[Feb 14, 2014: updated to reflect initial reports from NARUC meeting] Utility executives and regulators from across the country met in Washington, D.C., this week for the winter meeting of National Association of Regulatory Utility Commissioners. As predicted there was a lot of talk about the utility business model of the future and how solar power and particularly rooftop solar fit into that model. Initial reports from the meeting suggest that at least some utility industry leaders are looking for a more positive and productive relationship with solar and clean energy more generally. Now regulators and solar advocates need to translate this initial success into better rules for the industry at state level.
Across the country, regulators and legislators should reject utility attacks on solar for the red herrings they are. Most of the utility attacks on solar are motivated by the political supporters of the fossil fuel industry. Last year, the billionaire oil baron Koch brothers and the front groups they support, such as the American Legislative Exchange Council (ALEC) and Americans for Prosperity (AFP), attacked state renewable portfolio standards in half a dozen states across the country. After losing all of those fights, the fossil fuel money is back this year and attacking solar. Some utilities executives are carrying this water. A prime example is Duke Energy as discussed in my colleague’s blog here. (Also check out my colleague’s update on where these attacks are happening.)
Other utilities are attacking solar as part of their effort to shape the debate about the utility business model. They want to make sure their revenues and profits are safe and sound and the easiest way to accomplish this is to charge each of their customers high fixed costs. That way no matter how efficient the customer is or how much of their own energy they might generate onsite through solar or even how much energy and other benefits the solar customer provides to their neighbors and the grid overall by returning excess power to it, the utility still gets paid. But this is just protectionist monopoly behavior. In the vast majority of the country, we simply have not installed enough rooftop solar yet to have any meaningful impact on utility revenues. Furthermore, high fixed charges actively discourage energy efficiency, solar and other distributed/onsite generation and hurt low-income and fixed-income customers.
Today, NRDC and the Edison Electric Institute, the industry association for investor-owned electric utilities, released a joint statement that paints a much more positive picture of utilities as partners in speeding the deployment of distributed resources including the use of net metering, a policy EEI has attacked in the past. We don’t expect to be able to change all of EEI’s positioning overnight, but the statement is a milestone against which we can judge whether EEI is serious about being part of better, cleaner energy future. (Check out this blog for more detail on this statement.)
The utility business model
The fact of the matter is that the sales of electricity have flat-lined due to customer adoption of more efficient appliances, lighting and buildings, as well as slower economic growth. As a result, the old business model for utilities, which encouraged ever increasing sales, is broken. Even if it wasn’t, though, we’d need it to change. Rather than regulating utilities so that they make more by selling more, we want them to make more by providing better and cleaner energy services. To provide this, they need to invest in updating and reforming the transmission grid to maximize the benefits of energy efficiency and renewables such as wind, solar, and geothermal.
The electric grid we have today isn’t designed to bring renewables from remote areas to where we live or to take advantage of distributed solar or wind or energy efficiency to make the system more efficient and resilient. But as we deploy more of these critical resources, it’s important that we realize, through accurate means of accounting, that they will enhance--as well as be enhanced by-- the grid, but they will not replace it.
This makes the regulators’ responses to the utility red-herring attacks on solar all that much more important. If they go along with the utilities’ requests, high fixed charges will slow the development of clean energy and in time encourage those that can afford it to simply bypass the grid. If utilities continue to approach solar with a “my way or the highway” type attitude when it comes to locally generated solar power, some customers will choose to leave the utility as soon as they can. Others will be stuck paying the utility regardless of their consumption.
Net metering should become universal
A much better outcome for all is to decouple the utilities’ revenue from sales and reward them for integrating more clean energy solutions at both the wholesale and distribution level. Rates should be set based on how much we consume and then adjusted periodically to ensure sufficient cost recovery for the utilities. Net metering policies, which credit customers for power they put on to the grid during then and allows them to use those credits at night, should become universal. Across the vast majority of the country, net metering provides a “good-enough” balance of payments for the benefits solar provides to the grid and the demands these customers still put on the grid. And the benefits of speeding the development of solar and keeping transaction costs down outweigh the lack of precision in crediting of costs and benefits that happens under net metering.
As penetration gets to much higher levels, as it has in parts of one or two states, state and federal policy makers need to add policies. To get the most out of distributed resources, they should be encouraged to go where the grid needs them the most. In the meantime, we must continue to support additional market barrier-busting policies that can help bring solar to ever more customers. For instance, community solar and remote net metering programs allow customers who don’t have or own their roofs to directly participate as part-owners and investors in real, tangible solar projects that, in partnership with utilities’ superior knowledge of the grid, are targeted geographically to parts of the system that most need local generation.
Attacks against solar across the country by utilities such as Duke need to be rejected pure and simple. These efforts would take us backward, costing us jobs, increasing our energy bills, and making our air dirtier because of increased fossil fuel generation.
But change is coming to the utility industry, and the statement we released today with EEI demonstrates that some in the industry want to chart a different course for the industry. They want the utilities to be partners in building a more efficient, cleaner, more resilient electric system and they recognize that means encouraging more efficiency, more rooftop solar, and more renewables generally. Now it’s up to regulators and the rest of us to hold the industry’s feet to the fire to make sure that it evolves into the partner we need.