The rooftop solar industry and supporters of net metering in Nevada breathed a sigh of relief today, if only for a little while. The Public Utilities Commission of Nevada voted this afternoon to maintain the status quo for new net-metering customers through the end of the year. The decision came just days after NV Energy -- the Berkshire Hathaway Energy-owned utility that serves more than 85 percent of Nevada's population -- announced that it had exceeded a 235 MW cap on rooftop solar applications last Thursday, August 20.
The cap was part of an end-of-session legislative deal that was supposed to stave off change until the PUC could hold a proceeding to consider a transition to a new rate structure for net metering customers at the end of the year. However, miscalculations by NV Energy and a steady flow of new solar customers caused the cap to be met sooner than many expected. The so-called "gap" between the cap and the end of the year caused the PUC and others to scramble over the last two weeks to consider a series of proposals from NV Energy, commission staff, the solar industry, and others about what rates to charge new net metering customers who sign up through the end of the year.
The latest turn provided a temporary reprieve for the solar industry and Nevada customers hoping to install rooftop solar, but a high degree of uncertainty remains. Late last month, NV Energy proposed a radical new rate structure that threatened to dramatically change bills for net metering customers. NV Energy's plan called for a complete overhaul of residential rates for net metering customers by replacing the current system with a three-part rate: fixed charges, energy charges, and demand charges. Not only is this a radical change to families' energy bills, it's a mind-boggling mix of fees that will make it extremely difficult for the average ratepayer to understand how to behave to reduce costs.
The first component, a fixed charge, is a monthly basic service charge that all residential customers pay, regardless of how much energy they use. For Las Vegas net metering customers, NV Energy proposed to increase the current $12.75 fixed charge to about $20 a month. As my colleague Casey Roberts has written, fixed charges reduce the incentive to conserve energy because the unavoidable charge limits the customer’s ability to control their bill through energy conservation or self-generation.
The second component, the energy charge, is the biggest component of a current customer's bill and the component that most customers understand the best. This is a charge based on the kilowatt-hours (kWh) used during the month. Put simply, it's your meter reading. For each kWh of energy consumed, Las Vegas residential customers pay about 11 cents. That also means that if you generate electricity from rooftop solar, the credit you earn to offset your bill is worth about 11 cents. However, under NV Energy's new net metering proposal, the energy charge would drop to about 5 cents per kWh. This sends the wrong price signal. Lowering the energy charge reduces the incentive to conserve energy, and it reduces the bill credit earned for producing clean, customer-generated solar or wind energy.
The last component, a demand charge, is the worst part of NV Energy's proposal. This charge would add an entirely new method of calculating bills for residential customers. NV Energy proposes a mandatory "demand charge" for residential customers in Las Vegas of $14 per kW. Unlike an energy charge, which measures the total amount of energy used throughout the month, a demand charge measures the highest amount of electricity used by a customer in any 15-minute period throughout the month. In other words, the demand charge would measure a customer's "personal peak" electricity usage and set a monthly charge based on that amount.
To put the demand charge in perspective, consider that an average household may have a maximum demand of around 5 to 10 kW in any given month. A typical clothes dryer uses about 5 kW on its own. A water heater uses about 3-5 kW, an air conditioner uses about 2-3 kW, and a pool pump uses about 1 kw. Even your coffee pot and your iron each use about 1 kW. So picture this: While getting ready to go to work in the morning, you set your coffee pot to brew. As the coffee pot gurgles along, you do some last-minute ironing, and throw some bread in the toaster while your spouse uses the hair dryer in the bathroom. Your total bill? About 4 kw, which adds $56 to your bill that month. If you're unlucky enough to have your refrigerator and your pool pump kick on, that bill jumps up another 2 kW to $84 for the month. And if you realize that the laundry from the night before needs just another 10 minutes in the dryer, your usage jumps another 5 kW and brings your total monthly demand charge to a whopping $154. This is on top of the $20 fixed charge discussed above, and we are not even counting the energy charge yet.
The problem with creating a charge for the scenario described above is that your morning routine does not create a substantial cost for the grid. Energy used in the morning is relatively cheap. Your coffee pot is just a tiny blip in a system that has a whole lot of excess capacity at that time. For residential customers, each individual's use is not big enough on its own to create a cost for the system. The costs occur only when large numbers of customers begin to act in a similar way all at the same time.
For Nevada in particular, the most expensive time for energy use is during the middle of a hot day, when homes and businesses across the state are cranking air conditioners to survive in the desert. This period of high use across the grid is called the "system peak," and it is expensive because NV Energy has to use every source of power at its disposal to keep up with demand. However, under NV Energy's proposal for residential demand charges, your home could be completely powered-down and not using a single unit of electricity during the system peak, but it would not matter for your bill. You would still be charged a $154 demand charge, plus a $20 fixed charge, based on the 10 minutes you spent trying to get out the door in the morning with a full cup of coffee and freshly pressed pants.
This mismatch is the problem with NV Energy's proposal to impose a large demand charges on residential net metering customers. A residential demand charge sends the wrong price signal. Instead of alleviating costs for the grid, the proposed demand charge would only punish households for using relatively small amounts of electricity from appliances at the same time. Moreover, this punishment would only apply to customers who installed rooftop solar. So while you're at work and your home's solar panels are pumping out excess electricity to the grid during the day to help power your neighbor's odd habit of running the air conditioning with all the windows open, your bill may skyrocket while your neighbor's bill could stay the same or go down.
Thankfully, NV Energy's proposal is not going into effect today, but the story is not over. The PUC's decision today keeps the current rate structure in place only for the next few months. The commission will now spend the next several months debating the merits of various net metering proposals. The final decision on this issue is critically important for the rooftop solar industry in Nevada, and for customers who are hoping to go solar. NV Energy estimated that its proposed rates for net metering customers would have reduced benefits for 94 percent of new net metering customers, which in turn would lead to higher costs for going solar and longer payback periods to recoup costs. This change could devastate the industry and bring new solar installations in the state to a screeching halt.
The uncertainty is already having an effect; last week, Vivint Solar, the second-largest rooftop solar company in the country, announced that it was abandoning its ongoing expansion into Nevada. Depending on what happens over the next few months, many other businesses may also pack up and leave Nevada. That would be a shame for a state with such an abundant solar resource.