The U.S. Public Utilities Regulatory Policy Act of 1978 started a flood of non-utility generation, initially a few very large cogeneration plants and recently a large number of small roof top solar generation. The large cogeneration plants sold power to utilities under individual contracts, such as those using the Ernst & Whinney Committed Unit Basis which I designed in 1984 for the Texas Study Group for Cogeneration and which was adopted that year by name by the Texas Public Utilities Commission. The concept was adopted in other jurisdictions though generally without the explicit reference used by the Texas PUC.
The large number of roof top solar projects required a generic approach to pricing the output of non-utility generation. A simple expedient has been net metering. When there is a single meter on a customer premise, the meter can only measure the net amount into the premise. Any generation just reduces the amount of electricity that the customer takes from the utility. At some times, the generation will exceed the customer consumption resulting in an export of electricity to the utility. Some jurisdictions extend the net metering concept to allow the exported energy to be offset against energy draws during other periods.
A problem with net metering is that the value of electricity changes rapidly, perhaps by a factor of 100 in the span of a few seconds. Further, the change in value can be between positive and negative, as utilities are increasingly stressed by surpluses, especially at night and during periods of rapidly changing meteorological conditions. This confounding situation makes net metering less and less applicable to the energy meter that has been a standard for measuring domestic consumption. The advent of the smart grid and an automatic metering infrastructure may alleviate some of this issue, at least once the utility industry adopts real time pricing for retail consumption.
I mentioned the time span of a few seconds previously. Independent System Operators create new economic dispatch order every 5 minutes, in that ISOs re-evaluate the relative merits of the available generation based on their relative fuel costs, as well as transmission constraints that can occur in less than a second, such as with a bolt of lightning. The rapid change in the transmission system also occurs on the distribution system, which should similarly impact the price charged to retail consumers. Decreasing the time span for pricing mixed deliveries of electricity should reduce the subsidies that can occur with net metering.