In the first case of its kind, an eastern Kentucky utility has asked regulators to diminish the value of the renewable energy that rooftop solar customers add to the electric grid.
The outcome will set precedent in Kentucky and chart the course for the future of small-scale solar in a state that has long prided itself on coal, an energy source that no longer provides the economic benefit it once did.
The investor-owned utility behind the proposed changes is Kentucky Power, which still delivers coal-powered electricity to the eastern part of the state, including its own headquarters in Ashland.
In June, the utility applied for a rate increase with the Kentucky Public Service Commission that would raise the average homeowner’s bill by about 16%, in part, to offset the same economic pressures its customers are feeling from the slow demise of the region’s coal industry.
And because it is the first utility to ask for a rate increase in 2020, it is also the first to test the revised Net Metering Act passed last year.
The decision before Kentucky’s Public Service Commission comes down to the value of net-metering. That’s the billing system that credits utility customers for the excess power they put on the grid from energy generation systems like rooftop solar panels.
Under the rules passed in last year’s SB 100, net-metering customers will receive a “dollar-denominated bill credit” for the excess energy they feed into the electric grid. Utilities propose the rate, the Public Service Commission approves it.
Renewable energy advocates say the proposed changes will make it harder for people who want to install solar panels to recoup their investment, slowing the adoption of renewable energy in a state that is still largely dependent on fossil fuels for electricity at a time when the world needs to rapidly transition away from them to avoid the worst impacts of climate change.
Kentucky Power says it purchases energy from net-metering customers at a higher cost than it would purchase elsewhere, and has to pass those costs onto all of its customers.
“The changes to net metering that Kentucky Power is proposing are to protect those vulnerable customers who have difficulty paying their bills and cannot afford net metering,” said Cindy Wiseman, vice presidents of external affairs.
Power In Eastern Kentucky
Kentucky Power’s service territory encompasses 20 counties along the eastern edge of the state — all of which the Appalachian Regional Commission considers economically distressed or at-risk.
Between 2008 and 2019, Kentucky Power lost more than 10,000 customers including large industrial electricity consumers like the coal industry and the AK Steel Ashland Works plant, according to Wiseman and the company website. In the same time period, sales fell almost 23%.
The region’s decline has left the utility with fewer customers to help recover its fixed costs — maintaining electricity lines, poles, transformers and two aging coal-power plants.
Kentucky Power last increased rates in 2017 and wasn’t able to raise them again until this year. Despite the pandemic and the economic hardships that have ensued, Wiseman said the utility needs to raise rates on customers because of the risks to the company’s own financial health.
Stock prices for Kentucky Power’s parent company, American Electric Power, plummeted in March amid the beginning of the pandemic and have since rebounded, though they have not regained the 5-year highs posted in January and February.
The utility’s position on net-metering is that its rate design would reduce “the subsidy” that the utility pays to net-metering customers for the excess power they put on the grid.
“Net metering reform is necessary to help reduce the regressive subsidy being paid by those who cannot afford to invest $15,000 to $20,000 in solar installations and have difficulty paying their bill,” Wiseman said in emailed answers. “Much of the ‘value’ that current net metering customers are receiving is in the form of a subsidy from other customers.”
However, Kentucky Power does not know the financial cost of net-metering because it has not analyzed those costs in at least five years, according to the company’s own statements.
Ironically, Kentucky Power objected to a request for net-metering costs in the rate case saying the information “is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence,” according to PSC records.
As of now, there are fewer than 50 net-metering customers in Kentucky Power’s service territory, said Andy McDonald, the Solar Energy Society vice-chair who provided expert testimony in the Kentucky Power rate case.
McDonald’s own estimates indicate the total financial impact of net-metering on other residential customers is less than one penny per month — significantly less than the company’s own proposed rate increase.
Seth Long is one of those net-metering customers. Long is the executive director of HOMES inc., a non-profit that provides affordable housing in economically distressed parts of eastern Kentucky. As businesses and people have left the region, Long has watched his electricity bills go “up and up and up” at his office in Whitesburg.
“The light clicked on for me and I decided we are not going to get the change that we want at the power company, because it’s systemic, it’s structural,” Long said. “I was like, ‘we’ve got to figure out a way to reduce our electric costs if we want to stay in business.’”
Long looked into his options. He was skeptical of solar at first, but he researched, he studied and he ultimately borrowed money to build a $70,000 solar array on his office, which includes two businesses and some affordable housing.
He’s saved $10,000 on electricity bills in the last 15 months.
“We borrowed the money,” he said. “So, after our payments, we’re still ahead to date by almost $3,000.”
He was so impressed with the return on his investment, he decided to build a solar array on his farm in Letcher County. His power bill declined from an average of about $350 a month to about $16 a month, he said.
If the Public Service Commission agrees to the net-metering rates Kentucky Power is proposing, it wouldn’t affect Long’s farm or office — people who already have net-metering plans will continue to receive the full retail rate for the next 25 years.
But, devaluing net metering would make it less financially attractive for future Kentucky Power customers who could benefit from producing their own solar energy.
“You know, I’ve heard arguments that this is bad for poor people, but that’s the line of work we are in, helping them with affordable housing, and we only see positive benefits,” he said.
Here’s how the proposed changes work, according to McDonald, who provided expert testimony on the subject to the Public Service Commission as part of the rate case.
Any electricity that a solar panel sends to Kentucky Power’s grid would be worth about 3.6 cents per kilowatt hour, a little more than a third of the current retail rate of about 9.8 cents per kWh (And about a fourth of the proposed rate increase to about 12 cents per kWh), McDonald said.
Kentucky Power will pay that reduced rate for solar, but only in the same time block a customer generates it in, he said. That’s the other change. The new rate design would break the tariffs into day and night blocks (8 a.m. to 6 p.m. and vice versa).
Right now, rooftop solar customers can generate electricity credits and use them to offset consumption at any time, but under the new rules they would only be allowed to use the credits within the time block they are generated in, according to McDonald’s testimony.
So, if a rooftop solar customer produces excess electricity in the daytime hours, they could not use their credits to offset their nighttime consumption, he said.
McDonald said this would create a “perverse” incentive for net-metering customers to use as much of their generated electricity as possible during the daytime.
“That doesn’t make much sense. That disregards the fact these customers exist on the grid and when they back-feed the grid they are actually providing a service,” he said.
But Kentucky Power thinks differently. In response to emailed questions, Wiseman said the proposed changes would incentivize net-metering customers to more closely align their energy generation system profiles with their personal use.
The effect of the changes to net metering would undermine the market for rooftop solar in eastern Kentucky, making it harder for people to recover investments in solar panels and other energy systems, McDonald said.
At a time when the world is looking for solutions to reduce greenhouse gas emissions in the face of climate change, McDonald said it would be a shame to hinder small scale-solar in Kentucky, in part, because of its economic potential.
“I think the true intention is to stop customers from doing net metering, stop customers from putting solar on their property, and eventually get to the place where maybe Kentucky Power will begin offering solar power to their customers and be the sole provider,” McDonald said.
Kentucky Power’s parent company, American Electric Power, plans to add more than 8,000 megawatts of solar and wind power through 2030, Wiseman said.
A formal hearing in the Kentucky Power rate case goes before the Public Service Commission November 17.