Last week, the National Association of Regulatory Utility Commissioners (NARUC) released a draft Manual on Distributed Energy Resources (DER) Compensation. The manual is intended to provide state regulators with possible options for developing policies relating to compensation for DER.
The draft manual outlines six methodologies that regulators could consider, either individually or in combination:
- Net Energy Metering (NEM) – NEM is the simplest and least expensive DER compensation methodology to implement, and it has received significant attention in states across the country. The main concern with NEM is that it may overcompensate DER customers and leave non-DER customers to pay for the costs of integrating DER into the grid, although proponents of NEM argue that the benefits of DER justify this methodology.
- Valuation Methodology – This methodology separates what a customer is charged for consumption from what she is paid for generation. The payment portion can be determined based on either the “Value of Resource,” which attempts to identify all of the costs and benefits of a DER, or the “Value of Service,” which attempts to identify and quantify all of the services that a DER can provide, such as generation, voltage support, ramping, or reliability.
- Demand Charges – Demand charges are designed to account for the capacity needs of a customer. Many DER customers still rely on the grid during peak times (in general, the times of peak rooftop solar generation and peak residential consumption do not coincide). If a demand charge is in place, a DER customer would be assessed this charge even if her import of energy from the grid equaled her export of excess energy to the grid over the course of a billing cycle.
- Fixed Charges and Minimum Bills – As the names imply, fixed charges are rates that do not vary based on a customer’s consumption or generation, and minimum bills establish a floor for energy bills where NEM is in place. Both of these methodologies ensure that a DER customer cannot offset his entire electricity bill with the energy exported to the grid.
- Standby and Backup Charges – Standby charges compensate utilities for the energy and capacity required to instantaneously provide DER customers with enough electricity to meet their needs in the event of DER outages. Backup service is similar, only it applies to planned outages and is typically not instantly available. While NARUC’s draft manual notes that there do not appear to be standby and backup charges applied to DER currently, this may be an option utilities consider pursuing in the future.
- Interconnection Fees and Metering Charges – Interconnection fees cover the one-time cost of setting up a DER on a utility’s system, whereas metering charges cover the cost of the meter, its maintenance, meter reading, and data services. While these fees and charges are based on cost causation principles, they do not address all DER-related costs and may also slow DER adoption by increasing the payback period of DER investment.
NARUC is soliciting comments on the draft manual and plans to release a final manual in November 2016. Comments can be submitted through close of business September 2, 2016 to firstname.lastname@example.org.