Tensions rise as credits for solar cut into utility budgets; VEC is the third utility to hit 4 percent cap

Solar panels in East Montpelier. VTD/Josh Larkin
Solar panels in East Montpelier. Photo by Josh Larkin/VTDigger

A rift is forming between Vermont’s burgeoning solar industry and some of the state’s smaller utilities.

At issue is a law that compels utilities to credit customers for the solar power they produce. Some small utilities want to change the funding arrangement because they say it kicks the cost of maintaining the grid to other customers, while developers argue the policy places an accurate value on solar production and should remain intact to continue growing jobs and Vermont’s renewable energy portfolio.

Two weeks ago, the Vermont Electric Cooperative became the third utility in the state to hit the cap for funding its so-called net metering clients — those customers generating electricity from renewable sources at less than 500 kilowatts per hour (kWh).

A utility no longer has to accept applications for net metering systems when the capacity of a utility’s total net metering surpasses 4 percent of its peak demand from the previous year or from 1996, whichever is greater.

Washington Electric Cooperative was the first to reach the 4 percent mark, but the rural utility is still accepting net metering systems. Hardwick Electric Department recently hit the threshold and is not accepting new clients. For more on this issue, read here.

Vermont Electric CEO David Hallquist said the state’s second-largest utility would not accept new net metering systems until a short-term plan is devised to mitigate “cross-subsidization” between customers.

Dave Hallquist, CEO of Vermont Electric Coop, listens to a member comment about the proposed transmissions upgrade. VTD/Taylor Dobbs
David Hallquist, CEO of Vermont Electric Cooperative, in July 2011. Photo by Taylor Dobbs/VTDigger

“When you look at existing net metering, those people who don’t have net metering end up subsidizing those that do,” he said. “The money has to come from somewhere, so it comes from other customers.”

VEC is shifting roughly $135,000 in missing revenue for fixed costs from net metering onto non-net metering customers, Hallquist said, and Hardwick Electric’s general manager said the utility is shifting about $50,000. Washington Electric’s new general manager Patty Richardson said it’s “premature” for her to predict how the net metering program will shift costs, if at all.

Hallquist said VEC is holding onto new net metering applications in the order they arrive and will meet with the Department of Public Service on July 19 to discuss solutions.

“One of the short-term fixes we could do is just allow residential net metering,” he said. “What’s really killing us are the large commercial net metering projects at about 500 kW. Our average solar installation on the home is about 6 kW.”

Officials from all three utilities have said that the current financing system must change because net metering customers are not paying their fair share of the grid’s fixed costs. Solar developers and the state’s largest utility, Green Mountain Power, argue that these small generators add value to the grid, and they say the elevated credits are driving the state’s energy sector into greener pastures.

How net metering works in Vermont and how Hallquist wants it to work

Under Vermont law, a utility must credit a net metering client at least 20 cents for every kWh the client produces.

Vermont Electric charges 17 cents per kWh. Therefore, a net metering client pays 17 cents for every kWh he or she uses, but receives 20 cents for every kWh produced.

The difference between the 17 cent retail rate and the 20 cent credit is called an “adder,” and that additional credit — in this case it is 3 cents — is locked in for 10 years by contract with each net metering customer. If Vermont Electric were to raise its rates to 18 cents, the new credit for those customers would be 21 cents because the 3-cent adder is fixed.

If different clients began net metering later, when the retail rate was already set at 18 cents, then the adder those clients would lock into would be 2 cents because the standard credit by law is 20 cents.

“The idea of the incentive was to motivate people to use solar, and we’re at a place right now where the cost of solar has come down so much that these incentives are no longer needed,” Hallquist said. “It’s one of the cases where public policy worked, and now we believe it’s time to do it the right way. I think we have to take away the 20-cent incentive; it ought to be based on the retail rate of power.”

Under this part of Hallquist’s proposal, Vermont Electric would credit future net metering systems at 17 cents per kWh, if the rate of power were still 17 cents.

The second part of Hallquist’s proposal would limit how the net metering credits could be used.

Net metering customers can use credits to pay off efficiency and customer charges to reduce their monthly utility bill to nothing. Efficiency charges are leveraged by volume and fund the state’s energy efficiency utility program, Efficiency Vermont. Customer charges pay for a utility’s fixed costs, such as infrastructure and administration.

Regardless of how much power a customer uses, a utility must have infrastructure, such as poles and lines, in place to supply the customer’s needs. Hallquist and officials from other utilities have voiced support for limiting the credits’ application to kWh charges so that customers can’t zero out a utility’s fixed-cost charges.

Rep. Tony Klein, chair of the House Natural Resources and Energy Committee, spearheaded the current net-metering law, and he supports this latter proposal.

But, he said about Hallquist’s two proposals, “It’s one or the other.” And Klein is for the other.

“The problems that we’re seeing with net metering are a result of the success of the policy. They’re good problems,” he said. “I see us addressing the issues of the customer and efficiency charges. But I also see us going to net metering larger systems and eventually removing the (4 percent of peak demand) cap.”

While solar developers fully support removing the cap, they aren’t as gung-ho about limiting how credits can be used.

Facing off with developers

More than 85 percent of net metering systems in Vermont are photovoltaic solar installations, and James Moore says that percentage is growing.

SunCommon hybrid vehicle
A fleet of SunCommon hybrid vehicles.

Moore is president of SunCommon, the benefit corporation that spun out of a successful solar adoption program by the Vermont Public Interest Research Group, where Moore was the energy advocate. In its one-plus year existence, Moore says SunCommon has sold more than 3 megawatts worth of solar installations and has doubled its staff to nearly 30. Roughly one-quarter of all SunCommon installations have been in Vermont Electric Co-op territory, which covers eight counties in the northern region of the state.

At the heart of that growth, he said, is the state’s net metering law, which he advocated for in 2011.

“It’s the foundation for the industry,” he said. “These are long-term investments. You need some certainty related to the value a homeowner and a business are going to get back.”

State data shows that net-metering applications nearly doubled after the new net metering laws went into effect, from 358 in 2011 to 603 in 2012.

Moore says Hallquist’s proposal to credit small solar producers at the residential rate of power “woefully undervalues solar and would kill the industry in Vermont.”

He is also opposed to limiting the credit to kWh charges because solar installations would be smaller. If the credit can only be applied to the kWh charge, the size of the system needed to offset the charges is reduced. This means more expensive installations and less business, he said.

“It’s not a premium. It’s not a subsidy. Solar is valuable to our electric grid, and the customers should be paid that value,” Moore said. “Rather than taking millions of dollars and shipping it out of state or out of country for power production, this is taking that investment and putting it to work with people in our communities, producing our own clean energy. So, to hear utilities ‘woe is me the world is changing,’ it is changing, and thank goodness it is.”

Andrew Savage, spokesman for the solar firm AllEarth Renewables, said his company is concerned about potential revisions to the law.

“One of Vermont’s only well-functioning renewables programs is net metering,” he said. “We’re far behind neighboring states like Connecticut and Massachusetts in terms of renewables. Fundamental changes to the net metering program might be quite damaging.”

Savage, like Moore, said that whether the utilities like it or not their world is changing, and it’s changing fast.

“As we approach greater electrification of our economy, including transportation and thermal heating and cooling, the utilities will have to look at how distributed generation, smart metering and greater demand works for their utility model,” he said. “In the past, we’ve seen utilities very reluctant to change their model, but that change is coming.”

Moore points to a Department of Public Service evaluation of net metering that finds solar installations range in real economic costs from a fraction of a penny per kWh on a 4 kW system to several cents for a 100 kW installation. When greenhouse gas values are included, the net cost becomes a net benefit in dollar terms.

“Net metered systems do not impose a significant net cost to ratepayers who are not net metering participants,” the report says.

But every utility provides power to different demographics. While the net metering policy is aimed at cushioning peak demand with more solar power on sunny days, it does little to provide power for residential utilities that peak on Sunday nights. And one utility is enjoying those benefits of net metering much more than others.

The Green Mountain giant and the state

Green Mountain Power (GMP) is the state’s largest utility, providing power to more than 250,000 customers, or 70 percent of the state’s electricity market. By comparison, Vermont Electric powers 34,000 customers, Washington Electric powers 10,500, and Hardwick Electric powers 4,200.

GMP pioneered the state’s current approach to net metering by offering a 6-cent adder years before the state set the 20-cent credit level. Today, GMP still provides its customers with a 6-cent premium, which brings the credit to more than the 20 cents required by law.

Net metering capacity accounts for about 2.5 percent of GMP’s peak demand, and utility representatives say it is not financially burdened by the state policy, touting the benefits of the local solar at peak demand times.

At a meeting of utility executives, solar developers and state officials, GMP CEO Mary Powell called on her peers to innovate and “adjust to the new normal.” She said last week that utilities should be looking for ways to cut costs by moving toward more distributed, or regionalized, generation. And they should move swiftly.

Green Mountain Power CEO Mary Powell. Photo by Anne Galloway/VTDigger
Green Mountain Power CEO Mary Powell. Photo by Anne Galloway/VTDigger

“I think having a cap is a huge problem. There should be no cap,” Powell said. “We should figure out how to adapt to this new future that is here and is what our customers want.”

Geoff Commons, director of public advocacy for the Public Service Department, sat silent for most of the meeting. After more than an hour, he chimed in.

“How many customers can you have paying zero and still maintain equities in your rates and still maintain poles and wires and vegetation management?” he asked. “There’s the real cap.”

Commons said all customers should be contributing their fair share to the grid they use.

“I’m totally on board with renewable energy in general,” he said. “My problem is that it should not be financed in a regressive manner, and my concern is justice for the people who can’t afford to put solar panels on their home … They can barely play with their kid when they get home from their third job. Those are the folks I tend to think about.”

Chris Recchia, commissioner of the department, said after the meeting that his goal is to form a consensus among the utilities and the developers before the legislative session and provide Klein’s committee with a course of action at the outset of the 2014 legislative session.

“We know there are challenges associated with the success we’re having,” he said. “The urgency behind this is that we should see if we can resolve this so that utilities don’t feel they’re at risk. Ultimately, there will need to be legislative action, but there are other issues we can address in the interim.”

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  • keith stern

    Solar is a scam. The utilities are paying more for solar produced electricity than they are receiving? That drives the price up for us. So the more solar used the more we are going to have to absorb in rates/fees. Is solar any cleaner than hydro? I don’t think so. That could be utilized more with less cost and a longer life. Plus we don’t see our fields turned into black orchards.

    • Kelly Stettner

      That’s “USELESS black orchards,” Keith. 🙂 The land under them is lost to any other purpose.

  • David Usher

    Let’s try this solution. Let those electric customers who wish to buy solar or wind generated electricity do so at the same price as the producers of solar/wind power receive plus the charge that covers infrastructure, administration costs and utility profit.

    Those who support the idea of subsidized renewable electricity production can voluntarily pay the subsidy. Those who prefer to pay for less costly electricity from the grid can do so.

    We have a precedent in Vermont for this concept, the Cow Power program that CVPS, now GMP, began several years ago. It allows customers who choose to pay more for electricity to support a purpose they believe in to do so. (

    Seems a fair way to resolve this net metering issue by enabling customer choice to pay the price for the solar power.

    • Steve Comeau

      No the cost should be shifted to the heavy users. As David Hallquist says, “The money has to come from somewhere, so it comes from other customers.” Well it should be the customers that use excessive amount of electricity.

      After a certain usage threshold, the additional kWh could be charged at a much higher rate. This could be used to subsidize net metering and have an added benefit of providing a price signal to help drive down excessive usage, which should also be a goal.

      • Moshe Braner

        Right. And moreover, the heavy users at peak demand times – those that use air conditioning when the weather is hottest, or electric heat when it’s coldest – are paying the usual flat rate for electricity that actually costs the utility far more than the baseload power, sometimes more in wholesale than the flat retail rate. If anybody is being subsidized, it’s those heavy users. Now that we have “smart meters”, it is time to enact variable market-based pricing!

        • Eric Robichaud

          GREAT idea Moshe! Let’s stick it to the elderly and unemployed and other fixed income people who are home during the weekday using electricity!

        • Kelly Stettner

          What about they ‘heavy users’ who turn up the heat when it’s NOT that cold, or crank on the a/c when it’s NOT that hot? It’s a little chilly, put on a sweater or socks. A agree with Eric on that one.

      • Steve, Moshe, Eric,

        Regarding households, the first 250 kWh would be at 10 c/kWh, the next 250 at 15, the next 250 at 20, the next 250 at 25, etc.

        The high electricity users quickly would become more efficient and/or put in PV solar panels.

  • Mike Kerin

    It seems to me that GMP is on board with us homeowners who have put our money where our mouth’s are. We invested in the solar array to help save the environment and save money. Also to a lesser extent to help the town get credit for having customers with solar arrays.

    “Officials from all three utilities have said that the current financing system must change because net metering customers are not paying their fair share of the grid’s fixed costs. Solar developers and the state’s largest utility, Green Mountain Power, argue that these small generators add value to the grid, and they say the elevated credits are driving the state’s energy sector into greener pastures.”

    This also helps the state meet its goal. Now some of the power companies want to remove the credits we get. Not money credits that go away after a year.

    The extra electricity my array makes goes into the grid and the company gets to sell it to my neighbors. I think it is a win win situation.

  • Matt Fisken

    It looks like the adder credit successfully encouraged a lot of Vermonters to install grid-tied solar systems. Too bad there wasn’t a similar incentive to encourage people to build small-scale and non-tied.

  • Utilities need money to upgrade their grids (poles, lines, substations, controls, etc.) for future additional variable energy.

    Having PV solar energy systems reduce not just the kWh charge, but also the other charges, such as line charges and the Efficiency Vermont tax (currently based on NET kWh consumed) is unfair to other rate payers (many of whom do not have a proper roof, or cannot afford a PV solar system), especially as PV solar energy becomes a greater percentage of the energy on the grid.

    I hope David Hallquist’s view, who has been raising this issue for some time, will finally prevail, as it is more in tune with honesty, fairness and equity.

    The PSB seems not too have gotten that message, or it lives in the past, i.e., it continues to bend over backwards too much in favor of special interests.

    The PSB reduced the PV solar FIT a miniscule amount, from 30 to 25.7 c/kWh, for 25 years, as of March 1, 2013, which is still grossly too high.

    It is actually bad PR for PV solar system vendors, as people will get the wrong idea, PV solar STILL needs such large subsidies to survive.

  • This is what happens when energy policy is dictated by green ideology versus well thought through and sound business practices.

    Once the costs of economically inefficient solar and wind technologies start to hit consumers in the pocket book, attitudes will change and the champions of these ill considered policies will have to answer.

  • Bob Orleck

    It is hard to miss seeing the large solar orchards around the state. Sometimes you see solar panels on homes and businesses. For the benefit of those who have not installed solar but might be considering it could someone address the tax credits and/or other incentives that were given for these larger and smaller projects to be built and what role that played in this burgeoning solar business.

  • Kristin Sohlstrom

    I love how cost shifting in energy is OK but not OK when it’s in healthcare. Way to be consistent, folks!

  • Louise Field

    I find Mr. Common’s comment regarding placing more of a burden on poorer Vermonters…somewhat interesting – and as SunCommons is already ignoring the poorer people in our state – he may want to take this idea a little further – Suncommon has a blanket policy of saying NO to offering their special town by town projects to anyone living in a mobil home – thus leaving out a significant segment of a population – when in reality this is probably the group who could most benefit from lowering energy bills!!! where is the innovation – where is the thinking outside the box to increase alternative energy use!!???!!!!

  • Coleman Dunnar

    Kudos to Mr. Commons for his advocacy based on the principle of equity, a principle Mr. Moore et al seem to ignore being driven only by their own self interests. Even the Public Service Department’s study while being interpreted by some as sounding endorsement of net metering contains caveats regarding the potential impact of boundless deployment of systems “Net benefits from solar photovoltaic systems, which represent nearly 88% of net metering systems, are either positive or negative depending on the discount rate chosen and whether the value of non-internalized greenhouse gas emissions are included or not included respectively. There would be real long-term risk to ratepayers if decisions were made that assume no increase in the internalization of these costs over the 20-year analysis period for this study.” (Page 31 of the Report). Moore points to a quote from the report ““Net metered systems do not impose a significant net cost to ratepayers who are not net metering participants.”
    All cost are significant especially to low-income ratepayers more than likely receiving much needed discounted rates. Seems to be a loop here …subsidy begets subsidy.

  • Kevin Jones

    The criticism of the net metering program is misplaced. Distributed net metering is the one renewable energy program in Vermont that is resulting in additional renewable energy in the region and reduced Vermont greenhouse gas emissions. Net metered generation is also largely customer owned and the incentives provided go to Vermonters to support their investment in clean energy. Because it is largely customer owned or controlled, Vermonters have a say in where that generation is located (their rooftop for example) and have a say in whether to support US manufactures and local installers. Vermont currently provides very modest upfront incentives compared to neighboring states. State policy should continue to support this vital, locally owned, economically beneficial source of renewable energy.

    In contrast the SPEED and Standard Offer programs, provide large subsidies to larger scale generation that is less friendly to the environment and is more likely to support cheap foreign components and ship profits out of state. Additionally since these projects support the sale of the Renewable Energy Credits out of state these large subsidies do not result in a net increase in renewables for the region and they increase Vermont’s greenhouse gas emissions. There are also examples of these larger projects clearing large acres of trees or utilizing valuable ag land since there is no state incentive toward good land use for these large projects subsidized by the state.

    The sham renewable SPEED and Standard Offer programs should be revamped ASAP. The net metering program deserves continued strong legislative support.

    • Kevin,

      “Additionally since these projects support the sale of the Renewable Energy Credits out of state these large subsidies do not result in a net increase in renewables for the region and they increase Vermont’s greenhouse gas emissions”

      This is not a valid statement, as I have mentioned earlier.

      The Vermont SPEED program DOES reduce CO2 emissions in the world, even if their RECs are sold to out-of-state entities so THEY can defer their legal requirements to reduce THEIR CO2 emissions for one year.

      Vermont crediting the SPEED CO2 emission reduction to ITS CO2 emissions reduction goals is improper, after the RECs are sold, but that is strictly a bookkeeping matter about who gets credit.

      Anyway, Vermont gets to feel good about being “green”, i.e., ruining its pristine ridge lines now, so other NE states can defer ruining theirs later.

  • Mike Kerin

    To all you naysayers, do you know that nuclear is subsidized? Yup, at a larger percentage than wind or solar. Oil and coal are also subsidized at a higher percentage, too.

    • Jim Christiansen

      Yes, but there is a basic difference that you neglect.

      Grid tied wind and solar are intermittent, not base load power, and the electric grid in this country does not work without base load power.

      Therefore, base load power in the form of nuclear, oil/gas, and coal is of much greater value/benefit to the ratepayer.

      Hence the subsidy.

      • Kelly Stettner

        Thank you for bringing up that point, Jim.

  • The series of comments and follow-up to Andrew’s article are for the most part very thoughtful and spot-on in terms of the issues.

    VEC staff has worked hard over the past few months and weeks trying to develop a model that captures every possible benefit that net metered solar could provide and would be accepted in rate-setting proceedings. We are now taking that model out to the other utilties as well as the regulators to obtain greater scrutiny. We will then seek input from other interested parties (including the solar developers) to make sure we have not missed anything. There is much discussion about environmental, job and other societal attributes, which may indeed be legitimate. However, these attributes need to be valued and accepted in the rate setting process. These then become “subsidized” within the same context of other “subsidies”, such as those described above.

    VEC’s job as a utility is to honestly present the issues. The question of how much and what types of energy sources should be subsidized is a state-wide public policy question. That is the function of our elected officials, and should not be a decision that is made by individual utilities.

    VEC will continue to work hard to provide a respecful, honest and open dialogue on this issue.

    David Hallquist, CEO

    • Coleman Dunnar

      If the attributes truly have positive value (job creation/profits for the installers) wouldn’t it be equitable to tax appropriately the Solar companies doing business in Vermont to make up for utility lost revenue.
      I just heard something hit the fan……..

      • Kelly Stettner

        Don’t you mean you heard something hit the wind turbine?

  • “James Moore, formerly of VPIRG, says Hallquist’s proposal to credit small solar producers at the residential rate of power “woefully undervalues solar and would kill the industry in Vermont.”

    The VT-PSB reduced the SPEED program PV solar FIT from 30 to 25.7 c/kWh for 25 years, as of March 1, 2013. Even at the new level, it still is grossly too high, especially after borrowing costs and panel prices declined.

    Should all homeowners also be compensated at that rate?

    Is the cost of PV solar/kWh really that high?

    If so, it is not anywhere near “grid parity”, even at the distribution level in the afternoon when grid prices usually are higher, say 10-15 c/kWh, instead of the annual average of 5.5 c/kWh of the past 4 years.

    Remember, utilities buy almost all their energy under long-term contracts, including afternoon energy.

    They buy a very small percentage at grid prices, including during afternoons. Hence, the financial impact of the higher afternoon prices is minimal.