Utility Business Models Are Outdated; Public Utility Commissions Should Not Save Them Posted on Mar 25, 2021
This guest blog by Angela Lipanovich, President of Estriatus Law, PC, is also posted on Estriatus Law’s Legal Review. Ms. Lipanovich, Esq. is an attorney who has worked on cleantech, solar and microgrid issues for 15 years with experience in the private and public energy sectors.
Our public utility commissions must support the private cleantech industry demanded by voters in the form of laws that protect the right to own private clean energy sources, such as solar and microgrids (“Distributed Energy Resources” or “DERs”).
There are more than 1 million locally owned DERs in California alone, which is the equivalent of approximately nine gigawatts of solar energy or the size equivalent of six large natural gas power plants.(1) Consumer demand for DERs is only increasing due to the innovation of the private cleantech sector. Utilities, some Community Choice Aggregators (CCAs) and pro-utility groups across the U.S. are trying to stop this market growth and innovation.
Utilities are strong-arming DER companies and customers due to the competition they create and proliferating false narratives that utilities and utility scale renewables are the only way to meet our climate change goals. This notion that we need utilities at the cost of DERs to meet climate change goals is outdated. The market for DERs is practically endless and provides more than just a solution to climate change such as also resolving threats from wildfires, public safety power shutoffs, environmental justice and energy resilience problems.
Powerful utility lobbyists are fighting the laws and regulations that give people that right to own DERs in order to protect the utilities business models. The lobbying, public relations (PR) and organizational effort led by the utilities includes paid news campaigns and financial support of pro-utility appointments on public utility commissions.
Across the U.S., utility misinformation campaigns are discounting the value of DERs, such as solar, storage and microgrids, and arguing that favorable tariffs for DERs hurts non-DER owners. The regulatory authorities implementing laws to protect DER ownership are slowing the cleantech market’s growth due to outdated thinking, albeit perhaps well-intentioned. As a result, unfair and overly burdensome regulations affecting DERs is imminent in many states.
The DER market’s potential to be a standardized building fixture, such as plumbing or heating, is the most cost-effective solution for all customers to have resilient clean energy with only a limited need to connect to the grid; but, progress is stalled in a tug-o-war between legislation and regulation.
Case Examples: Two California Proceedings at the California Public Utility Commission
In California, the tug-o-war among voters, private cleantech industry, utilities and public utility commissions is on center stage in two rulemakings (“Rulemaking”) at the California Public Utility Commission (“CPUC”). The Rulemakings were implemented pursuant to legislation designed to enable people to own private solar, storage and microgrid technologies connected to the utility’s grid. Each of the Rulemakings, relates to the fundamental ways that people who own solar, storage and microgrids can connect their systems to the utility’s grid in a fair manner, as follows:
CPUC Rulemaking 19-09-009 (“Microgrid Rulemaking”)
Senate Bill 1339 directed the CPUC to facilitate the commercialization of microgrids and remove regulatory barriers to their development. The CPUC’s implementation of SB 1339 through Rulemaking 19-09-009 consists of more parties and ex parte communications than most experts have ever seen. To date, there is unanimous agreement among the cleantech industry that this Microgrid Rulemaking is utterly failing to achieve the commercialization of microgrids, is fraught with legal error in the decision-making process and that the CPUC is captive of the utilities.
CPUC Rulemaking 20-08-020 (“NEM-3 Rulemaking”)
California law states that the CPUC must adopt a tariff that allows solar to grow sustainably and that net energy metering (NEM), the mechanism that provides solar customers with bill credits for their solar energy production, must be based on the costs and benefits of the generation facility. The CPUC’s third iteration of how NEM is calculated is being determined in this Rulemaking with implementation set for Q2 of 2022. A CPUC ordered white paper on NEM 3 supports gutting NEM with respect to a number of areas critical to the private cleantech sector related to export compensation rate, transition period/glidepath, eligibility period, rate requirements, fixed charges and grid access fees. This approach is also supported by the utilities.
In these Rulemakings, the CPUC’s commissioners (“Commissioners”) are expressing concerns that non-solar customers are subsidizing solar customers. In ex parte communications, the Commissioners have stated that they prefer dealing with utilities because they think they can control them through their regulatory oversight versus the lack of control they have over private companies. This approach is in direct opposition to “achieving the commercialization” of a microgrid industry as directed by SB 1339 and California’s mandate to install solar on all new buildings with limited exceptions. In the NEM-3 Rulemaking process, there have been sentiments that NEM is a subsidy provided at the cost of non-solar customers. In the Microgrid Rulemaking, unanimous agreement exists among the non-utility parties that decisions are siding almost completely with the utilities and failing to advance SB 1339’s goals.
Commissioners of the CPUC are appointed by the Governor and directed to follow the legislative will of the people. Most Commissioners come from careers in government or academia and from a “pro-utility” era. This is evident through the astoundingly, mistaken belief that utilities should be the preferred energy suppliers and grid operators due to a potential regulatory ability to watchdog them. Experience has shown this regulatory power is like fox watching a hen house.
Lobby Efforts & Misinformation Campaigns
The same misinformation tactics used in today’s politics of flipping truths upside down and then feeding reverse facts into news cycles is being used in utility lobbying efforts. Misinformation campaigns written about solar, NEM and microgrids are proliferating in paid news cycles. Sophisticated lobby, PR and organizational companies are weaving stories about how pro-NEM and solar policies are hurting low income customers without access to solar, how utilities are the only way to stop climate change in time and how private companies cannot be regulated into good behavior. Utilities are lobbying states to make it harder and more expensive for people to get solar and microgrids and to gut NEM since it threatens their monopoly power.
Another example of this misinformation campaign is the utility’s false claim that the cleantech industry is enjoying a “gold rush.” In reality, the utilities consist of fewer players with much larger profit margins than the cleantech industry, which employs over a hundred thousand people in California alone but is working in a highly fragmented landscape in which individual players have to be competitive.
Utilities have an obvious financial incentive to perpetuate misinformation since the development of DERs invades the existing utilities’ opportunity to supply energy and build electric distribution rate base. For DER companies and owners, facing the cost, delay and uncertainty of challenging the utilities is potentially fatal.
Misinformation campaigns are influencing the minds of environmentalist, social activists and progressives. As a result, even progressives are arguing against policies, rules and regulations necessary for our transition to a clean and resilient energy grid that fosters DER development.
The unfortunate truth is that while many local, pro-solar communities created their own CCAs, they are now finding that these “public non-profits” are joining the utility’s efforts to squash DER ownership because CCAs’ business models are also threatened. For example, simultaneous to the NEM-3 Rulemaking, some California CCAs are proposing their own NEM rate re-structuring also unfavorable to DER ownership. These CCA proceedings are occurring without the same attention and strength of opposition possible in the CPUC’s statewide proceeding. Unfortunately, such CCAs will capitalize on the utility anti-NEM-3 campaign to convince their local boards of their proposed anti-DER NEM rate restructuring. These CCAs are fighting for bigger shares of the cleantech supply chain and echoing utility misinformation campaigns.
Influenced by utility lobbying efforts, some public utility commissioners, albeit perhaps with good intentions, are expressing views that NEM hurts non-solar customers. The truth is that non-solar customers are not subsidizing solar customers, but everyone is subsidizing utilities in the form of taxes to pay for the consequences of wildfire responses, utility rate increases and climate change impacts. Low income customers already have access to DERs through financing now amply available through the same basic mechanisms which have made buying and financing cars so accessible. Third-party financing providers allow DER owners to own their own power supplies at the end of the financing terms just like car owners get a car after paying off their loan.
Due to utility misinformation campaigns, the cleantech industry is bracing for a potential decision in the NEM-3 Rulemaking that will potentially help some low income customers in the short run and hurt the rest of the market in the long run. Sophisticated at their game, utilities propose twice as much as they want from the CPUC knowing that they will likely receive half of what they request. A CPUC decision that turns NEM into a tool that only helps low income customers is not only unnecessary but also could ruin the private cleantech market. Low income customers already have access to financed solar and microgrid products, too few low income customers exist to drive the innovation solar needs and existing regulations working for the rest of the market could be taken away. Local solar and storage is the most cost-effective way to transition to clean energy and estimated to save consumers $373 billion.(2) That is $373 billon that the utilities will not make hence the fight they are putting up.
California’s current grid infrastructure is outdated. Despite massive wildfires caused by overhead power lines, utilities continue to rebuild uninsulated, overhead power lines even in the most fire-prone areas and continue to engage their massive, sophisticated PR and lobby campaign to steer the public utility commissions with false arguments that they are the safest and best entity to build and run our electric supplies and grid. The truth is that California’s current grid infrastructure is dangerous, antiquated and cheap.
What’s the Solution?
We are in the Anthropocene: a time in which humanity’s actions affect the world more than any other force. The impacts of human caused climate change are getting more and more severe and will be shaping the future of the planet. On the flip side human action and invention is the only force that can stop or revers this impact. It’s in our hands.
1. Equal Representation on Public Utility Commissions
The private cleantech sector needs to be represented on public utility commissions. Over the past thirty years, the private cleantech sector has grown a distributed solar, storage and microgrid industry from hippy enclaves to corporate board rooms across the world. A CPUC captive of the very utilities in which DER companies are in competition with means the cleantech industry must fight against a more well-funded and experienced lobby through laborious, expensive regulatory proceedings and grassroots community campaigns. Until appointees with pro-DER viewpoints are included on public utility commissions, voters’ only hope appears to be rooted in grassroots campaigns demanding their rights to own DERs.
2. Broader Policy Approaches
Public utility commissions and states must adopt policy approaches that include multi-pronged campaigns that track current business models and move utilities and CCAs toward a role as distribution system operator that welcomes and encourages DER generally, and microgrids in particular, consistent with broader state policy. Public utility commissions must require utilities to take a different view of their integrated resource planning, and must revise and eliminate outmoded tariffs and other regulations that create barriers to market entry.
3. Regulatory Innovation Designed to Match Private Technical Innovation
The tug-o-war between legislation and regulation is slowing down the construction of clean technologies needed to halt climate change. The fight to reverse climate change cannot be won with a single business model or supporting outdated ones. Transformative, consistent regulations must allow private cleantech industries to grow, innovate and serve the market demanded by voters.
Public utility commissions should be making it easier for people to get DERs and microgrids so they can control their energy, bills and keep the power on. With microgrids, almost every property can have complete, private control of its own clean energy supply and storage, including all of the wires and controls necessary to manage their supply and demand as a highly functioning contributor and resource to the broader grid. This is not just possible for the wealthy. Microgrids are safer and more reliable than utility operated grids, and until public utility commissions support them, they are blocking shovel ready solar and microgrid projects in droves worth billions of dollars state-wide.
4. Grassroots Campaigns to Address Regulatory Gaps
The cleantech industry and voters must continue grassroots campaigns to protect their customers’ rights to own DERs through legislation that takes into account the regulatory roadblocks the private cleantech sector is experiencing when developing cleantech projects. The desire for people to own their own power supplies is a non-partisan issue. Seven out of ten California voters want California to do more to encourage the use of solar power – not less; 41% want California to do “much more” versus 14% “much less.” (3) Voters are aware of the current advancement of microgrid technology, and they want them. People want to be able to depend on their own solar, storage and microgrid controllers, and operate them when the grid goes out, especially when they see the egregious behavior of the utilities with respect to wildfires, public safety and public safety power shutoffs, let alone frequent bankruptcies and bailouts.
With respect to the DER and microgrid sector, California has fallen behind. California must listen to the private cleantech sector’s needs, if it is going to be the world leader on the path to net zero emissions that the world needs.
Calls to Action
To help save Net Energy Metering (“NEM”) for California’s investor-owned utility customers, take the following actions:
1 – Go to Save California Solar and take the following actions:
– Sign the petition to Governor Newsom to keep rooftop solar growing in California
– Endorse the campaign
– Ask customers and friends to do same through social networks
2 – Go to California Solar & Storage Association’s website and donate to the NEM defense campaign
To help save NEM for local Community Choice Aggregator (CCA”) customers, take the following actions:
1 – Create petitions and get endorsements from constituents in local CCA territories
2 – Lobby elected officials and reach out to press in the CCA territories
3 – Speak in support of distributed, local solar and favorable NEM terms for solar customers at the CCA’s public meetings.
(2) See Business Wire (December 14, 2020) “Expanding Local Solar and Storage Could Save Ratepayers Nearly a Half a Trillion Dollars.” https://www.businesswire.com/news/home/20201214005720/en/Expanding-Local-Solar-and-Storage-Could-Save-Ratepayers-Nearly-a-Half-a-Trillion-Dollars.
(3) This data is from a recent California Solar & Storage Association (CALSSA) public opinion poll conducted in 2021.