Net metering with monthly netting — a simple billing mechanism for distributed energy resources (DERs), often primarily solar PV — has existed since the early 1980s. In recent years, there has been a wide-ranging national debate about the best methods to reform rates for distributed energy resources, driven by the inefficiencies of traditional rate designs, concerns around cost shifts, and the potential to use customer-sited resources to lower system costs.

This paper was produced for the Michigan Public Service Commission as part of a Distributed Energy Resources Rate Design working group process under the state’s MI Power Grid initiative. Michigan already transitioned from monthly netting to the “inflow/outflow” model over the past few years. This paper examines the trade-offs involved in updating approaches to DER rate design. It then suggests three possible pathways for further reform to help residential DERs fulfill their promise as a key part of the grid of the future in Michigan.

• Gradual evolution: This pathway would entail modest improvements to the efficiency of pricing for new distributed generation customers and overall rate design, along with associated cost allocation improvements, with a minimal need for new customer education efforts, process reforms or administrative burdens.
• Advanced residential rate design for DERs: This pathway would be an aggressive effort to enlist a large segment of residential customers in more sophisticated time-varying rates on a default or mandatory basis to optimize their usage, storage and generation patterns to lower overall system costs while ensuring fair cost recovery with new rate structures. This effort may require significant new analysis and process reforms, as well as customer education and assistance with energy management.
• Customer choice and stability: This pathway would create a simple and understandable set of options for customers that are fair to nonparticipating ratepayers, with stable payment schemes that may lower barriers for both customers and DER companies. This model requires significant administrative efforts to determine and update value-based credits and set the grid access charge.