The energy transition depends on effective long-term policies and consistent market signals. Jacques Leslie explains recent developments by the Nevada Public Utilities Commission to introduce new tariffs that will cut by three-quarters users’ reimbursements for feeding electricity into the grid.
Nevada’s Solar Bait-and-Switch
WHEN President Obama proclaimed in his State of the Union address last month that “solar is saving Americans tens of millions of dollars a year on their energy bills,” he clearly wasn’t talking about Nevada.
In late December, the state’s Public Utilities Commission, which regulates Nevada’s energy market, announced a rate change drastic enough to kill Nevada’s booming rooftop solar market and drive providers out of the state. Effective Jan. 1, the new tariffs will gradually increase until they triple monthly fees that solar users pay to use the electric grid and cut by three-quarters users’ reimbursements for feeding electricity into it.
More startlingly, the commission made its decision retroactive. That means that the 17,000 Nevada residents who were lured into solar purchases by state-mandated one-time rebates of up to $23,000 suddenly discovered that they were victims of a bait-and-switch. They made the deals assuming that, allowing for inflation, their rates would stay constant over their contracts’ 20- to 30-year lifetimes; instead, they face the prospect of paying much more for electricity than if they had never made the change, even though they’re generating almost all their electricity themselves.
The commission justified its decision by citing grid construction and maintenance costs that rooftop solar users haven’t been charged for, but circumstantial evidence suggests that other factors played a role. All three commission members were appointed or reappointed by Gov. Brian Sandoval, a Republican, whose two election campaigns have received a total of $20,000, the maximum allowed donation under Nevada law, from NV Energy, the Berkshire Hathaway-owned utility that is a major beneficiary of the rate changes. Two of Mr. Sandoval’s closest informal advisers, Pete Ernaut and Gregory W. Ferraro, are NV Energy lobbyists.
The American Legislative Exchange Council, which drafts model bills for right-wing state legislators and receives financial support from fossil fuel interests, has campaigned for rates like those the commission adopted, and, according to Greenpeace, NV Energy was at one time an ALEC member.
The outcry among solar users and providers has been so vehement that the commission has agreed to hold a hearing next week to reconsider imposing the new rates on existing solar users, and NV Energy announced a week ago that it would not insist on the retroactive provision. But even if limited to future customers, the rate changes will almost certainly decimate one of the largest residential solar markets in the nation. As a result, residential consumers will have little alternative to NV Energy, which uses fossil fuels to generate more than 80 percent of the state’s electricity.
The decision is likely to have national repercussions. One indication is that the stock price of SolarCity, which served 60 percent of Nevada’s rooftop market, has dropped 30 percent since the commission’s decision was announced Dec. 22. Investors in solar companies now have reason to fear that retroactive provisions will spread to other states, no matter what happens in Nevada.
All of this amounts to the most consequential skirmish so far in the struggle over the future of utilities. In fact, it reflects utilities’ defensiveness, as modular devices located close to consumers are undermining their monopolies. Cleaner, more energy-efficient and potentially cheaper than fossil fuels, these technologies include solar, wind, batteries, microturbines, microgrids and smart appliances. As they spread, they strike at the heart of utilities’ business models: To increase profits, utilities must expand operations, but the emergence of distributed energy reduces the need for expansion.
Three years ago, the Edison Electric Institute, the utilities’ trade group, published a report called “Disruptive Challenges” that became famous in the utilities sector for its seeming candor. It describes how distributed forms of energy could send the industry into what has become known as the “utility death spiral.” As more and more consumers switch to distributed energy, the utilities’ costs must be shared among a dwindling number of customers, whose rates therefore increase, causing more of them to shift to distributed energy. The report may be exaggerating when it says that if 10 percent of utility customers switch to distributed energy, utilities’ rates would rise by 20 percent, but even a smaller shift might devastate utilities’ business models.
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The industry’s response has been to try to protect its revenue stream by limiting the growth of rooftop solar, in particular by claiming that solar users benefit from the grid’s existence without paying for it, as the utilities’ ratepayers do. The Nevada commission’s decision relied on an NV Energy study that made this argument. But solar users also save utilities money in assorted ways, including by reducing the amount of energy utilities must generate or buy from conventional power plants, lowering utilities’ need for large capital investments and increasing the grid’s resilience. Numerous studies suggest that rooftop solar’s impact on the grid is at best beneficial, at worst slightly negative — in either case, not a justification for substantially raising solar users’ rates.
Both utilities and their regulators are well known for their caution and lack of vision, but the utilities’ current strategy is outdated and unsustainable. Not only does it waste resources and stifle innovation, but it’s likely to be upended by a few pioneering state commissions that understand the overwhelming economic and environmental value of distributed energy.
Most notably, in April 2014, New York’s Public Service Commission began a process to transform utilities from monopolies into electricity distributors that increasingly rely on clean energy generated by numerous providers. In this grid of the future, energy costs will decrease and utilities will become, instead of climate change enablers, part of the solution to the problem.