Oklahoma just passed and signed into law SB 1456, meant to allow power companies to assess an extra fee on  distributed generation (DG) customers who install renewable energy systems and hook to the power grid for backup. It is not really a tax as the extra fee will go to the power company instead of the state. The law was designed to discourage the investment in renewable energy by private individuals, but it may have unintended consequences for the power companies pushing the law.

Fairness:  The rationale for SB 1456 is based upon fairness arguments which have two very erroneous assumptions. It assumes it is not fair (1) that DG customers are being subsidized by other customers and (2) that DG customers cause an extra burden on the power grid. Research shows that states which encourage DG customers have found they provide a small positive benefit both to other customers and to the power grid.  Research (see below) indicates that distributive energy generation may require fewer upgrades to the power grid, benefiting all customers. Customers who use the grid for backup are required to have a net energy metering (NEM) contract with the power company. Under those agreements, they still pay a customer fee, which defrays the cost of infrastructure, and they are usually not reimbursed for any extra power they produce, essentially providing free energy for the other customers. The power companies agree that we should encourage people to use less energy as AEP/PSO’s states its mission is to “help customers use less energy and spend less for it”. Is it fair then that customers who cut their energy use in half by installing extra insulation are appreciated while those who cut their energy use in half by installing solar energy are charged an infrastructure fee? To be fair, DG customers should be charged as any other customer for the electricity they use and they should be compensated fairly for the excess energy they provide. 

ALEC: Since the author the law is AJ Griffin, my State Senator, I contacted her about the rationale for the law. She provided me with a document called Facts and Fiction, which was very similar to the rationale developed by the American Legislative Exchange Council (ALEC) to discourage the development of renewable energy. At their Chicago meeting last year, ALEC adopted discouraging the spread of renewable energy as one of its goals. Their plan to do this was by weakening renewable portfolio standards (RPS), by claiming that it would make electric rates go up, and by promoting the idea that those who install their own solar panels were “free riders” who did not pay their fair share of infrastructure costs.

When I asked Senator Griffin if she was a member of ALEC, she said that it she had attended one of their events, which turned out to be a trip to Alberta, but she did not know if she was a member or not. ALEC is apparently a very secretive organization. She denied that ALEC had anything to do with the bill, and I believe her, as she is apparently unaware of the connection.  Sen. Griffin told me the Facts and Fiction rationale, which was distributed to the legislators in support of the bill, was prepared by a group of people who represent the electric cooperative and the investor owned power companies. It is no wonder that it was very biased toward the position of the power companies.

Senator Griffin told me she had help writing SB 1456 from Kenny Sparks at the Oklahoma Association of Rural Electric Cooperatives. When I contacted him, he said that the idea of the bill had grown out of discussions with a consortium of power producers in Oklahoma which included representatives from investor owned companies. He said electric companies were worried that distributive generation might eventually increase their costs. One of the investor owned companies was AEP/ PSO, which is a member of ALEC, and the impetus and the rationale for SB 1456 likely came from them. Mr. Sparks told me that neither the consortium, nor the group which developed the Fact and Fiction rationale for SB1456, had a representative from any renewable energy group. It also apparently did it  consider the research which shows that private investors in renewable energy provide a net benefit to the other customers.

Research: There has been credible research which establishes that there is a net benefit to all electric customers in states where net energy metering has been encouraged. A study by Crossborder Energy in 2014 found NEM allows utilities to avoid costs of generation and fuel, maintenance and upgrade of transmission and distribution infrastructure, transmission losses (which account to 7% of losses), capacity purchases, and compliance with renewable energy standards. The study concluded,” The cost which utilities avoid when they accept NEM power exported to their grid shows that NEM does not produce a cost to nonparticipating ratepayers; instead it creates a small net benefit on average across the residential markets.” While it does cause power companies to have to adjust their loads accordingly, NEM reduces peak loads, transmission losses, and the need for new power plants.  In California, the study found NEM “delivers more than $92 million in annual benefits to non-solar customers”.

Another important study  was performed at the request of the Vermont legislature and carried out by the Vermont Department of Public Service. They were charged with determining if there is a cross-subsidization with net metering and other retail customers and to examine any benefits or cost of net metering systems to the distribution and transmission system.  The report addressed the specific ratepayer benefit as well as the statewide, societal benefit of solar net as: “Avoided energy costs, including costs of line loses, capacity costs, and avoided internalized greenhouse gas emission costs.; Avoided regional transmission costs.; Avoided in-state transmission and distribution costs.; Solar coincided with times of peak demand and market price suppression.; And an additional benefit explicitly not covered in the study is the economic multiplier associated with the local investment and job creation created from the local manufacturing and installation of net metering systems. “ Even considering subsidies, the report found that solar net metering was a net-positive for the state of Vermont.

It appears from these studies that net energy metering provides a benefit to the states which encourage the installation of solar and wind generation by private individuals. That benefit even extends to other customers.

Unintended Consequences: Though SB 1456 was an anticompetitive bill designed to discourage private investment in renewable energy, it may not turn out that way. Upon signing the bill Gov. Fallin attached a letter requiring “the Corporation commission to conduct a transparent evaluation of distributed generation consistent with the Oklahoma First Energy Plan. It also said, ” This evaluation mandates inclusion of all stakeholders including representatives of the solar distributed wind energy industries and utilities.” and “A proper and required examination of these other rate reforms will ensure an appropriate implementation of the Oklahoma first energy plan while protecting future distributed generation customers.”

The Oklahoma First Energy Policy encourages development of wind and solar energy, but it relies heavily on the increasing development of our natural gas resources. However, fracking and the associated disposal wells may be related to the increased incidences of earthquakes in Oklahoma. Oklahoma is now in the process of replacing some of its coal-fired power plants with natural gas plants. It would be prudent to encourage a greater development of renewable resources in case a definite link was established between fracking activities and earthquakes, which might greatly curtail Oklahoma’s production of natural gas.

Some electric co-ops , such as Oklahoma’s Indian Electric Cooperative, apparently recognize the value of net energy metering. The company allows net metering customers to accumulate credit for excess power and pays them at the end of the year for any excess credit at the wholesale rate, essentially treating them as any other power provider. If the Oklahoma Corporation Commission would adopt a similar model and require that NEM customers be compensated for the excess power they produce, it would greatly encourage private investments in renewable energy installation. It seems it would be in Oklahoma’s best long-term interest to encourage private investment in renewable energy, and SB 1456 may be the vehicle for that to happen.

(C) 2014 J.C. Moore