Net Metering Decision Raises Hackles of Solar Supporters

'Avoided cost' rate will impact Michigan’s interest in residential solar

By Jason Hayes | April 25, 2018

An April 18, 2018 ruling by the Michigan Public Service Commission – the state government body that oversees Michigan’s electricity and telecommunications services – is adding to tensions in the debate over rates for net metering. Deciding how much money people with solar panels on their home or business will receive for the electricity they generate and sell to a utility — a practice known as “net metering” — touches on several lightning rod issues. Among those issues are electricity rates, competition in electricity markets, subsidies for renewable energy and the notion that renewable energy could make a difference in climate change in some substantive way. Add to all that the reality that, whatever it rules, the MPSC has the authority to substantially affect the trajectory of residential solar industry in Michigan – growth, flatline or contraction.

This MPSC decision hasn’t come about in a vacuum. Section 6a(14) of the state’s new electricity law – Public Act 341 – required them to do this. The act mandated that, by April 2018, the MPSC had to set a new compensation rate for customers taking part in the distributed generation program. It says the rate must be “just and reasonable to the electric consumer of the electric utility and in the public interest,” and cannot “discriminate against qualifying cogeneration and small power production facilities.”

When people install solar panels on the roof of their home or business, they are able to sell electricity that they do not use back to the utility, effectively spinning their electric meter backward and reducing their monthly electricity bill. So far, the utility has paid those customers the same rate it charges every other retail customer. But that practice will change under the MPSC ruling.

And so it should; a utility pays too much when it is forced to pay retail prices for the excess electricity generated by people with solar panels. In the normal course of business, utilities incur infrastructure and overhead costs, which they pass on to their customers as part of the normal monthly utility bill. But when solar panel owners are paid retail rates for the electricity their panels produce, they don’t contribute to meeting those infrastructure costs. In fact, they add to them, and the majority of utility customers who don’t have solar panels must make up the difference.

Having other utility customers cover that cost has been the norm up to now. But rather than making utilities pay new solar customers the retail rate for their surplus electricity, the MPSC ruling abandons the traditional net metering payment in favor of an “inflow/outflow” billing method. That is, inflows – electricity purchased by the customer from the utility – are charged the normal retail electricity rate, and outflows – electricity that flows from the customer’s solar panels to the utility grid – are priced at the utility’s “avoided cost” rate. That rate is defined as “how much a utility would have to pay to produce the energy itself, and is the sum of capacity and energy costs.” This rate is far less than the retail rate.

Advocates of net metering argue that distributed generation, whereby some individuals generate their own electricity with solar panels, wind, etc., benefits everyone by diversifying and strengthening the electrical grid. They worry that this ruling will effectively raise the costs of installing solar by reducing net metering payments, and that could discourage new solar installations. That may be true, but a far more effective means of diversifying Michigan’s electric grid would be to remove the arbitrary 10 percent cap on the state’s electricity choice market and encourage open competition in electricity generation.

Additionally, it is true that targeted subsidies and paying above-market rates for electricity from solar panels will help a tiny segment of utility customers. As an aside, those customers being helped tend to be the ones who can already afford to buy a residential solar setup, or who are able to qualify for a solar lease. But, we should all recognize that help is a short-term, targeted gain for some that will cost the entire system more than it benefits.

Michigan’s government needs to take a consistent stance that it will not support subsidies or special favors for any energy producers. If people want to use distributed generation options such as residential solar for economic or environmental reasons, they are welcome to do so. They just don’t need government payments or prodding to help them along.

Michigan has already erred by forcing residents to endure the higher costs and less reliable service that comes from having government-protected monopoly utilities as the only real option to provide our electricity. Doubling down on expensive, subsidized, and government-mandated options that charge above-market net metering rates only reinforces that mistake. Benefiting a tiny minority of electricity customers by shifting the already high costs of electricity onto the rest of the population is not good policy.

In this case, the MPSC’s ruling to pay the avoided cost rate to distributed generation owners is the right decision.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

Michigan Economy Rebounds, But Medicaid Enrollment Soars

Republicans drove increase in Medicaid spending while food stamps decline

By Evan Carter | April 25, 2018

The total number of Michigan residents receiving either food stamps or Medicaid assistance increased by over a half-million people between February 2009 and February 2018. While there was a modest decline in the number of food stamp recipients, it was swamped by much larger increases in the number collecting Medicaid benefits.

The number of Michigan residents getting food stamps in February 2018 was 98,620 less than it was in February 2009. But the number getting Medicaid benefits grew by 815,714 over the same period, according to data from the Michigan Department of Health and Human Services. As of February 2018, 2.6 million residents received either food stamps or Medicaid. Roughly 215,000 people received both.

The increase occurred even as Michigan was rebounding from sharp job losses during the 2000s and total employment hit a low of 3.9 million in 2010. Since then, the trend has reversed, with 4.4 million Michigan residents having jobs in 2017, according to the U.S. Bureau of Labor Statistics.

The rise in the number of people getting medical welfare has been largely driven by the Obamacare Medicaid expansion championed by Gov. Rick Snyder and Republican legislative leaders in 2013.

As of February, there were 116,981 more residents enrolled in what might be called “traditional Medicaid” — the pre-Obamacare version — than in February 2009. That enrollment reached its peak in February 2011, when 1.9 million residents were getting benefits.

The number of Michigan residents receiving food stamps, meanwhile, peaked in February 2011 at 1.9 million. In February 2018, the number was down to 1.3 million.

As of that same month, 2.5 million Michigan residents receive either traditional (1.8 million) or expansion (698,733) Medicaid assistance in Michigan, according to numbers provided by Michigan HHS in an email to Michigan Capitol Confidential.

Nicholas Horton, the research director for the Florida-based Foundation for Government Accountability, focuses on Medicaid and welfare reform across the country. He says the increases in enrollment are pushing Michigan’s Medicaid system to a tipping point.

"Since April 2014 alone, the state has enrolled more than 665,000 able-bodied adults in their Obamacare Medicaid expansion, despite promises that enrollment would never exceed 477,000,” Horton said in an email. “We also know that, since expansion began, at least 1,970 individuals on state waiting lists for additional Medicaid services have died.”

Horton continued: “Michigan policymakers need to focus on reigning in this out-of-control program through work requirements, an enrollment freeze, and rooting out fraud. All three of these critical reforms will free up resources for the truly needy and start to put Michigan's Medicaid system back on track.”

In 2013, Michigan state government spent $13.2 billion on Medicaid, and by 2017, that number had increased to $17.6 billion according to the State Budget Office. Michigan’s Medicaid budget comes from a combination of federal and state sources.