Massachusetts utility Eversource won regulatory approval in January to impose a demand charge on solar customers. Now that victory could be in jeopardy.

The state Senate recently passed a large omnibus energy bill that includes language which would force a redo of the controversial rate plan. A conference committee is meeting to reconcile bills from the House and Senate before the formal session ends July 31.

Solar industry groups sued to stop the demand charge going into effect, but the legislative approach would resolve it sooner.

Eversource designed its new rate program, approved by regulators in January, based on language in a 2016 energy law describing a "minimum monthly reliability contribution." The utility argues that solar customers have imposed a cost shift on the rest of the population; the demand charge and higher fixed charge for residential and commercial net-metering customers is supposed to recover that.

The solar industry countered that claims of cross-subsidization are unfounded, and that charges would be detrimental to the growth of distributed energy, which the state has prioritized.

Language in the Senate bill, S.2608, would clarify that an MMRC rate cannot institute a demand charge unless it is tied to system peak hours and the customers affected have access to granular electricity usage data.

Commercial and industrial customers have long paid demand charges in many locales across the U.S., but the Eversource case is the first time state regulators have approved a mandatory demand charge for residential customers. The only previous one was imposed by Salt River Project, a municipal utility in Arizona.

Eversource's plan diverged from the general vector of grid modernization in several key respects.

Ideally, time-differentiated rates empower consumers to optimize their behavior in a way that also helps the grid run more efficiently. Eversource, however, has not installed the equipment necessary to inform those types of consumer decisions.

"Eversource won't have advanced metering infrastructure by the time the MMRC goes into effect, so customers won't have access to granular information about their peak demand, so they won't know when to decrease demand to avoid the demand charges," said Fei Wang, senior grid edge analyst at GTM Research.

Furthermore, the utility has not aligned the customer demand charge with system peak demand. The non-coincident charge penalizes a customer's peak use of the distribution system, without trying to shift demand away from the most expensive hours of grid operation, which drive investments in the distribution grid.

Eversource also had optional time-of-use rates, which charged residential customers more for consumption during peak hours, but it chose to eliminate those.

As such, Eversource has prioritized a method of extracting money from customers without attempting to incentivize behavior that benefits systemwide operations or giving those customers tools to adapt to the changes.

That won't necessarily be a bad deal for customers, because the new charges come with a reduced volumetric price for total energy consumed. 

A study by GTM Research found that the new rates would actually decrease charges for solar customers by 7 percent compared to the existing rates, due to the lower volumetric charge. Customers with solar and storage would see a 1 percent increase in rates.

That study had to make assumptions about how the new rates would interact with the soon-to-arrive SMART solar incentive program. The study did not address payback time for a new solar investment, but rather looked at how a new system would fare in the first year under the old rates versus the demand charge suite.

Customers who already have solar might have the equipment and software necessary to be able to break down their energy consumption, but they won't be subject to the new rates. Prospective customers will have trouble predicting their granular usage patterns and what sort of demand charges to expect.

"You don’t understand what it will mean for you," said Evan Dube, senior director of public policy at Sunrun. "It's really an undue burden on further deployment of renewables for customers in Massachusetts."

That comes at a time when the administration of Governor Charlie Baker has prioritized increasing distributed generation, to the tune of a goal of 1,600 megawatts of solar being deployed over the next few years. 

The change in rates may not spell doom for solar economics, but it adds friction just as state energy policy is trying to accelerate. The outcome of the legislature's response will inform how other jurisdictions approach the matter. Eversource is unlikely to be the last utility to try an approach of this nature.