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Kentucky PSC Issues Groundbreaking Order on Net Metering, Delivering Victory for Rooftop Solar

Commission Supports Principles for Valuing Distributed Solar Presented by Solar Advocates, Rejects Utility’s Proposed Rates

By Andy McDonald, May 25, 2021

After more than six years of debate among solar advocates and Kentucky’s electric utilities, the Kentucky Public Service Commission (PSC) delivered a clear victory for the future of local, customer-owned renewable energy resources in Kentucky. On May 14, 2021, the PSC issued a final Order in the first case to propose changes to net metering since passage of the controversial Net Metering Act of 2019 (SB 100). In the Order, the Commission rejected the Kentucky Power Company’s proposal to reduce the value of solar energy exported back to the grid to 3.7 cents/kWh (a 75% reduction). Instead, the Commission set the new compensatory credit at 9.7 cents/kWh (which is 12% below the retail rate of 11 cents/kWh).

In the May 14th Order, the Commission directed that properly valuing exported solar energy must include consideration of the many benefits that distributed solar provides to the utility and other ratepayers. The Commission adopted principles and best practices suggested by expert witnesses for the Kentucky Solar Energy Society, the Mountain Association, and Kentuckians for the Commonwealth, who participated in the case as Joint Intervenors. It directed that those principles be used for determining both the value of distributed energy resources such as rooftop solar, and for determining the cost of serving those customers.

The Commission based their calculation of the value of exported solar energy on the utility’s ‘avoided costs,’ but expanded on the components to be considered to achieve a ‘just and reasonable’ avoided cost rate. These factors include avoided generation, distribution and transmission capacity, ancillary services, and carbon and environmental compliance costs. The Commission also acknowledged the economic development and job creation potential of distributed generation and indicated that these benefits should be assessed in setting a value for exported solar electricity. Finally, the Commission noted that fair compensation for solar exports would discourage net metering customers from seeking to participate in the wholesale market under FERC Order No. 2222, and that avoiding the higher costs of serving those customers if they chose that path should be considered as avoided costs.

The PSC has set an important precedent by recognizing the multiple ways that small-scale distributed solar generation provides value to the utility. The inclusion of the cost of carbon and the impact on jobs among the benefits to be considered is especially significant.

The Order outlined principles and best practices for net-metering compensation and rate design which were consistent with the testimony of the Joint Intervenors:

Evaluate eligible generating facilities as a utility system or supply-side resource.
Treat benefits and costs symmetrically, to avoid bias.
Conduct forward-looking, long-term, and incremental analysis.
Avoid double counting.
Ensure transparency and consistency (in assumptions, methodologies, etc.) to create trust between parties and allow for a robust public process around resource evaluation.
Adhere to rate-making standards of stability and simplicity.

As the first base rate case decided following implementation of the Net Metering Act of 2019, this Order establishes a framework for how the Commission will handle net metering in pending and future rate cases brought by other utilities, including the Kentucky Utilities Company and Louisville Gas & Electric, whose cases are now pending before the Commission. Decisions in these cases are expected in the coming months.

This Order is a promising sign for the expansion of distributed energy resources in Kentucky. As the Commission stated, “Kentucky Power’s testimony framed the increases in solar PV as an operational challenge, while intervenors have demonstrated that solar PV provides an opportunity to integrate a new resource onto the power system. The Commission acknowledges that solar PV and other eligible generating facilities may, at some point in the future, create system challenges, but currently the Commission sees an opportunity to begin processes that will comprehensively integrate solar PV and other resources into the power system and provide significant benefits to ratepayers; participating and non-participating alike.” (See the Order, p. 40)

The Commission’s Order also:

Maintained the existing “netting period” as the monthly billing cycle, rejecting the complicated time-of-day periods Kentucky Power had proposed. This makes calculating savings much simpler for the solar customer and improves the financial value of their solar array.
Found no evidence of a significant subsidy caused by net metering. It noted that the alleged ‘subsidy’ caused by net metering, based on Kentucky Power’s own calculations, amounted to $40,000, or 24 cents per customer, per year. The Order noted, “[t]he purported net metering subsidy is less than the $49,822 in educational assistance payments made to Kentucky Power employees that is recovered in rates, or $51,117 in witness coaching in communication strategy and video recording services that Kentucky Power sought to recover in rates, but was denied.” (See the Order, p. 20)
Granted all net metering customers whose systems were operational as of the date of the Order legacy rights to continue under the original net metering tariff (NMS I) for 25 years from the date of the Order.
Granted net metering customers who will take service under the new net metering tariff (NMS II) similar legacy rights to be served under the NMS II tariff for 25 years, recognizing the long-term investment that is reflected in solar systems.
Any change to an existing net metering system that materially increases the system capacity will cause the system to lose its legacy rights and be shifted to NMS II. However, adding battery storage or incidental capacity increases due to regular maintenance will not trigger the loss of 25-year legacy rights.
The Commission rejected the utility’s proposed increases to its net metering application fees.
On avoided carbon costs, the Commission noted, “Kentucky Power considers, weighs and plans around the cost and intensity of carbon emissions when conducting system resource planning within its integrated resource plan (IRP)… Additionally, Kentucky Power’s lack of fuel diversity is a risk factor that impacts its cost of capital, a cost reflected in customers’ rates.” (See the Order, p. 35) For these reasons the Commission ordered that avoided carbon emissions should be included in the avoided cost calculations.

The Joint Intervenors- the Kentucky Solar Energy Society, Kentuckians for the Commonwealth, and the Mountain Association- are represented by Tom FitzGerald of the Kentucky Resources Council and received technical support from expert witnesses James Owen of Renew Missouri and Karl Rábago. The Kentucky Solar Energy Industries Association also intervened in the case and provided crucial testimony in support of fair net metering rates.

The Kentucky Solar Energy Society will be hosting a free webinar to review the PSC’s Order on Thursday, June 3^rd at 7:00pm. Presenters will be Joshua Bills of the Mountain Association, Tom FitzGerald of the Kentucky Resources Council, and Andy McDonald of KySES.

Register for webinar here.

Andy McDonald is the Vice Chair of the Kentucky Solar Energy Society and Director of Apogee-Climate & Energy Transitions. He is based in Frankfort, Kentucky. He can be reached at andy@apogeeclimate.org.

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