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New NARUC Manual Will Likely Have Major Impact on DER Compensation

August 16, 2016 By Molly White in

In July 2016, the National Association of Regulatory Utility Commissioners (NARUC) released a draft version of its “Manual on Distributed Energy Resources (DER) Compensation.”

NARUC, a non-profit organization whose members are composed of governmental agencies engaged in the regulation of utilities and carriers in the states and territories in the U.S., also represents the interests of state public utility commissioners before the three branches of the Federal government.

The final version of the manual, due out in November of this year, will likely influence how regulators across the country design rates, which will, of course, have a profound impact on utilities that have customers with DER technologies in place.

The draft manual is the result of a November 2015 resolution adopted by NARUC to create a Staff Subcommittee on Rate Design. This subcommittee has been tasked with providing a forum for state commissioners to address rate design challenges, with a special focus on recognizing the increasing importance of rate design issues in state policy.

According to Travis Kavulla, president of NARUC and a Montana Public Service Commission commissioner, it is rare for NARUC to issue a manual at all. It is also the first time that NARUC has written a manual specifically on DER, and is also the first time that NARUC has sought input from outside parties.

“Once complete, the manual will be a practical tool to help state regulators manage the complicated issues associated with rate design for distributed energy,” said Kavulla.

For NARUC’s purposes, DER consists of: solar PV, wind, combined heat and power (CHP), energy storage, demand response (DR), electric vehicles, microgrids, and energy efficiency. However, the main focus of the manual will be on net-metered solar.

The 66-page draft manual is organized into five main sections:

– Section 1 describes the basic rate design process and how DER affects that process.

– Section 2 defines DER and its relevance for states.

– Section 3 identifies the considerations, challenges and questions raised by the details of rate design and compensation.

– Section 4 outlines a variety of DER compensation methodologies.

– Section 5 provides a description of advanced technologies and services that may assist regulators and utilities in planning and monitoring DER developments, as well as a discussion of the evolving marketplace.

According to the draft manual, it is important for regulators to value both positive and negative factors for each of the categories of costs/benefits in order to ensure neutrality. This method, suggests NARUC, attempts to recognize potential benefits to the grid, other customers, and/or society.

There are six methodologies outlined in Section 4 of the draft manual, which regulators may consider, either individually or in combination.

  1. Net Energy Metering (NEM) is the easiest and least expensive DER compensation methodology to implement, and has received significant attention in states across the nation. However, one concern is that it may overcompensate DER customers and leave non-DER customers to pay for the cost of integrating DER into the grid.
  2. The Valuation Methodology separates what a customer is charged for consumption from what the customer is paid for generation. The payment portion can be determined based on either the “Value of Resource” (which attempts to identify all of the costs and benefits of a DER) or the “Value of Service” (which attempts to identify and quantify all of the services that a DER can provide, such as generation, voltage support, ramping, and/or reliability).
  3. Demand Charges are designed to account for the capacity needs of a customer. Many DER customers still rely on the grid during peak times. If a demand charge is in place, the DER customer would be assessed this charge even if the customer’s import of energy from the grid equaled the export of excess energy back to the grid over the course of a billing cycle.
  4. Fixed Charges and Minimum Bills. The former are rates that do not vary based on a customer’s consumption or generation. The latter establish a floor for energy bills where NEM is in place. Both methodologies are designed to ensure that a DER customer cannot offset its entire electricity bill with the energy exported to the grid.
  5. Standby Service Charges and Backup Service Charges. The former compensate utilities for the energy and capacity that are required to instantaneously provide DER customers with enough electricity to meet their needs in the event of DER outages. The latter applies to planned outages, and, in these cases, when service is not instantly available.
  6. Interconnection Fees and Metering Charges. The former cover the one-time cost of setting up a DER on a utility’s system. The latter cover the cost of the meter, its maintenance, meter reading, and data services.

The draft manual is available at:

Feedback on the draft manual will be accepted through September 2, 2016. (Feedback should be sent to:

The feedback will help to craft the final manual, which, again, is scheduled for release in November 2016.