PSC Closing “Remote Net Metering” Subsidy Loophole with 25 Year Preferential Rate Transition

Development of solar energy has been stimulated by deep tax subsidies that have ranged from tax credits to customer-owner-generators of solar panel projects, to grants and loans from NYSERDA, and by Public Service Commission rate orders.  In its “NY-Sun” Order in 2014, the Commission greatly increased the permissible scope of solar power generation at customer sites beyond then-existing caps, but also recognized the “significantly expanded energy capacity goals of NY-Sun and that significant expansion of the cap would further shift costs, including lost utility revenues and some interconnection costs, to non-net metered rate payers.”  Case 03-E-0188, Retail Portfolio Standard, Order Authorizing Funding and Implementation of the Solar Photovoltaic MW block programs (issued April 24, 2014) (NY-Sun Order).  The broader impact of the “net metering” rate designs in New York, as in other states, has been to shift to non-solar customers the burden of paying for fixed transmission and distribution utility costs costs no longer paid in full or in part by solar generation customers, but which are not reduced or avoided by their production of power.  As more and more customers claim the subsidies and install solar rooftops, the subsidies and costs shifted to non-solar customers increase.  See SOLAR PV MAY RESULT IN HIGHER NY ELECTRIC RATES, NYUP, CAPUC REPORT: ROOFTOP SOLAR “NET METERING” PROGRAM BENEFITS HIGHER INCOME CUSTOMERS AND IS SHIFTING ADDITIONAL COSTS TO LOWER INCOME CUSTOMERS, NYUP,  

The current rate structures are a further subsidy that works by generously paying solar power producers who inject power into the grid, through “net metering” tariffs. By all measures, these abundant credits have resulted in an immense increase in solar deployment in New York State.

Despite those subsidies, there have been some accidental “subsidies” resulting from loopholes in New York’s often altered net metering laws. For example, in a December 2014 Order, the PSC addressed an arcane anomaly exploited by commercial owners of solar panels who install and lease them them at various “remote” customer sites and  interconnect them through non demand meters at other locations, taking an advantage of a net metering rate loophole significantly benefitting those who sell into the grid via a non demand meter:

Non-residential customers pursuing remote net metering often interconnect the remote net metered facility at sites where non-demand rates are charged.[ ] Those non-demand rates are billed primarily through a volumetric per kWh component. Remote net metered customers have been permitted to convert the kWh exceedances of solar PV production over consumption at non-demand host locations to monetary credits, which may then be distributed to satellite meters elsewhere.[ ] Allowing that conversion for remote non-demand net metered customers, however, deviates from the practice for net metering at on-site locations. A customer installing net metering at a location that is not demand metered would accumulate only volumetric credits for use at that site. The monetary credits are of greater value than the volumetric credits accumulated at on-site non-demand locations, and also exceed the monetary credits that are available at demand metered locations (where the volumetric component is comparatively less). Moreover, customers evaluating net metering on-site at an existing meter are often already demand metered, and so cannot take advantage of non-demand rates. The result is the creation of uneconomic arbitrage opportunities, as customers pursue remote net metering instead of on-site net metering. [footnotes omitted]

Order Raising Net Metering Minimum Caps, Requiring Tariff Revisions, Making Other Findings, and Establishing Further Procedures (NEM Cap Order), issued December 15, 2014  (“NEM Cap Order”). In the NEM Cap Order, the Commission greatly increased the scope of solar net metering, but closed the door to future exploitation of the “remote” net metering rate anomaly.

Acknowledging that some vendors and customers had been relying on the “remote” net metering loophole, the PSC decided to “grandfather” projects getting underway where financial expectations and reliance had been based on the now-closed loophole.  In a clarifying order, the PSC directed the utilities to re-structure their “remote” net metering tariffs to replace the existing monetary crediting with volumetric crediting to be applied prospectively, with grandfathering criteria to prevent undue harm to developers of “remote” net metering projects “in good faith” based on the current RNM tariff structure.  The PSC summarized the change, stating:

[T]he NEM Cap Order addressed a rate design currently in place for remote net metered customers that has resulted in an unanticipated opportunity for uneconomic arbitrage. Under existing utility rate designs, a non¬residential customer pursuing remote net metering, at a site where a non-demand rate is in effect, obtains monetary credits for its exceedances of generation production over energy consumption at the remote site. Excess credits are then applied to bills at satellite sites, where volumetric rates are generally lower. If, however, such a customer were to locate generation eligible for net metering at one on-site location, it could only obtain a volumetric credit there, which could be applied only to the bill at that site. In addition, demand customers net metering on-site generally can only obtain credits at the comparatively lower volumetric rates accompanying their demand service classifications. As a result, remote net metering customers are advantaged over on-site net metering customers, encouraging customers to arbitrage by pursuing projects at remote instead of on-site locations. To remedy this uneconomic preference, utilities were directed to revise their rate designs to provide for volumetric crediting instead of monetary crediting at remote net metered sites where non-demand rates are in effect.

Again, however, the NEM Cap Order noted that rate design changes should not disrupt the plans of net metering developers seeking to bring their projects on-line in good faith. As a result, several categories of projects were grandfathered against the substitution of volumetric crediting for monetary crediting. These categories are: existing net metered facilities; successful participants in the NYSERDA and New York City solicitations discussed above; and, customers entering into binding interconnection agreements for remote net metering that have been queued by utilities as of December 11, 2014.

Order Clarifying Prior Order in Cases 14-E-0151 and 14-E-0422, January 9, 2015.  On the same day, the Solar Energy Association and others petitioned for rehearing , arguing that the scope of grandfathered projects was too narrow, stating:

These limited circumstances would not grandfather numerous renewable energy projects across the state that are in the late stages of development but do not have binding interconnection agreements or meet the other limited criteria enumerated in the Order.[ ] This universe of non-grandfathered projects includes projects that have been involved in costly competitive procurement processes with public and private customers; those that have customer or landowner commitments in place; those that participated in the referenced NYSERDA PONs but were not awarded incentives due to uncompetitive bid prices rather than lack of project maturity; and others that have engendered significant financial investments by developers and customers.

Petition for Rehearing, January 9, 2015.  The Petition also objected to claimed procedural flaws in not giving adequate SAPA notice of the change of rules for “remote” net metering to align them with the less generous benefits of “on-site” net metering, hinting at the prospect of litigation.  The PSC then issued a new rulemaking notice notice inviting comments on ending the unintended and uneconomic benefit for “remote” net metering, and granted a stay of its prior order, recapping its decision as follows:

The NEM Cap Order also addressed a rate design currently in place for remote net metering that has resulted in an unanticipated opportunity for uneconomic arbitrage. Under existing utility rate designs, a non-residential customer pursuing remote net metering, at a site where a non-demand rate is in effect, obtains monetary credits for its exceedances of generation production over energy consumption at the remote site. Excess credits are then applied to bills at satellite sites, where volumetric rates are generally lower. If, however, such a non-demand customer were to locate generation eligible for net metering at a single on-site location, it could only obtain a volumetric credit there, which could be applied only to the bill at that site. In addition, demand customers, whether net metering remotely or on-site, can only obtain monetary credits at the volumetric rates accompanying their demand service classifications. Those volumetric rates are comparatively lower than the volumetric rates in effect under non-demand classifications.

As a result, monetization advantages remote net metering customers over on-site net metering customers, encouraging customers to arbitrage by pursuing projects at remote instead of on-site locations. To remedy this uneconomic preference, utilities were directed to modify their rate designs to provide for volumetric crediting instead of monetary crediting at remote net metered sites where non-demand rates are in effect.

As emphasized in the NEM Cap Order, however, the modification of the rate design must be implemented without disrupting the plans of net metering developers seeking to bring customer generation projects on-line in good faith. As a result, several categories of projects were grandfathered against the substitution of volumetric crediting for monetary crediting. These categories were further elucidated in an Order Clarifying Prior Order issued in these proceedings on January 9, 2015. As clarified there, grandfathering extended to: existing net metered facilities; successful participants in New York State Energy and Research Development Authority (NYSERDA) solicitations and the Request for Proposals (RFP) process conducted by New York City (NYC) for development of renewable facilities at the Freshkills landfill; and, customers entering into binding interconnection agreements for remote net metering that have been queued by the major electric utilities that offer net metering as of December 11, 2014. The successful participants in the NYSERDA and NYC programs were defined as those projects that have been awarded grants from NYSERDA through the Program Opportunity Notices (PON) described in the NEM Cap Order,1 and from NYC through its Freshkills process, subject to compliance with the terms and conditions of those grants. Emplacement within a utility queue as of December 11, 2014 was established by demonstrating that a completed preliminary interconnection application had been submitted to the relevant utility as of that date.

Order Staying RNM Cap Order in Part , February 27, 2015.  In a Press Release, the Commission summarized its reasons for easing the transition to the new rates for remote net metering:

To prevent disruption of ongoing net-metered generation projects that are already underway, the Commission is staying its December decision that restricted how customers with multiple locations could participate in net metering programs. The Commission also postponed its rule requiring utilities to file new tariffs that were intended to resolve concerns about how such customers are compensated. To give adequate time to adjust to the closing of this loophole, the Commission also decided not to restrict the grandfathering of solar projects already underway to allow for the consideration of other methods of accomplishing the transition.

PSC Press Relaease, February 27, 2015.

The PSC on March 19, 2015  issued a Notice Soliciting Comments on Transition Plan, attaching a plan drafted by PSC Staff.  That plan would have set a May 1, 2015 deadline for remote net metering solar projects, and added a new provision for governmental projects:

Net metered projects, under both Public Service Law §66-j and §66-l, meeting the following criteria and conditions will be allowed to retain monetary crediting at otherwise qualifying remote net metered locations. The issue of successor tariffs to net metering tariffs generally will be addressed in Track 2 of the Reforming Energy Vision (REV) proceeding. By May 1, 2015:

  1. Projects that have been interconnected; or
  2. Projects for which developers have submitted a completed preliminary interconnection application to the relevant utility; or
  3. Projects that have completed applications for grants through Program Opportunity Notices (PONs) 2589, 2860, 2956, and 2112, conducted by the New York State Energy and Research Development Authority (NYSERDA) or the Request for Proposals (RFP) process conducted by New York City for development of renewable facilities at the Freshkills Landfill; or,
  4. Projects that have completed applications for grants in NYSERDA’s NY-Sun MW Block Program.
  5. Projects that a State, municipal, district, or local governmental entity has solicited through a Request for Proposals or a Request for Information issued in conformance with applicable law.

Milestones:
To retain monetary crediting, a project must enter service by the date specified in a PON, New York City Freshkills Cases 14-E-0422 & 14-E-0151 Landfill RFP, government entity process, or the NY-Sun MW Block Program, or by December 31, 2016 if no such date is specified.

Term:
The monetary credit would remain in effect for a term of 20 years from the later of the date of an Order here or the project in-service date.

After hearing more comments, the PSC issued a decision on April 17, 2015, resolving the rehearing petitions, revising the “remote” net metering transition and “grandfathering” of good faith projects that were in progress and tweaking the draft Transition Plan.  The Commission again recapitulated its action, and modified the transition plan, restating its intention to protect those who had relied on the former rule in “good faith”:

“rate design currently in place for remote net metering that has resulted in an unanticipated opportunity for uneconomic arbitrage. Under existing utility rate designs, a farm or non-residential customer pursuing remote net metering at a site where a non-demand rate is in effect obtains monetary credits that can be applied to bills at satellite sites, where volumetric rates are generally lower.[ ]  A non-demand customer locating generation eligible for net metering at a single on-site location, however, obtains only a volumetric credit, applicable only to the bill at that site. In addition, demand customers, whether net metering remotely or on-site, obtain monetary credits, but at the volumetric rates accompanying their demand service classifications that are comparatively lower than the volumetric rates in effect under non-demand classifications.

As a result, monetization advantages remote net metering customers over on-site net metering customers, encouraging customers to arbitrage by pursuing projects at remote instead of on-site locations. To remedy this uneconomic preference, utilities were directed to modify their tariffed rate designs to replace monetary crediting with volumetric crediting at remote net metered sites where non-demand rates are in effect.

As emphasized in the NEM Cap Order, however, the modification of the rate design must be implemented without disrupting the plans of developers seeking in good faith to bring solar and other net metered generation projects on-line. *- * * *  The Transition Plan was developed in response to the issues raised in the petitions for rehearing and the comments on the replacement of monetary crediting at non-demand remote metered locations with volumetric crediting. It was intended to address the claims that the grandfathering process adopted in the NEM Cap and Clarification Orders was too abrupt and posed the potential for the disruption of meritorious plans for developing solar generation projects. Accordingly, the question now before the Commission is the adequacy of the Transition Plan as a means for moving from monetary to volumetric crediting while removing obstacles to the development of planned solar and other net metered projects. * * * *

ACE NY, Borrego and MEGA ask that the May 1 deadline be extended. An extension to June 1, 2015 is warranted, to ensure that the deadline is adequate to protect those developers who proceeded with planning for a project to a point where they depended on monetary crediting, but found their plans disrupted when the transition to volumetric crediting was proposed. Contrary to MEGA’s suggestion, however, a longer extension is not justified. The purpose of the deadline is not to allow sufficient time for planning of a project to commence, or to bring merely preliminary efforts to fruition, in an effort by a governmental entity or otherwise to obtain monetary crediting. Therefore, setting a June 1, 2015 deadline in the Transition Plan, for completing the activities necessary to obtain grandfathering, is justified.

Order Granting Rehearing in Part, Establishing Transition Plan, and Making Other Findings, (Issued and Effective April 17, 2015).  The Commission, in addition to moving the proposed May 1 deadline for projects underway to June 1, also extended the duration of the grandfathered rate break, from the proposed 20 years to 25 years.

Conclusion

The intention of the Commission was to protect customers who in “good faith” had projects underway in reliance on the former “loophole” that resulted in preferential rates for remote net metering rates.  It was not to stimulate a rush of new projects undertaken with full knowledge of the changed rule to take advantage of the “grandfathering” that is intended for “good faith” projects underway. Hopefully, these good faith PSC Orders will not create new loopholes for exploitation.

 

 

 

 

 

 

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