Whether you’re a utility or a rooftop solar company, you probably believe there’s a mismatch between today’s electric rate designs and the value of distributed PV. The trouble is that utilities and solar companies often don’t agree on how to bridge that gap.
Hints of a consensus seemed to be beginning to emerge, however, at this week’s Solar Power International (SPI) conference in Anaheim, Calif.
Increased fixed customer charges and reduced net-metering credits have become two of the most common policy changes proposed by utilities to address the rapid growth in distributed solar. Utilities believe these changes are needed to recover their investments in the grid network and avoid cost shifts between solar and non-solar customers.
According to a recent report by the North Carolina Clean Energy Technology Center (NCCETC), in the second quarter of 2015, there were 32 instances in 18 states of utilities requesting residential customer monthly fixed charge increases of 10 percent or more. The average proposed increase was 60 percent, from an average residential fixed charge of $9.70 per month to $15.45. Fifteen of these proposals were ruled on in Q2, with regulators ultimately limiting charge increases to an average of $2.50 per month.
These monthly charges apply to all customers -- not just solar customers -- but can have a significant effect on the residential solar value proposition, according to NCCETC. In addition, six utilities in five states proposed adding charges only to solar customers in Q2, and two utilities in two states proposed minimum bill increases.
At a utility rate structure panel yesterday at Solar Power International, an audience member from the Regulatory Assistance Project said he viewed the fixed rate phenomenon as reactive and regressive, and put it to the panelists to respond.
“I agree,” said Rusty Haynes, policy research manager at EQ Research. “Jacking up fixed charges contradicts all kinds of policy goals and diminishes distributed generation, in addition to efficiency.”
Greg Bernosky, director of state regulation and compliance at Arizona Public Service (APS), echoed that increasing fixed charges is not the most effective way to solve the disconnect between the costs and benefits of solar.
“The fixed charge is a bit of a blunt instrument, and we would agree it’s not the cleanest and best price signal,” Bernosky said.
“We see it as if you can transition to something that has that price signal embedded in the rate, then you don’t need to have such a fixed charge sitting on top of the…rate design,” he continued.
APS is currently seeking regulatory approval to increase fees on solar customers from the current $0.70 per kilowatt to $3 per kilowatt, which amounts to $21 fixed monthly fee for the average solar customer. In this context, Bernosky’s comments come as something of a surprise.
However, in APS’ filing, customers do have the option to pay a demand charge instead of the $21 fee. These customers would pay APS’ ECT-2 tariff, a demand charge of $13 per on-peak kilowatt-hour in the summer, falling to $9 for winter months, with kilowatt-hour rates varying by time and season between 8.8 cents and 4 cents. There are currently around 100,000 APS customers on this rate plan.
APS is now in the process of setting up a “rate laboratory” to test a new demand fee with a group of 200 volunteer customers. Seventy-five of those customers will also be outfitted with new technologies, including a solar array, a battery, and a variable-speed HVAC to see how customers can realize value.
“Solar-plus-storage on a demand-rate paradigm is a real winner,” said John Sterling, senior director of research and advisory services at the Solar Electric Power Association (SEPA). “When the price of storage comes down enough, it is a very compelling case...over the long term, and it works well for the utility. The utilities say, ‘They did exactly what I told them to do, I set a price signal, they are responding to it, that’s perfect.’ That can really drive growth in the solar-plus-storage space.”
Tom Starrs, vice president of market strategy and policy for SunPower, agreed that dynamic pricing, including demand charges, has the ability to incentivize customers to install and use distributed generation in a way that’s beneficial to the grid.
“I think fixed charges are the worst kind of blunt instrument, precisely because they detract from the ability to use pricing to incentivize customers to do what we want them to do,” he said, in an interview on the sidelines of SPI.
But how receptive the solar industry is to demand charges is technology-dependent, he added. Solar alone doesn’t allow residential or commercial customers to cope with demand charges; they also need advanced energy management systems or energy storage. As technology costs continue to decline, the solar industry will be able to embrace demand charges as a possible win-win solution, but the industry isn’t there yet today, said Starrs.
“One of the things that we’re seeing, whether it’s really intentional or not…is utilities that are proposing to make that shift [to demand charges] knowing that we’re not yet ready to be able to respond,” said Starrs. “I think there are some utilities that are actually proposing rate designs targeted at discouraging investments in distributed solar. And I think that’s a really unfortunate trend.”
So while there seems to be some consensus building in the industry around the need for more dynamic, use-based pricing, there are still concerns around the timeline for implementing such rates. In addition, there’s disagreement over what other kinds of charges should accompany a demand charge.
In Phase I of SEPA’s 51st State initiative, APS filed a report recommending that future electricity prices comprise three elements: “a monthly service charge for the customer’s interconnection, overhead, and basic service level costs; a kW demand charge for the customer’s grid requirements for their home or business; and a kWh energy charge for the fuel costs associated with the customer’s monthly electricity consumption.”
Despite Bernosky’s comments, APS notes in its filing with the Arizona Corporation Commission that a fair allocation of costs would require distributed-generation customers to pay a $67 monthly fee. The utility has stated that it plans to request that increase in its next rate case.
Ronald Litzinger, president of Edison Energy Group, the holding company for Edison International’s competitive businesses, as well as president of Southern California Edison, has yet another view. He said he doesn’t believe that fixed monthly fees for solar customers are the right way to recoup costs, but he firmly believes the fixed charge for all customers needs to be increased.
“At some point, the fixed charges have to be covered somehow, some way, and if you do it all through variable charges, all you do is end up hurting one customer or another,” he said. He added that net-metering credits must also be reduced.
SEPA launched the second phase of the 51st State initiative yesterday to try and grapple with some of these divisive conversations. Phase II of the project will focus on “common goals, stakeholder collaboration and workable solutions,” according to Julia Hamm, SEPA president and CEO.
Nuance will be essential for finding common ground on the utility rate issue, said Jim Kennerly, principal analyst at Sustainable Energy Advantage, who moderated yesterday’s utility rate panel. It’s also important to focus on “interests not positions” to get at each set of stakeholders’ deeper concerns, he said.
“It’s not that [the utility] opposes net metering, but that they fear the lack of cost recovery,” he said. “With solar, they’re trying to keep net metering, but what they’re really trying to say is, ‘We just want to stay in business and offer our customers the value our product provides.”
At the start of yesterday’s utility rate panel, Kennerly asked attendees whether or not they thought utilities and solar companies could achieve common ground on the distributed solar issue. Nearly everyone in the room raised their hand.
After the panel, Kennerly asked the audience if they felt more confident that a solution was possible, and only three people raised their hands.
“So I guess we’ll be talking about this next year,” he said.