Net Metering in Massachusetts

At Energy Tariff Experts, we've found that Net Metering (NM) and Virtual Net Metering (VNM) are a source of confusion for end use customers and energy professionals. The rules can be confusing and the variety among calculation methodologies for different utilities and rates can be hard to keep track of. In this blog post, we are going to walk through NM for larger customers in the Massachusetts (MA) National Grid service territory.

First, a little background. NM is not new. Its been around since 1978 when the Public Utility Regulatory Policy Act (PURPA) required utilities to allow customers to install self generation equipment and obligated the utility to purchase excess power. Most PURPA projects consisted of cogeneration and many were net metered. Over the last several years, NM has become a big deal due to its importance to the solar industry. The vast majority of new NM has been driven by solar and in some utilities, the tariffs are still trying to catch up with industry developments.

The current solar NM regime in MA has its genesis in the Green Communities Act of 2008. This act mandated that Investor Owned Utilities (IOUs) (e.g., NStar, NGrid, WMECO, and Unitil) credit customers for NM solar output at the retail $/kWh rate instead of the wholesale rate (set by ISO-NE). It created separate credit calculations for private and public sector customers as well as caps on the amount of capacity eligible for NM. These caps filled up pretty quickly and in August 2012, MA Senate Bill 2395 (note the ironic title) was passed which raised the caps to 3% of each IOU's peak load for both public and private sector owned systems. You can view the amount of capacity remaining under each NM cap at the MA System of Assurance website. NM is critical for the economics of many solar installations and the fact that the NM capacity caps will be fully subscribed in 2014 will be an issue. The future of NM in MA has been a back burner issue over the last few months while the details of the SREC II program have been in development.

One item that many have trouble gasping is the difference between NM credits and VNM credits. The graphic below helps to illustrate the difference between the two. VNM credits represent the financial value of each kWh that is pushed back onto the grid and these credits, in dollars, can be transferred to other accounts. 

For an end use customer, the avoided cost of electricity via displacement of electricity from the grid with electricity generated from solar panels is worth more than the value of NM or VNM credits. For the end user who wants to keep it simple, it often makes sense to size a solar array based on the captive load onsite as the value proposition associated with avoided costs via displacement of electricity is more certain (presuming load is constant). The table below illustrates the billing line items for the G-3 and G-1 rates that are part of the NM and VMN credit calculation. Remember, if there is excess generation in a billing cycle, these credits can be applied to future billings or transferred to other accounts. The avoided costs are simply the summation of all kWh charges and represent the $/kWh value of a kWh generated from a solar array that displaced a kWh from the grid.

The tricky thing with NM or VNM credits is that their value changes on a monthly basis. The Basic Service Charge represents the cost of supply and it varies based on conditions in the ISO-NE wholesale power market. Check out this previous post on the variability of default supply rates for various utilities. As a result, there is inherent uncertainty in the future value of NM and VNM credits in the same way that future power costs are uncertain. 

The graphic below shows a MA NGrid G-3 invoice for customers without and with NM. Note that the non-kWh line items are still present. When on-site generation exceeds on-site load, the resulting surplus is credited to the invoice in dollars as shown below.

VNM is where things can really get tricky. The Host customer will designate one or more accounts to receive the financial value of all of the kWhs exported to the grid. In MA, the accounts designated to receive VNM credits are listed on a Schedule Z form. The graphic below illustrates the process.

Schedule Z designation.png

Currently, VNM credits are allocated to the recipient accounts manually each billing cycle. All of the MA IOUs voiced this as a major issue in MA DPU Docket 11-11. Any manual process is likely to have more errors than bills that are generated through an automated billing system. In addition, due to the fact that billing cycle dates for Host and recipient accounts will likely be mismatched, its possible to have a lag of up to two invoices before VMN credits appear on the recipient account's invoice. The graphic below shows where end users can find their VNM credit amount on their bills.

VNM Transfer Process.png

At Energy Tariff Experts, we audit NM and VNM invoices to ensure proper allocation and credits. We also work as an owners agent to evaluate the financial opportunity associated with proposed solar systems. In MA, an opaque secondary market for VNM credits has developed and we have advised several potential purchasers of the marketplace and transaction structures and contract language.

If you are struggling to understand any aspect of NM or VNM in MA or anywhere else, give us a call. We can do small engagements focused on customer education for a few hundred dollars or devise a bespoke Scope of Work to meet your needs.  

That Contingency Bill Audit is NOT Free

At Energy Tariff Experts, we do a fair number of utility bill audits. Most of the time, we offer our services through energy brokers/consultants and efficiency firms, but sometimes we send proposals directly to the end user. We often find ourselves competing with contingency bill audit firms and have found that many end users do not understand the true cost associated with contingency bill audits where payment is based on a percentage of the "savings".

The vast majority of "savings" found through bill audits deal with sales taxes billed to exempt accounts. In deregulated markets where energy suppliers may change every few years, provision of the sales tax exemption paperwork is often overlooked during the contracting process. Turnover in accounting and procurement departments at end user firms is another cause of missed sales tax exemptions.

After sales taxes, utility or supplier billing errors are the next most common source of errors. Despite what some vendors may tell you, over 99% of utility bills are correct. Typically, utility bill errors are associated with certain triggers such as estimated meter reads, meter replacement, changes in meter multipliers, or changes to the IT in a utility's billing system. Any bill that is calculated manually (e.g., virtual net metering credits, special contacts, etc.) has a much higher probability of having an error. For competitive suppliers, there are similar flags such as contract renewals for many accounts and complex pass-through charges. We've observed that many contingency bill audit firms do not understand competitive energy market structures well enough to vet pass-through charges. 

There are often additional opportunities for savings that many bill audit firms miss entirely. Oftentimes an account where usage has changed significantly (either up or down) may be eligible for a rate change. This often requires a detailed review of historical billings, tariff rules and procedures, and data analysis. Some utilities will have a myriad of optional rates (think California IOUs) or rates with a baseline and real time prices to allow for economic demand response within the regulated utility tariff structure (e.g., Georgia Power). A highly thorough bill audit should analyze these opportunities if they exist.

Bill Audit Items.png

When it comes to recovering sales taxes paid in error, each state is different in terms of the sales tax recovery process. In some states, the "Vendor of Record" (e.g., utility or competitive supplier) will handle the interface with the taxing authorities if presented with the correct paperwork and documentation of refund due. Those are the easy states. In other states, the end user must fill out the forms required to claim a refund and and they must be signed by a corporate signatory. In addition, a predominant use study may have to be conducted or updated in order to justify the exemption percentage. In our experience, customer education and guidance through this process is critical and we feel that the end user must fully understand any document that they will sign and submit to taxing authorities.

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Many end users struggle to understand what they will pay a contingency bill audit provider. They may be quoted a percentage of the "savings" (often 30-40%), but the methodology for calculating "savings" may be opaque (on purpose). In addition, "savings" can be defined as avoided spend over a period of up to two or three years. If there is a five or six figure sales tax recovery opportunity, the contingency bill audit will start to seem rather expensive. 

At Energy Tariff Experts, we do bill audits on a fixed fee basis or a discounted fee with a clearly defined bonus if certain straightforward targets are met. As an end user, if you think that you have billing issues, you probably do. We've had many experiences where we've delivered over six figures in recoveries or reduced future spend for clients where our fees have totaled only a few thousand dollars. The sales pitch for contingency bill audit firms tends to resonate with highly budget conscious consumers, but we'd advise anyone worried about a budget to spend some money upfront on a thorough audit with a detailed report/presentation as a deliverable instead of handing over a five or six figure payout to a contingency firm that found some low-hanging fruit. An educated consumer is a better consumer and the Energy Tariff Experts bill audit process is designed to ensure that the customer is fully educated on every step of the process and that all the savings end up where they belong, in the customer's pocket.