Last updated: 12/3/14


Distributed generation (DG):

Generating power where it is consumed reduces the energy that would otherwise be wasted in transmission losses over long distances. Centrally generated (CG) power line losses average 6-7% but can reach 25% during peak loads. Energy produced by distributed generation (DG) systems flow directly to users and therefore has no line losses. In addition, DG allows additional savings by reducing the flow of remaining power through T&D (transmission and distribution) wires. Studies at Carnegie Mellon & MIT have shown  that one unit of energy generated near the consumer with DG, depending on grid location, is equivalent to 1.2 to 1.45 times that of energy generated at a CG power plant. Second, each peak unit of energy produced by DG is equivalent to 2 to 2.25 times that of CG energy because DG doesn’t have to travel over the T&D systems at peak demand periods. Considering that PV solar generates much of its power at or near peak periods, it really is a natural fit. (Reference – “Not All Megawatts are Created Equal” –

Net Metering – History and Background in Texas

Most residential and small business solar energy systems that generate electricity are connected to the electric utility grid.  This can be referred to as a grid-tied or on-grid solar electric generation system.  When the solar system is generating electricity during the day, there may be times when it will produce more power at a given moment than the property consumes. At these moments, the extra power will flow back into the electric grid. This extra power will flow to the nearest neighbor that currently has demand for the electricity and be counted as purchased electricity on their next bill.

Simply put, true net metering is an arrangement with your utility that gives you retail credit for using your system’s energy surplus. These credits are tracked and then used to offset usage when your solar system isn’t producing—like at night. Net metering lets homeowners manage electricity production and consumption, and significantly reduce energy costs. (For more information, see

Virtually every state has adopted net metering, making it a powerful driver of residential and small commercial solar.  However, Texas has not adopted a statewide net metering policy. Therefore, at present, most electric providers in Texas do not offer net metering electricity plans. For those electric providers in Texas that do offer some form of credits, it can range from as little as the base rate the utility pays for wholesale power up to equivalent to the retail rate you pay as a customer.

In 2007, the Texas Legislature directed the PUC to ensure fair payments were made to consumers for small onsite solar projects for excess electricity transmitted onto the grid. The PUC has failed to adopt clear rules requiring that all utilities pay a fair market price.

The July/August 2009 issue of Fast Company magazine included an article titled “Why the Microgrid Could Be the Answer to Our Energy Crisis - Why small-scale, local power -- the microgrid -- could be the answer to our energy crisis. And why the big utilities are fighting it with all they've got.“ Included is a reference to a report titled “Freeing the Grid 2009” on comments from the author. See the following excerpt.

James Rose, … , singles out Texas as an egregious example: In June 2007, Governor Rick Perry signed into law House Bill 3693, a big efficiency and conservation bill. Though the new law called for net metering to be deployed "as rapidly as possible," the report explained, utilities took a "hard line" against it at the regulatory level, and ultimately state regulations allow no such thing. "There was the feeling that some of the people who were interested in not having net metering had a lot of say in how net metering was defined," says Rose, choosing his words quite carefully.

From the actual report, on page 10, see “Case Study: Texas”.

Case Study: Texas

Net metering in Texas provides a useful illustration of how the good intentions of elected officials can go astray during the implementation of policy through the regulatory process. In 2007, Texas Governor Rick Perry signed into law an omnibus electricity efficiency and conservation incentive bill. Among its many provisions, the bill declared that net metering should be deployed as rapidly as possible. However, confusion over the term “net metering” at the Electric Reliability Council of Texas (ERCOT) and the Public Utilities Commission of Texas (PUCT) compromised the intention of the law. In the absence of a clearly defined term, the opposition was able to successfully argue that NEM meant something far different than any common understanding of the term. Efforts in 2009 to implement true net metering were unsuccessful. In place of true net metering, Texas’s policy revolves around “surplus energy” metering, which offers few of the benefits of net metering. The lesson here is that a clear definition of net metering in initial legislation is critical to attaining the desired results from the regulatory process.

For additional information, see the January 2011 report by Public Citizen titled “Fix Texas’ Broken Net Metering Policy”. For specific commentary about the Texas legislation (House Bill 3693), see the section titled “What Policy Makers Can Do” beginning on page 9 of the report.

Recommendations to Texas Legislators, Utility Officials & Key Points:

Net Metering - Require Retail Electric Providers (REP) and all other utilities in the state to pay a fair market buy-back rate for solar. At a minimum, it should be at least a one-to-one credit for excess electricity provided to the grid.  Some reasons that the credit should be at a minimum one-to-one are:

  1. Persons who have invested in DG (distributed generation) solar systems are in effect subsidizing those who have not.
  2. Generated electricity that is then consumed at the same location reduces energy waste in the electric grid and reduces stress on electric grid at peak demand periods.
  3. For the small excess amounts of electricity produced by DG solar that is input to the grid, it supplies electricity to nearby neighbors, thus producing the same benefits listed above.
  4. By generating electricity locally at peak demand time periods, DG solar systems are reducing the occurrence of peak wholesale price time periods, thereby reducing costs for other consumers.

A key guiding principle for any net metering policy in Texas should protect customers’ fundamental right to use as much or as little energy behind the meter as they choose, including reductions in their demand from the grid using renewable self-generation and other clean distributed resources. (Reference -

Let’s diffuse the argument that utility customers that have made long term investments in their own rooftop solar are getting a free ride from non-solar customer:

The US electric utility industry has recently awakened to fact the rooftop solar adoption is expanding and that in future years it will impact its profit and its status-quo business model. See Utility Shocked to Find It’s Already Dead.

Recently (in 2013), some utilities in the latest effort to squelch solar (customer distributed generated electricity) is to try to put in place standby charges: fees (or solar fees) imposed on net metering customers that compensate the utility for “standing by,” ready to sell grid-produced energy at night and on cloudy days. For example, in November, 2013 the Arizona public utilities commission agreed to allow Arizona Public Service Company (APS) to charge its residential solar customers an average of $5 per month. The utility treated the ruling as a win, and indeed the charges might eventually add up to enough to cover APS’s attorney fees in the case.

The argument is based on solar customers paying their “fair share”, but the “fair share” argument is bogus. Utilities weren’t set up to ensure Americans all paid their “fair share” of the costs of the electric grid. If they were, there would still be mountain communities without power today.  Residents of cities and towns subsidized the cost of running power lines to far-flung rural homes inhabited by people who could never have afforded their “fair share” of this infrastructure. Even today, city dwellers pay more than their “fair share” of transmission costs to subsidize people who live in sprawling suburbs and less-populated parts of the state. Should there also be a “distance fee” added to customers that live further from the electrical sub-station to recover the cost for running the distribution to customers further away?

Expanding the utilities’ arguments to energy efficiency would imply that anything that reduces energy consumption is in essence a drain on the sharing of maintenance costs of the total system as those costs are in theory fixed. CFL/LED bulbs should then have a special tax or fee, so should gas or charcoal barbeques,  microwave ovens, thermal hot water heaters, and high SEER HVAC units. All energy efficient appliances today should also be taxed or pay a “fee” for using LESS electricity. Now doesn’t that sound absurd!. An Iowa Utility Board ruling says it quite well:

The Board can discern no difference between the use of renewable technologies and classic energy efficiency measures when those activities take place on the customers’ side of the meter. As to classic energy efficiency measures, the use of renewable technologies reduces a customers’ demand and energy use from the utility.   (from Interstate Power and Light Co., Docket No. EEP-08-1, aa 11 (Final Order, Iowa Utilities Board June 24, 2009)

For additional information on the Arizona case, see "An Open Letter to the Arizona Public Service Company". A few excerpts include:

... Throughout the entire process, we have allowed APS to define “cost shift” much too broadly. Dozens of cost shifts are taking place every single day that are actively ignored by APS because they are structured in ways that increase their bottom line profits. Non-utility-owned solar is the first prominent potential cost shift that directly reduces APS net profits which has brought the issue to the forefront...

... Due to inevitable technology innovation, there is virtually no scenario that will stop individuals, families, and business owners from investing in power that they themselves may own....

A similar action in Georgia was defeated (see Solar Fee Defeated in Georgia Power Rate Case). Consumer groups, solar businesses and other stakeholders came out in force to oppose the discriminatory tax, stating that it would prop up the monopoly utility at the expense of market competition and individual property rights. As we are seeing elsewhere in the country, the utility’s rather arbitrary fee proposal was not justified by any fact-based assessment of the value of customer-generated solar power.  One of the five-member, all-Republican state Public Service Commission, Lauren “Bubba” McDonald was quoted during the debate on this subject as saying, “I don’t know what gas prices will be in six years. But I know the sun will come up, and it’s free. It’s not owned by Georgia Power, it’s not owned by Bubba McDonald, it’s not owned by the Public Service Commission,” McDonald said. “It’s free. And to deprive people of the opportunity to take advantage of technology, to me, is wrong.”

A few additional recent statements from industry regulators who see and celebrate change in the electric sector: (re:

To better understand the benefits of distributed generation solar, see "A standardized approach to distributed solar studies".

A few excerpts from another recent article (August 2014)  titled “The Fantasy of Distributed Generation, Efficiency, and Storage Raising Electric Rates”:

“There have been eleven substantive studies on the benefits of net metering for both net-metering customers and electric ratepayers. And virtually all show cost reductions for both electric customers and electric utilities on frequency control and electric power quality (less surges, sages and transients), lower distribution grid bottlenecks and transformer blow-outs that are precursors for outages, and less need to build electric power peaking plants that sit idle most of the time.”

“Whether you’re in the Tea Party staunchly against government-supported monopolies or an environmentalist severely concerned about global climate change, the one thing the entire political spectrum should agree on is that spending trillions of rate payer dollars on generation facilities will not provide stable electric rates or lower costs for consumers. In fact, the opposite is true — saving energy and meeting a significant portion of one’s own needs through private investments will insure a more effective low-cost energy system.

In the early 1970’s, the management of MA BELL, our only phone company, said cellular was a whim in a country with 99.8 percent quality service — who would pay 15 times more for a unit of communication? It’s déjà vu all over again. I am hearing the exact same thing from many electric utilities and their regulators. Sorry Charlie, we’ve heard that all before.”

Probably, the real change needed around rooftop and distributed generation solar is a utility business model to change. More and more people will be generating much of their own LOCAL CLEAN electricity in the future. The newer utility business model would recover fixed network costs via fixed customer charges to all customers, not bury or hide them in per kWh usage rates.  Then regardless of how much electricity a customer pulled from the grid on a monthly basis, ALL customers would be paying for their share of the fixed costs to be tied to the grid.  A good example of a potential business model change is discussed in the article - Minimum Bills: An Effective Alternative to High [Solar] Customer Charges.

Probably, the utility companies that embrace the change will survive, those that don't will not. Traditional wireline telecommunication companies had to change and adapt when wireless communications came on the scene, now it seems the electric utilities will also need to change and adapt.  


Net Metering: A Net Positive, 2013-May

RMI: New Insights Into the Real Value of Distributed Solar, 2013-July-29

The “Value Of Solar” Could Be Worth Much More Than Austin Energy Pays, 2013-Feb-21

From Spring 2012, Sloan School of Management course called “Energy Decisions, Markets, and Policies” (course 15.031J):

How can we boost distributed solar and save utilities at the same time?, April 11, 2013