NERC Net Billing Regulations 2026: Commercial Considerations

Some of the issues we are interrogating as per the NERC Net Billing Regulations 2026[1] center around the impact of the Order on the Delineation of Assets and Liabilities of Distribution Licensees issued on March 28, 2025, ( Delineation Order), delineating legacy DisCos into HoldCos and SubCos and establishing a standardized framework for the orderly and equitable transfer of operational assets and liabilities to newly incorporated state-specific successor utilities. Another revolves around how well the NERC Net Billing Regulations 2026 balances the public interest objective of allowing private prosumers to monetize excess capacity against the commercial interests of DisCos? Here are some considerations:

1. The Delineation Order

The NERC Net Billing Regulations 2026 is expressed to apply to the distribution licensees licensed under the Electricity Act 2023 to operate and maintain a distribution system within a given area. Subject to regulatory clarification, this implies that:

(a)    The Net Billing Regulations 2026 applies to HoldCos and to original distribution licensees yet to transfer their regulatory oversight to states.

(b)   The Net Billing Regulations 2026 is not automatically applicable in states that have formally activated their independent regulatory markets under the Electricity Act 2023, like Lagos, and that SubCos created under the Delineation Order may not be bound by the Net Billing Regulations, 2026. Because these SubCos operate within the exclusive jurisdiction of State Electricity Regulatory Commissions (SERCs), NERC's federal rules do not automatically cross these state borders.

This can have practical consequences. For instance, a prosumer connected to a state-regulated SubCo network cannot legally compel that utility to implement NERC's 2026 Net Billing provisions except where the respective SERCs independently adopt the Net Billing Regulations or issue their own state-level net billing regulations.

2. Balancing Competing Interests

To compensate utilities for the loss of premium retail volumes, the framework intentionally avoids a simple 1:1 volumetric energy exchange, deploying structural mechanisms designed to de-risk the ledger for DisCos.

i.       Avoided Cost Indexing Mechanism: First, the framework discounts the prosumer’s exported power through an Avoided Cost Indexing mechanism, wherein the export tariff is tied directly to the DisCo's "avoided cost of generation" (the wholesale rate the utility saves by not purchasing bulk power from the national grid or an independent power plant). Because wholesale grid pricing is structurally lower than retail end-user tariffs, the prosumer is forced into selling their surplus at a deep commercial discount.

ii. Time of Use & Battery Restrictions: Secondly, the Net Billing Regulations introduces Time-of-Use (TOU) and Battery Restrictions. To unlock premium export factors, such as a 0.75 multiplier, a prosumer must integrate a verified Battery Energy Storage System (BESS) to hold and dispatch power specifically during peak evening grid stress (6:00 PM – 9:00 PM). Conversely, unstored power injected during off-peak daylight hours when solar abundance is high defaults to a lower fractional multiplier of 0.55.

iii. Grid Connection Fee: Thirdly, the Net Billing Regulations recognizes that the prosumer utilizes the DisCo’s physical wires, transformers, and distribution assets to route excess power to nearby consumers. To balance this asset usage, the framework permits DisCos to levy dedicated grid-interconnection and generation-handling fees on the prosumer. Whilst this amount is not defined, it is notable that NERC intends for this amount to be cost-reflective and determined based on a standardized methodology approved by the Commission to prevent arbitrary penalization of distributed generation.

iv. Non-Cash Ledger Settlements and the Anniversary Reset: To protect DisCos’ liquidity, the Net Billing Regulations mandate that net billing transactions are executed strictly as non-cash ledger settlements. DisCos are legally barred from making physical cash payouts to prosumers. Thus, surplus power registers purely as an accounting credit line to offset future grid draws.

Furthermore, as an ultimate backstop against structural over-generation, these accumulated credits are completely extinguished on the annual anniversary of the Net Billing Agreement. Unused credits expire automatically, allowing the DisCo to absorb that unredeemed injected power into its network entirely for free, preventing prosumers from stacking multi-year accounting liabilities against the utility's balance sheet.

Key Takeaways

1. It is notable that the Net Billing Regulations applies to systems with a capacity between 50 kWp and 1.5 MWp, explicitly targeting mid-to-large corporate and institutional players. Beyond immediate compliance and infrastructure costs, the regulations directly target the DisCos' Commercial and Industrial (C&I) clients, a key cash flow engine for DisCos.

2. Despite these structural baseline revenue protections, it remains highly debatable whether the combination of margin spreads, time-of-use discounts, and generation fees adequately compensates for the immediate upfront capital expenditure required to fund bi-directional smart metering networks and complex billing clearing houses. This further raises the question as to whether or not DisCos should be allowed to reject net billing applications for purely commercial considerations.

3. The Net Billing Regulation does not appear to track NERC's own Delineation Orders. By failing to clearly define its scope against the ongoing unbundling process, NERC leaves some ambiguity regarding how these rules apply to legacy parent companies versus their emerging corporate structures.

[1] The stated purpose of the Net Billing Regulations 2026 is to establish a standardized, legally binding framework that allows eligible electricity customers (“Prosumers”) to generate renewable energy primarily via solar photovoltaic (PV) systems for their own consumption, and seamlessly export any excess generation back to the distribution grid.