RCA rejects federal net metering rules

State regulators choose not to adopt 2005 Environmental Policy Act guidelines, instead look to craft state-based standards in future

Eric Lidji

Petroleum News

State regulators have decided to reject net metering standards proposed by the Bush administration, instead choosing to craft standards tailored toward Alaska.

The standards would have required larger utilities to buy electricity generated by individual customers connected to the grid. Across the country, net metering is used to promote small-scale renewable and alternative energy projects, like wind and solar.

Alaska is one of only eight states without net metering laws.

The Environmental Policy Act of 2005 created new guidelines for net metering and four other standards related to energy creation. While the federal law did not force individual states to adopt the measures, it did require state regulators to consider the proposals.

The recent decision by the Regulatory Commission of Alaska followed two years of discussions, workshops and public hearings that occasionally pitted utilities against advocacy groups and individual customers.

Proponents believe net metering would plant the seeds for a renewable energy industry in Alaska by encouraging customers to build, install and maintain a diverse portfolio of generation facilities around the state, eventually decreasing the need for fossil fuels.

But many utilities believe net metering, as proposed by the federal government, violates “cost causer-cost payer” principles, the idea that customers pay only for services they use. Under net metering, utilities would buy electricity at the same retail rates they charge, but those rates include fees designed to recover costs not incurred by net-metered customers, like the long-term expense of building new transmission lines, or system-wide maintenance.

During workshops held earlier this year, Municipal Light & Power, the public utility for downtown Anchorage, said rates would increase 0.6 percent, or about one tenth of a cent, for each 1 percent of its load supplied through net metering.

Proponents say that expense is negligible, and should be ignored just like the “line loss” expense of delivering electricity to customers who live farther away from power plants.

Alaska unique for electricity

Across the Lower 48, most customers buy from competing distributors on the open market, while gigantic for-profit generation companies rarely own distribution assets.

But to serve a small population spread across such a large area, almost every electric utility in Alaska is an integrated nonprofit covering a specific region with utility-owned generation, transmission and distribution facilities. The exception is Matanuska Electric Association, the second largest electric utility, which does not own generation facilities.

This model is particularly exaggerated among the smaller disconnected utilities that dot the vast rural expanse in the northern, western and southeastern corners of the state.

“If you took the entire Alaska universe of utility customer and utility sales and bundled them into one utility, we would be a very small utility in the Lower 48,” said Meera Kohler with the Alaska Village Electric Cooperative, a collective of rural utilities. “And instead we have some 200 utilities.”

Through size restrictions, the federal net metering standards would probably have impacted only the four largest utilities in Alaska: ML&P and MEA, as well as Chugach Electric Association in Anchorage and Golden Valley Electric Association in Fairbanks.

Those utilities are mostly member-owned cooperatives or municipally owned utilities, and they say their smaller margins challenge the economics of net metering as proposed by the federal government. In the world of cooperatives, “margins” are profits required by lenders, but eventually returned to customers in some fashion.

Proponents say net metering is simply a structure designed to scale up or down in size, and point to the Hawaiian island of Maui as an isolated community with net metering.

“You can have net metering on almost any size system,” said Andy Baker, owner of Your Clear Energy, an Anchorage consulting firm specializing in renewable energy projects.

Avoided costs and SNAP

GVEA buys third-party electricity through Sustainable Natural Alternative Power, or SNAP, a program that financially supports small-scale renewable energy projects using voluntary contributions from other customers. Producers get paid more or less depending on the amount in the fund and the number of other renewable projects on the grid.

Other electric utilities in Alaska are also considering implementing SNAP, and during the workshops, GVEA proposed a statewide SNAP program as a way to promote renewable generation without forcing utilities, and their customers, to purchase electricity.

But SNAP doesn’t offer business certainty, according to Baker. A sudden decline of contributors to the fund, or a sudden glut of producers connecting to the grid, can quickly change the economics of a project.

Baker believes this lack of consistent standards for net metering in Alaska has kept investors, both large and small, from pursuing a renewable energy industry in Alaska.

“They’re not buying right now because we don’t know what the return on investment’s going to be,” Baker said.

Regulators vs. legislators

But as state regulators proceed, state lawmakers will also be considering the issue. Proponents in the Legislature sponsored a net metering bill during the last regular session, but the bill stalled in committees. The bill will almost certainly be revived next year.

Both sides of the net metering debate seem to prefer resolving the matter with regulators, rather than the state Legislature, seeing the RCA as a more specialized, and possibly quicker avenue to a new standard in the state.