Months of struggle agreement among stakeholders in the first phase of New Hampshire’s regulatory proceeding for a solar successor tariff fell just short of a settlement, leaving key decisions to regulators.

For months, utility leaders, consumer advocates, environmentalists, and distributed energy advocates struggled to meet state lawmakers’ mandate to replace retail rate net energy metering (NEM) with a new tariff. The goal was a new type of compensation to solar owners for electricity exported to the grid. But agreement on the level of compensation and how to calculate it eluded them.

“The parties that took extreme positions in this case moved away from them because of a lot of good faith negotiation,” said Donald Kreis, executive director of the New Hampshire Office of the Consumer Advocate. In the end, though, the OCA joined New Hampshire’s dominant electric utilities – Eversource Energy, Liberty Utilities, and Unitil – in filing one of two competing settlement proposals with state regulators.

“The compromises from original positions were the result of both sides trying to accommodate one another and work toward one big settlement,” Kreis said. “Both proposals are more reasonable than they were originally.”

The utilities’ early proposals included rate designs that were unacceptable to solar advocates, said Kate Epsen, executive director of the NH Sustainable Energy Association (NHSEA). But, she said, “their settlement proposal has come a long way.”

NHSEA joined with environmentalists and distributed energy resources (DER) advocates in an alternative settlement filed with the NH Public Utilities Commission (PUC).

“The settlements are close on a lot of issues, but the differences on the compensation credit and on ‘netting’ prevented a final agreement,” Epsen said. “Those factors dramatically change the economics of solar and the value proposition for distributed generation in New Hampshire.”

The DER advocates rejected the utilities’ netting concept on the grounds there is inadequate data to justify it. But, in a step away from what DER advocates in other states’ NEM successor tariff debates have been willing to do, they are offering a gradual reduction in the current NEM credit.  

The Conservation Law Foundation argued the DER penetration in New Hampshire is too low to warrant the legislative mandate to move away from NEM, Attorney Melissa Birchard said. But the replacement of the state’s NEM policy represents “a nexus point."

“We're making a compromise for the short-term so that we can collect the data needed to launch a new value-based tariff in 2021," she said.

Ellen Booth Hawes, attorney for the Acadia Center, which supported the solar settlement filing, agreed.

It is “reasonable” to accept a reduced compensation to DER owners for electricity exported to the grid “as part of a package deal to get everyone on board with moving to the valuation study planned for Phase Two,” she said. The “right compromises” are those that address “real issues around how to properly value distributed generation.”

Though the parties did not reach a final settlement, they may have demonstrated something can be gained by the effort. If the groundwork laid in the negotiations (Docket 16-576) leads eventually to a modernized grid and a thriving, data-driven DER marketplace in New Hampshire, the effort will have been “worth it,” Birchard said

The netting controversy

In most NEM successor tariff debates, the new compensation credit is the key issue. But an even bigger controversy broke out when the utility settlement proposed what some call “instantaneous netting” and some call “no netting.”

Under the existing NEM policy, the DER owner gets a retail electricity rate credit from the utility for each kWh produced by their solar installation and exported to the grid. That credit is deducted from the customer’s total usage and the customer is charged for net kWh consumed. If the monthly net is in the customer’s favor, it is applied to the next month’s usage.

If netting is instantaneous, there is no balance. The DER value proposition is unchanged if the per-kWh credit for exported electricity and the charge for consumed electricity are the same, but phasing out the current NEM program likely means the future solar incentives will fall below the retail rate of electricity.

Those who say New Hampshire DER penetration is too low to warrant a move away from retail NEM raise “the wrong question,” an OCA filing argues. The legislature mandated the PUC to identify a tariff that “will avoid unjust and unreasonable cost shifting in the future, such that unfair subsidy of the DG ‘haves’ by the DG ‘have-nots’ does not become the norm.”

DER advocates argue instantaneous netting is not a workable solution.

With “second-by-second” netting, a customer could only know the benefit from a rooftop solar or other DER purchase by understanding “how their appliances use energy on a second-by-second basis,” Acadia’s Hawes said, “and how that overlaps with how much power their solar panels would produce on a second-by-second basis.”

New Hampshire customers don’t have that data, she said, “and the utilities have no plans to provide meters capable of collecting it.

ReVision Energy Chief Counsel Steve Hinchman said instantaneous netting violates basic rate making principles. Without metering and accessible data, customers cannot understand how their behaviors impact their usage or act to change their usage, he argued. “Without understandable and actionable data, it is arbitrary and punitive.”

The utility settlement calls for all customer-generators to have “bidirectional meters with an import (purchase) and export (credit) channel.” They can then “be billed on all imported electricity" and be credited "on all exported electricity,” the filing adds.

OCA’s Kreis calls this “no netting.” Moving to it would require “a transition period,” he acknowledged. It will also require DER owners to learn to use as much self-generated electricity as possible.

All OCA’s testimony throughout the proceeding assumed no netting, he said.

“Our analysis shows this will require the solar companies to make a transition, but we would not have agreed to something that would put them out of business,” Kreis said. “We want NH consumers to have the option of producing some of their own energy using distributed generation.”

Monthly netting “is not a future-looking policy,” the OCA filing argues. "It is a policy that cannot adapt to future rate changes and it distorts the economics while discouraging new technologies like load management and energy storage.”

Eversource Media Relations Manager Martin Murray agreed. “Creating a distinction between the power imported and consumed by a customer and the power exported to the utility grid is an important step forward that will enable more accurate pricing models.”

Eversource Manager of Distributed Generation Richard Labreque expanded on Murray’s point. No netting is a step toward “more advanced rate designs, he said. “In future rate designs, this rate for exports can and should be determined by a separate set of mechanics that those used to create traditional retail rates for purchased power.”  

The settlement proposal from the Energy Future Coalition (EFC), on behalf of DER advocates, argues “instantaneous netting results in a distorted price signal to customers and encourages behavior that is suboptimal for the electric system.”

A better structure would “send price signals to customers to maximize production during periods of electric system constraints and minimize consumption during periods of electric system constraints," the EFC filing argues. Time-of-use (TOU) rates "with netting during each time period" would do this.

The EFC filing stresses NH’s lack of data to support a change in netting. “The lack of real-time information to customers combined with instantaneous netting creates, at best, an obfuscated price signal to customers.”

Utility concerns about a perceived cost shift are based on an inadequately quantified calculation of “the costs and benefits of customer-generator or DER technologies,” EFC argues. “The determination of costs and benefits of DER and new crediting mechanisms cannot rely on qualitative observations or assumptions unsupported by empirical data.”

Better price signals require “more granular spatial and temporal data” that is “incorporated into an objective analysis of both costs and benefits (avoided costs) resulting from the operation of distributed generation,” EFC adds.

Cutting the distribution credit

Before the netting controversy emerged at the filing of the settlement proposals, the “single most contentious issue” was the approximately $0.04/kWh distribution portion of New Hampshire’s current $0.18/kWh average electricity rate, according Jack Ruderman,  ReVision Energy Director for Solar Community Initiatives.

“The utilities want to zero it out,” he said. “In the spirit of compromise, we offered to accept a lower compensation but we are not willing to accept a zero value.”

“The problem with the utility proposal is there is no data justifying the need to immediately drop to a zero value,” NHSEA’s Epsen said. “To do it in a non-gradual manner, especially if it is not required by the legislation that led to this proceeding, is going too far.”

The EFC filing proposes to reduce the distribution component by 25% on DER systems that qualify for interconnection on or after September 1, 2017. It would allow a 50% reduction in the distribution portion of the credit for DER systems that qualify for interconnection on or after January 1, 2019.

Systems that qualify for interconnection on or after January 1, 2021, would be subject to export values that come out of the PUC-sponsored independent Value of DER (V-DER) study, which both parties called for in their settlement filings.

This gradualism avoids rate shock and gives utilities, the solar industry, and customers the time to adapt to the new system and track what happens,” said ReVision’s Hinchman. “It is a no-regrets approach in which you minimize harm from unintended consequences with a gradual well-planned phased transition.”

The utilities are more concerned about the perceived cost shift. It is Unitil's “primary focus," said spokesperson Alec Omeara.

“We hope the new tariff offers a long-term solution to this cost shifting issue,” he said, so that both net metered and non-net metered customers pay "the appropriate cost for the way they are using distribution infrastructure.”

OCA’s Kreis said the DER advocates’ offer is “clearly a gentler glide path to a new reality.” The utility proposal for a compensation credit with a zero value for the distribution portion “starts at the level the parties believe is affordable.”

The value of DER to the grid in avoided distribution costs is another data issue, according to Acadia Center’s Hawes. “The utilities are making the somewhat improbable claim that there is zero benefit.”

As with other of the utilities’ proposals, DER advocates see no data to validate the zero-value claim, Hawes said. The EFC offer is “reasonable” for Phase One of the proceeding because a recent cost-benefit analysis shows net benefits to the distribution system from DER exports “of roughly 50% of current distribution rates.”

Both settlements allow for grandfathering of DER systems under the terms of the existing NEM policy, although they differ on how long new systems remain eligible. The utility proposal ends eligibility on June 30, 2017. The EFC proposal ends it on September 1, 2017.

Pilot projects and data-driven studies

While the parties remain divided on netting and the distribution rate, broad agreement on plans for future solar studies and pilot projects makes it clear why the work to find common ground may have been “worth it.”

Both proposals call for a commission-led V-DER study. The utility proposal calls for using “different DER resources (or combinations thereof) at various levels of capacity value.” It also specifies using “actual costs to installers and customers for implementing DER resources in New Hampshire.”

There is, however, a potential point of contention. The utility proposal specifies “valuation shall be based as closely as possible to real-time prices and near term marginal costs with no long-term projections or forecasts.”

Acadia Center’s Hawes said the DER can only be fully valued over the life of the technology, in the same way that utility planners value other generation resources.

Both proposals call for time-of-use (TOU) pilots. The utility proposal specifies that each utility have “an opportunity to test the efficacy, costs, and benefits of time-varying rates” for DER customers. The EFC proposal recommends voluntary residential TOU pilots and a “Smart Home Energy Rate” pilot.

The second pilot is noteworthy because it involves a variety of rate designs, including “real time pricing, critical peak pricing, demand charges or other structures that enable customers to adopt a variety of technologies to manage their electricity consumption.”

Accepting a demand charge pilot was a concession from solar interests, and accepting pilots involving time-varying rates was a concession from the OCA.

Both utilities and solar interests agree to an OCA-proposed community solar project for low and moderate income customers.

The utility filing also proposes a locational value study and the solar agreement proposes a non-wires alternative (NWA) pilot. Because both proposals accede to utility cost recovery for “all reasonable costs related to these studies, data collection work, and pilots,” the NWA pilot could provide the basis for the locational value study.

In the utility proposal, the utilities agree to provide extensive customer usage data on which the studies can be built. It would include data on customers before and after they install DER and on customers that don’t opt to use DER.

All parties signing the proposals agreed to participate in a commission-led task force that would guide the pilots from inception to implementation. They also agree to a subsequent commission proceeding to review results and the information generated, to inform the design of future DER tariffs and rates.

Was it ‘worth it?’

Throughout the negotiations, DER advocates were working toward one objective and away from another, according to NHSEA’s Epsen.

“We want a settlement that keeps the DG industry strong and is fair to consumers,” she said. “We also want to keep these questions out of the legislature, which is more politically-driven than data driven.”

Compromises, like the offer to gradually reduce the distribution portion of the compensation credit, were made were made in part to keep the decision at the commission.

Under the EFC proposal, average solar customers’ bills would increase between 9.73% and 22.65%, or between $1.63 per month and $4.38 per month, during Phase Two. The would increase between 12.34% and 25.39%, or $2.07 per month to $4.91 per month, afterwards.

The “transitional tariff,” calculated on the only available data, is expected to be workable until the V-DER study establishes a tariff based on data from the Phase Two pilots.

OCA’s Kreis also sees a victory in the compromises.

“The other parties were not willing to be as creative about things like rate design as we were but both proposals include work on future innovative rate designs,” he said. “And all the parties agreed the full retail rate credit is no longer appropriate and we have to move to something in the future that is more sustainable and more reasonable.”

In a recent CLF blogpost, Birchard described the “short-term compromise” as a necessary bridge to an NH-specific “net metering 2.0” at the end of Phase Two. In 2021, the DER marketplace will be based on a “data-driven” compensation rate that reflects “actual value.” It will lead to “smart energy innovation” that will show DER benefits for “all electricity consumers, as well as the entire electric system.”

Getting to the V-DER is key to that future, the EFC filing argued. To address the absence of data and utilities’ skepticism of the value of DER, it proposed that “an objective and independent party sponsored by the PUC conduct the analysis and be subject to cross examination and review by all interested parties.”

ReVision Energy’s Hinchman said “essential quid pro quo in our settlement was that DER advocates compromise on the compensation rate.”

“In return,” he said, “utilities will be required to do marginal cost of service studies, collect data on customer usage and the distribution circuit, and run rate design pilots to determine what is in the public interest and what would benefit ratepayers overall.”

Phase two would be built on the results of those pilots and marginal cost studies and lead to a rate making docket, Hinchman added.

Hinchman, like Acadia Center’s Hawes, sees a crucial point of dispute in the utilities' insistence the marginal cost studies of DER should be over only a five-year period instead of over the expected life of the resource.

If done accurately and according to the kind of guidelines set out in the NARUC DER manual, the parties could design a technology-neutral DER tariff, Hinchman said. The resulting price signal would open the marketplace to DER, to competition that would bend the cost curve down on the price of electricity, and to “the realization of the promise of the smart grid.”

Acadia’s Hawes believes commissioners’ final order will deal with the issues left unresolved in the contending settlements.

“The commission does not want to have another controversial proceeding,” she said. “In this hearing, they asked for feedback on how to put guard rails on the study design. They seem to want to decide as much as they can.”

Both OCA’s Kreis and NHSEA’s Epsen expect a decision in early June.