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March 22, 2016

Maine's Creative Solution to Net Metering

Like many other states, Maine has been wrestling with its policy on net metering, especially for solar generation. Unlike most others, however, Maine stakeholders have come up with a creative solution that strikes a balance between the interests of utilities, who worry about cost-shifting and lost revenue, and solar power proponents, who seek to minimize barriers to behind-the-meter solar power development. Due to a surprise, last-minute political glitch, it is now uncertain whether Maine will implement the solution. Whether or not it is implemented, however, the proposal deserves serious consideration by other jurisdictions looking to resolve their net metering policy disputes.

The proposal grew out of a 2015 Resolve of the Maine legislature directing the Public Utilities Commission (PUC) to convene a stakeholder group to develop an alternative to net energy billing which, the legislature decreed, “may not provide a suitable long-term foundation for distributed generation.”[1] That Resolve, in turn, followed the issuance by the state’s Public Advocate of a White Paper advocating that owners of solar projects have the opportunity to sell their output under fixed price, long term contracts.[2]

The Resolve stated that the alternative should (a) include fixed, long-term compensation mechanisms for distributed generation; (b) ensure that the maximum level of compensation for each technology does not exceed ratepayer benefits from that technology; (c)  ensure opportunities for meaningful participation by all market segments; (d) include a method to aggregate, capture and monetize the benefits for ratepayers; and (e) develop a transition from net energy billing to the alternative.

On February 1, 2016, the PUC submitted a report to the legislature setting forth the results of its stakeholder process.[3] The recommendations from that report found their way into draft legislation shortly thereafter.[4]

The proposal embodies several key concepts:

  • The PUC would solicit bids for 248 megawatts of power from four classes of solar projects—60 megawatts of grid-scale, distributed solar generation resources of up to five megawatts each; 45 megawatts of large-scale community solar resources; 25 megawatts of commercial and industrial customer resources; and 118 megawatts of residential and small business resources. This would represent about 11 percent of the state’s peak load. (Current solar capacity is 18 megawatts.) Bidders would be required to meet minimum qualifications, and winning bidders would be awarded long-term contracts (generally 20 years) to sell their output.
  • The Commission must select bids that maximize the benefits or minimize their costs to ratepayers. In addition, there are provisions authorizing the Commission to suspend solicitations where it appears that there will be insufficient competition.
  • The “Standard Buyer,” presumably but not necessarily the incumbent transmission and distribution utilities, would be a party to those contracts, and would be obligated to aggregate the purchased power and sell it into the regional wholesale power market at the best available prices.
  • All but the residential and small business projects would be paid rates resulting from the bidding process and subsequent negotiation. As to the residential and small business projects, the Commission is charged with establishing rates that are sufficient to ensure that the total capacity of installations meets the solar procurement targets. Total payments to these smaller projects are not supposed to exceed $10.5 million in 2022.
  • Customers with projects of 250 kilowatts or less would have the option to sell the entire project output under long term contracts (at the Commission-prescribed rate), or use that output to offset on-site load and sell any excess to the standard buyer. While existing net-metering arrangements would be permitted to continue for 12 years, no new net-metering arrangements would be allowed. However, the proposal incorporates an “escape valve,” under which net-metering could be restored if the Commission determines, in a review to be conducted 18 months into the program, that the procurement targets are unlikely to be met, or the program is unlikely to be cost-effective.
  • Given the uncertainties over both the rates to be paid to projects and the revenue that the standard buyer will receive from selling the power into the regional market, the program could experience surpluses or deficits. The proposal contemplates that any surplus would be used to reduce utilities’ stranded cost balances, while the utilities would be permitted to recover deficits through their existing stranded cost recovery mechanism.

The attractiveness of the proposal to both utilities and solar proponents is apparent. Utilities get a phase-out of net-metering; they receive assurance that most solar power will be procured through a competitive process; and they are assured the opportunity to recover any uneconomic costs associated with solar procurement. In addition, while difficult to quantify, they can take comfort that the Commission is required to accept only bids that maximize ratepayer benefits.

From the perspective of solar interests, features of the proposal that should be attractive are the generous procurement targets; the requirement that the Commission design rates for small projects to ensure that the procurement targets for those projects are met; the provision allowing existing projects to remain net-metered for 12 more years; and the opportunity for reinstatement of net-metering should the Commission’s program review at 18 months determine that procurement targets are unlikely to be met.

A hearing on the proposal before the Maine legislature last week drew considerable attention, with roughly 100 parties testifying. Among those were the PUC Chair and the Public Advocate, who expressed widely divergent views on the projected ratepayer impacts of the program—the PUC Chair estimated increased costs to ratepayers of $22 million in the plan’s fifth year, while the Public Advocate projected ratepayer savings over 20 years of $122 million. In what the Portland Press Herald characterized as an “unexpected turn,” key Republicans expressed reservations about the proposal, saying that they preferred sending the matter back to the PUC. Even if it passes, Maine’s Republican Governor Paul LePage is a known opponent of incentives for solar power and might well veto the legislation.[5]

Justice Brandeis famously characterized states as “laboratories of democracy.”[6] While the immediate fate of Maine’s proposal is now up in the air, that does not detract from its substantive value. Finding a middle ground acceptable to both utilities and solar proponents in the controversy over net metering is no mean feat. It should come as no surprise if another “laboratory of democracy” adopts elements of the Maine proposal as a resolution to its controversy over net metering policy.

[1] 127th Maine Legislature, First Session, H.P. 863, L.D. 1263, “Resolve, to Create Sustainable Growth in Maine’s Distributed Energy Sector That Uses Market Forces To Fairly Compensate Energy Producers (Governor’s Veto Overridden, June 30, 2015).

[2] Maine Office of Public Advocate Whitepaper, “A Ratepayer Focused Strategy for Distributed Solar in Maine” (2015).

[3] Maine PUC, “Report to the Legislature Regarding Market-Based Solar Policy Design Stakeholder Process Pursuant to Resolves 2015, ch. 37” (February 1, 2016).

[4] 127th  Maine Legislature, Second Session, L.D. 1649, “An Act To Modernize Maine’s Solar Power Policy And Encourage Economic Development” (March 10, 2016).

[5] “Republican Initiative Casts Shadow over Solar Power Bill,” Portland Press Herald (March 16, 2016), accessed at www.pressherald.com/2016/03/16/solar-power-bill-faces-key-legislative-hearing-Wednesday/.

[6] New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932)(Brandeis, J., dissenting).

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