Utility Power (Rates)

This guide explains how electric rates in the Black Hills area affect solar power installations and how different rates are structured and applied in different circumstances. Contact your utility provider for the latest information.

Federal law (PURPA) says that if you generate power at home, the utility company has to pay you for any extra electricity you send back to the grid. They'll put in a bi-directional meter that tracks electricity both ways, and you'll see a credit on your bill for the power you add to the grid.

It is important to note that South Dakota has no net-metering system but rather an alternative known as net-billing. The utility will offer a credit that reflects the "avoided cost" based on their energy cost. More information on that is below.

Utility service

A solar power system will work the same way on any grid connection. Still, the utility that serves you, the specific rate assigned, and the type of heating and other major appliances your home has all affect how solar and battery systems will affect your bill.

When starting a solar installation project, we will ask about your current utility rate plan and usage to recommend the best options. We will also provide you with copies of the utility's interconnection paperwork and notify the utility when the installation is upcoming and completed. Additionally, your utility provider will require proof of homeowner's insurance to approve the interconnection.

Rate Options

To better understand how rates work, check out our post explaining the difference between power and energy.

While each utility offers a unique set of rates, residential options generally belong to one of the following categories:

Regular or Total Electric: This rate simply charges per unit of energy (kWh) you consume without additional usage charges. It is purely a 'volumetric rate'.
Demand charge / Peak demand: This rate discounts the energy (kWh) charge in exchange for an additional demand charge based on the highest power (kW) demand registered for the billing period. As opposed to volumetric, this is called a 'capacity rate' and is designed to encourage the reduction of peak power during specific periods of the day.
Time-of-use (TOU): This rate is similar to the demand rate and is likely to become an option in the future. With TOU, the energy (kWh) rate adjusts for different times, such as a high rate during the daytime and a low rate during the nighttime.
Sub-metered (Discounted) Electric Heat: Some electric cooperatives offer this option to encourage electric heat by discounting energy used for electric heating. Because of the metering mechanism, this option is incompatible with alternative energy sources like solar. Therefore, the heat discount will not apply if you get solar, resulting in a trade-off.
Vehicle charging—This is a special rate similar to the heat rate that discounts the energy used to charge a vehicle at night (off-peak time) and may not be compatible with solar.

Some rate structures are more advantageous than others for lowering power bills with a solar power system. Generally, the higher the energy charge (kWh rate), the greater the potential savings from solar panels. But in cases where a demand charge applies, battery systems are favorable for their ability to reduce the demand charge. When there is a trade-off between the heat meter and solar, the value of the electric heat discount may or may not significantly affect the potential savings depending on the amount of electric heat used.

Utilities Serving the Black Hills Region include:

Black Hills Energy (South Dakota)

Link to rates: https://www.blackhillscorp.com/rates

Residential rates include Regular Residential, Total Electric, and Demand Service.
BHE billing includes a Cost Adjustment Summary, which is based on energy consumption. Adding the energy charge and the cost adjustment charge together and then dividing by the kWh billed equals the actual rate being charged per kWh (about 13 cents).
Note: BHE's Colorado and Wyoming rates and policies may not apply in South Dakota.

Black Hills Electric Cooperative

Link to rates: https://bhec.coop/rates

Residential rates options include On-Peak Demand or General Service w/ Electric Heat.
The Peak Demand rate reduces the kWh rate while adding the additional demand rate.
Homes with electric heat (meeting a minimum usage requirement) can qualify for the electric heat discount. Homes that do not use electric heat are assigned the demand rate instead. The electric heat discount is not offered in conjunction with solar power. If you add solar power, the heat meter will be removed, and the service will be assigned to the demand rate.

West River Electric Association

Link to rates (must log in): https://westriver.coop

There is one residential rate with the option of submetered heat.
Submetered heat may or may not be compatible with solar power.
WREA does not currently offer a demand rate.
Electric vehicle charging rates may be offered and may or may not be compatible with solar.

Butte Electric Cooperative

Link to rates: https://www.butteelectric.com/rate-schedule

Residential rates include (Regular) Residential, All-Electric, and Demand.
Submetered heat is offered at a discount and is compatible with solar for accounts started prior to 2016 (grandfathered).
Electric vehicle charging rates may be offered and may or may not be compatible with solar.

About Net Metering

Net metering, net billing, and avoided cost all refer to different billing mechanisms for alternative energy systems that are connected to the grid.

Net metering is a billing arrangement that allows customers who generate some or all of their electricity from renewable sources, such as solar panels, to send any excess electricity they generate back to the grid to receive credits on their utility bill. This allows customers to offset their electricity consumption from the utility company by sending their excess generation back to the grid.

Many states, including Wyoming, have legislated net metering rules that require the utility to pay specific rates to the interconnection customer. South Dakota has not legislated net metering rules.

Net Billing describes the interconnection rules as they apply in South Dakota.

Net billing is similar to net metering, but compensation for the excess energy generated is based on the utility's avoided cost rate rather than the retail rate. The avoided cost rate is the cost that the utility company would have incurred to generate or purchase the same amount of electricity from other sources. This rate is much lower than the retail rate customers are charged for electricity consumed from the grid, as the retail rate is meant to incorporate other fixed charges by the utility operator, such as for grid maintenance and overhead.

The avoided cost rate varies by supplier and location. As of 2024, it is about 15% to 26% of the retail rate when purchasing electricity, varying from only 1.9 cents to 2.9 cents per kWh fed back to the grid.

The absence of a net metering policy, along with low avoided cost rates, makes investing in solar power in South Dakota less appealing compared to other states. However, selecting the right solar system can keep the investment attractive, particularly when considering benefits like backup power in addition to reducing utility bills. Most installations can still provide a full return on investment within the system's lifespan. Furthermore, future changes in electricity rates may influence the payback period. If power costs increase, the savings generated by the solar system will also rise accordingly.