The National Association of Regulatory Utility Commissioners (NARUC) formally adopted a manual this week on the compensation of distributed energy resources (DERs). Despite earlier concerns that the manual could set unfavorable precedents, members of the solar industry praised the final draft as fair and comprehensive.
“Time and again, state public utility commissions and independent researchers have found that distributed solar provides a net benefit to all consumers, and we’re happy to see this more adequately and accurately represented in the final version of this manual,” said Sean Gallagher, vice president of state affairs for the Solar Energy Industries Association (SEIA), in a statement.
“Rate design is not a simple task, and it has far-reaching impacts,” he continued. “The manual recognizes that hard data and evidence is needed before imposing new rate structures on customers, and that imposing class-wide rate design changes when DER penetration rates are low ‘would most likely be a disproportional response.’”
Rick Gilliam, regulatory policy program director for Vote Solar, said he was pleased to see the report acknowledge the economic opportunities that solar and other DERs can bring to all customers. He also commended NARUC for taking a holistic approach to regulating customer-side resources.
"The manual contains a helpful balance between long- and short-term views, an open and more collaborative regulatory process, and a more expansive view of distributed energy resources, which actually include a broad and exciting range of clean technologies that can be deployed to add stability, control and reliability to the electric grid,” said Gilliam.
NARUC’s “Distributed Energy Resources Rate Design and Compensation” manual is not a prescriptive report; rather, it offers a breakdown of various policy options that regulators can adopt when considering how to craft policies around a variety of DERs, including solar PV, wind, combined heat and power, energy storage, demand response, electric vehicles, microgrids and energy efficiency.
A draft of the manual was released in July. The final version approved at the NARUC Annual Meeting on Tuesday is the product of a robust stakeholder process with input from dozens of interested parties.
When the draft manual first came out, rooftop solar advocates expressed concern that NARUC was moving too fast and could adopt a set of policy recommendations that inadvertently undermine the DER market before the market had been fully understood and analyzed. According to Travis Kavulla, Montana commissioner and outgoing NARUC president, the final version of the report allays these fears by emphasizing that regulators should focus on using data to justify rate changes in the territories they serve.
“I think [DER provider] concerns were misplaced from the beginning, and I think the final manual should really assuage them,” said Kavulla, in an interview.
The final draft of the manual includes a new section on the path forward for regulators that outlines specific questions for regulators to ask, such as, “How does a regulator address the asymmetry of information inherent in utility regulation when discussing the grid?” and “If costs arise as a result of DER deployment, will the rate structure ensure that the causer of the cost pays?” Some questions are as fundamental as, “What is the current adoption level of DER in the jurisdiction?”
“It's pointless to try to reform these rates without having accurate data, whether it's the net load profile of rooftop PV customers, or data about what the utilities are actually in a position to avoid in terms of capital investment in a generation plant or distribution facilities,” said Kavulla. “You just need a greater awareness, I think, of all of those things before you start experimenting with rate design reform.”
The report acknowledges that DERs cause economic issues for utilities; these issues include “revenue erosion and cost-recovery issues, as well as inter-class cost shifting apparent in traditional utility rate design and [net metering] discussions.” But it doesn’t assume these are problems for all utilities at the same time.'
Language in the manual reminds regulators that their state is unique, said Jamie Barber, energy efficiency and renewable energy manager at the Georgia Public Service Commission, and an author of the DER manual. “You don’t just make a policy change because Hawaii or California is doing it; you need the data to support the action in your state,” she said, in an interview at the group's annual meeting.
The final DER manual also includes several case studies to help regulators better compare and contrast the DER market dynamics in their state versus others.
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