After months of painstaking behind-the-scenes policy discussions between energy stakeholders, the Maine state legislature held its first hearings last week on a newly-proposed bill to phase out the state's solar remuneration program.
L.D. 1649, presented to Maine’s Joint Energy, Utilities, and Technology Committee last month, would replace the state's current retail rate net energy metering (NEM) policy with a system of market-based incentives for residential solar generators.
More than 100 stakeholders turned out last week to weigh in on the proposed policy. The vast majority supported the bill, including ReVision Energy, Maine’s biggest solar installer, multiple smaller installers, and the Maine Renewable Energy Association.
Also supporting were Sierra Club Maine, Maine Audubon, the Natural Resources Council of Maine, and the Conservation Law Foundation. Both Maine’s investor-owned utilities (IOUs), Central Maine Power (CMP) and Emera Maine, have also endorsed the bill. The Maine Council of Churches and the American Lung Association jumped on the bandwagon as well.
Not all renewable energy interests backed the new proposal, however. At the hearing two key detractors spoke up without formally opposing the bill, the state's head regulator released new cost estimates on the plan, and a key member of the coalition that wrote the bill backed away from it, raising questions about the fate of the newly-proposed policy.
Detractors, questions emerge
A spokesperson for national solar installer Sunrun, which is not in Maine’s solar market but has a big stake in the national NEM debate, said a key fix to the bill would be to keep Maine’s existing NEM policy in place alongside the new plan so as not to risk the value proposition of solar.
The bill's backers said this would defeat the purpose of the legislation.
“The problem is side-by-side net metering is not what the legislature asked for,” CMP Communications Director John H. Carroll observed. “It is not an ‘alternative’ to keep doing NEM and try this.”
Maine Public Utilities Commission (MPUC) Chair Mark Vannoy also surprised bill backers by offering a critique that contained data the commission had not previously disclosed. It showed the cost to ratepayers could be “in the range of $22 million per year.”
This was in direct contradiction to testimony from Timothy R. Schneider, head of the Office of the Public Advocate, that the plan will likely generate “long-term net direct benefits to ratepayers of more than $55 million.” Schneider's numbers had long since been made public and worked through in the MPUC proceeding that led to the legislation.
“We developed this publicly and transparently, sharing it with stakeholders and the Commission, asking ‘tell us where we’re wrong,’” Schneider said. “When they did, we revised our assumptions.”
Vannoy said in his testimony the $22 million figure was based on a “plausible set of assumptions,” though they had not been shared with Schneider or other coalition members as they were developing L.D. 1649.
Schneider pointed out to Utility Dive that the biggest difference between his numbers and those from Chair Vannoy is in what should and should not be in the calculation. He expects to work those differences through in an upcoming meeting with the commission, he said.
The day’s biggest surprise came when Rep. Nathan Wadsworth, the ranking Republican on the Joint Committee and a member of the coalition that wrote the bill, announced the fate of NEM policy should instead be left to the PUC.
“While we understand that technological advances are changing the solar delivery market, we believe it is paramount that whatever policy decisions we make protect jobs, the ratepayers and net metering,” a statement from Wadsworth said.
“When it comes to this issue, we should instruct the PUC to stay the course on net metering; protect existing solar customers, installers and the 400 jobs tied to the solar industry; and protect the ratepayers from the uncertainty of long-term contracts,” he added.
Though his position reversal may please Gov. Paul LePage (R), whose energy office also opposes the plan as too much of a risk to Maine’s 400 solar jobs, neither Wadsworth nor the governor commented further.
What the bill proposes
In a 2015 measure, Maine lawmakers directed utility regulators and stakeholders to develop an alternative to solar net metering “that fairly and transparently allocates the costs and benefits of distributed generation to all customers, allows participation by all customers and creates a sustainable platform for future growth of distributed generation to the benefit of all ratepayers."
To accomplish those goals, L.D. 1649 completely changes the remuneration to owners of distributed generation (DG) to monetize as much of its value as possible. It uses transparent market mechanisms to ensure that DG owners pay their share of transmission and distribution system costs
It is designed to drive Maine’s present 18 MW of installed solar capacity to 248 MW by 2022 by supporting development of the least expensive, most valuable solar in the residential, commercial-industrial, community, and utility-scale market segments.
Existing NEM customers can retain their arrangement for up to 12 years or opt into the new program for the standard 20 year contract term. The state's IOUs will act as aggregators for the distributed solar systems.
The utilities will play the role of a Standard Buyer, paying a price set by the MPUC to drive 118 MW of new residential and small business solar capacity — the amount the National Renewable Energy Laboratory estimates would be built in Maine through 2022 if the existing NEM policy were kept in place.
The Standard Solar Buyers will sell the aggregated attributes — primarily energy, capacity, and RECs — into state and regional wholesale markets. Returns on sales would compensate the utility-aggregators and profits will be returned to ratepayers.
Contracts for the output of commercial-industrial-scale solar projects and for 15 MW of utility-scale solar to be built annually would be competitively bid for by developers through a reverse auction mechanism. The Standard Buyer would pick the offers that come in at the lowest prices.
The bill also requires the purchase of 45 MW of community solar projects, each of which can be up to 3 MW in size. Subscriptions of less than 25 kW must be at least 50% of each project’s subscriptions. Subscribers will get a bill credit at the price determined by a reverse auction.
The MPUC will review the program after 18 months or the procurement of 21 MW, whichever comes sooner. If it is failing to meet capacity targets, the commission will revise it. If flaws become evident that cannot be rectified, the program would be terminated and the current NEM policy would be re-enstated.
L.D. 1649 improves on the existing NEM statute, CMP Public Affairs Representative Joel Harrington testified. It uses CMP’s Advanced Metering Infrastructure (AMI) to monetize “all the values of roof-top solar on an hourly basis” while continuing to allow owners to offset their electricity usage.
It also protects customers without rooftop solar through cap that limits any costs to $10.5 million per year in 2022. It requires the MPUC to manage “the pace and costs” of growth. It uses a market-based mechanism to drive growth in the larger-scale solar market segments.
Finally, it offers “a fair transition” for existing NEM customers while “mitigating cost burdens” and resolving a contentious issue collaboratively. Finallly, it moves Maine toward a comprehensive distributed energy resources policy.
It is “not a perfect solution” but “we should not let the perfect become the enemy of the good,” Harrington said. “It’s a good policy.”
CMP understands that some stakeholders are concerned that the commission could set a price that wouldn’t work, Carroll added. But the commission is charged with finding “the sweet spot where they are keeping the investment moving into solar without overpaying.”
Those who are uncomfortable with the new plan “should understand that NEM is not a sure thing either,” Carroll said. “The March 2016 retail electricity price is 11% lower than it was a year ago and 29% lower than it was in 2011. A solar owner’s 2013 payback calculation would not be on track now.”
Though some in solar argue retail rate NEM is “a simpler dynamic,” its value depends on rates, rate structures, and the cost of electricity, he said.
ReVison Energy CEO Fortunat Mueller affirmed this point.
“We have already seen one of our IOUs ask the PUC for approval of moving to very substantial fixed charges and lower volumetric charges,” he pointed out to Utility Dive. “Over time that risk is even more substantial than the availability of NEM.”
The bill is “a balanced approach” with “more certainty around results,” Emera Maine Governmental Relations Manager Julie Hashem told the committee. It “increases transparency, and reduces overall rate impact.”
The certainty is in its clear MW targets and the way prices are set. The utility was convinced by Schneider’s calculations that the new plan will have a lower rate impact than the existing NEM policy.
“The proposal captures market value by aggregating the electricity delivered to the grid and reselling the energy, capacity, and renewable energy credits,” Hashem testified. “That market value is unrealized; capturing it will help cover the costs of the program, and those benefits will accrue to all customers.”
It also leverages economies of scale and market mechanisms, she added. Like CMP, Emera expects to combine those tools with AMI data to more fully monetize solar benefits. As ratepayer benefits grow, customer opportunity and choice will increase and program costs will fall. This is in direct contrast to NEM, Hashem said, in which program costs only increase.
“For Emera Maine, it really comes down to the belief that a cleaner, more energy efficient future includes electricity from renewable resources,” she said.
Solar industry split
“If I were writing solar policy by myself, it would not be this bill, but I support it because it is good for solar, overall, though, by necessity, it is a compromise with different stakeholders,” ReVision's Mueller said. “If I had written Maine’s NEM statute, it wouldn’t look like it does either.”
To get a bill through the legislature with the necessary support to override an anticipated veto from the governor requires backing from both utilities and solar installers, Mueller explained. He supported the side-by-side NEM provision early in the negotiations. It did not get the support of the stakeholder group and, he said, “for us, it was not in and of itself a red line.”
To the customer, Mueller believes, the difference between what is proposed in the bill and NEM is very small.
“Our expectation is that if the PUC does its job well, the rate will start a little higher than retail in the early tiers and be somewhere slightly below retail in the later tiers. But it will have to be roughly comparable to the retail rate over the life of the system to meet the targets of the bill,” he said.
Mueller is comfortable with Schneider’s cost calculations.
“It is possible there will be years where there are net costs to ratepayers and other years where there is net income to ratepayers," he said, "but over the system life, the model, based on very conservative estimates, shows a net gain for ratepayers. The upside is much bigger.”
Sunrun, the third largest U.S. residential solar installer, has fought in policy debates across the U.S. to keep retail rate NEM in place. A concern it has with the L.D. 1649 plan is that its Standard Solar Buyer “is a piece of bureaucracy that has never been tried anywhere,” Spokesperson Chris Rauscher told the committee.
Sunrun wants NEM to be left in place as a side-by-side option with the new policy. The members of the coalition that hammered out the compromise agreement consider this politically untenable.
Rauscher also believes the state should not eliminate NEM until it adds a thorough study of its costs and benefits to the rigorous 2015 value of solar study from the Clean Power Research. That study concluded solar could be worth as much as $0.33/kWh in Maine.
“The bill is not without merit and we are neither for nor against it,” Rauscher said. But it has “at least four flaws.”
First, he argued, it “favors the rich” because it makes the Sunrun third party ownership financing plan less workable. “People of lower income can benefit from solar through third party ownership,” he said.
It also “raises taxes” by reporting DG owners’ bill credits in dollar amounts “which would likely be taxable income,” he said. “That could wipe out the incentive from the investment tax credit.”
Mueller said he agreed the tax question is important but “there is no definitive guidance on the question of what is or is not taxable."
“If an unfavorable ruling comes down from the IRS on the subject of tax treatment of bill credits in dollars instead of kWh, the bill requires the program to be adjusted to accommodate that," he said.
Another bill flaw, according to Rauscher, is that it only grandfathers existing NEM customers for 12 years. “It is like paying off your mortgage and then being kicked out of your house,” he said.
The bill does, however, allow those customers to enter the new program with a 20 year contract. That, Schneider said, is like moving a homeowner from a variable rate mortgage to a fixed rate mortgage with better terms.
What worries the PUC
Like most regulatory bodies, Vannoy’s commission must remain officially non-committal on legislation and carry out lawmakers’ orders. He nevertheless made some significant observations to the committee.
Under the current NEM policy, the customer gets a retail rate credit, but “the cost of the proposed residential and small commercial program depends on the long-term contract price relative to the wholesale price,” he said. Though they cannot be known in advance, prices would be as high as necessary to reach the 118 MW target by January 2022.
But that target represents “a substantial increase in the pace of solar installations from that which has occurred over the recent past,” he said.
Any ratepayer impact analysis is “extremely sensitive to electricity price forecasts and forecasts that differ by only one or two cents per kilowatt-hour could drastically change the overall effect,” he added, sayint that the plan could ultimately end up costing $22 million per year in 2022.
His “plausible set of assumptions” included costs for grandfathering existing NEM customers. But given the legislature’s declaration that the current NEM policy is not sustainable, the bill's backers say some of that cost is inevitable whether L.D. 1649 is enacted or not.
Under questioning from the committee, Vannoy acknowledged his assumptions also did not include returns to the Standard Solar Buyer for the capacity value of the aggregated solar, one of its direct monetizable attributes.
It is these kinds of questions that Schneider said he hopes to work through with the commission, but Vannoy also said he concerned about the plan’s proposed timeline and bureaucratic costs.
It calls for implementation by January 1, 2017, but also requires a long list things the commission must do to make it happen, he said. These include writing procurement standards, consumer protections, rules governing the Standard Buyer, disclosure requirements, and other optional alternative offers. It must also work through still unresolved details about the $10.5 million expenditure cap.
All this must be done in time for a 2017 legislative review, Vannoy said. “As a result, it would not be possible to implement the residential and small commercial program by January 2017.”
To get all this done, he added, the commission would need “at least two additional full-time staff positions.”
He concluded with three suggestions.
“The Legislature may want to consider scaling back the program targets to lower ratepayer risks while maintaining a potential for non-monetizable ratepayer benefits,” he offered.
Second, if the goal is the most solar at the lowest cost, lawmakers “may want to emphasize larger grid-scale and community solar projects,” he said. Economies of scale keep larger project costs at “about half that of residential installations, he noted.
Finally, lawmakers could “consider a more simplified approach” that would be a variant of NEM. It could compensate residential and small commercial customers “based on an index to wholesale market prices, perhaps at a premium that would be reduced over time (e.g., 5 to 7 years).”
The Public Advocate's push
Over the last eight months, against all odds, Schneider told the committee, a diverse coalition of stakeholders hammered out “a solution that reflected a consensus.”
In place of “the outdated mechanism most jurisdictions have chosen to support these technologies,” he said, the plan can make it possible for DG to “provide concrete benefits to ratepayers.”
The coalition has tried to avoid “an intense debate over the wrong thing. Low cost distributed generation resources are coming,” he said. L.D. 1649 changes the "sub-optimal status quo.”
Maine lawmakers have a choice, Schneider said. They can “create scalable and financially sustainable frameworks to bring these resources into the market and capture these cost savings, or be stuck reacting, later.”
Instead of excluding distributed energy resources and labeling them too expensive, the stakeholder coalition has built “a technology neutral platform that will eventually allow these small scale distributed resources, like solar PV, energy storage, combined heat and power, to participate—and compete—side by side in the region’s electricity markets,” Schneider said.
The Public Advocate told Utility dive he is “cautiously optimistic” about the bill’s political chances.
“It has support from most if not all the solar companies in Maine, the vast majority of the environmental advocacy community, and the two IOUs," he said.
ReVision's Mueller echoed Schneider, saying he is “more optimistic about the political outcome than for any solar bill in the last seven years."
“We started this process thinking the chances of getting a bill all the stakeholders could support was pretty miniscule. It is remarkable that we have done it."