Net-Metering Electricity | IREC Model | NEG and REC Ownership

Net Metering

Net Metering-Net Metering Electricity

For customers that generate their own electricity, net metering allows for the flow of electricity both to and from a customer’s facility through a single, bidirectional meter. This arrangement is much more advantageous for customers than the various two-meter arrangements used for QFs authorized by PURPA.

Under the most common two-meter arrangement, usually known as dual metering or net billing, any electricity produced by a customer that is not immediately used by that customer flows to the utility through the second meter. The excess generation flowing through the second meter is purchased by the utility at the utility’s avoided-cost rate, while the customer pays the utility’s retail rate for all electricity the customer purchases. There is usually a significant difference between a utility’s retail rate and its avoided-cost rate.

While a typical utility’s retail rate for residential customers is approximately $0.09 per kWh, the same utility’s avoided-cost rate is likely to be about $0.03per kWh.

Net metering, on the other hand, is a low-cost and easily administered means of promoting direct customer investment in renewable energy. One of the major advantages of net metering is its simplicity; most customers can use their existing meter without any modification or additional equipment. With net metering, at times when a customer’s electricity generation exceeds the customer’s electricity use, electricity supplied by the customer to the utility offsets the electricity the customer must purchase for the utility at another time during the same billing period. In effect, during a single billing period, the customer uses any excess generation to offset electricity the customer otherwise would have had to purchase at the utility’s retail rate. The electric grid is used for storing electricity.

Proponents and opponents of net metering have developed separate laundry lists of arguments that support or oppose net metering. While a discussion of these arguments falls outside the scope of this publication, it should be stated that no comprehensive report has been published that details the costs and benefits of net metering to utilities, to net-metered customers, to non-net metered customers, and to the general public. The actual value of electricity generated by net-metered customers is one of the most strongly contested issues. In the near future, it is likely that the evolution of time-of-use (TOU) meters and smart meters will provide more insight regarding the actual value of the electricity generated by net-metered customers.

In most states, all customers are eligible for net metering, but some states restrict eligibility to particular customer classes. Furthermore, while all state level net-metering laws and regulations apply to investor-owned utilities, only some of them also apply to publicly-owned utilities (such as municipal utilities) and/or electric cooperatives. Some publicly-owned utilities voluntarily offer net metering, often in the absence of state laws or regulations. A handful of states, including Iowa and Minnesota, implemented net metering for small renewable-energy systems in the early 1980s, as an extension of PURPA. As of July 2007, 38 states and Washington, DC, have net metering that applies to investor-owned utilities at a minimum. New regulations and amendments to existing laws are consistently under consideration by states, in both the legislative and PUC arenas. In addition, Section 1251 of EPAct 2005 requires all state regulatory authorities, and utilities that are not subject to state regulatory jurisdiction and that have annual retail sales exceeding 500 million kWh, to “consider” adopting a net-metering standard by August 8, 2008.

All state net-metering laws and regulations are different, and many vary dramatically. Common variables include: eligible technologies, eligible customer classes, limit on individual system size, limit on aggregate capacity of net-metered systems in a utility’s service territory, treatment of customer net excess generation (NEG), types of utilities affected and REC ownership. IREC maintains an online state-by-state table that allows users to compare net metering laws, regulations and utility programs by most of these criteria.36 In addition, DSIRE provides detailed information on state laws and regulations, and voluntary utility programs.

IREC has developed model net-metering legislation for use by states. IREC’s model, which incorporates what it believes to be the best practices of net metering policies already implemented by U.S. states, allows net metering for renewable-energy systems up to 2 MW in capacity. IREC’s model has been influential in New Jersey, Colorado, Maryland and Pennsylvania, all of which have adopted net metering for systems up to 2 MW. The following provisions are included in IREC’s net-metering model:

  • All renewable-energy systems, and CHP systems, up to 2 MW are eligible.
  • All customer classes are eligible.
  • There is no limit on the aggregate capacity of all net-metered systems in a utility’s service territory.
  • NEG is carried over to the customer’s next monthly bill indefinitely. (Alternatively, customer NEG is credited at the utility’s retail rate and 35 See 16 USCS § carried over to the customer’s next bill for 12 months. A utility must pay, at its avoided-cost rate, for any customer NEG remaining at the end of an annualized period.)
  • All utilities, including publicly-owned utilities and electric cooperatives, should participate.
  • Customers retain ownership of all RECs associated with customer generation.
  • Interconnection standards, including a standard agreement, should be adopted for net-metered systems.
  • Utilities may not charge customers special fees for net metering; net metered customers should be treated no different than customers who are not net-metered.

Two of these issues – NEG and REC ownership – and new metering options are discussed in greater detail below.

Special Issues

Annual vs. Monthly Netting

Most net-metering programs allow customers to carry NEG forward to the following month at the utility’s retail rate, usually for a 12-month period. This arrangement is commonly known as “annualized” net metering. If a customer generates more kWh during a monthly billing period than the customer uses, then this net excess generation is carried over to the customer’s next monthly bill as a kWh credit. In some states with annualized net metering, if a customer has NEG remaining at the end of a 12-month period, the utility pays the customer for the excess kWh at the utility’s avoided-cost rate. In other states with annualized net metering, any NEG remaining at the end of a 12-month period is granted to the utility with no compensation for the customer. A few states appear to allow indefinite carryover of customer NEG. In a handful of states, including Pennsylvania, Massachusetts and New Mexico, NEG is credited at the utility’s avoided cost rate – as opposed to the utility’s retail rate – and carried over the customer’s next monthly bill. This arrangement is less favorable to net-metered customers than annualized net metering.

Annualized net metering takes into account the fact that some renewable energy resources, (especially PV and wind) are somewhat seasonal in nature. For example, a PV system may produce more electricity than a household consumes in the summer, but the system likely will produce less electricity in the winter. With annualized net metering, NEG in summer months may balance reduced system output in winter months. Utilities benefit from annualized net metering because they do not incur the administrative costs of paying customers for NEG on a monthly basis. Customers that produce NEG in a given month are usually required to pay the utility’s basic monthly customer charge.