1. LEGAL ISSUES IN DISTRIBUTED ENERGY & NET METERING Dan Clearfield, Esq. Energy Law & Policy Institute University of Pittsburgh School of Law August 2, 2013 Presented by:

2. What’s Coming  Distributed Energy – Basic ABC’s  Net Metering Basics  Net Metering Legal Issues Who can install net metering? Eligibility/generation types Can a net metering customer shop? How is net output price calculated? What are the longer-term prospects for net metering? 2

3. What is Distributed Energy?  Distributed energy resources are parallel and stand-alone electric generation units located within the electric distribution system at or near the end user  Examples of Distributed Energy Systems: Combined heat and power Photovoltaic Wind Geothermal Hydroelectric 3

4. Source: The California Energy Commission

5. Projected Growth in Distributed Energy  Distributed generation is approximately 5% of total U.S. power generation.  In a recent survey by Black and Veatch, more than 40% of the responding utilities indicated that they expected to see distributed generation to be about 10% (or more) of total U.S. power generation by year 2020. 5

6. Benefits of Distributed Energy  Cost savings for owner/customer  (Potential) increased reliability of grid overall  Increased energy efficiency (line losses)  Environmental benefits 6

7. Distributed Energy Concerns  Makes generation and transmission planning difficult  Shifts costs of central station generation and transmission system Remaining customers responsible for costs of system 7

8. Distributed Energy – What’s the Best Configuration?  Utility Side/Wholesale Sell @ Wholesale Interconnect to transmission and/or distribution Clearly have right to sell ancillary services More complicated Requires developer to be LSE in PJM (or other ISO) 8

9. Distributed Energy – What’s the Best Configuration?  Customer Side/Retail Net Metering Usually provides pricing subsidy Limits use of output 9

10. What is Net Metering?  Net energy metering is an important incentive program that can maximize the amount of distributed energy on the grid.  Net metering allows customers with distributed generation systems to be compensated when their systems generate more electricity than the customer is using onsite. 10

11. What is Net Metering  Net Metering “Customer Generator” receives full retail rate credit for outflow (each kWh generated)  Amount purchased by customer generator @ same rate  Customer generation receives payment at some level for net annual outflow 11

12. Source: U.S. Energy Information Administration, based on Database of State Incentives for Renewables and Efficiency

13. Source: U.S. Energy Information Administration, Electric Power Annual

15. Net Metering Legal Issues: Who Can Install Net-Metering ?  General Rule: Retail Customers Only Generally, retail customer must be an owner or operator  States may allow third party financing/ ownership Pennsylvania will allow third-party owner/operator in limited circumstances  Third-party owned and operated systems are limited to 110% of the utility customer’s annual electricity consumption. 15

16. Net Metering Legal Issues: Eligibility of Net Metering Requirements  States may limit net-metering to certain technologies to reflect policy choices  Systems typically sized to on-site load (or a little more)  Generally, limited to small-scale systems  States may limit aggregate capacity, based on utility peak load 16

17. - Eligibility Technologies SolarWindCHPFuel CellBiomassGeothermalCoal MD√√√√√ NJ√√√√√ NY√√√√√ OH√√√√√ PA√√√√√√√ TX√√**√* WV√√√√√√√ 17

18. Summary of Net- Metering StateSystem Size Cap Suppliers Required to Offer ? Applicable Scenario Monthly Carryover Rate CA1 MW; 10 MW for 3 biodigesters NoDual-Bank, if supplier offers net-metering; likely Partial Netting otherwise Monetized credit on full retail rate CT2 MWYesUtility-Side Netting1:1 kWh credit D.C.1 MWNoDual-Bank NettingRetail for 100 kW or less; generation rate for 100 kW to 1 MW DE2 MWYesUtility-Side Netting1:1 kWh credit IL40 kWYesDual-Bank or Utility Side Netting 1:1 kWh credit 18

19. Summary of Net- Metering (Cont.) StateSystem Size Cap Suppliers Required to Offer ? Applicable Scenario Monthly Carryover Rate ME660 kWNoUtility-Side Netting1:1 kWh credit MD2 MWNot addressed Utility-Side Netting (current) 1:1 kWh credit MA10 MW for gov’t 2 MW for others Not addressed HybridMonetized credit based on calculation ( ~ retail rate) MI150 kWYesUtility-Sde up to 20 kW 1:1 kWh credit NH100 kWNoUnclear, probably Partial Netting 1:1 kWh credit NJCustomer’s average annual load YesUtility-Side Netting1:1 kWh credit 19

20. Summary of Net- Metering (Cont.) StateSystem Size Cap Suppliers Required to Offer ? Applicable Scenario Monthly Carryover Rate NY2 MWNot addressed Utility-Side Netting1:1 kWh credit OHNo specific limitNoHybrid or PartialUnbundled generation rate PA5 MW for commercial systems NoUnclear, probably Partial Netting 1:1 kWh credit RI3.5 MWNot addressed Unclear, possibly Hybrid Monetized credit, based on calculation ( ~ retail rate) TXNo state-wide rules for net-metering Source: Justin Barnes & Laurel Varnado, “The Intersection of Net-Metering & Retail Choice: An Overview of Policy, Practice and Issues,” Interstate Renewable Energy Council (2010), at p. 7-8, Table 1 (footnotes omitted) 20

21. Net Metering Legal Issues: Net Metering Customer – Shopping or Non-Shopping?  Rules vary from state whether competitive suppliers are required to offer net metering and, if so, does competitive supplier need to provide subsidy?  PA: EGS not required to offer net metering; if EGS does, the rate it charges/pays for generation is up to parties. 21

22. Are Net-Metering Customers Shopping?  PPL Electric Utilities had the following numbers for net-metering customers as of April 30, 2012: Rate Class Number of Customers Using Net Metering in Conjunction with: Totals Default Service from PPL Service from EGS Residential 1,430 (64.44%) 789 (35.56%) 2,219 Small C & I 284 (62.56%) 170 (37.44%) 454 Large C & I 1 (3.57%) 27 (96.43) 28 Totals 1,715 (63.50%) 986 (36.50%) 2,701 22

23. Net Metering Legal Issues: Calculations of Net Output Price  PA (and other states) current rule: customer generator receives yearly net output at “price- to-compare” (“PTC”) PTC is default service price PLUS transmission  What happens when there is no more default service? 23

24. Net Metering/Distributed Generation Legal/Policy Issues  What Are the Longer-Term Prospects for Net Metering 24

25. Net Metering Arguably Produces Benefits  Lower, more predictable energy bills  Reduces strain on electric grid  Encourages alternative energy production  Net metering customers may be more aware of consumption 25

26. Net Metering Creates Issues  Tilting market in favor certain resources  Remaining ratepayers paying subsidies to encourage net metering E.g., California’s three major electric utilities estimate that burden that will be shifted is about $7.6 million – an extra $185 per year if evenly spread  “Death Spiral”  With advent of abundant domestic natural gas supply some question need to continue to provide regulatory incentives 26

27. Will Net Metering Incentives/Subsidies Continue:  Net metering key part of encouraging “all of the above” strategy  Like Twitter and crowd sourcing, net metering is (increasingly) popular Unlikely that grid will move back towards more centralization Home owners/small business/developers can make money  More of them than utilities But, future of rich subsidies in doubt  Especially as generation pricing becomes more market reflective and competitively sourced 27

28. Questions? Dan Clearfield, Esq. (717) 237-7173 | dclearfield@eckertseamans.com