The National Association of Regulatory Utility Commissioners (NARUC) recently issued a draft manual on distributed energy resources (DER) compensation to assist jurisdictions in navigating the challenges and policy considerations associated with this hot button issue. The release of the manual marks the first time NARUC has specifically weighed in on DER compensation issues.

DERs are generally smaller-scale electric generation facilities that are located close to customers and can be used to provide a portion or all of their immediate electricity needs, and can also be used by the distribution grid to reduce demand or increase supply. Examples of DERs include solar, wind, thermal, and storage technologies, among others.  Given their contrast to the traditional utility scale bulk electric generation model, state regulators across the country are struggling to determine how to appropriately compensate DERs.  The manual discusses the myriad questions associated with DER compensation, including the cost of integrating DERs with the grid, monetizing the benefits DER resources provide, and determining ownership of the resources.

Seeking to provide flexible advice to jurisdictions implementing DER compensation methodologies, the manual focuses on factors jurisdictions should consider in developing DER rates. It presents key questions for regulators to consider, including “What costs should be paid by DER and what should be recovered from base rates?” and “Does DER avoid utility infrastructure costs?” The manual also discusses the “divisive” issues of cost-shifting between users and non-users of DERs.

Compensation methodologies addressed by the manual include net energy metering (NEM); valuation methodologies, which include value of resource, value of service, and transactive energy; demand charges, fixed charges and minimum bills, standby and backup charges, and interconnection fees and metering charges. NARUC emphasizes that technological advances, such as advanced metering infrastructure, smart transformers, Advanced Distribution Metering Systems, and others can support the grid and integration of DERs, as well as accompanying DER compensation methodologies.

Stakeholders can submit comments on the draft manual by emailing, and comments will be accepted through September 2. The final version of the manual is expected in late November. A copy of the draft manual is available here (pdf).