WASHINGTON (March 31, 2016) — Increased consumer adoption of renewable-energy technologies has led to a rise in public utilities’ use of net energy metering (NEM), a model under which consumers who generate their own electricity earn credit for the power they sell back to the grid. However, recent misguided policy changes by the Public Utilities Commission of Nevada (PUCN) should serve as a cautionary tale to other regulators around the country, according to a new R Street Institute report.

The PUCN issued its order in December 2015 in response to concerns that non-NEM ratepayers were shouldering an unfairly large cost burden. Under the new NEM framework, the utility’s basic service charge for NEM customers has tripled, while the compensation that ratepayers earn for distributed-generation (DG) energy sold back to the grid has decreased by about three-quarters. Unfortunately, the PUCN handed down these changes without completing a thorough analysis of all of the costs and benefits of NEM and DG technologies.

“The PUCN decision was rooted in faulty cost-of-service analyses conducted by NV Energy and the commission’s regulatory-operations staff,” writes R Street Senior Fellow Devin Hartman, the report’s author. “These flaws undermined the ability to detect whether costs were shifted from NEM ratepayers and, if so, to make prudent rate adjustments based on the magnitude of costs those ratepayers created.”

Hartman notes the flawed PUCN reforms did include some positive changes, such as the creation of a separate NEM ratepayer class, which will facilitate better information gathering on the impact NEM ratepayers have on the greater Nevada power grid. However, the paper finds those benefits were outweighed by the policy’s significant flaws.

“The PUCN ultimately chose a path that was worse than both the status quo and NV Energy’s own proposal,” Hartman writes. “This case study highlights the dangers of making rushed NEM reforms based on faulty analysis. The PUCN’s DG legacy to date may, in fact, benefit the industry and out-of-state ratepayers if other states learn to avoid making the same mistakes.”

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