Background on Net Metering: TECO rate schedule analysis

This originally appeared in a holistic (i.e. too long) post, and the good stuff was buried at the bottom. I’ve kept the analysis here for anyone who’s interested in how I arrived at my ultimate conclusions in Why TECO Pays Less to Solar Net Producers.

The Starting Point: Tariffs

Have you ever looked at the “tariff” of your power company? That’s the document that sets the rate you pay for electricity. It can be an insightful (though difficult) thing to understand. Tampa Electric Company (TECO) tariffs can be found online, and include the rate it pays homeowners for their solar production (buried in Schedule 3, the NM-1 rate for net metering, which then refers to the COG-1 rate paid to net producers of solar power, found in Schedule 8). That rate varies, but it has been widely reported as being about two cents per kilowatt-hour. Yet consumers pay about twelve cents per kWh for electricity they consume. Is the cost of power really 85% for distribution?

I was recently looking into solar for my own home, and started digging into why the rate TECO pays homeowners for energy they contribute to the grid is so much less than the rate homeowners pay for their own electricity. (Note: by this I mean extra energy contributed by the homeowner, above what they consume over the course of a year: the “net producer”.) It was having a big impact on the decision to invest in solar or not and the size of the array.

First, I was surprised to find out that the rate TECO pays is not fixed, unlike the rate we consumers must pay, which is fixed. The residential rate for consumption is set as a result of the Florida Public Service Commission which regulates what power companies may charge for their energy. So I had to dig deeper. That’s where I came across the COG-1 rate and how TECO calculates it.

Second, I would be remiss if I didn’t say that there is good reason for at least some difference between what a homeowner pays to TECO for power they consume and what a producer earns from TECO for extra power they generate. After all, homeowners don’t pay to install the power poles or the wires used to distribute energy. Transmission, maintenance, and administration is no small cost. So the rate paid to homeowners for their excess production should be less. But how much less? One way would be to start with the full rate and subtract the cost of transmission (including maintenance of that infrastructure). Another way would be to start from zero and add up the costs of production. TECO does the latter. On the Schedule 8 of TECO’s tariff, it’s called the COG-1, or “cost of generation” rate.

Whoever came up with that term was clever. It tries to imply that TECO will pay solar producers the same rate as its own cost of producing that same amount of energy. But that’s not really true. When we look into the details of how the COG-1 rate is calculated, we see that TECO appears to pay homeowners a fraction of what it pays to other institutional producers (other power companies), and, most importantly, is also based solely on fossil fuel rates, not newly-developed solar farms.

In Schedule 8, the tariff calculates the COG-1 based on an “as available energy payment rate” or AEPR. So the “cost of generation” title belies what it really is: TECO’s cost of non-renewable fossil fuels–fuel it would have to burn if not for the solar energy added to the grid. The complexities emerge when you consider that energy demand and fuel costs fluctuate, but the ability of the power company to supply energy is fixed (or more accurately, has a maximum output). Depending on how much power the community needs, the rate TECO pays to net solar producers changes. That’s all fine an dandy, but how does it calculate the “as available energy rate”?

“The Company’s Own Production Cost” = Fuel Only Cost

First, we need to understand a key parameter used by TECO to calculate what it pays homeowners. That’s what it calls its “own production cost” which it defines as the sum of its “fuel cost.” (Tariff 8.102):

Notice anything missing from that definition? How about the capital costs of production? No? Just the variable costs, like fuel? Hmm, OK, well, it also defines “fuel cost” as each facility’s “input/output equation, its heat rate performance factor, and the composite price of supplemental fuel.” (Tariff 8.102):

It then further defines supplemental fuel as the “cost for additional fuel” at “market prices” plus the cost of delivery to its facility. Such fuels are “coal, oil and natural gas.” (Tariff 8.103):

Again, no mention of capital costs. It seems that TECO has completely eliminated its renewable energy sources from its definition of its “cost of production” and relies exclusively on fossil fuel. But TECO has a considerable amount of renewable energy as part of its mix of sources, and that amount is set to increase with its proposed additional solar farms. Regardless, it’s clear that TECO pays homeowners for renewable energy based on fossil fuel energy rate. And only that. Why?

Well, Schedule 8 of its tariff is a decade old, and in 2010 there wasn’t a whole lot of solar, especially not homeowner solar. So it may have made sense to define it this way at the time, though I’m still a bit skeptical because 650 MW of Tampa Electric’s energy mix was solar as of 2020, representing about 12.5% of its overall capacity (650 / 5,191). Regardless, it’s clear that the COG-1 doesn’t account for the cost of production of solar and it begs the question about the recent proposed rate hike to pay for TECO’s additional 600 MW of solar energy capacity and whether it’s updating the COG-1 rate to reflect the cost of producing renewable energy regardless of source. As far as I can tell, the COG-1 is stuck in the past, harming residential solar and benefitting TECO. The goal should be for it to pay net producers a fair market rate for the type of energy they produce–and a rate that can actually be reflected by TECO’s own costs if it just incorporated its capital costs of building solar. At a minimum, it should revise the COG-1 to reflect its energy mix that includes 12% solar, and the cost of that generation. Ideally, there would be parity between the type of energy produced and the rate paid (i.e., if you’re a net solar producer, you get paid the fair market rate for solar production, not fuel-based production). I haven’t researched that question deep enough in the recent regulatory application (a crazy-long and complex set of documents), but it seems revision to the COG-1 rate has been completely overlooked by regulators in my opinion. I’ve reached out to the Florida Public Service Commission for comment, and will write another post if and when they do. I also reached out to solar advocacy groups, including

Clean Energy Florida, Votes Solar, Southeast SDN, and Solar United Neighbors of Florida. None responded to this post for any further comment, which I thought was highly unusual. Why not? Do they actually care about solar, or just their own interests? Anyway, let’s move on.

COG-1 Rate Payment Examples

Let’s look at some examples TECO provides for how it calculates the rate it pays net producer homeowners.

In the first example, TECO has enough capacity to serve all the community’s power needs. In such a situation, the solar producers are producing energy, so TECO must reduce its own production so that the net amount of power delivered by both TECO and the homeowners meets the available demand:

I am guessing this is the most common scenario, but who knows. Other examples include when production from net producers is needed to meet demand:

This scneario might occur sometimes, like peak demand, or when one of TECO’s facilities is down for repair or maintenance. A third and fourth examples are also included where TECO buys power from others, “off-system” and some other unspecified producers:

OK. So what’s the takeaway here? Apparently there is some other entity willing to supply large amounts of power to TECO to meet demand, but only at the comparatively high rate of 4.0 cents per kilowatt hour compared to its own cost of about 1.3 cents for fuel-based energy. Why wouldn’t net producers get the same rate? One would think including such an incentive would lead to more people oversizing their solar arrays so that they could sell energy, but no.

The effect of these results I extrapolated into how they may apply in the real world in a separate post: Why TECO Pays Less to Solar Net Producers

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