September 16, 2020

Net-Metering in Georgia: Solar Panels or Smoke and Mirrors?

Jacob Weber

I. Introduction

This note will argue the importance of a fair, incentivized electricity net-metering scheme in Georgia, especially as applied to Georgia’s only fully regulated electric utility: the Georgia Power Company. Net-metering is the process whereby electricity consumers with their own generation assets, such as solar panels, send surplus energy back to the grid in exchange for an offset on their billing statement. Robust net-metering schemes encourage citizens to invest in their own generation assets, which in turn improves grid resiliency and lessens dependence on traditional fossil fuel power plants. This note will examine Georgia’s current electricity net-metering scheme and argue its inefficacy. 

II. Background

A. Georgia's Electric Utilty Scheme  
Georgia has three types of electric utility companies: investor-owned, cooperative, and municipal. There is only a single investor-owned electric utility: Georgia Power Company (GPC). GPC serves the majority of electric consumers in the state, operating in 155 of Georgia’s 159 counties. However, a substantial minority of Georgians are served by one of the state’s 41 electric cooperatives or 52 municipal electric utilities. The electric cooperatives are member-owned, not-for-profit utilities serving primarily rural locales. The municipal utilities are owned and operated by city and county governments.

Only GPC is subject to full regulation by Georgia’s Public Service Commission (PSC)—the state’s utility regulatory authority. The PSC regulates GPC’s rates, resourcing plans, financing applications, reliability, environmental compliance, and territorial claims. The PSC can also investigate GPC and conduct audits. Meanwhile, Georgia’s electric cooperatives and municipal utilities are only subject to light regulation regarding territorial disputes, transferring of retail electric service, and occasionally financing.

Given that GPC is the only fully regulated utility in the state and serves the majority of Georgians, this note will focus on GPC and its net-metering scheme, as approved both implicitly and explicitly by the PSC and Georgia legislature.

B. Georgia Power Company
GPC is a subsidiary of Southern Company—a Fortune 150 company that also holds Mississippi Power Company and Alabama Power Company. GPC is fully integrated, using bilateral contracts with power generators when GPC’s own power generation is inadequate. GPC’s reliability is monitored and enforced by the North American Electric Reliability Corporation’s southeastern regional reliability authority, SERC. GPC’s grid is part of the Eastern Interconnection. GPC does not participate in a regional transmission organization, so GPC, through Southern Company, operates as its own balancing authority to balance supply and demand.

Given that GPC retains the traditional, integrated, vertical monopoly model for electric utilities—owning its own power plants, transmission lines, and distribution lines—it does not face competition in any aspect of its business within its territory. It is only reined in by the PSC. This is an important consideration when examining GPC’s net-metering scheme.

C. How Net-Metering Works Generally  
Measuring and billing a consumer’s electric consumption has traditionally been a straightforward affair. Electric meters simply counted upwards consistent with a consumer’s use. However, with the rise of the “smart grid” and technologies such as smart meters, dynamic pricing, and distributed generation, measuring and billing has become more nuanced, albeit more complex as well. Net-metering is part of this smart grid revolution—brought about by the rise of distributed generation and the Public Utility Regulatory Policies Act (PURPA) and its subsequent amendments.

Distributed generation is small-scale, on-site power generation by consumers via assets such as solar panels and wind turbines. Distributed generation allows for electricity to be produced and consumed at the same location, essentially removing the transmission and distribution phases of the energy production-consumption lifecycle. The rise of distributed generation was precipitated by PURPA, passed by Congress in 1978. PURPA’s initial goal was to break up utilities’ vertical monopolies by “requiring electric utilities to buy power from nonutility electric power producers at the avoided cost rate.” This spurred independent companies specializing solely in power generation—that is, independent power plants unaffiliated with a particular utility that sell their power to the highest bidder. The idea was that this would be a win-win for both independent power generation companies and consumers. The independent companies would profit if they could produce energy for less than a utility’s avoided cost and sell it to the utility, and consumers would profit from the injection of competition into the electric utility landscape.

Congress took this phenomenon one step further with the Energy Policy Act of 2005, which amended PURPA to require electric utilities to offer some type of net-metering program. This net-metering mandate provided an incentive for ordinary electric consumers to start investing in distributed generation assets and producing their own power.

Net-metering is the process by which homes and businesses with their own distributed generation assets can sell the excess power that they produce back to the grid. The amount of energy they sell to the grid is credited on their bill. These consumers may still draw power from the grid when they need it, making their meter rise; however, their metering is “net” because when the consumers sell their excess generated power back to the grid, their meter is offset. States take varied approaches to conforming with PURPA’s net-metering requirement. Some states have passed very specific net-metering laws and regulations dictating how net-metering is to be conducted in the state. Other states leave it largely up to the utility to decide.

D. Georgia’s Net-Metering Scheme

Georgia does not have a robust net-metering scheme. In 2001, the Georgia legislature passed the Georgia Cogeneration and Distributed Generation Act. The purpose of the Act was to “(1) Encourage private investment in renewable energy resources; (2) Stimulate the economic growth of Georgia; and (3) Enhance the continued diversification of the energy resources used in Georgia.” The Act allows Georgians with distributed generation assets to connect their system to the grid and sell back their excess electric energy—beating Congress’s Energy Policy Act to the punch by four years. However, the Act does not set the rate at which customers with distributed generation assets are to be compensated for the energy they sell back to the grid. Instead, the Georgia legislature left that decision to the PSC and GPC, subject to a few rules.

One important rule is that the PSC cannot require the utility company to purchase customers’ distributed generation energy at a price above the utility’s “avoided energy cost”—essentially setting a cap. Avoided energy cost is the cost the utility otherwise would have incurred had the customer not sold their energy back to the grid. This essentially boils down to the amount it would have cost the utility to purchase the electric at wholesale price. GPC has two different avoided energy costs on file with the PSC—one for solar and one for all other distributed generation assets. Thus, the rate at which a consumer with a distributed generation asset is compensated depends upon the nature of the asset. Notably, the solar avoided cost is lower than the standard avoided cost, and the majority of distributed generation assets are solar. It follows that the majority of distributed generation is being compensated at the lower avoided cost rate.

Generally speaking, the avoided cost price is substantially lower than the retail price—the price consumers pay for their electricity. For example, in its 2018 projections, GPC estimated its solar avoided energy cost at 3.188 cents per kilowatt hour. Meanwhile, Georgia Power’s residential “retail” rates range from 4.7 cents per kilowatt hour during the winter, to 9.7 cents per kilowatt hour during the summer. In other words, during the summer, consumers that generate and sell their solar power to the grid are paid less than a third of what they would pay the utility for the same amount of energy.

Net-metering in Georgia is subject to other restrictions as well. One large restriction is that utilities are only required to purchase consumers’ distributed generation energy “until the cumulative generating capacity of all renewable energy sources equals 0.2 percent of the utility’s annual peak demand in the previous year.” Moreover, up to this 0.2 percent cap, customers are compensated for their generation “on a first-come, first-served basis.” Another large restriction is that distributed generation assets have peak generating capacity caps. For residential consumers, their distributed generation assets cannot exceed 10 kilowatts. For commercial consumers, their distributed generation assets cannot exceed 100 kilowatts.

Subject to those restrictions, GPC has complete control over the administration and execution of its net-metering program. The PSC is hands-off save for the avoided cost rate filings. Unsurprisingly, GPC has not opted to provide incentives for net-metering beyond those required by state and federal law. GPC has succinctly—if not vaguely—explained its barebones program as follows,

Georgia Power purchases renewable energy from eligible providers on a first-come, first-served basis until the cumulative generating capacity of all renewable sources reaches a specific amount set by the Georgia Public Service Commission (PSC). Georgia Power will purchase solar energy through the renewable energy resources tariff at the company's Solar Avoided Cost rate as approved by the PSC . . . .

The program’s enrollment process is somewhat arduous. GPC requests that consumers begin by submitting an optional “pre-application request” to the company. The request requires a fee be paid, and in return GPC provides the consumer with data that will “assist [consumers] with [solar panel] sizing and site selection.” The provided data is not binding on GPC, and GPC disclaims liability if the consumer relies on that data in making the choice whether to invest in solar and enroll in the net-metering program. When the consumer decides to apply for net-metering, they must pay a nonrefundable processing fee and provide a host of schematics for their asset and its proposed interconnection to the grid. GPC will then review the application and determine if additional information is needed or if the consumer needs to alter their plans for any reason. During this process, GPC will conduct a site visit. Following the site visit, a host of “impact studies” are conducted. GPC conducts the studies with the consumer paying up front—no refunds allowed.

If after this entire process, the consumer still wishes to proceed, “At [the consumer’s] sole risk and discretion, [the consumer] may commence [solar panel] procurement, site preparation, and construction . . . .” If GPC must install any additional equipment to connect the consumer’s solar system to the grid, the consumer must pay for it. Following payment of these costs and the signing of an interconnection agreement, GPC will finally install the necessary equipment and connect the consumer’s asset to the grid (with the consumer paying the installation costs). Subject to final testing, the consumer may now bear the fruits of their solar panels—at GPC’s miniscule solar avoided cost rates of course.

III. Why Georgia Should Change its Net-Metering Scheme

With an understanding of how utilities and net-metering work in Georgia, we can now address why Georgia should change its net-metering scheme. This section will discuss the benefits of net-metering, examine how Georgia is missing the mark, and propose some solutions.

A. The Benefits of Net-Metering
Net-metering primarily serves as an incentive for consumers to install distributed generation assets. The real benefits of net-metering are those achieved through the proliferation of distributed generation. Distributed generation carries with it a host of possible benefits, a selection of which will be discussed in the following subsections.

  1. Environmental Benefits. Perhaps most obviously, distributed generation carries with it significant environmental benefits. Most of the common distributed generation assets—such as solar panels and wind turbines—are renewable, zero-emission, zero-waste power producers. Another popular distributed generation asset, specifically in the commercial/industrial setting, is the combined heat-power system. This system allows commercial/industrial consumers to turn the waste heat that they produce during their commercial processes back into energy, thereby lowering their energy demand. With more energy being derived from renewable energy sources, less energy will need to be produced from sources such as fossil fuel power plants that emit greenhouse gasses and other pollutants into the atmosphere.
  2. Economic Benefits. Net-metering and distributed generation have a variety of micro- and macro-economic benefits. At the micro level, net-metering and distributed generation can save individual electricity consumers money by (1) reducing the amount of energy that the consumer needs to draw from the utility, and (2) offsetting whatever amount the consumer actually needs by the excess amount the consumer generated. These savings are often enough to pay for the distributed generation asset itself.

    At the macro level, distributed generation has a couple of notable benefits. Because distributed generation allows for power generation and consumption to occur at the same site, transmission and distribution are eliminated from the energy production-consumption lifecycle, thereby making the lifecycle much more efficient. Transmission of energy from powerplants to consumers results in a waste of 4 to 9 percent of all energy produced. With less waste, less energy needs be generated to meet demand. Another benefit stemming from the elimination of transmission and distribution is a less strained transmission grid. A less strained system needs less maintenance and fewer upgrades, costs that ordinarily are passed directly on to consumers by the utilities.

    Yet another macro benefit comes in the form of power intensive industries being able to power themselves. Power outages due to utilities inability to serve their customers cost American businesses tens of billions of dollars per year. Commercial consumers with distributed generation assets are less reliant upon the utility for their power needs, thereby eliminating some risk.
  3. Grid Benefits. Our current grid is powered by a relatively small number of large power plants. Supplementing these plants with numerous small, distributed generation assets will make the power grid more reliable (being able to meet consumers’ needs) and resilient (being able to withstand exogenous interferences). Distributed generation can accomplish this by (1) reducing energy demand from power plants, thereby reserving that power capacity for those that need it; (2) replace power plant capacity when a power plant is offline; and (3) provide power without the need for transmission and distribution when those systems are incapacitated. With natural disasters and terrorist activity posing real threats to the power grid, distributed generation serves as a method of hedging.

B. Georgia's Failures and How They Can Be Addressed  
Georgia and its citizens are not reaping the benefits of net-metering and distributed generation because the state’s net-metering scheme is a failure. As it stands, the scheme is unfair to consumers and fails to incentivize investment in distributed generation. One need look no further than the rates at which net-metered GPC consumers are being compensated. Whereas typically net-metered customers are compensated for their excess energy at retail rates, GPC only pays its customers the utility’s avoided cost—a substantially lower amount.

Unfortunately, there is no way for the PSC to force GPC to increase its compensation because the Georgia legislature has set a cap at the utility’s avoided cost. Although GPC could unilaterally decide to raise the rates it pays its net-metered customers, why would it? Distributed generation is a threat to utilities’ bottom lines. This is doubly so for integrated utilities such as GPC that own their own power plants. GPC does not want customers to generate their own power when GPC could sell it to them instead.

Thus, with the PSC’s hands tied and GPC happy to sit back and watch distributed generation flounder, the impetus for net-metering change must come from the legislature. The Georgia Cogeneration and Distributed Generation Act’s purposes, while commendable, were not achieved in the slightest. Given that the legislature capped net-metering compensation at the utility’s avoided cost and capped the amount of energy the utility must accept from net-metered consumers at just a fraction of a percent, it is no wonder that the Act failed in “encouraging distributed energy investment, stimulating economic growth, and diversifying Georgia’s power supply.”

At the very least, the legislature should make the compensation cap discretionary for the PSC. After all, it is the PSC’s duty to “determine what are just and reasonable rates and charges to be made by any person, firm, or corporation subject to its jurisdiction.” Giving the PSC discretion would allow for the PSC to hold proceedings whereby all interested parties could have a say in the net-metering scheme. The legislature should also remove the arbitrary cap on how much energy GPC must buy from its net-metered customers. As it currently exists, GPC could theoretically hit its cap in a matter of just a few days, weeks, or months, and the rest of the year GPC customers with distributed generation assets would not be able to sell their energy.  

IV. Conclusion

In sum, Georgia has missed the mark with its net-metering scheme. Despite federal and state legislation advocating for distributed generation and net-metering, Georgia citizens are left little reason to invest in distributed generation assets and the state as a whole misses out on its environmental, economic, and grid reliability benefits. The Georgia Power Company, left to its own devices will not change this system, so it ultimately falls upon the Georgia legislature to right the state’s net-metering ship. 

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    Jacob Weber

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    Jacob Weber is a 3L at the University of Georgia School of Law. Post-graduation he intends to pursue a transactional practice, with special interest in the energy sector.