Debate continues over a draft report that will inform how utility regulators across the U.S. design rates related to distributed energy resources.

Many industry stakeholders view the National Association of Regulatory Utility Commissioners’ manual on the compensation of distributed energy resources as a critical document in shaping the evolving nature of the electric grid.

Given the manual’s reach and influence, a group of distributed solar industry players expressed concern over the process and timeframe for incorporating feedback. The Solar Energy Industries Association, Vote Solar, SolarCity and SunPower recently sent a jointly signed letter to National Association of Regulatory Utility Commissioners (NARUC) president Travis Kavulla stating that the review of the draft rate-design manual “lacks adequate transparency needed to assure the public that the process is been fair, open, independent and comprehensive.”

The solar groups highlighted that NARUC has not made the comments filed by stakeholders available to the public. To date, all submissions have been made directly to the regulatory group, and they have not been posted online. Given that the distributed energy resource (DER) compensation issue is complex -- and the subject of controversy in many states -- the solar industry players noted that the ability for each interested party to review other submissions can ensure that inaccurate or outdated information is quickly corrected.

“We think it’s so important that the draft manual have a very measured and a very detailed review by the people who will be using it and will be impacted by it. That’s why we’re very interested in seeing all of the comments other people have submitted,” said Jon Wellinghoff, chief policy offer for SolarCity. “It’s typically done by the [Environmental Protection Agency] and done in [Federal Energy Regulatory Commission] proceedings, and any other rulemaking proceeding that any normal regulatory body goes through, so I don’t see why it isn’t appropriate in this instance too.”

Wellinghoff added that NARUC’s timeline is also a challenge. Stakeholders had one month to formulate reply comments on the draft manual due September 2. In their letter, the solar groups requested that NARUC allow for another round of comments before the end of the year.

Furthermore, the letter requested that the manual explicitly be characterized as a “living document" in order to recognize changes in DER markets and technology. “Specifically, we urge that in adopting the manual, NARUC also adopt a process for regular updates with stakeholder input to ensure that its recommendations remain sound, as states, utilities and DER providers innovate new products, new regulatory tools for quantifying values of DERs, and ways for consumers to exercise their choices in the marketplace,” the solar groups wrote.

NARUC responded to the solar industry letter late last week with a pledge to disclose stakeholder filings following the publication of the manual. President Kavulla rejected the request for an additional round of rebuttal comments, but noted that NARUC staff would take ample time and care to edit the manual in response to stakeholder submissions. There have already been three opportunities for the public to provide comment between March and September.

In addition, Kavulla agreed that the manual should be a living document that is periodically updated. “I am cognizant that this is not the definitive word on the issue -- it could hardly be, since it ultimately will be up to NARUC’s member commissions to decide for themselves, in proceedings where parties’ rights are actually at stake and after a full complement of legal due process, what approach to take to these difficult issues,” he wrote.

Reply comments

The Edison Electric Institute, the national association of investor-owned utilities, did not make its comments on the draft manual available upon request. However, the group did offer a statement thanking NARUC for its efforts in addressing rate design and DER compensation. EEI also called for the report to serve as a way to end the cost shift between DER and non-DER customers -- predominantly through the availability of net metering credits for the excess energy solar and other DERs that customers send back to the grid.

“With record amounts of DERs being integrated onto the energy grid, it is crucial to have rate structures in place that recognize the importance of the grid and ensure that rate structures are not shifting costs from one group of customers to another,” said Phil Moeller, EEI’s senior vice president of energy delivery and chief customer solutions officer. “We believe that in order to end the cost shift and ensure a sustainable future for DERs, rate structures need to be reformed and addressed now.”

“NARUC’s manual will be an important tool for state commissions as they look to redesign rates to more appropriately reflect the realities of the growth of DERs and the importance of the energy grid in achieving those goals,” he added.

More than 40 U.S. states currently offer net metering, but as DER penetration increases, a growing number of these states are reviewing their DER policies. According to the NC Clean Energy Technology Center, 24 states considered or enacted changes to their net metering policies in the second quarter of 2016. In addition, eight utilities in six states proposed adding new charges or increasing existing charges specific to rooftop solar customers. To date, regulators have rejected most of those requests.

While NARUC has yet to launch an online database of comments filed on the draft manual, several filings have been posted on the SEIA website. In its response, the Regulatory Assistance Project (RAP) noted that DERs can create short-term pressure on rates, especially where a utility already has adequate generation resources. In the long term, however, “There is a universe of very different possible outcomes,” which RAP noted the draft manual could be clearer about by addressing the following questions:

  • What does this resource provide in the context of a utility’s duty to provide generation, transmission, and distribution, while satisfying environmental and other public policy requirements?
  • What additional benefits do the DERs provide? (For example, solar panels provide shading for buildings, which may reduce air-conditioning loads.)
  • How can rate design promote efficient acquisition of this group of resources?
  • How can it help society to efficiently allocate its investment resources, especially between regulated utilities and independent consumers?

RAP also noted that the manual needs to correctly identify the values of DERs and distinguish between a DER like demand response, versus distributed generation, like rooftop solar. RAP also called for NARUC to provide guidance on how DER cost-benefit analyses should be conducted. In order to translate value into rates, RAP proposed regulators consider time-varying rates that can change customer behavior in a way that’s consistent with grid needs.

Advanced Energy Economy issued a statement this week from Lisa Frantzis, senior vice president of strategy, highlighting three changes the industry group wanted to see in the final manual: 1) more deeply exploring the benefits and costs of all DER technologies to include their full range of benefits; 2) presenting a more robust discussion on technologies needed to enable DERs; 3) outlining a broader array of regulatory tools beyond rate design to give regulators a better sense of the full suite of options they have to align utility incentives with the growth of DERs.

Business model reform?

Vote Solar took a broader view in its reply comments. The solar advocacy group stated that utilities need to spearhead new business models with the widespread adoption of energy efficiency and distributed generation. “A utility revenue model that is contingent upon load growth and the addition of assets to increase shareholder value is not compatible with anything but monopoly service and requires rethinking,” the group wrote.

Vote Solar fully endorsed NARUC’s finding that “the current regulatory and utility models are a constraint to effectively addressing the growth of DER and its impacts on utility and regulatory frameworks.” Regulatory proceedings are often controversial, NARUC wrote, because stakeholders typically only address one aspect of the interaction between utilities and DER technologies -- be it utility cost recovery or customer compensation.

Among its recommendations, Vote Solar called for regulators to “analyze opportunities for integrating the rich variety of DER technologies in ways that increase grid efficiency and reduce the need for utility grid investments.”

In addition, the group stated that “the manual should make clear that the utility asset investment incentive in the current regulatory model requires caution on the part of regulators when reviewing fixed asset investment proposals from utilities.”

SolarCity also called for utility business model reform. “The manual should encourage regulators to engage in rigorous distribution system planning in order to avoid building redundant systems and ensure that the projected benefits of DERs are realized to the maximum extent possible in order to reduce total energy service costs to consumers,” the company said.

Christopher Villarreal, chair of the NARUC subcommittee on rate design and director of the Minnesota Public Utilities Commission, said that utility business model reform, while significant, was considered beyond the scope of the DER manual.

"I think there needs to be recognition that evolution needs to happen, and places in the document do say that utility and regulatory models need to evolve with technological developments over time," he said in an interview. "But we tried to maintain the focus on compensation and provide commissions with a list of options that they could consider as they evaluate how to compensate DERs.”

"Some people see these [the utility business model and DER policy] together -- you can’t address one without the other," Villarreal added. "That may be true. But we didn’t want to opine on business-model options, especially if states weren’t interested in going down the path of restructuring. […] That would distract from the basic premise of the document.”

In addition to business model reform, SolarCity underscored that DER customers should proportionally pay for the grid services they consume and be compensated for the full value of grid services they provide. The company specifically objected to creating DER-specific rates, which could allow the utility to discriminate against customers who choose to adopt technologies that compete with utility investments.

SolarCity also took issue with the way the draft manual characterizes DERs. “Rather than focusing on the potential benefits these emerging resources could provide…the manual instead presents the emergence of DERs merely as a challenge to be managed or a problem that causes utility revenue erosion and cost-shifting, neither of which are clear and present threats in any jurisdiction,” the comments state.

“We do not think that distributed energy resources and distributed generation are part of the problem; we think they’re part of the solution,” said Wellinghoff. “We think they’re valuable and viable resources and an integral part of entire grid system. […] We want to make sure the manual recognizes that, and provides state regulatory commissions with tools to fairly analyze what those values are.”

NARUC is currently reviewing comments submitted by stakeholders and plans to publish a final version of the manual before the organization's annual meeting in mid-November.