This week, I testified before the Pennsylvania House Energy Committee about a rapidly escalating electric cost issue that is quietly building across our Commonwealth.

At a time when energy affordability is already a top concern for families and small businesses, Pennsylvania is facing a projected $700 million annual exposure in electric costs — driven not by fuel prices or extreme weather, but by an unintended loophole in our net metering rules.

Net metering was created to help homeowners and small businesses install solar panels and offset their own energy use. When it functions as intended, it is a fair and valuable tool that supports clean energy and grid modernization.

But today, the framework allows certain merchant solar facilities — with little or no on-site electric demand — to qualify for full retail-rate compensation. These facilities sell nearly all their electricity back to the grid at the utility’s price-to-compare, which is currently about 47 percent higher than wholesale market rates.

That difference matters.

Compensation paid at retail rates is recovered from other ratepayers. Right now, 36 facilities account for approximately $6.4 million per year in excess retail-rate compensation. Based on projects already moving through the interconnection process, that figure is projected to exceed $90 million annually by 2027 — a more than fourteen-fold increase in just a few years. And with more than 2,100 interconnection requests currently pending statewide, projected exposure could exceed $700 million per year if those facilities proceed under existing rules. These costs do not disappear. They are first borne by commercial and industrial customers — including small businesses operating on narrow margins. Over time, they ripple outward, affecting hiring decisions, consumer prices, and ultimately residential customers as utilities recover these expenses through rates. This is the “cost cliff” I described to lawmakers.

To be clear: this is not about opposing rooftop solar. Nor is it about discouraging renewable energy. Distributed generation plays an important role in modernizing our grid. This is about affordability and fairness.

Net metering was intended to offset a customer’s own electricity use — not serve as a revenue mechanism for facilities generating power for sale at above-market retail rates. Following a 2021 court ruling that limited the Commission’s ability to align compensation with statutory intent, the current framework permits solar facilities up to 3 MW with minimal on-site load to receive full retail-rate compensation.

In one example reviewed by the Commission, a 3 MW facility — capable of generating enough electricity to over 500 homes — had an expected annual demand of just 2,000 kWh, comparable to a small residential customer. Pennsylvania has options. The General Assembly can clarify the statute to restore net metering to its intended purpose — supporting true end-user customers while preventing excessive cost shifting.

Lawmakers may also consider establishing a clear framework for community solar, allowing renters, small businesses, and customers without suitable rooftops to subscribe to shared facilities and receive proportionate bill credits while ensuring costs and benefits are equitably distributed. Energy affordability affects every employer signing payroll checks and every family opening a utility bill. If we act now, we can prevent hundreds of millions of dollars in avoidable costs from compounding over the next several years.

Steve DeFrank serves as Chairman of the Pennsylvania Public Utility Commission. His full testimony before the House Energy Committee is available at puc.pa.gov.