Net Energy Metering

As distributed generation (DG), also known as local generation, continues to grow, the debate over net energy metering (NEM) is also growing in both regulatory and legislative arenas across AEP’s service territory. The number of NEM customers in AEP’s footprint is relatively modest but is growing. In 2016, more than 3,800 local generators were on the grid in AEP’s service territory, representing an estimated 72 megawatts (MW). Most of them are private solar generators who have installed rooftop solar. The discussion continues to be focused on the value of the grid and who pays to use it.

The number of NEM customers in AEP’s footprint is relatively modest but is growing. In 2016, more than 3,800 local generators were on the grid in AEP’s service territory, representing an estimated 72 megawatts (MW).

Contrary to popular belief, NEM customers do not go “off the grid” but in fact, simply utilize the grid in different ways. Most NEM customers choose to stay connected and rely on the grid to support all of their on-demand electricity needs, although their use patterns are much different than they were under the traditional delivery model. They use the grid to import energy at times throughout the day when their system is not meeting their instantaneous needs, but they can also export energy at times, using the grid in a bidirectional manner rather than the original design of the grid for one-direction delivery to non-NEM customers.

AEP continues to be active in net energy metering policy debates and regulatory proceedings that address issues and advocate for fair, equitable and sustainable solutions. In 2016, several bills were introduced in state legislatures across the country to update NEM tariffs. AEP advocates for updating these arrangements to ensure that all customers pay for the grid services they use, thus ensuring that all customers pay a just and reasonable rate.

As part of the Energy Policy Act of 2005, NEM tariffs were established to incent the adoption of local generation, which has occurred. Some NEM tariffs credit DG customers at the full retail rate, which includes both the costs of the energy itself, as well as the fixed costs associated with grid infrastructure (such as the distribution poles, wires and meters necessary to provide service to them). In essence, NEM pays the DG customers as if they provided all the products and services and reliability requirements of a utility, including balancing the system, providing cyber security and administrative costs such as customer contact centers.

Due to the original incentives established under NEM, certain DG customers aren’t fully paying for the services they receive from the grid. Thus, these costs are shifted to the overall costs to serve all other non-DG customers including low-income and other vulnerable customers. This shifting is unfair and, ultimately, unsustainable to all consumers.

State legislatures are beginning to understand this complex electric rate issue and taking action. Oklahoma and Arkansas passed bills in 2016 requiring their respective state utility commissions to evaluate net metering subsidy rules. In December 2016, the Michigan legislature passed a bill that increased the state’s renewable portfolio standard (RPS) from 10 percent to 15 percent while also requiring the state’s Public Service Commission to establish a “nondiscriminatory, fair, and equitable” grid-charge. In Indiana, legislation that would phase out net metering in that state by 2047 was signed by the governor in May 2017.

These are just a few examples of state-directed initiatives that recognize that customer needs and demands are changing and thus traditional electricity pricing models may also need to adjust.