsidies to encourage net metering • E.g., California’s three major electric utilities estimate that burden that will be shifted is about $7.6 million – an extra $185 per year if evenly spread • “Death Spiral” • With advent of abundant domestic natural gas supply some question need to continue to provide regulatory incentives

27. Will Net Metering Incentives/Subsidies Continue: • Net metering key part of encouraging “all of the above” strategy • Like Twitter and crowd sourcing, net metering is (increasingly) popular • Unlikely that grid will move back towards more centralization • Home owners/small business/developers can make money • More of them than utilities • But, future of rich subsidies in doubt • Especially as generation pricing becomes more market reflective and competitively sourced

28. Questions? Dan Clearfield, Esq. (717) 237-7173 | dclearfield@eckertseamans.com