State's Consumer Advocate Seeks Review Of Impact of Net Energy Billing (NEB) On Default Service Rates, Worried NEB Increasing SOS Prices

Seeks SOS Rate Mitigation

August 17, 2023

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Maine Office of the Public Advocate (the OPA) requested that the Maine PUC open an investigation to assess the impact of net energy billing (NEB) on electricity standard offer rates

OPA said that, "it is likely that the kilowatt hour credit NEB program is increasing standard offer rates for residential and small commercial utility customers."

The OPA requested that the Commission open an investigation to (1) quantify the impact of NEB on standard offer rates and (2) explore the feasibility of mitigating or eliminating this impact, including directing utilities to recover these NEB costs through stranded cost rates

OPA said that, under the kWh credit program under NEB, "the standard offer provider (SOP) may be affected in ways that result in standard offer rates being higher than they otherwise would be but for the kWh credits applied to customer bills."

"For example, for customers subscribed to an NEB project, the standard offer provider is paid for the service it provides on a net energy basis. Under this arrangement, the SOP is paid based on the difference between the customer’s consumption and the NEB generation credits applied to the customer’s account. In this way, the NEB facility is treated as a “load reducer” but, unlike energy efficiency or other traditional load reduction programs, the NEB customer’s actual load remains the same. And the SOP remains obligated to serve the customer’s actual load," OPA said

OPA said, "Because the standard offer rate is set through annual competitive bidding, without further investigation it is impossible to know the precise impact of NEB on standard offer rates. However, the NEB program likely impacts standard offer rates in three ways."

"First, under NEB the SOP loses the revenue associated with a retail sale for each kWh credit applied to a customer’s bill. In exchange, the SOP receives a credit that reduces the load obligation, reducing the amount of energy the SOP must purchase in the wholesale market. However, the energy credit is almost always less valuable than the retail sale that is lost. As a result, the SOP loses revenues with each kWh credit applied to a customer’s bill, and this lost revenue must be recovered from other ratepayers," OPA said

"Second, the NEB program presents a timing risk for the SOP. Under the NEB program, a participating customer is allowed to bank credits in the customer’s utility account for up to 12 months. As a result, energy generated by an NEB project in July can be “spent” by the NEB participant in February. The OPA does not know whether, on balance, the periods when NEB projects are generating electricity is during times when wholesale energy prices are higher than average or lower than average. Similarly, the OPA does not know the extent to which credits are banked by customers and used in later months. These are important questions to understand the timing risk faced by the SOP. Sufficient generation data and billing data are available and it should therefore be possible to estimate the impact of credit banking," OPA said

"Finally, the NEB program creates new uncertainty in the amount and timing of energy that must be supplied by the SOP. As the Commission is aware, the SOP must provide service on an “all requirements” basis and, as such, must assume all risk associated with the amounts and timing of the SOP customer load. Because the distributed generation resources participating in NEB are primarily intermittent resources, it is impossible to precisely predict the timing and magnitude of the generation from these facilities and their effect of the SOP’s load serving obligation. In addition, it is uncertain how many NEB projects will come online and at what time. As a result, prospective standard offer providers must accept the risk that their sales forecasts may be unreliable and will likely price that risk into their bids," OPA said

"According to recent reports filed by Central Maine Power (CMP) and Versant Power (Versant), there are already more than 250 MW of operational projects in the kWh credit program and over 40,000 customers enrolled in NEB. These numbers are expected to increase significantly over the next 18 months as additional projects come online. While in prior years the impact on standard offer rates was likely negligible, the recent sharp increase in NEB projects may be having a significant impact on standard offer prices," OPA said.

Under the kWh credit program under NEB, OPA said, "only the utility’s lost distribution revenues11 flow through stranded cost rates."

"Thus, only a portion of the cost of the program is equitably shared among all ratepayers," OPA said, contrasting this to NEB cost allocation under the separate NEB "tariff rate program", where OPA said that all costs are captured in stranded cost rates because the utility is obligated to acquire the energy output from projects and resell it in the wholesale market.

"To the extent the kWh credit program is increasing standard offer rates, residential and small commercial customers are absorbing this increase, on top of their allocation of tariff rate program costs," OPA said

"Conversely, because they do not pay standard offer rates available to residential and small commercial customers, larger commercial customers are potentially paying only a fraction of their fair share of total kWh credit program costs. Accordingly, if NEB is increasing standard offer prices, residential and small commercial customers are paying a disproportionate share of NEB state policy costs that the Commission has decided should be allocated proportionately among all ratepayers and recovered through stranded cost rates," OPA said

OPA said that, "if the Commission finds that NEB is increasing standard offer rates, the Commission should consider options for mitigating the rate impact on residential and small commercial customers, including shifting cost recovery from standard offer to stranded cost rates."

"With respect to options for addressing any negative impact to standard offer rates, the Commission could alter the standard offer bidding procedure to eliminate any impact from NEB or alter the allocation of NEB costs in the utilities’ stranded cost rate proceedings to ensure that all customer classes are paying a proportional share of these state policy costs. Regardless of the precise remedy adopted, the information generated in the investigation will inform the Commission’s evaluation of the standard offer process required by new legislation," OPA said

Docket 2023-00216

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