Submitted to Southeast Symposium on Contemporary Engineering Topics (SSCET) New Orleans, LA - August 31

Project Overview  In the belief that net metering would encourage the use of renewable energy resources and technologies, the Louisiana Legislature in 2003 passed Act 653. As the Constitutional body with jurisdiction over Louisiana electric utilities, the Louisiana Public Service Commission (LPSC) accordingly implemented Order No. R in 2005, which established net metering rules for those electric utilities that fall under its jurisdiction. In 2011 the LPSC voted to raise the net metering limits for commercial and agricultural customers from 100 kW to 300 kW.

Project Overview (cont.)  In addition to the net metering rules adopted by the LPSC, the Federal and Louisiana State government rebate programs currently in effect provide a rather strong incentive, particularly for residential customers, to install solar energy systems. Compared to its neighbors, Louisiana’s programs promoting distributed generation via renewable energy resources appear to be quite successful.

Project Overview (cont.)  There are some unintended consequences, however, from distributed generation and the current net metering rules that should be addressed by the LPSC in a timely manner. The purpose of this project is to help bring these matters to the attention of the LPSC and to offer some suggestions on how the Commission and utility companies might mitigate the effects of these consequences.

Project Overview (cont.) Louisiana Tech is conducting surveys (utilities, net metering customers, solar energy companies), studying impact scenarios, and developing ideas on how the net metering rules can be improved TASK 1: STATUS OF NET METERING TASK 2: CONSEQUENCES OF NET METERING TASK 3: DEVELOP RECOMMENDATIONS TASK 4: REPORT

Overview of Net Metering in Louisiana - In net metering, the difference between the energy supplied and the energy generated and fed back by the electric utility of the net metering customer over the applicable billing period is measured. - If the net metering customer supplies more energy than he receives over the billing period, he will be credited by the utility for an amount equal to the avoided costs - Via its rebate program and net metering rules, Louisiana has definitely encouraged residential and commercial customers in recent years to pursue distributed generation.

Consequences of Net Metering on Louisiana utilities - Additional personnel needed to administer this class of customer - Residential bills based almost entirely on energy usage (fixed costs are not delineated) - Energy production from most net metering customers is maximum when their demand is significantly lower than peak values - Lost revenue caused by net metering (projection of the future average capacity) - Customer satisfaction/complaints regarding net metering (customer survey) - Long term impacts The most obvious consequence of the current net metering rules is that traditional customers subsidize net metering customers!

Consequences of Net Metering on Louisiana utilities (cont.) We contacted 13 electric utilities including 3 investor- owned electric utilities and 10 coops in Louisiana for the survey since June 15, 2012

Consequences of Net Metering on Louisiana utilities (cont.) CommercialResidential Total number of customers169,2511,297,410 Number of net metering customers251,300 Average size14.53 kW6.35 kW Table 1 – The total number of customers, net metering customers and average size of different LA utilities Tentative LA Utility Survey Results

Consequences of Net Metering on Louisiana utilities (cont.)  The following graph illustrates a typical summer weekday electricity usage pattern for an average residential customer in relation to the output of a typical sized net metered system on a normal clear summer day Excerpted from the Joint Comments of Entergy Gulf State Louisiana, LLC and Entergy Louisiana, LLC in response to Commission Staff’s Request for Comments on Cross-Subsidization and Third Party Ownership Arrangements docket

Consequences of Net Metering on Louisiana utilities (cont.)

Impact scenarios Traditional residential customer versus net metering customers (served by SWEPCO) EXAMPLE 1 - Assume a traditional residential customer uses 1,000 kilowatt-hours (kWh) of energy during June Therefore, this particular SWEPCO customer will be charged $91.67 according to the LPSC residential rate schedule.

Impact scenarios (cont.) Traditional residential customer versus net metering customers (served by SWEPCO) EXAMPLE 2 - Assume a net metering residential customer located outside a community with a franchise fee consumes 1,000 kWh of energy and delivers 1,000 kWh of energy during June Thus, the net energy for the month is zero and this customer will be charged $4.25 by SWEPCO. (If the net metering customer is located inside a community with a franchise fee, his bill would be slightly higher.)

Impact scenarios (cont.) Traditional residential customer versus net metering customers (served by SWEPCO) EXAMPLE 3 – Assume a net metering residential customer outside a community with a franchise fee consumes 1,000 kWh and delivers 1,250 kWh during June This customer will be billed $4.25 by SWEPCO exactly as the customer described in Example 2. In addition, along with any other previous energy credits, this customer will be credited with 250 kWh of energy that he can apply in future months.

Impact scenarios (cont.) Traditional residential customer versus net metering customers (served by SWEPCO) EXAMPLE 4 – Assume a net metering residential customer outside a community with a franchise fee with no prior energy credits consumes 1,000 kWh and delivers 750 kWh during June Thus, this customer has a net energy consumption of 250 kWh and will be billed $ (As in Examples 2 and 3 above, this customer’s bill will typically be 1 to 2.5 percent higher if his location is inside a community with a franchise fee.) How do the fixed costs of a utility compare to its variable costs? Almost certainly the net metering customers in the examples above are not paying their “fair share” of the fixed costs!

Impact scenarios (cont.) Several net metering residential customers served by the same distribution transformer versus several traditional residential customers served by the same distribution transformer In many cases it is common for several residential customers to be served from the same distribution transformer. For example, let’s assume that four traditional residential customers are served by a single 25-kVA transformer. Typically the expected load of each of these customers would be approximately the same, which implies approximately 6 kVA each. Since it would be rare for these four different loads to have exactly the same time characteristics, and since these transformers can stand modest overloads for short durations, the maximum value of one or more of these loads might actually be closer to 10 kVA. Now assume that these customers become net metering customers by each installing an 8.2-kW renewable energy system. It is entirely possible that during a number of hours on certain days (such as from 9 AM to 3 PM on spring or autumn weekdays when family members are usually away from home) the loads will be quite small and these renewable energy systems will be supplying up to approximately 8 kW each into the grid. Thus, a total of 30 kW or more could be supplied almost on a constant basis over a number of hours via a transformer rated at only 25 kVA. The life of this transformer will be shortened to a significant degree in such a case. As the size of the renewable energy systems increase in the future, this infrastructure problem will grow ever larger. To make matters worse, the cost of replacing this transformer under the current net metering rules will be paid primarily by the traditional customers, even though they did not cause the problem!

Ideas on Improving the Net Metering Rules 1. Develop a monthly service charge for net metering customers such that these customers pay their “fair share” toward supporting their utility (e.g., a utility could itemize charges for residential customers as “variable” costs and “fixed” costs) 2. Restructure the rate schedules for residential net metering customers along similar lines as commercial/industrial customers (e.g., charge for both energy and demand) 3. Since public money (tax credits/rebates) usually pays a significant percentage of the installation cost of a renewable energy system, most of the energy generated by the net metering customer should be “credited” toward the other customers 4. Phase out the tax credits/rebates for net metering

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