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Love or hate them, utilities are on the right side of California's NEM debate

image credit: via the CPUC
Rory Sweeney's picture
President Power Prose, Inc.

A policy analyst, media contributor and PR consultant to the power industry with more than a decade of experience in journalism. I'm bringing media savvy to energy sector and awareness about...

  • Member since 2020
  • 29 items added with 7,591 views
  • Jan 27, 2022
  • 635 views

For all the regulatory-drama junkies out there disappointed that there won’t be a decision on net-energy metering (NEM) from the California Public Utility Commission at its Jan. 27 meeting, I’m sorry — but I’m probably more sorry that this is your chosen predilection in the first place. (Go get a Netflix subscription already!)

Instead, the best I can offer is my admittedly-distant perspective from literally across the continent here in PJM-land. That said, all organized markets touched by FERC’s wide-ranging Order 2222 on distributed-energy resources are having their own fights over integration of states’ NEM retail-rate compensation into federally-regulated wholesale markets — here's PJM's. (BTW, keep that retail vs. wholesale concept in mind… it’s pretty key to understanding part of this standoff.)

First, a few caveats:
- I don't love seeing utilities maximize profits by leveraging their political influence (ever heard the joke about lobbying being their actual core competency?) to create endless line items on customer bills anymore than you do.
- Nor do I easily suffer self-aggrandizing, self-righteously sanctimonious self-described "tribes" of "noble" "clean-energy" "warriors" and their crusades to reshuffle industry dominance in their favor, no matter how much they swear they’re only doing it for the benefit of we, the people, out of the kindness of their hearts, keen sense of patriotic duty and maybe just a little financial gain.
- I'm also a homeowner and residential customer, so — while I don’t have my own rooftop solar (yet) — I don't begrudge anyone who crunched the numbers to ensure their solar system would be a net-positive and are now frustrated and disillusioned that the game is being changed as they go along.

That said, the proposal as I understand it provides a 15-year runway from when the project went online to when these revisions would be implemented, so if it just interconnected last year, you’ve got 14 more years of the current tariff. Any deal that wasn’t designed to be a winner in that amount of time seems like fertile ground for a consumer complaint.

And, while — again — I am by no means supportive of utilities trying to line their pockets, some of the main thrusts of objection to the revisions seem disingenuous. Here’s why:
- Claiming that more long-distance transmission lines, which form the infrastructure ratebase that transmission owners (often utilities) use to set customer rates and make profit, aren’t necessary is demonstrably false. FERC is currently compiling feedback on why we need more in anticipation of rule changes to further incentivize transmission build-out to prepare for "the grid of the future": "The electric generation fleet is shifting from resources located close to population centers toward resources, including renewables, that may often be located far from load centers."
- Claiming that distributed resources like rooftop solar symbolize some sort of wire-cutting campaign for independence from the tyranny of the grid — as famous basketballer and beloved loon Bill Walton (“the major utilities and fossil-fuel industries … want everything [and] are not happy with the big shift of energy production in our great state towards locally owned roof-top residential and commercial solar.") and no less than The Governator ("Rooftop solar also … gives people a sense of self-sufficiency and independence from the grid. Is it any surprise that the big utilities want to take that away?") have implied — is preposterous. Unless they are actually disconnecting from the grid, owners of rooftop solar are still reliant on the distribution and transmission lines that the utilities pay to upkeep (maybe not always well, but that’s another issue…). And if they are concerned about how much NEM revenue they’re getting to supply power to the grid, they’re obviously not disconnecting from it.
- Claiming that a one-for-one NEM bill credit is fair is actually, well, unfair. This goes back to the retail vs. wholesale question I flagged before. As a state with consumer choice for energy suppliers, Californians can shop for the best rate. That retail rate from your power supplier is bundled, as NRDC explains in these illuminating (pun not initially intended) blog posts supporting revisions, to account for “the costs of wholesale electricity, longer term electricity contracts, costs to maintain and build out the electric grid, and other policy-driven expenses such as the costs to fight climate change and the costs of reducing the threat of wildfires.” Only one piece of all that is the wholesale cost, so if you get a 1:1 credit, you’re essentially opting out of paying your fair share of the rest of those costs. But the costs are still being incurred and you’re still benefiting from improved climate and wildfire protection and a more-robust grid. So who’s paying for them? Anyone who’s not getting the 1:1 NEM credit.
It also doesn't take into account the infrastructure costs and work necessary to turn the grid from a one-way street where power supplies radiate to end-use customers from a centralized generator into a two-way thoroughfare where both centralized plants and end-use customers' distributed-generation resources send electricity up and down the line. From the perspective of utility lineworkers, having to worry about power flows from both directions is a major new safety hazard, and the usual procedure of just turning them off when work needs to be done is now likely to elicit an angry phone call when the rooftop-solar owner sees power generation is down.
So the proposal instead suggests compensation be the avoided costs, or essentially paying you the money the utility saved by using your power. Seems fair enough, no? Whatever the actual value of the generation is, that’s what you get — nothing more; nothing less.
- And this is the basis for dismissing the claim that the cost shift from the haves who can afford solar-generation systems to the have-nots who continue to pay all the grid costs was fabricated by the industry to squeeze more pennies out of consumers. In fact, it’s easy to see how when a fixed cost (like maintaining the electric grid) that was socialized to all customers is now only paid by some of them, those who remain have to pay more to cover those who left. It’s like going out to dinner with friends and then hiding in the bathroom when the bill arrives. Not cool.
When we asked FERC Chairman Rich Glick about this in his second visit to the GT Power Hour podcast, he punted to state regulators to consider as part of their jobs setting retail rates. So FERC certainly believes the CPUC is well within its purview to give the shift some consideration, and the proposal’s inclusion of a $8/KWh “grid participation charge” that works out to something like $55/month for residential participants who aren’t disadvantaged (as well as a $600M equity fund for bringing these programs to low-income Californians) seems like at least a first step in the discussion.
Likely lost in all of this is that the wealthiest folks, who have already reaped benefits, seem to be trying to squeeze out more benefits by manipulating lower classes to fight over who gets to marginally improve their situation at the expense of the other's, which feels like what's going on now.

It makes you wonder what's behind the vicious and reflexive reaction to comments like this from former state-Assemblywoman Lorena Gonzalez-Fletcher, who had the temerity to suggest "You can be an environmentalist and still disagree with this cost shift."

One thing that both sides do seem to agree on that's also likely true is that the end result here will set a national precedent that will impact policy debates in other states with burgeoning solar industries like North Carolina and New Jersey. Maybe as a little consideration for economic realities and the limits of physics get added to the ongoing environmental fervor, comments like Gonzalez-Fletcher's will receive slightly more understanding in response — and slightly less hate.

Discussions
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Bob Meinetz's picture
Bob Meinetz on Jan 27, 2022

Excellent, especially:

"It’s like going out to dinner with friends and then hiding in the bathroom when the bill arrives. Not cool."

Lol!

Erika Ginsberg-Klemmt's picture
Erika Ginsberg-Klemmt on Jan 28, 2022

Hi Rory,

While you posted your article today, I waited in line for 6 1/2 hours on the phone to speak before the California Public Service Commission against the CPUC's NEM 3.0 proposal.

 

I was one of 456 “regulatory drama junkies” who signed up and patiently waited in line to speak for 1 minute. Only one person would not qualify as a regulatory drama junkie, an older lady who spoke in favor of the proposed rooftop solar taxes and in favor of cutting the compensations rates for renewable solar energy. This was a bewildering experience and the longest phone call of my life.

 

The rhetoric in your article remains superficial, so let’s cut to the chase:

 

Corporate Utilities benefit from a business model based on regulatory entitlements, like a protected market without competition and guaranteed revenue with all expenses paid no matter what.

 

Rate payers are not only on the hook for all nuclear decommissioning expenses, but also for the purchase of vast swaths of land for utility owned solar farms. And how much do utilities pay to the general public for the usage of public lands to operate the electric grid?

 

And now we are supposed to fall for a narrative which derides just compensation rates for renewable energy, produced by distributed PV systems during peak demand hours as “cross-subsidies”?

 

It is regrettable that you are obviously uninformed about the rapid shut-down requirements for distributed PV systems when you write: “From the perspective of utility lineworkers, having to worry about power flows from both directions is a major new safety hazard.”

 

UL-1741 requires that PV inverters automatically disconnect from the electric grid when the power goes down to protect the utility workers. You are trying to create an imaginary scenario here to mislead others. Please inform yourself before you invite a larger audience to jump to the wrong conclusions together with you:

https://www.ul.com/insights/pv-rapid-shutdown-safety-requirements-and-co...

 

Achim Ginsberg-Klemmt

www.gismopower.com

 

Bob Meinetz's picture
Bob Meinetz on Jan 28, 2022

Erika, to respond to some of your points:

"While you posted your article today, I waited in line for 6 1/2 hours on the phone to speak before the California Public Service Commission against the CPUC's NEM 3.0 proposal."

From someone who has considerable experience testifying before the California Public Utilities Commission, I agree: it can be a frustrating experience. It's very easy to believe CPUC doesn't want to hear your input, when a better interpretation would be they can't hear your input. With thousands and thousands of individuals affected by this decision, and actually becoming a party to the decision and submitting formal comments such a daunting task, you're probably better off aligning with an established group that is such a party, and working within that organization.

"Corporate Utilities benefit from a business model based on regulatory entitlements, like a protected market without competition and guaranteed revenue with all expenses paid no matter what."

A big subject, but in a nutshell: California has been trying to encourage competition between electricity providers by creating a competitive wholesale market for electricity, while relegating utilities to distribution-only status. Maintaining transmission and distribution lines is expensive - more so every year - and even if home solar owners only use it occasionally, they'll have to pay their share just like everyone else.

"Rate payers are not only on the hook for all nuclear decommissioning expenses..."

Sorry, but I have no sympathy for ratepayers who argued for the shutdown of Diablo Canyon Power Plant, a state-of-the-art, safe, cheap source of clean electricity. As of January 1, 2022, they're paying the costs of building the plant (in the form of capital cost recovery) and tearing it down (decommissioning) - at the same time! They brought it upon themselves - boo freakin' hoo. I am sympathetic to the plight of those customers fighting to keep it open, because they're on the hook too.

Audra Drazga's picture
Audra Drazga on Jan 28, 2022

Rory - thanks for your post on this subject.  While the vote did not happen, I think we will be seeing more and more discussions pop up about NEM.  The are a lot of moving parts on this issue - the haves and have nots, the utilities and how they find their way in this new world of DER's, and the handling of DERs on the grid.  

I look forward to following this subject this year. 

Michael Keller's picture
Michael Keller on Jan 31, 2022

Let’s say I build a power plant, hook it into the grid, generate power whenever I fell like it, and then expect to be compensated by the utility company.  As a power plant developer, the chances of that occurring are exactly zero. 

Yet, that is exactly what solar power advocates consider “fair” so they can reduce their costs at the expense of the rest of the utility customers.
If someone wants to install solar panels to generate their own power, great, knock yourself out. However, disconnect yourself from the grid when your system is running, which is easy to do from a technical standpoint. You say that’s not fair? Actually, it is.

 

 

Cindy Miller's picture
Cindy Miller on Feb 10, 2022

There are bills in the Florida Legislature right now to change the net metering approach adopted by the Florida Commission in 2008. There is Senate bill 1024 and House bill 741. The solar industry and consumers have come out in strong opposition. Perhaps the bill will turn into a study bill or something where the various stakeholders are to work on a compromise. It would change the credits received by the solar customers to less than what they receive now. It would entail a rulemaking at the Florida Commission.

Matt Chester's picture
Matt Chester on Feb 11, 2022

Both in California and in Florida it seems like an area ripe for potential compromise, and I hope that's where we end up. Paying full retail rate for solar was a great tool to ramp up solar installations, but with costs having fallen since then and the learning curve moved up, there's less of a reason to need that incentive to make solar an attractive investment. But both California and Florida are talking about reversing those measures far too much--  I agree, I hope the end result is that real, unbiased study comes from the respective commissions and they find the sweet spot of incentivizing solar installations and providing those owners compensations for the value they bring to the grid and to state-wide clean energy goals while doing so in a way that doesn't overly burden the non-solar owners. 

Michael Keller's picture
Michael Keller on Feb 17, 2022

Matt,

The problem with subsidies is they never go away while being invariably abused to line the pockets of the wealthy transferring costs from themselves to the poor and middleclass.  The vast majority of residential subsidized solar panel installations were made by the wealthy. Ditto for buying subsidized electric cars. Ditto for subsidized ethanol.

Those who work hard for a living haven't got the time to curry favor with lawmakers (as in giving them money for elections) like routinely done by investors, the wealthy and large companies, including utilities and green energy companies. 

The on-going subsidies are actually a form of an unfunded government mandate wherein the majority of the population subsidize the few, with the government avoiding paying for the requirements they created.

Net metering and allied on-going production subsidies are patently unfair to the vast majority of the population who actually have no ability to participate. Such schemes should be prohibited.  If the government wants to promote some activity, then use tax write-offs (that apply equally to all) for aiding initial construction efforts and subsequent asset depreciation. No subsidies for production operations.

 

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