A proposal submitted on April 18, 2016 to the New York Public Service Commission by a coalition of New York investor-owned utilities and the State’s largest solar rooftop developers would replace net metering in New York with a formula tied to the locational value to the grid of the on-site generating facility.

Net metering is a program that has been adopted by 45 states and the District of Columbia to stimulate the development of distributed generation. Under net metering programs, utilities generally will compensate on-site generators for any excess generation at the utility’s retail rates. Net metering programs have been very successful. In New York, net metering has resulted in over 3,100 MW of eligible resources installed or awaiting approval in the utilities’ interconnection queues. These queues more than doubled in the first three months of 2016. Much of the recent development has employed a variation of net metering called community distributed generation, or CDG, as well as virtual net metering. CDG’s are shared power projects where multiple customers join together to obtain renewable energy from a single project. The community project typically is located on a remote site. The electricity from the project is “virtually” metered as if the customer’s allocated share of the project was located on the customer’s site. Like net metering, CDG projects receive billing credits at the customer’s full retail rates.

Utilities largely oppose net metering as it is disruptive to the traditional utility model in which the utility sells power to customers at its retail rates, and buys power from independent power producers at wholesale rates.

On December 23, 2015, the New York Public Service Commission issued a Notice to solicit comments for establishing an interim successor to net metering within the context of its Reforming the Energy Vision, or REV, docket. The Commission reasons that REV necessitates a transition from traditional net metering since the new framework will envision many on-site, distributed generation assets selling electricity through an online platform for purchase by retail customers within the distribution network. Thus, distributed generation will no longer “over-generate” and be eligible for net metering compensation; rather, generators may be able to sell all of their energy to an end consumer other than the utility. Creating a price for energy sold by distributed generation is the new focus of the Commission and energy market participants, and a successor model is proposed to go into effect by the end of this year.

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On April 18, 2016, a consortium consisting of all the major New York utilities and three of the State’s largest solar developers filed joint comments with the NYPSC proposing a replacement for the current net metering model. The coalition is notable since net metering is usually a contentious topic for these parties, and an arrangement that may be palatable to both the utilities and solar developers could gain traction.

To replace net metering, the Joint Commenters propose paying on-site generators using the formula: LMP+D+E. Under the formula, LMP represents the locational value of the power, including the wholesale price of energy, transmission congestion charges, and transmission line losses; D represents the locational distribution benefits over and above the LMP benefits, such as local load relief, and E represents the environmental benefits from the project, such as the value of the Renewable Energy Credits (REC’s) and other emission reduction benefits. Certain projects may be able to monetize additional value through wholesale markets, including the wholesale capacity and ancillary service markets.

Among other things under the proposal, in exchange for receiving the value of E, all customers receiving net metering credits would forego the ability to retain or sell RECs, which would be transferred to the utility.

Transition Rules

Under the Joint Commenter’s proposal, on-site generators installed prior to adoption of transition rules would continue to receive the full retail rate under the current net metering program. CDG and remote net metering projects however would initially receive billing credits at the full retail rate but would be subject to payment of a “Developer Payment” that would be made to utilities. The Developer Payment purportedly is calculated to compensate utilities for grid costs incurred as the result of net metering, and reflects the difference between the retail billing credit under the current program and the expected LMP+D+E valuation. The Developer Payment would increase with changes in the applicable utility’s delivery (i.e., non-supply/commodity) components of its rates.

CDG and remote net metering (RNM) projects would be progressively assigned to tranches having increasingly higher Developer Payments, i.e., lower compensation to onsite generators, based on their value to the distribution grid and their place in the utilities’ respective interconnection queues. CDG projects with potential locational benefits would receive priority in their tranche assignments and interconnection. The proposal provides a mechanism to move to a more geographically targeted incentive for those resources that provide locational distribution benefits. Subsequent projects would be assigned to tranches based on their interconnection application queue position. Each tranche is assigned a pre-established number of MW of eligible capacity. Developer Payments would increase (i.e., total compensation to the generators will decrease) until payment is equal to the LMP+D+E formula. Thus, as reflected in the illustration below provided by the Joint Commenters, for CDG project receiving billing credit at 18c/kwh, the customer/developer payment to the utility would ramp up to 4.5c/kwh, resulting in an approximately 25% payment reduction to the on-site generator.

Grandfathered Monetary Crediting Remote Net Metering (GRMN) projects and Satellites would be subject to a similar interim compensation structure. The first tranche of GRNM resources would receive compensation at the full retail rate with no Developer Payments for 25 years.

The proposal would impose milestones on projects, such as for completion of construction. Utilities can request a letter of credit or other financial assurance from the developer based on its perceived financial exposure, consist with utility commercial practices.

The Commenters propose a 4 year transition period after which the formula would go into effect for all on-site net metering resources. After January 1, 2020, on-site generators would receive compensation for net-exports tied to the replacement formula.

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