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Cogeneration and Small Power Production
Net Metering
Net metering is a policy in which a utility must purchase power generated by its customer at the same retail price it sells electricity to the customer. It is typically used as an incentive for customers who install renewable energy systems, such as wind turbines. Net metering was first considered as a result of the Public Utility Regulatory Policies Act of 1978. South Dakota’s policymakers debated it and chose not to implement net metering at that time. The South Dakota Legislature has considered this issue a number of times and concluded mandatory net metering is not in the public interest. For details of those legislative processes see 2013 Legislative Session, HB 1207; 2015 Legislative Session, HB 1232; and 2016 Legislative Session, HB 1216.

The reason net metering has not been adopted is the utility would be forced to pay the generator far above the market cost of generation. Further, the utility would not be able to schedule the generation of the electricity and it would be worth even less than the electricity they are already buying for a lower price.

Retail electricity rates are based on the cost of generation as well as the cost of distribution and transmission facilities. Thus, if utilities must pay above market rates for substandard power, rates will eventually have to go up to cover their increased expenses. The increased rates will have the largest effect on low income customers, who would not be able to afford the upfront costs of renewable energy systems in the first place.

Small generators do have an opportunity to sell power to their utility without net metering. The purchase price the utility pays must reflect the value of the generation and is regulated by the Federal Energy Regulatory Commission. It does not include the costs of transmission, distribution, overhead and other costs of providing electrical service that are included in net-metered rates. All electric utilities regulated by the PUC are obligated to interconnect with and purchase power from small wind facilities if the generator desires and agrees to the terms.

Rates paid to small generators by investor-owned electric utilities must be filed with the PUC. This transparency allows the producer to easily review and compare rates to make an informed decision regarding the economics of a small renewable power facility.