Will PUC Decision to End Net Metering Drive HECO Customers From the Grid?

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A year and two months after the Hawai`i Public Utilities Commission opened a docket to determine the future of net energy metering, or NEM, it has concluded the first phase in a two-step process. On its face, the result would seem to be a blow for the companies that install rooftop photovoltaic systems and the customers who were hoping to take advantage of the program.

Under NEM, customers receive a credit for each kilowatt-hour supplied to the grid that is equal to the amount they are billed – an amount that the PUC calls the retail rate. The PUC decision grandfathers existing NEM customers as well as those who had applied to participate by the time the decision took effect.

From now on, however, homeowners who install rooftop PV systems will not be able to get that same dollar-for-dollar credit for energy they generate. Instead, customers for each of the Hawaiian Electric utilities – Hawaiian Electric on O`ahu, Maui Electric, and Hawai`i Electric Light Company on the Big Island – will receive credit for energy generated equal to roughly half of what the going kWh rate is on their respective islands.

After the decision was announced, commentary generally viewed it as a win for the utility – which had argued that NEM customers were not paying their fair share of grid upkeep, forcing other, less well-off ratepayers to pick up the slack. That slack, HECO claimed, amounted to several tens of millions of dollars a year.

Those economic inequities were cited by Hawaiian Electric, the Division of Consumer Advocacy, and others in pushing for an end to net metering. By and large, the PUC adopted that argument. In its decision and order, issued October 12, the commission stated: “It is abundantly clear that distributed energy resources” – rooftop solar, for the most part – “can provide benefits to Hawai`i. It is also clear, for both technical and economic reasons, that the policies established more than a decade ago must be adapted to address the reality of distributed energy resources as they exist today – and as they are likely to develop in the near future. The challenge … is ensuring that DER continues to scale in such a way that it benefits all customers as each utility advances toward 100 percent renewable energy.”

But by doing away with NEM for all but grandfathered customers could the PUC have actually set the stage for even greater inequities? And rather than making the grid more stable, could its decision in the distributed energy resources docket serve instead to undermine it?

The Way Forward

Henceforth – or at least until the PUC reaches a decision in Phase II of the Distributed Energy Resources docket – customers wanting to install solar panels on their rooftops have two options.

They can have their panels linked to the utility grid, just as in the past, with the excess generation fed into the system that supports their neighbors and the larger customer service area – the so-called grid-supply option.

Or they can go the self-supply route, with installations having a capacity of 100 kW or less. In this scenario, the energy that is generated by the customer is used on site only. If more is generated than is being used at any given time, that excess is stored in batteries for later use.

Whatever option is chosen, distributed energy customers will still pay a base rate. Under the old NEM system, it was $17 a month. Now, however, it will be $25 – a rate that all parties to the docket seemed to agree upon as a more accurate reflection of the actual cost of utility service, apart from any energy usage.

The grid-supply option is essentially NEM without the equivalent value of energy used for energy supplied and with no ability to save credits earned one month against future use the next. (This, the PUC found, would provide “a reasonable incentive to ‘right-size’ generation capacity and avoid technical impacts associated with excessive over-generation during peak solar hours.”) With customers paying the full cost of energy taken from the grid and getting just half that for what it puts back, the time required for the initial investment to pay for itself rises significantly, all else being equal.

But the PUC determined that investment in a grid-supply solar system was still cost-effective. The solar companies that participated in the docket “have offered no evidence that solar installers or [distributed energy resource] customers would be unreasonably impacted by energy credit rates in the range of 15 to 27 cents per kWh,” the PUC found. “In contrast, the Consumer Advocate and [Department of Business, Economic Development, and Tourism] offer estimates that suggest that the approved grid-supply energy credit rates are still substantially higher than the levelized cost of installing residential solar today, after considering the substantial tax credits available in Hawai`i.”

In what appears to be an effort to give a more stable base to investor expectations, the PUC guaranteed the credit rate for exported energy for two years (HECO had proposed a five-year guaranteed rate). “The grid-supply option,” the PUC stated, “is intended as a transitional option for customers who wish to interconnect DER systems that export uncontrolled energy onto the grid, regardless of whether the power system can economically or physically accommodate such exports. While the grid-supply tariff will offer a lower energy credit rate than the NEM program, the credit rate will be fixed, rather than varying over time with fluctuations in the retail rate, thus providing additional value to participants.”

But would anyone undertake a long-term investment with no more than a two-year assurance of the energy export price?

Robert Harris, public policy director for solar installer Sunrun, described this as “a critical problem. Customers are making a 20-year investment. If they don’t know what the return will be in two years, it’s hard to see an economic reason to ‘go solar.’ Also, interconnection can take up to a year. So the PUC’s two-year [rate guarantee] could, in effect, really only be one year.”

How customers and solar installers respond to the new pricing system will unfold over the next few months. In the main, however, it would seem that the short-term assurances and the discounted credit for energy contributions to the grid will combine to encourage customers to embrace the self-supply option.

And once they do that, the inducements to drop out of the grid altogether begin to loom large.


If you are going to go to the bother and expense of installing solar panels, and want to get the biggest bang for the bucks, it makes little economic sense to sell off that fraction of energy you produce but don’t consume at around half the cost you pay the utility for energy you draw from the grid during peak demand time.

The self-supply option allows customers to avoid this by storing the excess energy. In the past, battery systems for home use were sufficiently expensive to create a high financial hurdle. But by reducing the credit for energy contributed to the grid, the PUC has effectively lowered the financial bar.

Sunrun’s Harris expanded on this in an email to Environment Hawai`i: “There’s not a lot of solar-plus-storage offerings currently available, mostly because there hasn’t been a market for it yet. This decision creates that market, and I anticipate the industry will adjust.”

In the meantime, he continued, “it will cause a lot of pain and I anticipate you’ll see smaller, local companies going out of business. This isn’t a rational way to adjust markets. …

“HECO thinks this is a big win, but I’m not sure they’re thinking long-term. We can already offer solar plus storage at a cheaper price than the utility. And the cost of storage will only come down.”

Another advantage to the self-storage option is the ability to avoid a potentially long queue for utility approvals of the interconnection screen. Over the last couple of years, the queue has meant a wait of from a few months to more than a year before homeowners with new solar systems were able to hook them up to the grid under the NEM framework. New entrants in the grid-supply system will also need to get utility approval, and in its recent decision, the PUC did not impose any time frame within which this would have to occur. Instead, it merely requires ongoing monitoring of the HECO companies’ performance in this area. Those installing the self-supply systems can proceed with a much more streamlined utility review.

“HECO companies shall provide written approval to operate a self-supply system within fifteen business days of receipt of a copy of the final governmental inspection or approval,” the PUC ordered. (HECO had proposed a time frame of 30 days.)

Once a homeowner has invested in the solar panels and storage system, the next step could well be to drop out of the grid altogether. Says Harris: “If people have already paid 80 percent of the price to go off-grid … what stops them from taking the additional step later?”

“A more rational decision by the PUC would have encouraged people to stay grid-connected, but to export power when the grid needs it the most,” he continued. “We encouraged the adoption of time-of-use rates, but the PUC mangled that part of the decision.”

Timing Is Everything

Every party to the proceeding proposed or endorsed a time-of-use proposal, which would have the effect of matching energy supply with demand more evenly throughout the daily cycle.

HECO proposed a pilot program under which just 500 distributed energy customers on O`ahu only would, over the next three years, be charged 36 cents per kWh from 4 p.m. to 9 p.m. but just 24 cents per kWh at all other times. The solar installers and their allies proposed two options: a two-phase plan with a much higher peak-demand rate (45.7 cents), and an expanded peak period (from 2 p.m. to 8 p.m.), or an even more complicated three-phase rate structure, with a minimum off-peak rate of 18.2 cents.

The PUC rejected everything, finding “the proposals presented … are not reasonable and should not be approved as submitted.” HECO was told to refile a proposed time-of-use tariff by mid-November. The commission went on to note that it was “disappointed with the HECO companies’ apparent ambivalence towards establishing an effective TOU option for DER customers. … It is unclear why the companies would suggest limiting a TOU rate design for DER customers to 500 participants or insist that the TOU rate only be offered to customers who are located near existing ‘Smart Grid’ infrastructure, which encompasses only a few neighborhoods on O`ahu. … The TOU rate should be available to any otherwise eligible customer on all islands served by the HECO companies. Absent a compelling need, the HECO companies shall meter and bill customer usage under the TOU tariff as they normally would any other TOU customer.” In advising HECO how to structure its TOU rates, the PUC adopted the solar companies’ proposal for a three-tiered system.

Next Steps

Now that Phase 1 of the docket has been completed, the PUC is now launching Phase 2. This, the PUC states, “will build upon the transitional market structure established” in Phase 1 to develop “longer-term policies to enable continued beneficial deployment of DER across the state.”

Over the first six to twelve months, the parties will evaluate ways to “enhance the value” of distributed energy resources through integration and aggregation; will develop proposals to establish “an appropriate DER market structure;” and will continue to assess the challenges of integrating distributed energy resources into the various island grids.

At the conclusion of this process, the commission will “approve further changes to DER policies and programs with the aim of expanding cost-effective deployment of these resources throughout Hawai`i.”

On October 22, The Alliance for Solar Choice (TASC) filed a lawsuit in 1st Circuit Court challenging the PUC decision, which it said violated state and federal law as well as due process rights. It claimed that by eliminating NEM, Hawai`i’s solar industry would see cuts of up to 90 percent.


* * *

Whither GEMS?

To expand the benefits of solar to groups generally unable to afford it, the state Department of Business, Economic Development, and Tourism last year floated a $145 million bond. The idea was that the bond would allow the state to give renters, low-income homeowners, and other underserved groups the wherewithal to obtain a long-term lease of solar panels or purchase them outright.

When the so-called Green Energy Market Securitization (GEMS) program submitted its last quarterly report at the end of July, it had yet to sponsor its first rooftop solar system. (The next report was due at the end of October.)

Environment Hawai`i asked DBEDT for a comment on the possible impact of the PUC’s decision to eliminate net-energy metering on GEMS. In response, DBEDT director Luis Salaveria released the following statement:

“After the Public Utilities Commission issued its decision … the GEMS financing program informed loan applicants by email that loan applications submitted to the HEI companies on or before October 12 will not be affected. The GEMS financing program is working with its partner programs and consultants to analyze the potential impacts of the PUC’s order on loan applications submitted after October 12.”

When asked just how many loan applicants had been notified, DBEDT public information officer Alan Yonan clarified that the notification was emailed to the “nine approved GEM installers, who then shared it with prospective GEMS borrowers.”

— Patricia Tummons


Volume 25, Number 7 November 2015

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