Advocates, utilities ask Indiana Supreme Court to decide how solar customers are charged

A case pending before the Indiana Supreme Court will determine what future electricity bills will look like for Hoosiers with rooftop solar — and it could mean the difference of more than $100 each month.

With the end of net metering, which paid customers the retail rate for excess power they generated, utilities have slashed the payback rate. They also changed how that solar output is calculated.

But consumer advocates say that change goes against the original 2017 law that gutted net metering in the first place. Even more, they worry the new rules could put rooftop solar out of reach for many residents.

The number of solar owners across Indiana has continued to increase in recent years. But advocates and industry experts worry that momentum will come to a halt because utilities’ new solar tariffs essentially eliminate any return on investment.

Utilities say the change is needed, however, to limit what they describe as a subsidy paid to rooftop solar owners by other customers who do not generate their own power.

Now it’s up to the Indiana Supreme Court to decide. But even a decision from the state's highest court is unlikely to mark the end of the fight between consumers and the utilities.

“This is a case that is at least the first in what might be a series of dominoes to fall that will help determine the full impact” of Senate Enrolled Act 309, the law that phased out net metering, said Zach Schalk, Indiana program director for Solar United Neighbors.

“Broadly speaking,” he continued, “we think this case will set precedent for how utilities will treat solar owners.”

Multiple appeals have landed this debate at the state’s highest court. While all utilities have their own tariffs, this case, as ground zero, is focused on CenterPoint Energy, which serves electric customers in southern Indiana.

Still, the case has “broad application to all electric utilities” overseen by the state regulatory commission, said Danielle McGrath, president of the Indiana Energy Association, a utility trade group.

That’s why the utility industry, consumer advocates, solar installers, state legislators, customers and more are keeping a close eye on the outcome.

Putting solar out of reach

Indiana previously had a policy that was meant to help boost renewable energy in the state: It was called net metering. The program helped incentivize homeowners to install solar by making the investment more economical. In essence, it credited homeowners for excess energy they generated and sent back onto the grid.

The credit was at the retail rate, or the same rate customers paid for electricity — making it an even 1-to-1 swap. That reduced their overall electricity bill at the end of each month and lessened the burden of cost of installation over the long-term.

But in 2017, the Indiana legislature passed a bill phasing out the program over several years: SEA 309. Under the law, net metering expired on July 1 — those who got solar before then are grandfathered in for a certain period. That means utility customers who now install panels are no longer eligible for the full retail credit for their solar energy.

In its place, the law required utilities to create an “excess distributed generation,” or EDG, tariff to determine how much customers will be paid or credited for energy they send back to the grid.

The new rate will differ for each utility, but across the board, it’s “dramatically lower” compared to what early solar adopters received — often around three to five cents per kWh compared to the retail rate of around 10 to 15 cents.

Many advocates feel that rate is too low and does not fairly compensate customers, but Schalk said the law is “very clear” about what that number should be.

“That’s not what this case is about,” he said. “This case is about how those credits are measured.”

Under net metering, the difference between energy consumed and energy produced was measured at the end of the month. That’s because when the panels are producing doesn’t always line up with when the homeowners are at home and drawing energy.

So, for example, if someone consumed 1,000 kilowatt-hours of utility energy — beyond what they use of their own self-generation — and sent 850 back to the grid, they would pay for the 150 kWh difference at the retail rate. At 15 cents per kWh, that comes to about $23 for the month.

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But utilities have changed the calculation to what they are calling instantaneous netting, which does not settle monthly. Instead it charges customers for the utility energy they use at the retail rate. For 1,000 kWh, that would be $150. The utilities then give the homeowner a credit for the energy they send back to the grid at the lower rate — or about $34 for 850 kWh at a 4-cent rate.

Taking the difference, customers would be left paying about $116 for energy consumption. That’s nearly $100 more each month.

Bills from a few CenterPoint customers show that even though they sent more energy onto the grid than they used over the course of a month, they are still facing bills of more than $100, including some of their fixed charges.

“We prefer to call this ‘no netting’, because there really is no netting that’s happening,” said Kerwin Olson, executive director of the Citizens Action Coalition, a consumer advocacy group.

The shorter the interval period gets from monthly netting, advocates say it becomes less favorable for solar owners.

By seeing smaller savings on their electric bill, the return on the investment in solar makes less financial sense. An analysis by the CAC found the new EDG tariffs can nearly double the payback period for installation — taking it from about 15 years, on average, to nearly 30.

“This just fundamentally changes the economics of customer-owned generation for customers wanting to go solar,” Olson said. “Does it put solar out of reach? Not for some, but definitely for many.”

The approach reinforces the divide between the “haves and have nots,” he added, saying it will be much more difficult for lower- and middle-income families to make the transition.

What does the law say?

CenterPoint was the first utility to apply for its new EDG tariff in May 2020. After nearly a year of testimony from all stakeholders — including advocates raising concerns — the Indiana Utility Regulatory Commission approved the utility’s new solar rate and measurement structure in spring 2021.

As of July, CenterPoint had around 1,100 rooftop solar customers, with roughly 100 of those under the new EDG tariff.

The state’s utility consumer protection agency felt the IURC made the wrong call, and appealed the Commission’s decision to the Indiana Court of Appeals in fall of 2021. Several advocacy groups, including CAC and Solar United Neighbors, joined in the cause.

In all its filings, the Office of Utility Consumer Counselor said it has “focused strictly on a legal argument.”

“We have argued, and continue to hold the position, that the language in the commission order is not consistent with the language in the EDG statute,” said OUCC spokeswoman Olivia Rivera.

While SEA 309 doesn’t specify an exact interval, such as monthly netting, it does require there to be a calculation of the difference between energy produced and consumed. The OUCC and advocates argue the instantaneous measurement doesn’t do that.

“Instantaneous netting only tracks what goes out and what comes in, there is no difference between those two numbers,” Schalk said. “What they are doing is the difference between dollar amounts, not the difference between energy.”

The state Court of Appeals agreed, and ruled in January of this year that CenterPoint was doing the wrong math and its new tariff did not conform with state law.

Within the month, CenterPoint petitioned the Indiana Supreme Court to take the case, with the support of both the Indiana Energy Association as well as the IURC.

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CenterPoint and other utilities say this change reflects what was laid out by the legislature and that instantaneous netting balances the interests of all customers and ensures they are paying for and being compensated for energy in real time.

Under a monthly netting structure, much of a customers’ surplus energy returned to the grid is credited at the retail rate, said CenterPoint spokeswoman Alyssia Oshodi. Only if a customer produces more in a month than they use from the utility, will they be paid the EDG rate for the excess.

“Because most customers do not return more energy to the grid than they use in a typical month, the EDG rate set forth in [SEA 309] will seldom be used as a basis to credit customer bills” under monthly netting, Oshodi said. “How the energy is calculated determines the rate at which the customer is credited for what’s returned to the grid.”

The IURC agrees. In its own petition to transfer the case to the Indiana Supreme Court, the commission said that when the supply of electricity can go in either direction, the time interval for measuring that electricity “matters a great deal.” It adds that to capture “the most precise value” of what the customer is using versus generating, that measurement must be taken “at the most basic interval possible, i.e., within a fraction of a second.”

If that calculation was done monthly, the IURC in its petition said, “the gulf between the two yields such dramatically different outcomes for electricity valuation” and that “the choice between one of the other must reflect a deliberate legislative policy decision.”

The Commission said the Court needs to decide which policy the legislature chose.

State Rep. Matt Pierce, D-Bloomington, said he believes the answer is “painfully obvious.” He said SEA 309 originally had a similar instantaneous calculation in it that was pulled out after understanding its impacts.

“That’s proof of what the intent of the legislature was,” said Pierce, the ranking minority member on the House Utilities committee. “Out of all the debate and discussion about the bill, changing how to calculate how much energy is exported was never part of it.”

The Supreme Court accepted transfer and heard oral arguments on this case on Sept. 15. A decision isn’t expected until the end of the year at the earliest, or at the start of next year — right at the beginning of the upcoming legislative session.

This isn't the end

There is a big question of how much of a precedent this case will set, depending on the ruling, for other utilities. They all said they are watching to see how it might impact them.

That’s because Indiana’s other four investor-owned utilities — AES Indiana, Duke Energy, NIPSCO, and I&M — have all had their own EDG tariffs approved by the IURC in the last year. They all use instantaneous netting.

NIPSCO, which serves northern Indiana customers, originally submitted its new tariff using monthly netting. After CenterPoint’s request was approved, the northern utility refiled with an instantaneous structure. NIPSCO acknowledges that its new tariff is “substantially similar” to CenterPoint.

Across the four other utilities, there are currently 124 customers receiving service under their new EDG tariffs with a few dozen applications being considered.

All four of those tariffs have been appealed as well and are being held at the Indiana Court of Appeals pending action by the Indiana Supreme Court in the CenterPoint case.

Duke spokeswoman Angeline Protogere said the utility believes instantaneous netting complies with the law and its intent — which is “to ensure that customers who do not own solar generation are not subsidizing those who do,” she said.

“Even though they generate some of their own power, solar customers still rely on electrical infrastructure such as power lines,” Protogere said. “The new rate reflects the cost of that.”

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Even if the Supreme Court were to uphold the lower court’s decision and rule the tariff doesn’t comply, there still is a lot of uncertainty, Schalk said. The order would likely remand the case back to the IURC, but it’s unclear how prescriptive the ruling will be.

It could be narrow just to CenterPoint’s case, or it could apply to all the utilities’ EDG tariffs. It could tell the IURC what to do, or just tell them they need to take another look and leave it up to them. It could direct CenterPoint to make its EDG customers whole from the last year, or just change the tariff going forward.

“It’s murky all the way down,” Schalk, with Solar United Neighbors, said.

Olson with CAC said he thinks both sides will look to the legislature to “fix whatever the outcome is of the Supreme Court.”

“If we lose, I think we would look for a legislative fix,” he said. “And I don’t think there is any question if the utilities lose that they would do the same thing.”

Pierce said he tried to introduce a fix during the last legislative session, proposing a bill to make clear the statute’s intent. And just last month, Pierce proposed a recommendation for the Energy Task Force’s final report to clarify the rules for calculating excess energy.

Both times he was told that the general assembly wants to wait for the Court’s decision, and Pierce’s proposals were voted down.

“I don’t think the legislature is in a big hurry to address the issue,” he said. “My suspicions are that some people are in support of what the utilities have done.”

Both Pierce and advocates said they will keep an eye on the legislature’s next steps and the IURC’s regulatory process coming out of the Court’s decision. Utilities and their customers are following closely, too. It’s been more than two years since this debate began, but all agree: The stakes are high and the implications for ratepayers are significant.

“Everyone is watching this and waiting,” Schalk said. “We definitely expect there to be further action from this, whatever the outcome.”

Call IndyStar reporter Sarah Bowman at 317-444-6129 or email at sarah.bowman@indystar.com. Follow her on Twitter and Facebook: @IndyStarSarah. Connect with IndyStar’s environmental reporters: Join The Scrub on Facebook.

IndyStar's environmental reporting project is made possible through the generous support of the nonprofit Nina Mason Pulliam Charitable Trust.

This article originally appeared on Indianapolis Star: Debate over utility solar rates for customers lands in Supreme Court