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Backward Billing

The 2004 Kentucky Legislature passed a law that will have a lasting effect on small-scale alternative electricity generation in the Bluegrass State. This “net metering” law sets out important safety and financial rules. It also adds Kentucky to a growing list of states trying to accommodate these widely dispersed ways to generate electricity.

Small-scale generating systems, like solar panels and wind turbines that individuals can operate at their homes, are known in the utility industry as distributed resource (DR) electricity generating installations. Advocates for DR products typically include an enticing quotation to appeal to budget-conscious homeowners: “And you can also sell your surplus electricity to your local utility company!” However, the details are often lacking. Kentucky’s new net metering law deals with the most important practical issues.

The basic idea behind net metering is quite simple. As a customer uses electricity from the local utility, power flows from the utility to the customer. The discs in the electric meter rotate forward, and the numbers on the dials increase. If the customer’s distributed resource (DR) equipment generates enough electricity to not only provide all the power needed for the site but also a surplus, then the usual flow of power could be reversed, moving from the customer’s site to the utility company’s system. In that case, the discs in the meter would spin backward and the numbers decrease. In fact, electric meters are already capable of moving backward as well as forward. If during a billing period a customer used 200 units of electricity from the utility, and sent out 50 units of electricity to the utility, then the meter would show 150 units for the period—the net, or the difference between incoming and outgoing electricity.

East Kentucky Power Cooperative engineer Paul Dolloff says, “The first area of concern with any kind of distributive resource installation is safety.”

Utility companies have protection equipment within their systems that can detect a faulted condition, such as a tree contacting a wire. This equipment immediately shuts down the flow of electricity to that area. Dolloff explains that when there is an outage in the regular supply grid, the utility company sends out repair crews who think their line is not energized.

“If a customer’s alternative power source is still generating electricity,” Dolloff says, “that power could be moving from the DR through the utility company’s line, keeping it energized—and endangering the public utility company’s workers.”

Therefore, Kentucky’s net metering law says that DR installations must include fault-detecting equipment or other protective devices that will either automatically shut off the flow of electricity into the utility company’s grid in such situations, or disconnect the DR from the grid.

Dolloff, who’s worked for three years representing more than 900 electric co-ops nationwide helping the utility industry develop interconnection standards, notes there are many more engineering, technical, and safety issues involved in distributed resource electricity generation. That’s why Kentucky’s net metering law has two important limitations. First, it applies only to photovoltaic (solar power) installations. Second, it limits their capacity. A single photovoltaic DR installation cannot exceed 15 kilowatts, which is enough electricity to meet the power requirements of a typical single-family home.

“We needed to limit the size of individual installations for important safety reasons,” Dolloff explains. “If you try to push more power through than the equipment is designed for, then you risk problems. Larger DR installations could also mean the need for different size lines and transformers in the utility’s system.”

To ensure price fairness and consistency, electric utility rates are governed by an enormously complex set of accounting rules enforced by state public service commissions. So Kentucky’s net metering law deals with two important financial issues.

First, the new law requires that the individual customer with a DR system must pay for the equipment needed to safely operate that system if it’s connected to the utility company’s grid.

Second, the law sets out compensation for the electricity generated by a DR system. Instead of trying to calculate a wholesale rate, such as that for a large coal-fired generating station, customers using the net metering system will be credited for any electricity that flows from their site to the utility company’s grid at the same retail rate they are charged for their incoming electricity. The customer simply pays the difference between what came from the utility and what went the other direction.

Utilities must now produce a set of rules, called a tariff, as the next step in implementing the law. Utilities will spend the rest of this year preparing a tariff that spells out the details of such things as equipment specifications, inspections, and other technical aspects. Customers will be able to begin connecting and participating in net metering operations sometime after January 1.


The main points of Kentucky’s new net metering law:

• Only photovoltaic (solar power) installations are permitted

• Generating capacity is limited to 15 kilowatts—enough to power a single-family home

• Customers will be able to make use of the law shortly after January 1, 2005

Next month: Electricity on campus

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