Topeka Skyline at Night -  Weatherguy48 at en.wikipedia, released into public Domain

What Really Happened in Kansas?

Trying to comprehend the Net Metering Wars

By Roy L Hales

the ECOreport Logo
the ECOreport Logo

News of Rooftop Solar’s most recent victory reached me on Friday, April 4. The Alliance for Solar Choice (TASC) issued a press release stating, “Fresh on the heels of recent ALEC defeats in Utah and Washington, the solar industry today declares victory in Kansas. Across the country, many utilities are attacking the solar industry (and the utilities’ own customers) by attempting to eliminate net metering.” Is that what the utilities have been trying to do?

Most of America’s utilities are investor owned. They exercise virtual monopolies over their respective territories, in part due to incredible expense involved with building an extensive infrastructure.

The grid is aging and much of it needs to either be modernized or replaced. A recent report from Edison Electric Institute, a trade “association that represents all US Investor-owned electric companies, estimates that utilities spent $17.5 billion upgrading the grid in 2013. There currently over 170 projects, worth over $60 billion, scheduled to be completed by 2024.

Part of the friction between the utilities and emerging rooftop solar companies arises from a disagreement as to whether solar owners should be paying for that infrastructure. Tom Tanton explained the utilities is position on page 2 of a booklet called “Reforming Net Metering

“Net-metered customers remain connected to the local electric grid and use the grid to buy power from their local electric company during times when their systems are not producing enough energy to meet their needs. Net metered customers also use the grid to sell power to their electric company when their systems are producing more electricity than is needed. Since net-metered customers are both buying and selling electricity, they are relying on the grid as much or more than customers without such systems, but not paying for grid support.”

The California Public Utilities Commission compared the amount that residential and non-residential rooftop solar owners pay (see “Mean” in the graph below)and concluded (p 105) that, as a group, they “pay their cost  of service.”

Table 56: WhIch shows the inequalities within NEM rates and that as a class they are fair.
Table 56 from a CPUC report that shows the inequalities within NEM rates and that, as a class, they are fair. Some solar owners dispute these figures because energy produced and consumed by  home owners are included in the calculation of utility “costs.” (Lost income!)

Will Craven, of SolarCity, challenges this study because it includes onsite consumption of solar  (ie energy homeowners produce for their own use) as part of the alleged “cost” of net metering (NEM). Viewed from this perspective, rooftop solar owners are already paying MORE than their cost of service.

One home owner, testifying before the Arizona Corporation Commission, asked why his utility was allowed to shift lost potential income, from homeowners who now draw most of their energy from solar, to the rest of their customers? Most businesses can not do this! Are utilities simply trying to preserve their monopoly and guaranteed 10% profit margin?

A Press release from Vote Solar, in Colorado, pointed out that the utilities fail to consider the benefits of solar:

“savings on expensive and polluting conventional power; reduced investments in transmission and distribution infrastructure; reduced electricity lost during transportation over power lines, as net metered solar’s surplus energy flows to the grid and is consumed locally; and savings on the cost of meeting carbon reduction and renewable energy goals. In addition to grid benefits, distributed solar is delivering economic, environmental and public health benefits to Xcel’s solar and non-solar customers alike.”

This study concluded that, instead of costing the utility money, rooftop solar was actually delivering as much “as $11 million in annual benefits to Colorado ratepayers. ”

Rooftop solar energy supporters rally in Denver, before marching to the offices of utility corporation Xcel.
Rooftop solar energy supporters rally in Denver, before marching to the offices of utility corporation Xcel.

The utilities perspective is probably best summed up in Peter Kind’s booklet Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail, which was published by EEI.

On page 4  “Distributed Energy Resources” (the best known source of which is Rooftop solar) are identified as “the largest near-term threat to the utility model.” Though  the impact of this “disruptive technology” is still small, (p 13) Kind write that “the potential impact, based upon DER trends, is considerable.” Assuming current tax and regulatory policies remain the same, they could control 33% of the market by 2017.

Kind wrote that the utilities have a fiduciary duty to act:“Investors have no desire to sit by and watch as disruptive forces slice away at the value and financial prospects of their investment. While the utility sector provides an important public good for customers, utilities and financial managers of investments have a fiduciary responsibility to protect the value of invested capital. Prompt action to mitigate lost revenue, while protecting customers from cross-subsidization better aligns the interests of customers and investors.”

He listed a number of Immediate actions they can take (p 17)

  • Institute a monthly customer service charge to all tariffs in all states in order to recover fixed costs and eliminate the cross-subsidy biases that are created by distributed resources and net metering, energy efficiency, and demand-side resources; 
  • Develop a tariff structure to reflect the cost of service and value provided to DER customers, being off-peak service, back-up interruptible service, and the pathway to sell DER resources to the utility or other energy supply providers; and 
  • Analyze revision of net metering programs in all states so that self-generated DER sales to utilities are treated as supply-side purchases at a market-derived price. From a load provider’s perspective, this would support the adoption of distributed resources on economically driven bases, as opposed to being incentivized by cross subsidies. 

There are also longer term actions:

  • Assess appropriateness of depreciation recovery lives based on the economic useful life of the investment, factoring the potential for disruptive loss of customers; 
  • Consider a stranded cost charge in all states to be paid by DER and fully departing customers to recognize the portion of investment deemed stranded as customers depart; 
  • Consider a customer advance in aid of construction in all states to recover upfront the cost of adding new customers and, thus, mitigate future stranded cost risk; 
  • Apply more stringent capital expenditure evaluation tools to factor-in potential investment that may be subject to stranded cost risk, including the potential to recover such investment through a customer hook-up charge or over a shorter depreciable life; 
  • Identify new business models and services that can be provided by electric utilities in all states to customers in order to recover lost margin while providing a valuable customer service—this was a key factor in the survival of the incumbent telephone players post deregulation; and 
  • Factor the threat of disruptive forces in the requested cost of capital being sought.

The first utilities to take action were in Louisiana and Idaho. They applied to increase the rates, claiming that solar powered homes were not paying their share of the infrastructure costs. In both cases, their respective utilities commissions denied this requests. The Idaho Utilities Commission said “more work needs to be done to establish the correct customer charge.”

Protest outside Sempra Energy - Courtesy San Diego Counsellor Dianne Jacob's Office
Protest outside Sempra Energy – Courtesy San Diego Counsellor Dianne Jacob’s Office

In California, the three investor owned utilities were behind a bill (AB 327) that was intended to correct the state’s “broken, outdated and inequitable residential electric rate structure.”

San Diego Gas & Electric issued a press release in which it  claimed to support solar energy but not a rate structure where some customers “pay 20 percent less than the cost to serve them, while customers in the top two tiers pay 50 percent more than their share.”

SDG&E made that assertion about the rate structure only weeks after reporting profits of $156 million for the first six months of 2013 and Sempra Energy, which owns SDG&E, reported profits of $423 million.

San Diego County Supervisor Dianne Jacob said, “SDG&E already charges among the highest electricity rates in the nation. Ratepayers continue to pay a big price so Sempra and SDG&E shareholders can make big profits and their executives can continue to collect big bonuses. Now they want to tighten their grip on the energy market and make it even harder to plug into the future.”

After prolonged negotiations, most of the parties involved agreed to the version of AB 327 that was finally signed into law.

Note that Edison Electric Institute’s name does not appear in any of the anecdotes above. EEI describes its function as providing “public policy leadership” and “strategic business intelligence.”

EEI was not directly involved until a series of anti-solar television ads and mail-outs were launched in Arizona. Edison paid out $520,000, and the local utility another $4.2 million, to finance this negative media campaign. A PR representative, acting for EEI, was reported trying to plant stories in the local media. This very expensive and public campaign appears to have done more damage to the back fired.

When I interviewed Stephanie Donovan of SDG&E around this time, She pointed out that  SDG&E is not a member of EEI  - SDG&E’s  parent company, Sempra Energy, is – and she has never read Kind’s study.

“Far from fighting solar, SDG&E is committed to local solar power generation,” Donovan said. “The current tiered structure for electric rates for the California IOUs is out-of-date and doesn’t reflect the way many consumers use energy today.”

She then repeated a perspective shared by many utilities, “It’s imperative that we put in place electric rates that will ensure that solar, and all forms of DG, are sustainable in the long term.  If we don’t, we will face the same economic crisis Europe faces today, which has prompted a retreat from renewable development rather than a desire to embrace more.”

Before the year was out, there were stories of other utilities companies that wanted to work with rooftop solar. There was even a report that Edison International invested in Clean Power Finance, “a company that helps to finance solar projects.”

The American Legislature Exchange Council (ALEC) was the next organization to emerge in the fight to control rooftop solar. According to Mother Jones ALEC is “one of the nation’s most powerful—and least known—corporate lobbies” in America. Another expose revealed that they derive 98% of their funding from big corporations and foundations. ALEC gives politicians “scholarships” to lavish conferences, during which a model legislation is adopted. One of these models was subsequently traced to the legislation introduced in 13 states. Last year’s model legislation called for the “repeal a state’s renewable energy mandate” and support for the Keystone XL Pipeline.

The Electrical Freedom Act, which ALEC’s Board of State Legislators adopted on October 18, 2012, was a model of the legislation that state legislatures could use to repeal their renewable energy mandates and ends with the clause:

BE IT THEREFORE ENACTED, that the State of {insert state} repeals the renewable energy mandate and as such, no electric distribution utilities and electric services companies will be forced to procure renewable energy resources as defined by the State of {insert state}’s renewable energy mandate.  

On page four of the attached document, ALEC claims their Electricity Freedom Act became the model for legislation in “approximately 15 states across the country.”

Like EEI, ALEC appears to have influenced rather than dictated the decisions of local utilities.

INstalling PV panels on the Washington State Legislature - Photo Courtesy TASC
Installing PV panels on the Washington State Legislature – Photo Courtesy TASC

In TASC’s recent press release, it says “ALEC joined the fray at the end of 2013 by creating a template for model anti-net metering policies. In just the first few months of 2014, rooftop solar defeated utility-backed ALEC bills in Utah and Washington. It’s now time to add Kansas to the ALEC defeat list.”

TASC’s press release described the most recent attempt:

The three investor-owned Kansas utilities – Westar, KCP&L and Empire – supported a bill designed to eliminate net metering. Solar advocates and local industry groups defeated this attack on solar by ensuring that the current version of the bill preserves net metering. The bill, now headed to Governor’s desk for signature, also says that if the utilities want to change rates in the future, they have to do so through a rate case.” 

A TASC spokesperson pointed me to the Kansas Senate Sub. for HB 2101 and said the utilities “proposal would have resulted in elimination of net metering.”

Searching through the Kansas City Star website, I found an article in which the state’s largest utility, Westar Energy, repeated the usual  complaint that they were not being adequately compensated for their fixed costs like “power plants and lines.”

In its final form, Senate Sub. for HB 2101 grandfathers in “customer-generators that have installed net metering systems prior to July 1, 2014,” with some exceptions. New residential customers, after July 1, will not be allowed to purchase more than 15 kilowatts of capacity. Commercial customers will be limited to 100 kilowatts and schools 150 kilowatts. The Net Metering provision in this legislation lasts until January 1, 2030, after which all customers will be billed equally.

In their original press release,TASC said, “This utility failure in Kansas extends the solar industry’s win streak to 10-0.” Someone deleted that line from the version that Clean Technica subsequently printed.

Examining reports of the various utilities vs solar clashes, the most encouraging is from California where both sides were able to agree to AB 327.

Thus I find the response that one of Kansas utilities gave me encouraging, “KCP&L supports the net metering legislation that passed out of the legislature and the renewable benefits associated with this program. We believe this bill offers a reasonable compromise between all parties by allowing the Commission to re-evaluate the model currently in place to provide a rate that is fair for all of our customers.”

Utilities have good reason to seek an amenable solution. Most solar customers are still tied to the grid, but the option of storing energy on batteries is already available. As this technology improves, so do the opportunities available to solar owners. If they cannot find a way to work with rooftop solar, utilities may be faced with large numbers of  grid defections in the future.

(Photo at top of page: Topeka Skyline at Night –  Weatherguy48 at en.wikipedia, released into Public Domain)

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