The shoreline off Ontonagon County, Michigan.

Randy Watson / Creative Commons

The shoreline off Ontonagon County, Michigan.

Solar customers in Michigan’s U.P. feel ‘carpet ripped out’ from under them

As major investor-owned utilities push the Michigan Legislature to dismantle the state’s solar net-metering program, the state’s smallest electric cooperative is taking action on its own with a similar policy effective Oct. 1.

Roughly 20 net-metering members of the Upper Peninsula’s Ontonagon County Rural Electrification Association were notified last month that the co-op would no longer purchase their excess electricity at retail prices.

Instead, the member-owned co-op will purchase excess electricity from its net-metering customers at wholesale rates “minus line loss” — a difference of nearly 10 cents per kilowatt hour (kWh).

Meanwhile, the co-op’s leaders were not able to provide exact figures to justify the change, saying they are still studying the issue.

Solar advocates have warned during recent hearings in Lansing that a similar proposed policy for the entire state — backed by major utilities DTE Energy and Consumers Energy — would discourage self-generation by making the economics unworkable.

Ontonagon REA members — some of whom are “furious” about the change — are a tiny fraction of the total number of state net metering customers, but they are the first test case of what the new net metering policy would look like.

“To get that letter (from Ontonagon REA) about two weeks ago was just devastating,” said Dustin Thomas, a self-employed Hancock, Michigan resident who installed a 9 kilowatt (kW) system on his property about four years ago. “Putting me on a wholesale rate is ludicrous. Wholesalers make a profit, they are on a different scheme. I can’t compete with that. It makes my payback ridiculously long. Other than the super-wealthy, no one is going to put solar in. It doesn’t make sense.”

Longer payback periods

As a member-owned co-op, Ontonagon REA is not subject to oversight from the Michigan Public Service Commission. The co-op has fewer than 5,000 members around the Keweenaw Peninsula of the U.P. who pay some of the highest electricity rates in the country.

According to the MPSC, the co-op had 17 net metering customers generating a total of 61 kW of nameplate capacity last year, which had met the utility’s cap. The net metering program is only open to customers with a capacity of 20 kW or less.

The co-op’s board of directors approved the net metering changes in July, according to an Aug. 28 letter from co-op CEO Deborah Miles.

Under the plan, the co-op would lift the existing cap on the amount of excess electricity it buys back from net metering customers. The cap is at 1 percent of the co-op’s entire capacity, or just over 56 kW as of last year.

Along with lifting the cap, the co-op would buy back excess generation from customers at the average wholesale rate minus line loss, or just over 8 cents per kWh.

According to co-op officials, existing customers would not be grandfathered in.

When he installed his system, Thomas was looking at a 15-year payback period. He said he’s “too frustrated to check the calculator again,” but it could be over 30 years.

“I’ve just had the carpet ripped out from underneath me,” Thomas said. “It’s like someone came to my house and smashed half of my solar system.”

Calvin Koski, president of the Ontonagon REA board, said the co-op is in the process of fully understanding the true costs to other co-op members, but in the meantime is moving toward this system because “we want to be fair to everybody.”

“We do like the thought of solar for being clean and renewable, but we don’t want it to be paid for by other members who don’t want to monkey with it,” Koski said.

Koski claimed some net-metering customers are “making money” off other members under the current system. Similarly, major utilities claim all other ratepayers subsidize self-generators who don’t pay the full cost to use the grid. Clean energy advocates counter that those assessments fail to account for the full value of solar power to the grid.

“We’d like (net metering customers) to keep their units proportionate to their use, not making 10 times more than that and selling it at profit,” Koski said.

‘Make it better’

Thomas, 43, said his system generates just enough power for him to break even or offset his bill since he’s installed it.

“I’d have to generate twice as much electricity to be able to offset the bill,” he said. “It’s not like I’m here collecting the bucks. That’s not the point. That’s what the whole setup nationwide is all about — it’s not to give people a chance to cheat the system. It’s helping the whole system in its entirety to make it better.”

Chris Green, a senior engineer at Michigan Technological University’s Keweenaw Research Center, said the facility’s 10 kW solar array is a working demonstration of how systems in that region could work.

The facility is an Ontonagon REA member, but the system doesn’t generate enough power to meet the facility’s baseload needs. Technically, the change would not affect the center.

“We just believe it is fundamentally wrong to be making such a drastic change to the net metering agreement, especially for the early adopters,” Green said. “That’s going to be devastating to some of the investors up here. They really screwed that customer.”

Green said an underlying issue is in the nature of the co-op structure, and he criticizes the board for not fully engaging all of its membership before making the change.

“We’re a member-regulated co-op, but we are not being controlled by the members,” he said.

Additionally, “one of the battles” going on is “apathy of members.” The research center plans on assembling groups to consider the issue as a whole.

“The utilities need to put their numbers out on the table,” he said. “I agree with the argument that any renewable system should not be subsidized. I also believe (net metering customers) should be given a fair price.”

Koski said the co-op isn’t sure how much net-metering customers cost other members, but he believes it’s “quite small.”

“It’s a small drop in the bucket, but I can see the potential to build fast,” he said.

Indeed, the tension in the whole net metering debate as rooftop solar becomes cheaper is whether customers should be incentivized to generate their own clean energy and to what extent that growth disrupts the traditional utility business model.

Options utilities are considering that have generated strong opposition include changing the rates at which it buys excess electricity from customers, or attaching a monthly fixed fee on customers with solar panels.

Last month in Iowa, a rural co-op withdrew its plan for an additional $57.50 monthly fee on customers with solar panels due to customer backlash.

Koski said the board is still evaluating the program as part of a comprehensive rate study and more changes could come after Oct. 1.

“I would not discourage people from installing solar,” Koski said. “I don’t think anyone on the board would want that. We just don’t want to buy it back at retail when they have it to sell to us — we’d want it at wholesale when we need it.”

But like other solar advocates, Thomas sees it as a setback and a contradiction of Michigan’s 2008 renewable energy law meant to incentivize more clean energy.

“Whatever pace we were picking up, they’ve put it in reverse,” Thomas said. “Now I just feel cheated.”

19 thoughts on “Solar customers in Michigan’s U.P. feel ‘carpet ripped out’ from under them

  1. “We’d like (net metering customers) to keep their units proportionate to their use, not making 10 times more than that and selling it at profit”: This statement by the President of the coop demonstrates a fundamental misunderstanding of how net-metering works. Customers never get paid by the utility, they never receive a check. They simply receive a credit for excess generation (eg: summers) to offset excess consumption (eg: winters).
    I challenge the REA to show this mythical customer who is making “10 times more and selling it for a profit”. I challenge them to back up their claims with data and numbers.
    When the board is this uninformed, I question their ability to serve in the best interests of their members. Applying policy changes, that too retroactively, based on the Board’s feelings without ascertaining facts, is whimsical and unconscionable.

    • The “Monkey with it” quote is pretty telling, as well. This looks reactionary to me.

  2. “We’d like (net metering customers) to keep their units proportionate to their use, not making 10 times more than that and selling it at profit,” Koski said.

    Okay, that’s a fair statement, we shouldn’t be giving near-utility scale generators a lot of extra income. However, as an OCREA member and one of a new generation of people going solar just as the co-op is screwing around with their net-metering policy, I feel especially targeted by the Board’s brazen attempts to limit solar installations. If Calvin Koski says he supports proportionate use, why is he punishing people like me who are installing a system that will ONLY generate around 60-70% of my yearly use? When I started our install this summer my payback was estimated to be around 9-12 years. Now, who knows. Maybe 20 years? 25? Will I break even before my warranty runs out? Maybe Calvin Koski has some answers for me.

    If that’s not proportionate use, what is Mr. Koski? I’m below 100%! I’m not asking OCREA to net me a profit like the Board is (OCREA Board of Directors are being compensated thousands of dollars per year, paid for by the co-op members in our high rates). All I wanted is to help offset my outrageous electric costs and do right for the environment. I am not looking to generate 10x my annual use like he claims. My 7.2 kWh system is proportionately sized for MY use. If, as Mr. Koski says, he “would not discourage people from installing solar,” then why create backwards policies? Either the OCREA Board is hiding some ill-dealings, or they are blatantly attempting to stifle solar innovation to protect their own profits on the backs of the members.

    -Nathan

  3. Solar advocates need to learn how to articulate the value of peak generation to a utility. While there is a legitimate cost to the utility for having a customer use it as a battery, it is not a matter of line loss, as this article suggests. Rather it is a matter of fixed costs being charged to the flat rate per KWh.

    Because fixed costs are lumped in with a flat rate per KWh, the utility loses a share of revenue. In the case of a Rural coop like this, they can deal with that in any number of manners more appropriate than the one they chose.

    Such alternative manners start with ignoring the issue until it becomes large enough to matter – clearly not the case here.

    But the real problem is that they are under-compensating for the value of electricity delivered during peak generation hours. Their retail rates undercharge for those hours by flattening out the variable cost around the clock and around the year.

    Measuring that variable use is probably not cost-effective for small net metering customers, but there are plenty of ways the impact can be determined as a function of their straight KWh use minus generation. We know what average use was, we know what individual customers used before they went solar, and we know about how much solar power they sold back. Compensation can be made on an expected schedule whether or not there is a time of use meter.

    Many smaller utilities are run by local businesspeople with little or no understanding of the details of ratemaking. This needs to be explained as a means of enhancing their own cost of doing business.

    Peak power may not be so much more valuable that it compensates for a shift from retail rates. But it is certainly better than wholesale rates. And it is the right way to do this, so if it makes solar unworkable today, we will have to wait two or three more years until solar is so cheap it doesn’t matter at all. But from what I read, solar is already cost-effective through the entire Midwest, if time of use is properly compensated.

    • Ned, you are correct when you say the fixed costs are built into the energy rate. Utility rate design is antiquated, and it took a long time to get it screwed up this bad.

      Folks need to understand their are three categories that make up rates, fixed cost (poles, wires, transformers, etc. and overhead), demand and energy. All utilities have let the fixed cost creep into the energy/demand rate because that’s the way they have always done it, and its easy. The problem is, we have cross subsidies happening among all the rate classes. The high kWh users are subsidizing the low kWh users etc. Utilities need to unbundle their rates into the above categories and make those that use the product/service truly pay the appropriate price.

      Net metering generators should be paid for the energy they produce at wholesale pricing and the demand they off set and that’s it! In most cases solar users are contributing to the utility peak demand which happens early in the morning and late in the afternoon when solar is not generating. Therefore, by having a fixed charge, energy rate and demand rate everyone is paying their fair share.

  4. So, “According to the MPSC, the co-op had 17 net metering customers generating a total of 61 kW”. That averages out to about each customer having a small, 3.5kW solar system. None of these customers could possibly be generating 10 times the amount of electricity they consume, like this Koski dude claims. It looks like an attempt to screw the solar industry and the early adopters who have supported it.

  5. I can understand why they are upset. However, that doesn’t change the fact that compensating excess energy from net metering at retail rates is a ripoff of everyone else. A retail bill can be de-composed into several components. Energy is just one of those components. Transmission (long distance wires), distribution (local community wires) are the major portion of what’s left. To pay the net metering generator the monies from ratepayers that are intended to pay for transmission and distribution costs is ridiculous. Why? They are not providing that service.

    Further, the article indicates that the rate of compensation is 8c per kwh but also that the rate that they would be paid would be the wholesale rate. That wholesale rate for WUMS energy is actually <5c/kwh. NO part of the continental US has 8c wholesale energy, not even Long Island. I don't understand why they are complaining.

    I suspect that they are being paid the 'levelized cost of energy', which is a bizarre utility accounting construct that artfully inflates electric generation costs for rate setting purposes. I like to characterize LCOE as an engineer's idea of what the market price should be. Engineers are so cute!

    Federal statutes written in the 1970s, which don't directly apply to this cooperative, specify that the compensation for co-gen should be the 'levelized avoided cost of energy', (LACE) which in 70% of the country (in ISO/RTO regions like MN and MI) is moving towards the market price called 'locational marginal price' (LMP).

  6. Let’s stop calling OCREA a member regulated utility. It is managed by a board with little chance for members to affect decisions like this. Perhaps we should unite and make OCREA subject to ALL Michigan Public Service Commission (MPSC) rules and State Laws. If this was the case, then they would not be able to make this change. If you are an OCREA served customer like me and you do not agree with this change to the net metering policy make your voice heard. KRC will be having a meeting soon inviting OCREA customers to our site to discuss this and any other issues that MEMBERS would like to see changed. Stay tuned.
    Jay Meldrum
    Executive Director
    Keweenaw Research Center of Michigan Tech

  7. If only we had a carbon tax, then carbon free solar power would have more value.
    This would be a great leveler because now the pollution from coal is externalized into the atmosphere , a value the utility benefits from and profits off of. But another value is tied to the “peak” power points in the morning and late afternoon and evening, when people turn on their big loads at home. Solar peaks at noon, or a west facing array a little later. The point is that solar is feeding the grid at important times and has the consequence of providing “grid support” and reduces stress on the transmission lines and transformers, coolers, etc. (Delaying inevitable maintenance on machinery.) Really, society and utilities should be paying people to go solar because solar enhances a grid’s operation, not undermines it. Solar advocates do need to make a stronger case for Going Solar!, and the benefits it brings to the grid, but they also need to brace for more resistance from the dinosaurs, and plan for annual trips to the local legislature.

    • Externalized costs are indeed the real substantive issue here and subject to more than trivial monkeying around.

    • Massachusetts has sort of a reverse carbon tax in the form of SREC sales. SREC deals with carbon credits. 1 KW of solar production offsets 1 ton of carbon generation from not burning fossil fuel. Massachusetts requires the electric company to buy back these carbon credits for the next 10 years at market value from the their solar generating customers. A 5kw system should “earn” $14,561 over the next ten years. Since a 5 KW solar system costs about $18,000 – $6400 (fed 30% tax credit and $1000 MA credit) = $11600. Take a loan for $11600 and use the $1,456/year to pay the loan off. A 10 year loan at 5% is $1476/year. Pretty close to a free solar system. Go to
      http://www.solarpowerrocks.com/massachusetts/#perf_payments to read about.

  8. Although I am a strong supporter of distributed generation, it should be obvious that net-metering (retail rates) can not be a viable arrangement for the long term. As the number of installations rises — which it will — then the number of users covering the distribution costs decreases, and at some point this becomes unworkable.

    The only real question is how to manage the transition from what generally exists now to what must exist later. Although people who installed systems under certain expectations should not be disrupted immediately, they must realize that at some point a change is inevitable. Meanwhile, new adopters must understand the long-term situation when making their decisions.

    It would be nice if the necessary adaptions could happen smoothly but, of course, that’s highly unlikely.

  9. Our area has an “effective wholesale energy rate” well in excess of $0.05/kWh, driven in part by high power demand costs. The data provided by the General Manager stated, “Our total kWhs purchased as of July 31, was 16,573,542 at a total cost of $1,590,855.38 for an average cost of $.09599”. They then reduced this by 13% (claiming a 3% transmission line loss and a 10% distribution line loss) to arrive at an net-metered excess energy generation rate of $0.8359/kWh. The Ontonagon REA cooperative currently charges its residential customers $0.187/kWh plus a $20/month service charge. So for those of us who installed a renewable energy system based on $0.187/kWh, the reduction to $0.08359 has a huge impact.

  10. If everyone produced as much power as they needed for themselves, where would that leave the utility companies? Maybe they should count their blessings and develop a new business case that lets them profit solely on providing and maintaining the distribution grid alone and stop considering their profit from PRODUCING power. Have you heard the stories of municipalities that threatened to evict property owners who chose to live off-grid in a grid-enabled area? The utility and/or municipality was trying to make the homeowner establish an account with the utility and pay a monthly “availability” charge even though the property owner did not want to be connected. And in reading other comments, I agree the utility is burying any discussion about the benefi of what solar providers provide them during mid-day in terms of the savings they realize by not having to build “peaking” plants which are a very uneconomical action for a utility to have to take. I offer them extra juice exactly when they need it most and take it back in a trickle at night when I need it and when they have excess capacity. Why the heartache? Why the hostility? We are partners here and each side offers benefits to the other as is. By discouraging us little producers, what will that get them? An ever declining share of the pie and just like maintaining the bridges, roads and sewers in the big city…are the 50 customers that remain loyal going to be asked to carry the maintenance burden for the entire aging grid? Once they hit that economic tipping point, they will lose the game with amazing speed.

  11. When I signed an Interconnect Agreement, my local electric utility and I became partners, and the whole point of the agreement and of being partners is that partners are supposed to help each other out to mutual benefit. That must certainly have been the case when the utility bought into the concept initially anyway. Unless of course they never did so willingly and had to be foolishly dragged in to the deal by federal mandate but I digress. At any rate, I believe we small rooftop grid-tied producers are providing them a service as peaking plants and thus save them that expense, and they in turn help me by saving me the cost of installing batteries and charge controllers. it’s effectively tit for tat. Now I can hear them say that our solar contribution is so negligible as to be worthless to them well then…which way is it? Either we count or we don’t. Apparently they want it both ways. Is it always about greed? Have any of the politicians sponsoring the proposed republican legislation ever considered that always doing the cheapest or most profitable thing may not be the “right” thing? Doing the cheapest thing got us to where we are now. Now we can argue about if we’re truly better off now than we were 50 years ago? Hmmmm.

  12. Welcome to NetMeetering as it is here in Missouri… pay retail for electricity from the utility, but receive wholesale back for any excess generated. It’s even worse in terms of a monthly true-up, and the utilities, by law, are never required to actually “pay” anyone anything… it’s just a credit on the next months bill- and lost if not used for the month. That is an awful approach that needs changed… most states have the annual true- up, which is fair and allows the solar generator to balance out the overall annual utility costs versus production. And now the utilities are building their own solar farms to meet the required renewable goals. Personally- I still love my own solar generation, but the payback is indeed a long term process.

  13. Congratulations to OCREA for having, at the same time, the highest electric rates in Michigan (if not the entire U.S. mainland) and for leading the most non-progressive rate changes to net metering. As a residential electric producer with UPPCO (2.6 kW peak power wind turbine) on the Keweenaw’s north shore, I have received a dollar-for-dollar credit for over 8 years. Sized to offset 50% or more of my projected use, after this eight years I am going to supplement the wind turbine with solar before the sunset of the 30% Federal ITC to make our home energy consumption “net zero.”
    While it would be relatively straightforward for our family to create a mini wind farm on our property–or oversize the solar array to generate income–that is not in keeping with the philosophical nature of the green net metering program. In fact, as a member of the Keweenaw Renewable Energy Coalition, I am in favor of energy generation programs for the U.P.’s 15 counties that supply our energy needs–and are modular to support appropriate commercial and residential growth in this economically challenged area. I do not swing the pendulum to the other side, and suggest 300 turbine wind farms for a small area. In fact, Keweenaw County could supply its 2300 permanent residents with just TWO G.E. 1.6 MW turbines, given our incredible capacity factors for wind.
    Hell, I’ll host both of them on my 20 acre farm in Sedar Bay, and 99.9% of residents and tourists will never have to see them.
    I congratulate KRC’s efforts and support Chris Green’s and Jay Meldrum’s comments on this unfortunate situation with OCREA. Abhi Khantemnani has been tireless in his evaluation and dissemination of solar’s potential, and our problems implementing it, here in the energy crushed U.P.
    Keep us posted on any public hearings on the issues and we’ll be there with bells on.

  14. While the future of asymmetric NEM will take some time to settle out properly, two things really leap out here:

    1) Not grandfathering in existing customers who made big long-term investments in energy generation is terrible policy. It would cost the co-op virtually nothing to cover those 61kw in perpetuity, or at least for another 20 years, and it would surely facilitate a more graceful transition to the new schema. It’s like giving the middle finger to the little guy just because they can.

    2) The wholesale less T&D costs rate should at the very very least be wholesale plus avoided T&D losses. The majority of those excess electrons aren’t going upstream above the feeder line any time soon. This isn’t Hawaii.

  15. I suggest you go to the edison electric institute site. They have documents you can download. Look for “disruptivechallenges.pdf” on their site, download it, and read it.
    In exact detail, they state that solar energy will drive them out of business inside 30 years. Their stock ratings have been downgraded by stock rating companies 1 grade. Predicted by that report.
    So, what do you expect these utilities to do?????
    They can either change their business model(invented by Thomas Edision 100+years ago) or go under.
    This is why even thinking of dealing with electric utilities in the next 10 years is counter productive.
    According to that report, from the investor owned electric utility lobbying organization itself, within the next 5+years, far better and far lower cost lithium ion batteries will be available, driven by the needs of the battery electric and hybrid vehicle manufacturers. And costs for solar equipment will continue to fall.
    Once that happens, who needs utilities??? That is why you are having all this grief.
    I presently have 4.27 KW of panels up with a grid tie microinverter system. As soon as XCEL goes ballistic on me, I will have to change to a central inverter, and get some batteries ready, and put up more panels. And since my house is not ideal for solar, perhaps a small natural gas powered generator for the deepest winter. And I will have tons of excess power available in the summer I could put on the power lines that will simply go to waste.
    Again, I repeat:trying to figure any involvement with a electric utility in the future is not facing reality.
    Electric utilities are trying to crush solar and charge higher rates. Utilities are doomed now that the cost of solar has fallen so far, according to their own lobbying organization. And the utilities know it.
    Any electric utility with nuclear generation or building more nuclear generation is a dead duck. And they will not face the facts.