Dear Neighbors:
I hope are enjoying the Memorial Day holiday, as we honor the soldiers who fought to end slavery and defend our country against a rebellion. In this week’s letter I will discuss a component of Rhode Island’s energy policy called “net metering,” and the policy’s impact on ratepayers and greenhouse gas emissions.
1. Current Net Metering Policy
Rhode Island developed a “net metering” policy in 2011 that supports the construction of electricity generating facilities (including solar farms) that export power into the grid currently maintained by Rhode Island Energy. The policy allows these wholesale producers to accrue “credits” for the additional electricity they provide to other users. The value of the credit is determined by the retail price of electricity as measured by cents per kilowatt hour multiplied by the number of kilowatt hours generated and introduced into the system. Rhode Island Energy pays the credits to the generator, and those costs are incorporated into Rhode Island Energy’s overall rates.
2. The Governor’s Proposed Changes To The Net Metering Program
a. The Governor’s January Budget
The Governor’s budget includes an “energy affordability” program described in this Presentation that predicted a $1 billion savings in utility rates over the next five years. Part of those savings would come from reducing payments to net metering generators by freezing the price per kilowatt hour they would receive at the July 1, 2026 level, rather than allowing the price to increase as retail rates increase.
b. Budget Amendment 7 (GBA 7)
When the solar electricity generation industry criticized this program for undermining existing agreements and understandings, the Governor decided to review this part of the budget. Two weeks ago, the Governor introduced General Budget Amendment 7 (GBA7) which would allow net metering generators to opt into a rate tariff which would guarantee an annual 2.75% rate increase, representing a compromise between the current program (under which rates have increased at a 4.9% annual pace) and the rate freeze proposed in the Governor’s original budget.
3. Estimating Proposed Ratepayer Savings
As part of the Governor’s initial budget Presentation (at Slide 25) the Office of Energy Resources (OER) predicted that a net metering rate freeze would generate $175 million in annual rate payer savings over five years. As documented by the Senate Fiscal Office, OER projected GBA7 to increase the cumulative 5-year rate payer savings to $257 million. This result is counter-intuitive, because GBA7 increases the amount paid to generators (by including the annual 2.75% escalator), but somehow also increases ratepayer savings by $82 million at the same time.
4. The Senate Finance Committee’s Review
a. The Office of Energy Resources (OER) Rate Payer Savings Model
The Senate Finance Committee reviewed GBA7 with the Office of Energy Resources (OER) on May 12. OER’s consultant described the model he used to project the consumer savings that would accrue from changes in the net metering program. A key component of that model was a prediction that retail electricity rates over the next five years would increase by 37%. Under current policy, net metering generators would see increased payments based on these rate increases; therefore freezing the rate or limiting it to a 2.75% annual increase would provide savings to rate payers. In contrast, historical rates had increased by only 5% annually over the past 3 years, which would lead to lower anticipated ratepayer savings.
b. The Finance Committee’s Inability To Review OER’s Model
OER’s consultant declined to share the data on which its prediction was based, stating it was subject to a nondisclosure agreement. Given that state funds were used to pay for this model, the Senate Finance Committee was frustrated with this answer. In the meantime, a major solar generator provided its projection that, based on a 4.9% annual rate increase, ratepayer savings would be limited $72 million over 5 years, rather than $175 million in the Governor’s original budget or $257 million in GBA7. OER offered to engage in further correspondence about the model offline, which is now taking place.
5. Conclusions
The May 12 hearing raises questions about the actual savings Rhode Islanders will realize from the Governor’s net metering initiative. We have not had the opportunity to examine in detail the other components of the OER’s $1 billion savings model, but the experience with net metering suggests those other components should not be accepted at face value. Also, as noted in my April 19 letter, the OER model has no analysis of the impact of this program on greenhouse gas emissions, which are regulated by the Act on Climate.
In this way, the Finance Committee hearing on net metering underscores the need for us to have an independent, transparent model of energy policy that will allow us to assess its impacts on rates in one direction, and greenhouse gas emissions on the other.