Regulators Avoid The Ire Of Solar Proponents

State level regulators, like politicians, read the newspaper headlines, notice what is in their in-box and have a good sense of what their constituents like and dislike. This, more than anything else, explains why they seem reluctant to modify or nullify prevailing net energy metering (NEM) laws even when they realize that the status quo may be unsustainable in the long-run.

The problem with NEM laws, currently in effect in 43 states (map below), is well-known. Customers who install solar rooftop PVs or other forms of distributed self-generation on their premises, typically generate a significant percentage of their total electricity needs, which means they end up buying far less from the “grid” – whoever is their local distributor/supplier. This reduces the number of kWhrs they buy, and the revenues flowing to the local utility.

But that is only part of the story. Under most prevailing NEM laws, customers who generate power in excess of their need at the time, can sell the “excess” to the grid and get a credit for every kWhr exported at the prevailing retail tariff. This may seem reasonable, but becomes problematic in cases when customers have a lot of excess generation, for example, school districts, where consumption during sunny summer months is negligible – which means virtually every kWhr generated can be considered excess generation and subject to a credit on customer’s bill. School districts in many sunny regions, as in California, can virtually eliminate their annual electric bills in this way.

While fiscally constrained schools love NEM laws, the utilities that serve them don’t. Since the utility business is essentially a zero-sum game, what NEM customers save – or avoid paying – has to come from the remaining customers who have not invested in distributed self-generation. Under rate of return regulations still prevalent in many parts of the US and elsewhere around the world, to keep the local utility whole, average retail tariffs must be raised. That simply encourages more customers to bypass the grid-supplied electricity.

NEM laws raise two issues:

• Fairness or equity; and
• Complications in determining the causality of the costs and benefits.

The fairness issue should be self-evident. Customers paying less are subsidized by others. Complications arise in determining the costs and benefits of NEM customers.

Proponents of distributed self-generation argue that the network is not harmed or may in fact benefit since less power has to be generated, transmitted and distributed, especially if most of the generation takes place during peak demand periods substituting for expensive peaking units.

The industry counters that the utility revenue collection business is a zero-sum game with predominantly fixed costs. What little may be saved when NEM customers consume less is negligible compared to the loss of revenues from lower volumetric kWhr sales. Moreover, they point out, with justification, that most NEM customers become free riders by paying little or none for the upkeep of the grid while benefiting from the valuable services that it provides.

Since most NEM customers remain connected to the grid and use it for backup and for balancing their variable self-generation against internal consumption, they gain disproportionately without contributing to its maintenance. Sorting out these contentious issues and figuring out what is the net value or cost imposed by NEM customers to the network is what is at stake – and state level regulators who set retail tariffs in the US are caught in the cross fire.

NEM has become a high-profile issue in a number of jurisdictions in the US, with “utilities” typically arguing that the laws must be modified to reduce or eliminate the credit given to customers when the meter is spinning backwards, metaphorically speaking. The same types of arguments are confronting regulators and policymakers in other countries, most notably in Australia, where extremely generous subsidy schemes for solar rooftop PVs have been scaled back for many of the same reasons.

In sunny Arizona, the solar lobby is fighting the state’s largest utility, Arizona Public Service (APS), an investor-owned utility, to keep the prevailing NEM laws intact. A group representing solar PV installers called Tell Utilities Solar won’t be Killed – uses an elephant as its logo, hence the acronym TUSK – argues that utilities like APS are trying to kill the fledgling solar power industry to maintain their monopoly on power generation. True or not, it resonates with consumers and it has a David vs. Goliath flavor to it, pitting the powerful utility against the local rooftop PV installers.

In an article in the Wall Street Journal (3 July 2013), head of TUSK, Barry Goldwater Jr., whose father was a long-time Senator and one-time presidential contender, says utilities “ought to be encouraging people in Arizona to put these (rooftop PVs) on their roof, not discouraging it.” It is a sensible argument to the average citizen.

Mark Schiavoni, an Executive VP at APS counters that the 18,000 customers with rooftop solar PVs on its network are effectively being subsidized by 1.1 million other ratepayers. He sees the solar industry’s appeal to free-market conservatives as a ploy. “They are trying to protect their business and they will fight tooth and nail” to prevent any rule changes on how much homeowners are paid for excess electricity.

According to APS, the average solar PV owner generates 70% of the electricity they need, pulling the remainder from the grid at night and on cloudy days.

Under current NEM laws, APS credits customers for the power they generate based on the prevailing retail rate, which wipes out most of the customers’ utility bill. In the case of APS, residential customers pay a $16/mo. service charge – which is better than California where there is no fixed service charge for most households.

APS, like most other utilities, believes the credits given are too generous, according to APS spokesman Jim McDonald, and has proposed that the Arizona Corporation Commission (ACC), the state regulator, consider a motion to “resolve the issue in a way that’s fair and sustainable” for all customers – it is the standard line used by nearly all utilities who are fighting NEM laws.

Guess what? The solar lobby’s message appears to be winning. According to the WSJ article, the letters, phone calls and e-mails pouring into ACC are running heavily in favor of not changing the existing NEM rules.

It is not difficult to see why. The WSJ article mentions the case of Gene Westemeier, a typical APS customer who decided to install 16 solar panels on his roof in 2012. He reportedly signed a 20-year contract with a solar installer for $70/mo. with nothing down. His monthly electric bill savings most likely exceed $70/mo. He said the benefits he gets from the extra power he transfers to APS more than makes up for that cost, but fears APS may try to increase what he pays for nighttime electricity use.

The industry is closely, and nervously, watching decisions made at a number of regulatory agencies around the country. Two recent cases in Idaho and Louisiana, neither with significant solar PV penetration to date, may be indicative of decisions expected elsewhere in the next few months. In both cases, regulators decided against lowering compensation for NEM customers. This suggests that regulators may prefer to avoid a consumer backlash against reducing the benefits of prevailing NEM laws even though they acknowledge that these schemes may be unsustainable in the longer-run.

In the case of Idaho Public Utilities Commission (IPUC), the regulators rejected a proposal by Idaho Power Co., an investor-owned utility, to raise the fixed monthly service charge paid by customers who install solar PVs in early July 2013.

In similar vein in late June 2013, the Louisiana Public Service Commission voted 3-2 against a proposal by Entergy Corp. to lower the payments to customers under prevailing NEM laws.

Idaho Power and Entergy had pleaded that under current NEM laws, self-generators weren’t paying their fair share of costs for maintaining the network. You know the arguments.

The IPUC acknowledged that solar customers may not be paying their fair share, but concluded that, ”more work needs to be done to establish the correct customer charge.” The regulators said they were “concerned” that Idaho Power’s proposal “will discourage investment in distributed generation.”

While frustrated by the decision, in a prepared statement Idaho Power said, ”we appreciate that the commission acknowledged this is a valid issue,” adding, “we will move forward to work further with our customers and other stakeholders on this matter.”

According to Solar Energy Industry Association (SEIA), residential solar installations in the US grew 53% in the first three months of 2013 compared with the same period in 2012. The falling price of PV panels and the widespread availability of leasing options have made it feasible and affordable.

In Georgia, another state where the solar debate is in play, Lauren McDonald one of the Commissioners at the Georgia Public Service Commission, has publicly stated that he supports allowing more rooftop solar power than the Georgia Power, the local utility, a unit of Southern Company, had proposed. ”I’m an old conservative and businessman,” Mr. McDonald said, adding, “(but) I will tell you one thing: The sun will be shining, and that is free energy.”

The very same issues and exact same arguments are under consideration is solar heavy California and other parts of the Southwest, where the stakes are much higher than in ID, LA or GA.

As previously reported (June 2013 issue), the Edison Electric Institute, the lobbying arm of US investor-owned utilities, recently published a report that concluded, among other things, that the growth of small-scale solar systems represents the “largest near-term threat” to the industry, suggesting changing – or killing, although EEI report did not use the term – net-metering laws.

As the recent decisions in ID and LA illustrates, however, it may be one of those cases where the little David wins against Goliath, the much more powerful utility lobby.