Rash Ratemaking: Lessons from Nevada’s NEM reforms

Photovoltaic panels

In a December 2015 order, the Public Utilities Commission of Nevada (PUCN) made drastic changes in its policies governing net energy metering (NEM), the process under which consumers are credited for generating their own electricity from non-dispatchable sources like wind and solar. The order came in response both to a filing by Berkshire Hathaway subsidiary NV Energy, the state’s largest electric utility, and to a legislative order that the regulator make a decision on solar NEM rates by the end of the year.

The commission’s changes reduced the compensation that owners of rooftop solar systems receive when they produce more energy than they consume and sell the excess back to the utility. It also tripled the fixed portion of their electric bills. The Nevada regulator based its decision on analyses that found the prior NEM rates shifted costs from NEM ratepayers to non-NEM ratepayers.

This paper offers a critique of the PUCN decision-making process and articulates a number of lessons learned. The goal is to ensure that other states considering similar changes first integrate all of the principles of good rate design.

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