NV Energy’s Latest Net Metering Filing Offers a Cost-Based Solution to the Distributed Generation Industry

Pursuant to the timelines set forth in Assembly Bill 405, NV Energy has recently filed new tariffs that affect Nevada’s net metering (NEM) and full requirement customers.  Passed by the Nevada Legislature in June 2017 and supported by the rooftop solar industry, Assembly Bill 405 is the latest manifestation of Nevada’s policy to support rooftop solar generation.  Generally, Assembly Bill 405 (1) mandates new rates for excess energy exported by NEM customers to the grid, which was legislatively set close to NV Energy’s retail rate; (2) prohibits separate rate classes for NEM customers; (3) directs NV Energy to file new time-of-use tariffs (TOU) with the goal of encouraging the development and use of distributed energy storage systems; and (4) enacts a number of consumer protections vis-à-vis rooftop solar installers.

With respect to the first mandate, the rates credit for excess energy set by the Legislature starts out at 95 percent of the utility’s corresponding retail rate and decreases seven percent for every 80 MW of installed rooftop solar capacity until it reaches a floor of 75 percent of the retail rate. By legislatively setting excess energy rates and prohibiting separate rate classes for NEM customers, Assembly Bill 405 made clear that the current rooftop solar industry model is not economically viable in today’s cost-based regulatory environment.  Both Democratic and Republican legislators who recognized the continuing cost shift from NEM customers to the rest of the ratepayers nevertheless supported the bill as a policy solution for the state to continue its support of rooftop solar regardless of the costs.

To meet the mandates of Assembly Bill 405, NV Energy’s latest tariff filing proposes new excess energy credit rates, combines previously separate NEM and full requirement customer classes, and introduces new TOU tariffs.  The new rates, including the excess energy credit rates, for the combined NEM and full requirement customer classes are designed to maintain overall class revenue neutrality.  In the case of the newly-combined single-family residential class, maintaining class revenue requirement translates into a $4 increase in the basic service charge for full requirement customers coupled with only a minor decrease to their volumetric rate.  At the same time, single-family residential NEM customers will benefit from a $1.33 decrease in the basic service charge and a lower volumetric rate.

This tariff borne out of the mandates of Assembly Bill 405 demonstrates inherent limitations of the current rooftop solar industry model.  Namely, to make rooftop solar systems economically viable, non-NEM ratepayers must pay higher rates and subsidize NEM customers.  This outcome is obvious and logical because NEM customers cost the utility just as much to serve as non-NEM customers, but pay next to nothing for the distribution, transmission, and generation infrastructure that serves them.  NEM customers cost just as much to serve because their rooftop solar generation does not help offset the cost of the utility’s energy infrastructure.  NV Energy’s generation assets, substations, transmission lines, and distribution networks are built to serve the peak load which occurs in the early evening hours of July and August.  Rooftop solar, while helping to shift the peak demand to later hours, does not reduce the peak demand because the peak occurs during the hours when rooftop solar systems stop producing.  Thus, no matter how many rooftop solar systems are installed in NV Energy’s territory, their contribution to the reduction of the cost of the overall energy infrastructure is negligible.

However, the TOU portion of NV Energy’s filing demonstrates that rooftop solar systems can be used in a way that benefits the customers who installed them and the rest of the ratepayers.  As an alternative to the two-part basic service charge and volumetric charge rate design, NV Energy proposes a four-part rate design that additionally includes two types of demand charges: a maximum demand charge and peak demand charge. A maximum demand charge is based on the maximum demand a customer places on the system in a given month regardless of when that maximum occurs.  Maximum demand charges incentivize customers to levelize their energy consumption by avoiding energy consumption peaks.  A peak demand charge is based on the maximum demand a customer places on the system during the system’s on-peak period.  Peak demand charges incentivize customers to minimize their energy consumption during the system’s on-peak period.

Under the proposed TOU rates, the effects of combining rooftop solar systems with battery storage can be substantial.  NV Energy’s filing demonstrates that, if done properly, a NEM customer can achieve considerable savings.  If a NEM customer were to charge the battery during the off-peak period by using either the solar array or the grid, the customer can completely avoid on-peak utility charges by utilizing the solar array during the early on-peak hours and discharging the battery during the later on-peak hours.  Importantly, such a behavior will not only benefit the NEM customer, but will also produce system-wide benefits. By not contributing to the peak load, the customer permanently reduces system-wide peak demand which allows the utility to forego investment in the infrastructure that would otherwise be necessary.  This relative reduction in rate base in turn reduces electricity costs for all ratepayers.

Although NV Energy’s optional TOU demand charge proposal has already faced attacks from some members of the rooftop solar industry, it is important to recognize that NV Energy’s proposal is not guided by the company’s profit-making motives.  To the contrary, by advocating for a rate design that reduces peak demand, NV Energy reduces its profit-making opportunities.  Investor-owned regulated utilities earn profits by investing equity into infrastructure that serves their customers.  By creating conditions that will reduce the peak demand on NV Energy’s system, NV Energy foregoes an opportunity to build additional generation and, as a direct result, foregoes an opportunity to earn additional profits on such investment.  The attacks on the proposal by some members of the industry can be explained by their desire to maintain the economically non-viable model that currently benefits them.  While the combined SolarCity/Tesla operation is poised to benefit greatly under the proposed TOU rates by supplying both rooftop solar systems and batteries, some of its competitors appear to be more interested in defending the legislatively-mandated current rooftop solar business model and stifle NV Energy’s TOU proposal.

As Nevada gears up to deregulate its electric market, it would serve potential retail energy providers well to analyze NV Energy’s TOU proposal. In addition to recognizing that the current rooftop solar business model is not viable in the cost-based environment, the proponents of Assembly Bill 405 also recognized that the model may not be viable once Nevada deregulates its electricity market and introduces market pricing.  Concerned with the idea that Nevada’s future retail energy providers would want to compensate NEM customers for excess energy with rates that actually reflect costs and market realities, drafters of the Bill added a contingency provision that will shield the rooftop solar industry and its customers from market pricing even in the deregulated market.  As enacted, Assembly Bill 405 requires that future retail energy providers pay legislatively-mandated rates for excess energy and prohibits treating NEM customers differently from full requirement customers.

NV Energy’s filing demonstrates how a retail energy provider may comply with the mandates of Assembly Bill 405 and, at the same time, set rates that would approximate the costs of serving NEM customers.  By implementing a demand charge, a retail energy provider can collect from both NEM and non-NEM customers in accordance with what their contributions are to the periods when the cost of energy is highest.  Customers with energy storage will pay less while customers without energy storage, including NEM customers, who contribute to the provider’s peak load will pay more.  In light of these economic realities, the rooftop solar industry should work on ways to develop and integrate affordable storage with its solar arrays.  Photo-voltaic solar arrays and energy storage should become the industry’s complete and standard product that will allow it to break its dependence on legislatively-mandated subsidy rates.

Image Courtesy of: Energy and Policy Institute used under Creative Commons License.