On July 21, 2004, the Iowa Supreme Court issued an opinion in the case of Windway v. Midland Power Cooperative, ordering Midland to allow net metering to the owner of a 65-kilowatt wind turbine. [See story at IREC website.]
Under net metering, a retail energy consumer with a small generator is only billed by the electric utility for the net power consumption over the billing period. In the Iowa case, the cooperative wanted to charge the retail consumer the retail price for power the consumer took from the system, and pay the retail consumer a lower “avoided cost” rate for any power the consumer put back into the system. The plaintiffs wanted to to be paid at the higher retail rate for power put back into the system.
The Iowa Supreme Court decided for the plaintiffs on the grounds that the underlying law, PURPA, was intended to encourage renewable resource development, and paying the (higher) retail rate would encourage renewable resources more than paying the (lower) avoided cost rate. In a dissenting opinion, a judge argued that PURPA required payment of a rate not higher than the incremental cost to the utility (i.e., the avoided cost), and the retail rate “is manifestly not the cost to the utility.”
After citing the dissenting opinion, IREC commented, “This argument is well reasoned, but not the majority opinion.”
Economically, the arguments in favor of net metering are all mush. If I picked apples from a tree in my backyard and took them into the supermarket, should the supermarket have to pay me the retail price for my apples? The cooperative’s proposal to charge retail for amounts consumed and pay avoided costs for amounts produced by the generator-equipped customer seems a little more reasonable, at least as a matter of logic.
Of course the inefficiency created by overpaying a few net metered customers must be tiny compared to the inefficiencies created by flat-rate cost-of-service based pricing of retail electricity. I’d be more sympathetic to utilities’ concerns about their other customers being required, in effect, to provide a subsidy to the net-metered few if the utilities were similarly concerned about the numerous other cross-subsidies created by their flat-rate pricing structures.