Net Metering and the Sussex Solar Project

This narrative explains the cash flow and benefits of "net metered" solar facilities that are coupled with a Power Purchase Agreement ("PPA"), which is the arrangement with the Local Units included in the Sussex County Solar Project.

Net Metering is regulated pursuant to the New Jersey Board of Public Utilities ("BPU"), and the accompanying regulations can be found in the New Jersey Administrative Code at Title 14, Chapter 8, Subchapter 4 (N.J.A.C. 14:8-4.1 et seq.). A Customer (end user) is allowed to either construct and generate their own solar facility or have a third party construct and own it for them and is allowed to feed unused electricity back into the grid. The solar generation facility is sized so that it produces no more electricity than the electricity the Customer utilized over the preceding twelve month period prior to applying to the BPU. Generally, the purpose of this sizing is to have the net metering customer be able to offset up to all of its electric consumption over a twelve month period with electricity from a solar generation facility. It is important to note that the BPU may deem a pair of entities acting together - that is, a net metering generator and a net metering customer - to constitute one "customer-generator" for the purpose of net metering, as this is the construct that is contemplated under a PPA structure.

The BPU regulations provide that all electric distribution companies ("EDC") (i.e., JCP&L, PSEG, ACE, etc.) must offer net metering to their customers and "if, in a given monthly billing period, a customer-generator supplies more electricity to the electric distribution system than the EDC or supplier/provider delivers to the customer-generator, the EDC and supplier/provider shall credit the customer-generator for the excess. To do this, the EDC or supplier/provider shall reduce the customer-generator's bill for the next monthly billing period to compensate for the excess electricity from the customer-generator in the previous billing period." N.J.A.C. 14:8-4.3(c). This credit shall carry over from monthly billing period to monthly billing period, and the credit shall accumulate until the end of the customer-generator's annualized period, and at the end of a customer-generator's first twelve month cycle of billing the supplier/provider shall compensate the customer-generator for any excess kilowatt hours generated, at the electric power supplier's or basic generation service provider's avoided cost of wholesale power.

Thus, the net metering customer receives the benefit from the EDC and the supplier/provider, in that, assuming they owned the customer generating facility and did not have a PPA, they would accumulate a credit on their electric bill in the higher energy production months (typically in the summer) and offset against the lower production months (typically in the winter). If a system is sized appropriately to the energy utilization by the customer, the customer would pay "net $0" for their electricity over a one-year period.

However, by overlaying a PPA the customer does not own the energy generation facility, which instead is owned by a net-metered generator, and the customer has agreed through a PPA to purchase up to all of the energy produced by the net-metered generator's facility, which was designed specifically to net meter the customer's electric consumption as described above. In this instance the customer is effectively reducing their energy expenses, and instead of paying net $0 for electricity they pay to the net-metered generator the price per kW/h set forth in the PPA, which is almost always less than the amount being paid by the customer to the EDC or the supplier/provider. In the event that any solar facility for a Local Unit at a given year end should have over produced electricity, all over production will be paid for at the PPA rate to the net-metered generator and the Local Unit will receive a credit for the overproduction from the EDC on the Local Unit's bill.

Regarding the Sussex County Solar Project, each of the Local Units signed a PPA for the purchase of the electricity generated by the Sunlight General owned net-generating facility, at a particular price per kW/h less than what each of the Local Units would have been paying to the EDC (here JCP&L). The benefit that comes to Sussex County, as the guarantor of the project, is not the net metering energy cost reduction, but rather is the fees received by Sunlight General under the PPA, which payments are used, in part, to pay for the debt service on the bonds that were issued to construct the project.

Posted December 16, 2016

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