Q & A About Net Metering

On this page, you will find answers to commonly asked questions about how net metering works and how it can help you save money on your electricity bill.

WHAT IS NET METERING?

Net metering measures the difference between the electricity you buy from your utility and the electricity you produce using your own generating equipment. Your electric meter keeps track of this "net" difference as you generate electricity and take electricity from the electric grid.

AM I ELIGIBLE FOR NET METERING?

In California, any residential or small commercial electricity customer who generates at least some of their electricity is potentially eligible for net metering. Your generating system must be powered by solar or wind energy, or some combination of the two, and must not exceed 1 Megawatt of peak power output. Your current utility or electric service provider (ESP) should be able to tell you if your electric account is the right type.

WHAT ARE THE BENEFITS OF NET METERING TO ME?

First, net metering allows you to get full retail value for most, it not all, of the electricity you produce. It does this by permitting you to put any excess electricity you generate back into the electric grid and retrieve it later, free of charge, for your use. Your excess electricity now offsets electricity you would otherwise have to buy at full retail prices. Getting this high retail value for your excess electricity makes owning your own generating system more cost-effective.

Secondly, because net metering permits you to effectively "store" your excess electricity on the electric grid, you can also now size your system larger and offset more of your annual electricity needs. Without net metering to give value to this "excess" electricity, you might otherwise make your generating system smaller to minimize the amount of time your system produces electricity in excess of your immediate needs. Unfortunately, a smaller system also means that you would produce less electricity when you did need it. Without net metering, your only alternative would be to purchase some additional device to store this excess power for your later use, such as adding batteries to you system. While having your own electricity storage would mean that you could supply your own power even if there were a "black-out" on the electrical grid, such storage is expensive and reduces the cost-effectiveness of your system.

HOW DOES NET METERING "STORE" MY ELECTRICITY?

Net metering allows you to use the electric grid, and the company that otherwise supplies you with electricity, as if it were a big, free battery. There will be times when your electricity needs are less than the amount of electricity your generating system is providing at the moment. Your generating system puts the excess electricity you do not need back into the electric grid to be used by others and allows you to take this same amount of electricity back out of the electric grid. Net metering permits you to "bank" your excess electricity and then withdraw it from the grid free for your use later that day, or even months later. When you withdraw your "banked" electricity, you save not having to buy this amount of electricity from your electric service provider.

For example, on a sunny summer day when no one is home, a photovoltaic (solar) generating system might produce more electricity than needed at the time. Conversely, in the evening, when everyone is home, electricity needs would exceed the output of the system.

Most electric meters measure electricity moving both into and out of your home or business. Generally, we are taking electricity from the electric grid for our needs. The meter runs "forward" as it counts up the kilowatt hours we have consumed. But if you generate electricity with a photovoltaic or wind generating system and you make more electricity than you need, net metering legally allows this excess electricity to run the other way through the meter and back into the electric grid. Just like running your car in reverse, the meter now turns backwards.

Net metering, thus, might result in your meter turning backwards at mid-day when the sun is the strongest and running forwards at night when a solar system stops operating. If you put 10 kilowatt-hours (kWh) of excess electricity into the electric grid during the day, net metering allows you to take 10 kWh of electricity out of the grid later and pay nothing for them. In effect, you are allowed to "bank" these 10 kWh and use them later to offset your need to buy 10 kWh. Thus, you can get full retail value for the electricity you generate.

HOW EXACTLY DOES NET METERING WORK?

Specifically, net metering is a special metering and billing arrangement between you and your utility or, as they are now called, your "electric service provider" (ESP). The electric meter on your home or business normally measures the amount of electricity that your ESP sends into your home or business. Each month the meter is read to determine how much electricity you used and for which you are billed.

A net metering arrangement allows you to first use any electricity your own generating system produces to offset the amount of electricity you would have to buy from your ESP, and, secondly, to put any excess electricity you produce, but cannot use, back into the electrical grid. When this excess electricity flows out of your home or business into the grid, it turns your meter backwards. Under net metering, this extra electricity is "netted" or subtracted from the times when you draw electricity from the electrical grid and your meter runs forwards.

WHO OFFERS NET METERING?

Under California law, all public and private utilities, including irrigation districts and cooperatives, that operated prior to January 1, 1998, must offer net metering. New electric service providers, who began selling electricity after January 1, 1998, may choose to offer net metering.

HOW WILL I BE BILLED UNDER NET METERING?

Just as they do presently, your electric service provider (ESP) will continue to read your meter monthly. However, with net metering, they will not send you a monthly bill. Instead, they will send you a monthly statement showing the net amount of electricity you consumed that month or the net amount generated and put into the electric grid. If you ran the meter backwards more than forwards, you would be a net generator for that month. If you took more electricity from the electric grid than you fed back, you would be a net consumer.

Twelve of these monthly statements are then totaled up by your ESP. Once a year, on your anniversary of starting net metering, your ESP will bill you for only the amount of net electricity consumed over the last twelve months. If instead you were a net generator over the past year, the ESP is not required to buy any net generation. However, some ESPs might buy your net generation. If your current ESP will not buy your excess generation, under California's utility deregulation, you may be free to select an ESP that will.

While under net metering you need only be billed once a year for your net consumption, you may request the option of monthly billing as well.

WHAT SIZE SHOULD MY GENERATING SYSTEM BE?

Under California's net metering law, eligible systems cannot be larger than 1 Megawatt of peak power output. However, economically your system should be sized so that it is capable of supplying some or all of your expected annual electricity needs, but not more than your needs. Estimate your annual needs and size your system to produce this amount of electricity, or less, over a twelve month period. Excess generation by your system one month can be used to offset consumption of electricity from your electric service provider (ESP) in another month. However, because your ESP is not required to purchase excess electricity from you at the end of the year, keep the size of your system at or below your expected annual needs. It does not pay to oversize a system.

There is no minimum system size to be eligible for net metering. Most residential systems are in the 2 to 4 kilowatt range, but they can be larger or smaller depending on your needs and how much of your own electricity you want to generate. Also, it is possible to start with a smaller system and expand it later and still be eligible for net metering as long as your total system output is not greater than 1 Megawatt.

HOW DO I SIGN UP FOR NET METERING?

It's simple. Just contact your current electric service provider (ESP) to see if they offer net metering or select another provider who does. A list of ESPs who provide renewable electricity can be found on the California Energy Commission's Web Site at www.energy.ca.gov/greengrid. For a list of all ESPs registered to serve California's residential and small commercial customers, visit the Public Utilities Commission's Web Site at www.cpu.ca.gov.

In addition to requesting net metering from your ESP, you may also need to sign an Interconnection Agreement with your local distribution company (LDC). (See "HOW DO I CONNECT MY SYSTEM TO THE GRID?" immmediately below.)

HOW DO I CONNECT MY SYSTEM TO THE GRID?

While your electric service provider (ESP) will handle the billing and accounting for net metering, your local distribution company (LDC) will handle how your generating system will be connected to the electrical grid. Your LDC and ESP may be the same or different companies (See "ESP VS. LDC" in the sidebar above). Your LDC is typically the company that supplied you with electricity prior to 1998, when utility deregulation began. Your LDC may have a standard Interconnection Agreement for net metered customers to sign and follow. It will spell out the LDCs requirements for you to safely connect your generating system to the LDCs electric grid. LDCs are not required to have an Interconnection Agreement, but most do.

Regardless of whether or not your LDC has a written agreement, there are several things your LDC cannot require of you to be interconnected with the grid:

1. They cannot require that you purchase or pay for any meters beyond a simple, bi-directional meter that you probably already have.

2. They cannot impose any requirements, standards, or tests on your system, if it meets existing national standards for grid-interconnected systems.

3. They cannot require you to purchase any additional insurance.

4. They cannot require you to buy your electricity from them or their affiliates.

CAN I USE MY CURRENT ELECTRIC METER FOR NET METERING?

Generally, yes. Most residential and small commercial customers have simple meters that are already capable of turning in both directions (bi-directional). Some electric service providers (ESPs) may want two meters for net metering, one meter to measure all electricity flowing into your home or business and one measuring the excess you are putting into the electric grid. If an ESP wants two, one-way (uni-directional) meters, by law they, not you, must pay for them. You are only responsible for having a single, bi-directional meter, the type most residential and small commercial customers already have.

The Smiths installed a net metered photovoltaic generating system on their home and began generating on March 1st. Over the next twelve months, their system produced more electricity than they needed in some months and less than they needed in other months. Their monthly consumption of electricity, monthly generation of electricity, and the net amount of electricity fed into or taken from the grid are shown below.

During the summer months, because they used their air conditioning a lot, the Smiths consumed more electricity than their system produced, and they were "net" consumers. However, the Smiths were on vacation much of August so their lower electrical use made them "net" generators that month. In the spring months, their system was able to produce more than they needed and their meter often ran backwards. Their meter had a negative reading at the end of these spring months, making the Smiths "net" generators of electricity during these periods.

On the following March 1st, the first anniversary of their net metering agreement, the Smiths' electric service provider added up the past 12 monthly meter readings and found that over the past year the Smiths were "net" consumers of 175 kilowatt-hours (kWh) of electricity. The Smiths' provider charged an average rate of 10 cents per kWh to residential customers like the Smiths, so at the end of the first twelve months their electric service provider billed them for $17.50 (net 175 kWh consumed x 10 cents/kWh).

Generating More Than You Need

If the Smiths had instead chosen to install a photovoltaic system 25 percent larger than in the above example, at the end of the first year the total amount of electricity generated would have been 7,313 kWh, rather than 5,850 kWh. Instead of being net consumers of 175 kWh over the year, the Smiths would now be net generators of 1,288 kWh (7,313 kWh generated - 6,025 kWh consumed). In this case, at the end of the twelve month period, the Smiths' service provider could simply keep the net 1,288 kWh generated by the Smiths.

If they had selected an electric service provider willing to purchase any net annual generation, the Smiths would receive payment for the value of this excess generation. However, this amount would likely not be very large, as the value of the excess electricity to their service provider is essentially the "wholesale" value of electricity. This wholesale value is typically much less than the retail rate the Smiths' pay for electricity; perhaps only one-quarter to one-third of the retail value. Because this amount is not likely enough to pay for the extra cost of oversizing the Smiths' generating system, it does not make financial sense to install a generating system bigger than that needed to supply your personal electricity needs.