HomeMy WebLinkAboutMemo - Mail Packet - 5/18/2021 - Memorandum From Gretchen Stanford And John Phelan Re: Solar 120 Percent Rule
Utilities
electric · stormwater · wastewater · water
222 Laporte Ave.
PO Box 580
Fort Collins, CO 80522-0580
970.212.2900
V/TDD: 711
utilities@fcgov.com
fcgov.com/utilities
DATE: May 13, 2021
TO: Mayor and City Councilmembers
FROM: Gretchen Stanford, Interim Utilities Deputy Director, CCSU
John Phelan, Energy Services Senior Manager
THROUGH: Darin Atteberry, City Manager
Kelly DiMartino, Deputy City Manager
Theresa Connor, Interim Utilities Executive Director
RE: Solar 120 Percent Rule
Bottom Line
The Solar 120 Percent Rule (120 Rule) is one of several checks on sizing a new solar system.
The purpose of the 120 Rule is a financial check related to the associated rate structure based on
full-retail net metering. Utilities is on a defined path towards solar installation and pricing
policies that align to the objective of reaching 100% renewable electricity by 2030 and
incorporating wholesale and distribution level costs and benefits that support future elimination
of the 120 Rule.
This memo provides detailed background on the 120 Rule, the state of solar in Fort Collins,
issues with the 120 Rule and net metering, and outlines proposed next steps.
Background
What is the 120 Rule?
The 120 Rule is one of several checks on sizing a solar system and is defined in Chapter 26 of
the municipal code. The intent of the 120 Rule is to support customers who want to self-generate
electricity in an amount that matches their typical annual use and enables them to offset their
electric bill.
The 120 Rule is commonly used by utilities and is modeled on the Colorado Public Utilities
regulatory net metering cap, which sets a system capacity modeled to
generate 120%
sized solar system. Additional sizing limitations on new solar systems include the National
Electric Code (NEC) Entrance Capacity
and potentially the local electric transformer capacity. Legislation currently under consideration
may revise the 120% rule (SB21-261).
The 120 Rule is not associated with electrical safety but is strictly focused on managing the
financial risks of ubiquitous distributed solar on non-solar customers.
How does solar work in Fort Collins?
There are over 2,200 solar systems connected to the Fort Collins electric distribution system,
with the first systems installed in 2008. Approximately 2,100 are residential and approximately
400 new systems are expected to be added this year.
The advanced meters measure and record the electric net consumption of the building every
fifteen minutes when the use is greater than the solar generation and the net returned from the
building when the solar generation is greater than the use. Utilities rates define pricing for both
the net charges and net credits for energy in the time-of-day (TOD) structure. All residential
customers also pay a monthly fixed charge that supports a portion of Utilities costs of operation.
Customers will typically see substantial seasonal differences in their electricity use, solar
generation and the associated utility bills.
Financial value from net returned electricity is applied as a credit to customer accounts and is
used to offset other utility services charges on their monthly bill (e.g., water, wastewater and
stormwater). If customers have more than $300 in account credit on an annual basis, they can
receive a payment from Utilities for the balance.
Issues with the 120 Rule
There are several issues, or challenges, that are associated with the 120 Rule, including:
The Rule is applied as a one-time estimate when a new solar application is received. It
represents only a snapshot of the home and current customer. The Rule does not take into
account potential electrification, nor can it be used for customers
without a use history (e.g., new home or recent move).
As solar becomes more common, residents are purchasing existing homes with solar and
the sizing of the
The rule is perceived as an attempt to limit the total amount of solar. This is false, as each
customer has the right to self-generate. The rule is intended to limit custome ability to
become a generation asset, which receives retail pricing for electricity production well
above their own use.
Issues with the Full Retail Net Metering
Full retail net metering has a strong history of advocacy as an effective economic incentive to
promote distributed solar. As Fort Collins moves from the early adopter phase for solar
installations, there are several issues, or challenges, that are associated with this model,
including:
Based on simple models of total revenue and purchased power costs, Utilities is not
recovering approximately three cents ($0.03) per kilowatt-hour of revenue from solar
customers for solar generation. This portion of the rate is called the distribution facilities
charge and it supports ongoing utility operations independent of the amount of electricity
sold.
Ongoing utility operations also are supported by the monthly fixed charge. This charge is
the same for all customers in the same rate class, including solar customers. However, the
fixed charge only covers approximately one-third of the non-variable operation costs of
the utility, with the remainder coming from components of the rates based on use.
Solar customers use all aspects of the distribution system and utilities operations to the
same extent, if not more, than non-solar customers. As such, they should be contributing
to the fixed costs at a similar level.
To the extent that solar customers are contributing less to the fixed cost requirements,
other customers are picking up the tab. While this is not currently creating serious
financial issues, it is important to recognize that the current model is not sustainable for
equitable support of distribution system operations and maintenance if continued
indefinitely.
Current solar rates and path to eliminate the 120 Rule
Utilities is on a defined path towards solar installation and pricing policies that align to the
objective of reaching 100% renewable electricity by 2030 and incorporating wholesale and
distribution level costs and benefits that support future elimination of the 120 Rule. This path
includes:
Solar customers net usage is charged the time-of-day (TOD) price per kilowatt-hour per
the customers rate class. As such, the solar energy generated that is immediately used in
the home will continue to have full retail value by offsetting initial charges.
Starting in 2020, Utilities has held flat the distribution facilities charge element of the net
metering returned energy rate. With this change, the net export value of solar electricity is
approximately one cent ($0.01) less per kilowatt-hour. This is a gradual approach to
make solar pricing sustainable at scale and was supported by the solar industry.
Remaining steps on the path include:
o Creating a formula for adjusting excess annual solar generating credit from a
retail to wholesale electricity value. This step will allow for solar overgeneration
and remove the core rationale for the 120 Rule, e.g., to manage system financial
risks.
o Continuing to gradually increase the differential between the charge and credit
values of the distribution facilities charge. The target for this differential is
approximately three cents ($0.03) pricing.
o Considering increasing the monthly fixed charge over time, for all customers, to
support predictable revenue for ongoing operations that is independent of the total
amount of electricity sold.
Next steps
Staff will propose migrating the annual excess credit model to wholesale values (fall
2021 rate and City Code updates)
Continue gradually increasing the monthly fixed charge and differential between charge
and credit values of the distribution facilities charge. This is typically done as a part of
annual rate adjustment discussions with Council in the fall.
Consider formalizing a timeline to sunset the 120 Rule.
Additional information
The NEC has rules related to solar sizing and home electric panel capacity that are called
120% rule and can be a source of
confusion.
The 120 Rule is not related to Fort Collins operating agreements with Platte River Power
Authority, except when a solar project chooses to use a third party power purchase
agreement to finance their on-site solar system. This specific instance of the 120%
limitation is in the Power Supply Agreement and is intended to apply to commercial
installations.
More information on how Fort Collins solar programs work can be found at
fcgov.com/solar.
CC: Tim McCollough, Utilities Deputy Director, Light & Power
Lance Smith, Utilities Finance Director
Cyril Vidergar, Assistant City Attorney
Randy Reuscher, Rate Analyst
Leland Keller, Energy Services Engineer