Nevada became just the latest state where a public utility commission crushed the economics out of customer-owned solar. Their rational for doing so mirrors the utility industry’s mantra that solar customers are avoiding their fair share of a utility’s cost to serve.
The solution being proposed by utilities, and accepted by their commissions, is to slash what a utility pays for customer-owned solar power. The result in Nevada is the mass exit of solar companies, significant job loss and an outcry from utility customers who bought or leased a solar power system.
Technology innovation versus utility regulation
When commissions endorse the utility industry’s fairness argument, they are failing to recognize a bigger technology picture. Utilities have no technology path for cutting customer bills by 20 percent or more. Utilities are not filing integrated resource plans that eliminate air pollution.
Conversely, customer-owned solar and zero net-energy home designs do have a technology path for delivering dramatically lower electricity bills plus zero emissions. A commission is turning a blind eye toward the technology future when it crushes customer-owned solar’s economics by accepting the utility’s position on fairness. It is a decision that preserves utility revenues at the expense of an alternative, customer-owned technology path that lowers electricity bills and reduces pollution.
The question of fairness is a non-issue
Utility rate-design history is rife with examples of utility-proposed, and commission-approved, examples of unfairness. Utilities and their commissions have consistently offered lower rates to industrial customers to remove the economic attractiveness of self-generation. The “lost utility revenue” is most often recovered by charging commercial customers higher rates. Commercial customers are chosen for higher rates because they do not vote like residential customers and did not have, until the advent of customer-owned solar, a self-generation option like large industrials.
To single out customer-owned solar on the issue of fairness is in itself unfair because fairness is really not the issue. The real issue for utilities is revenue preservation. The real customer issue is their ongoing quest to get a lower electricity bill. The state issue is how to enable the adoption of technologies that generate jobs and improve public health by reducing pollution. The real issue is that the commercial interests of utilities are not aligned with the commercial interests of consumers, state economic development goals or the common welfare gained from reducing pollution.
The false argument that utilities can do it cheaper
The utilities also make the argument that they can deliver renewable energy cheaper than customer-owned systems. The numbers at the solar or wind power plant busbar support their case. Solar and wind power do benefit from economies of scale.
But this is another false issue. The customer issue is not about what solar or wind power costs at the plant busbar. The customer question is: What is the size of my electricity bill? A related customer question is: Why should I pay for fossil-fueled power plants that may no longer be price-competitive and have air emissions that contribute to global warming? The commercial appeal of customer-owned solar power is that it can dramatically lower electricity bills with zero onsite air emissions. The utility industry has yet to offer a competing product.
Technology innovation will move past present day regulatory capture barriers
Regulatory capture is an economics term describing how a regulated business can overly influence the decisions of the government agency charged with its regulation. The solar industry has learned a hard lesson about regulatory capture as it petitioned regulators, mostly unsuccessfully, to preserve the economics of net-metering. The commission is the utility’s home field where they have built decades of legal precedents that support their business model.
While regulatory capture is a painful reality for the solar industry, and customers who have invested in solar, this is not the end of the story. Technology innovation is still one of the most powerful forces in the American economy.
Technologies that lower electricity bills and reduce pollution are on a global commercialization path. Solar continues to gain economies of scale in China, California and Europe. Led by Tesla and LG Chemical, battery technology is now on the same cost-decline path as solar. Led by Apple, Google and Amazon, smart-building technologies are gaining increased artificial intelligence, improved customer interface and lower costs.
Regulatory capture has a shelf life. It has been about 50 years since the utility industry stopped delivering the continuous price reductions that underpinned the rationale for creating regulated utility monopolies. Regulatory capture will end when technologies can cost-effectively enable customers to delink their service from utility service.
At such time utilities will once again be focused on winning customers by offering lower electricity bills plus sustainably-sourced electricity. This is the future that today’s utility regulators should be focused on and enabling.
Image credit: Pixabay