RCA Considering Changes to Net Metering Regulations

Published November 11, 2024

By Brian Kassof

The Regulatory Commission of Alaska (RCA) is asking for public input as it considers changes to the rules governing net metering—the program that requires utilities to purchase excess power from households and businesses with their own small renewable energy generation units, like solar arrays (these are sometimes called distributed energy systems). This reconsideration comes as the number of homes/businesses participating in net metering in Alaska continues to grow rapidly, more than doubling between December 2020 and February 2024.

The RCA’s main question is whether it should increase the cap on the size of utilities’ net metering programs. The cap is based on a ratio between a utility’s average retail sales of power and the combined capacity of the distributed energy systems connected to it. Until the cap is reached, a utility is required to accept new applicants to its net metering program. The original cap set in 2010 was 1.5%. If a utility reaches that limit, it has the option of petitioning the RCA to raise its individual cap, something most have already done at least once. The RCA is now asking if this cap should be uniformly raised to 20%.

Only utilities of a certain size and regulatory status are subject to these rules; currently only five meet these criteria. These include the four Railbelt electric cooperatives: Homer Electric Association (HEA), Chugach Electric Association (CEA), Matanuska Electric Association (MEA), and Golden Valley Electric Association (GVEA). Each of these has had its net metering cap raised at least once since 2019 (HEA twice). CEA, MEA, and GVEA all currently have a 5% cap, while HEA’s is 7%. The fifth covered utility, the Alaska Power Company (APC), has a very small program and has not petitioned to increase its cap.

The Railbelt is the region running north from the Kenai Peninsula to Fairbanks.

The rapid growth of distributed energy systems in Alaska has been spurred by multiple factors, including rising energy prices and a dramatic fall in the cost of solar panels since 2010. This growth is expected to continue, as a number of new funding opportunities at the state level become available, making these systems accessible to households which were previously priced out of participation.

The RCA is also asking how the passage of SB 152, which allows the creation of community solar projects, might influence net metering policies. Community solar projects provide ratepayers unable to install their own home renewable generation systems an opportunity to participate in a form of net metering. While community solar will be governed by a separate set of regulations, the RCA is interested in hearing how it should influence the setting of the new net metering cap. (For more on SB 152, see this AETP article).

Finally, the RCA says it is interested in hearing feedback about any other aspects of net metering regulations. Both utilities and renewable advocates have talked about possible changes in recent years. MEA has said that some changes will be necessary in the near future, because it believes the current regulations force other ratepayers to subsidize net metering participants. Fixing this, they say, would involve creating a new rate structure for future enrollees.

Proponents for renewable power, meanwhile, argue that net metering provides benefits the utilities are not acknowledging. They point out that distributed renewable generation systems help offset the need for natural gas at a time when Cook Inlet supplies are running low, and will likely be replaced by more expensive, imported liquified natural gas (LNG). Because of this, and other benefits, they believe net metering provides value to all utility customers. They want to see the introduction of a system known as “annual net metering” that provides higher compensation for some of the power sold back to the utilities, to encourage greater participation.

The RCA will accept public feedback about whether the cap for program participation should be increased to 20% and on other aspects of net metering until 5 p.m. on November 12. Comments can be submitted here—specify that they are in reference to Docket R-24-003.

Current Net Metering Regulations:

Alaska’s rules for net metering (3 AAC 50.900-949) were established in response to the 2005 federal Energy Policy Act, which created national net metering standards. The RCA decided that the federal standards were not appropriate for Alaska and instead developed their own. This was done through a public process that solicited input from the public and stakeholders such as utilities. These regulations were completed in 2010.

The regulations apply to utilities that sell at least 5 million kilowatt hours (kWh) of power a year and are economically  regulated by the RCA--only the four Railbelt cooperatives and APC meet these requirements. As of February 2024, the four cooperatives had a combined 2766 members participating in their net metering programs: 568 for HEA, 893 for CEA, 488 for MEA, and 817 for GVEA. The overwhelming majority of these are residential members, although some businesses also participate. APC’s program is active in three of its five rate zones, but only has six participants. Non-regulated utilities can offer their own net metering programs (as the City of Seward’s municipal utility does), but they do not have to follow the RCA’s regulations.

Two Railbelt utilities, GVEA and HEA, had net metering programs before 2010. GVEA started its Sustainable Natural Alternative Power (SNAP) program in 2005. HEA launched a similarly named program in 2008. HEA’s SNAP was replaced by its current net metering program in 2010, but GVEA’s SNAP remains active with about 70 enrollees. It operates under different rules than the RCA regulations. In 2010 GVEA started its SNAP Plus program, which conforms with RCA regulations.

While a wide variety of renewable generation technologies are eligible for net metering (3 AAC 50.920), almost all of the systems currently enrolled are solar arrays--these account for 2689 of the 2766 systems reported by the Railbelt utilities at the end of 2023. There were also 68 wind turbines, 8 combination wind/solar systems, and 1 HEA member with a biofuel system. To qualify for net metering, the renewable power system has to have a nameplate capacity of 25 kW or lower. It is possible for members of these cooperatives with larger systems to sell power back to the utility, but this is done through a different program.

The net metering cap is based on the relationship between a utility’s average retail sales, as measured in kWh, and the maximum combined capacity of the home energy systems connected to the grid (their “nameplate” capacity). Until the aggregate nameplate capacity of home systems reaches the designated percentage of average retail sales, a utility is required to accept new participants into its net metering program (assuming their systems meet certain technical requirements).

Initially this cap was set low, at 1.5%, due to concerns about how net metering might impact utility revenues. Utilities that reach their cap can petition the RCA to increase it, so that more members can join. In 2019, HEA became the first utility to apply for a higher cap, with the other three Railbelt cooperatives following in subsequent years.

Alaska’s net metering regulations require a utility to buy back excess power (power not used on site) produced by a home energy system. A participant receives credit for the amount of power they feed back into the grid. If a household sells less power to a utility than it purchases in a month, it is credited at the utility’s full retail rate for the power returned to the grid. Essentially its bill is reduced by the number of kWh sold back to the utility (a net reduction, hence “net metering”). For example, if a household fed 100 kWh of power back into the grid in a single month, but purchased 150 kWh, it would only be billed for 50 kWh.

If a household sells more power back to the utility than it purchases in a month, it receives the full retail rate until its monthly consumption is zeroed out, and then a lower rate for the remaining kWh. This lower rate is based on a utility’s “avoided cost”—what it would have cost the utility to generate the power or purchase it from another source. Credit for power purchased at avoided cost appears on the next month’s bill. If a household sent 200 kWh back to the grid in a month, but only purchased 150 kWh, it would receive the retail rate for the first 150 kWh on that month’s bill (zeroing out its energy and fuel charges), and a credit for the additional 50 kWh at the avoided cost rate.  On the Railbelt, the difference between a utility’s full retail rate and its avoided cost can be 40-50%. For example, GVEA’s current retail rate is just over 27 cents/kWh, while its avoided cost rate for net metering is just over 16 cents/kWh.

The Alaska Center for Energy and Power at the University of Alaska, Fairbanks (ACEP), issues a report on net metering in the Railbelt every year. According to the 2024 report, the overall capacity of net metered systems was about 16 megawatts, which was 3.2% of average load. Although no definitive numbers on actual output are available, ACEP estimates that these systems produced about 14.372 megawatt hours of power in 2023, which was the equivalent of about 0.33% of total electric sales on the Railbelt (because solar systems only operate part of the time, their annual production is far lower than their nameplate capacity). ACEP also estimates that about 70% of that power was used on site by the system’s owner, and 30% sent back into the grid. This means that only about 0.1% of power sold by the Railbelt utilities in 2023 came from net metered systems.

Why Interest in Net Metering Will Likely Continue to Grow: 

A number of factors are likely to continue driving interest in net metering programs in Alaska. The price of solar panels has fallen dramatically over the past 15 years, making systems more affordable. At the same time, Railbelt electric rates are expected to rise in the next five years, as utilities begin to import LNG. As rates go up, home generation systems may make more financial sense for some households.

New programs are expected to lower the financial barriers that prevent many Alaskan households from installing home generation systems. These systems can cost $10,000-20,000 or more, and since banks are hesitant to make loans to finance them, only those able to pay these costs up front have been able to purchase them. Federal tax credits for households buying renewable generation systems are slated to be available until 2032 (although it is unclear what impact the recent election will have on these).

A few programs that will increase access to renewable systems are expected to begin in the next year or two. HB 273, which passed this year, allows the Alaska Housing Finance Corporation (AHFC) to set up a statewide green bank. Green banks are institutions dedicated to helping finance renewable energy and energy efficiency projects, and can provide or support loans for home renewable energy systems. (For more on HB 273, see this AETP article).

GVEA is scheduled to launch an On-Bill Financing program this winter. This will allow members to borrow money from GVEA for energy upgrades (which could include renewable generation systems) and repay it through their monthly electric bill. Other utilities are watching GVEA’s program and if it is successful may launch their own in the future. AETP will be publishing an article on GVEA’s On-Bill Financing program in the near future.

Another source of funding to expand access to home renewable generation systems for lower-income households is the federal Solar for All Program. In April the Alaska Energy Authority and AHFC received a $62.5 million grant under this program, which is part of the Greenhouse Gas Reduction Fund created by the 2022 Inflation Reduction Act. AHFC will use a portion of this grant to buy renewable energy systems for households in low-income or historically disadvantaged neighborhoods, in areas where net metering is available.

What Type of Feedback is the RCA Requesting?

The main question being asked in this docket is relatively straightforward—should the net metering cap be reset to 20%? In a report filed in February, the RCA’s staff said that doing so would relieve utilities of the need to repeatedly petition to raise their caps as their programs grew. But the RCA Order officially opening the docket included several subsidiary questions as well (an RCA order is an official ruling; a docket is a case or proceeding on a specific question).

While the staff report recommends increasing the limit to 20%, it also acknowledges that this figure is really a “placeholder” to generate discussion. At a RCA public meeting on February 14, Jess Manois, an RCA Utility Engineering Analyst, said he thought the appropriate level is between 10 and 20%. The RCA took a similar tack when developing the initial regulations in 2009, using 1% of peak demand as a starting point for the discussion that ultimately yielded the current threshold of 1.5% of retail demand. This summer, a member of the HEA Board, Robert Wall, unsuccessfully proposed that HEA freeze its net metering cap at 7% (a figure which it has almost reached).

Another issue explicitly raised in the RCA Order is the potential impact of community solar projects on existing net metering programs. SB 152 (the Saving Alaskans Money with Voluntary Community Energy (SAVE) Act) was passed this spring by the Legislature and signed into law by the Governor in August. It requires utilities offering net metering programs to allow community renewable generation projects. These projects (usually solar arrays) allow utility customers unable to install a renewable system at their home to participate in net metering. Participants buy the rights to a percentage of the project’s output, and the value of that power is credited to their bill. This arrangement is sometimes called “virtual net metering.”

Community solar projects will not be governed by the current net metering regulations—the RCA has until November 2025 to develop separate rules for them. (A community solar project announced by CEA in January will operate outside the framework established by SB 152.) This means that the power generated by these projects may be valued differently than current net metered power. For the current discussion, the RCA is asking about the potential impacts of community solar projects on utility systems’ stability and economics, and how these should figure into any changes to the net metering regulations.

The Order ends with an open invitation for comments on “other aspects of our net metering regulations that merit modification.” This presents an opportunity for utilities and renewable advocates to address a wide variety of issues that go well beyond the net metering cap or impact of SB 152.

Other Issues That Might Be Raised: 

It is likely that utilities and renewable advocates will take advantage of this opportunity to comment on “other aspects” of the net metering regulations and advocate for changes they would like to see in the program. At least one utility, MEA, has indicated it believes that new rate structures for net metering will be needed in the near future to account for cost-shifting between utility customers. Renewable advocates, on the other hand, are likely to argue that utilities are underestimating the system-wide benefits of net metering, and that, if anything, the programs should be more generous to attract new participants.

MEA officials stated, both in a filing submitted to the RCA on February 29, as well as in comments at the utility’s May board meeting, that new rates structures for net metering will be necessary in the near future. They believe the current system unfairly passes costs from its participants to other utility customers, a phenomenon known as “cost-shifting” or “cross-subsidization.” This occurs because utilities recoup a number of on-going fixed costs—loan interest, facility maintenance—through their rates. Since net metering participants purchase less energy, other customers are left to shoulder a greater share of these costs. While MEA believes that the size of this shift is currently tolerable (figures shared during the May meeting put the cost at about 30 cents a month to non-net metering members), they believe it will become a more serious issue in the future.

Current regulations (3 AAC 50.930(e)) allow utilities to petition the RCA to introduce new net metering rates if the program is having a significant financial impact on other customers. But MEA’s CEO Tony Izzo, in both the February filing and again at the May board meeting, said he believed the RCA commissioners had set the new cap target at 20% to stimulate discussion and collect information about the possible need for rate changes to limit cross-subsidization. Izzo said the introduction of a demand charge (a method of billing often used for large industrial customers) is one possible way to address cost shifting. At the May meeting, MEA’s Chief Financial Officer, Matt Reisterer, said that any changes would likely only apply to new program participants, not existing ones. HEA currently imposes a “System Delivery Charge” on any member who purchases less than 150 kWh a month, including those in its net metering program.

MEA has also said that it may be necessary to look at the collective impact of all sources of intermittent renewable power (such as solar power) on its system. This would include not only net metering, but also the two utility-scale solar farms that sell MEA power, as well as future community solar projects. In a July filing on net metering, MEA said that as the amount of solar power in its system increased, it would likely have to upgrade equipment and change how it operates its main gas power plant, the Eklutna Generation Station, in order to regulate the integration of the renewable power into the grid. This, they say, would create additional costs for members, which would have to be factored into evaluations of cost shifting.

Advocates of renewable energy, on the other hand, have argued that utilities often fail to recognize the benefits of distributed renewable generation. By producing power locally, it reduces the line loss that happens when power is moved from a central generation site. Distributed generation also makes more efficient use of existing distribution infrastructure. In a recent blog post, energy analyst Erin McKittrick identifies what she sees as a number of other problems with claims about cross-subsidization of net metering in Alaska.

Supporters also argue that expanding net metering could contribute to solving the crisis caused by falling production of natural gas in Cook Inlet. During a 2023 discussion panel, Chris Rose, Director of the Renewable Energy Alaska Project (REAP), said that the large-scale deployment of rooftop solar could have a meaningful impact on reducing demand for natural gas. This, in turn, would lessen the amount of more expensive LNG utilities would need to import to operate their generation plants, saving all ratepayers money. He said that unlike utility scale renewable projects, which can take years to come on line, significant amounts of rooftop solar could be added quickly.

(AETP, although editorially independent, receives its funding from the Alaska Public Interest Research Group (AKPIRG). AKPIRG is an institutional member of REAP).

Another argument made in favor of increasing net metering is that the expansion of renewable generation on the Railbelt contributes to Alaska’s energy security and independence, especially if LNG imports are necessary. Advocates also point out that in the future home solar arrays could form the backbone of local microgrids, which would enhance system resilience.

One way to make the installation of home renewable systems more attractive, according to renewable advocates, would be the introduction of “annual net metering”. Under this system, participants receive the full retail rate of reimbursement for all the power they send back into the grid. If they sell back more power than they purchase in a month, the surplus would be rolled over to cancel out power purchases in subsequent months (for up to a year), instead of being bought at the utility’s avoided cost. Language requiring some form of annual net metering has been included in several recent bills before the Alaska Legislature. One version of SB 217, which was considered this spring, required utilities to use annual net metering for new participants to their programs for a seven-year period. This section did not make it into the companion bill in the House, HB 307, which was passed in May.

The RCA has not indicated what steps it will take after the close of this comment period. Further comment periods, particularly if extensive changes to net metering regulations are proposed, are possible. Any changes to the regulations must be completed by September 25, 2026.