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The U.S. Utilities' Game, 2014.

Most investor owned utilities (IOU) in the U.S. are not happy with the way things have been going lately. The IOUs, the regulators, and the customers have different ideas on the issues at hand and confrontations are becoming the norm. California has the largest amount of installed solar power in the U.S. Since California usually leads the way in many areas—including solar energy—the developments there are very important, because many states are likely to follow its example.

Edison Electric Institute (EEI), the association of U.S. shareholder-owned electric power utilities, recently published a startling report calling out distributed energy resources (DER) disruptive technologies that threaten the very existence of today’s U.S. electric utility industry. The authors of the EEI report and the commentaries that followed, view solar primarily as a threat to their business model. A serious threat, no less. The disruptive distributed...sounds like a rap song...but in reality it is a serious business dilemma, that is just now hitting the media, and promises to be at the headlines very soon too.

And as a matter of fact, just this week the departing commissioner Mark Ferron from the California Public Utilities Commission (CPUC), which regulates (or is trying to regulate) the utilities in the state, issued a warning, and voiced fears, in his final report that utilities usually would chose to make progress on solar energy only if ordered to do so.

Mr. Ferron also said that while ‘there is no better place to be than California when it comes to energy and climate policy, the CPUC needs to watch the utilities’ legalistic, confrontational approach to energy regulation very, very carefully.' Not very, but very, very carefully, is his suggestion, which means that things are quite serious. Commissioner Ferron praised the California utilities for being ‘orders of magnitude more enlightened than their brethren in the coal-loving states, although,' he continues, 'I suspect that they would still dearly like to strangle rooftop solar if they could.’

Another escalation; from just watching the utilities' anti-solar actions very, very carefully, he is warning the CPUC to take the necessary measures to prevent the utilities’ attempt to strangle the solar industry. Murder in the making...? Mr. Ferron thinks that the relationship between utilities and CPUC is more 'cat and mouse' than a partnership, and advises CPUC to be ‘one smart and aggressive cat.’ This fear and advices coming from an energy insider dealing with the utilities on daily basis, explains why most solar industry professionals blame the utilities for being the biggest obstacle to the growth of solar in the country.

Usually IOU representatives say all the right things in public, while in real life and in regulatory proceedings they are doing everything possible to stop, or at least curtail, solar’s advances. The excuse they give most often is that they're not anti-solar, but that they're just looking out for the rights of their customers. Lately the utilities have been saying openly that solar, and especially the DER solar installations are interrupting their usual MO. This is forcing them to spend a lot of time and money on the problems brought upon the grid and their daily operations by the new influx of solar DER of roof-top residential and small commercial solar installations.

The problems utilities quote often are that DER installations: a.) use the power grid infrastructure for free; and b.) interfere with normal operations due to solar’s variability. All this, of course, is true and is no doubt costing the utilities additional effort and expenses in maintaining the grid and adjusting power generation to compensate for the solar’s variability. Eventually, this additional work and expense increase the cost of electric power and decreases the utilities profits.

For fairness sake, we must agree that the California utilities have seen, an increase in rooftop solar with growth rates at over 40% a year. There were over 400 new solar installations in San Diego in the month of July, 2012 alone, and over 700 installations in February, 2013. And somebodyhas to pay the additional expenses these are causing.

Since the utilities are stuck between the CPUC, the solar installers, and the customers, they are trying to figure out a way to get out of the tangle by stopping or at least reducing solar power installations, and trying to introduce new rules in the game. In most cases, however, this maneuvering doesn’t help neither the solar, nor the non-solar, customers.

The California Public Utilities Commission is playing an arbitration role in the solar price wars, and in 2012 rejected a rate raise proposal from SDG&E, for a network use charge, which would've made PV customers pay additional charges for using the electric distribution grid. But the utility will try can bet on it.

There is also another big battle brewing out in the California energy battle field; that between the utilities and their customers. SDG&E, for example, has a top tier rate of around $0.30-0.32 per kWh (as in hot summer peak-power afternoons when the A/Cs come on). At the same exact time, SDG&E is using much lower $0.08-0.10 per kWh cost of electric power generated by DERs and other renewable sources. The end result here is that the utility charges their non-solar customers the difference of about $0.20-0.26. This, of course, is unfair and unsustainable situation that needs to be resolved.

Over 90% of the electricity customers do not have solar on their roofs, and many can barely pay the existing bills, and yet get charged the difference for solar which they simply cannot afford. At the same time, the customers with solar systems on their roofs get paid several times less the going rate. That difference, however, is obviously not enough and so the utilities want to change the game.

The California utilities have many tricks up their sleeves and will continue trying to change the rules of the game in order to ensure their bottom line. A new cost-benefit analysis from the CPUC on Net Energy Metering is already setting the stage for the next battle. Who will win is unclear, but the utilities are stuck between a rock and a hammer--the regulators and the customers. They play cat and mouse game with the regulators, and are so good at it that at times it is not clear who is the cat and who the mouse.

The customers, playing the role of a sitting duck, are split into two distinct categories; a. ) the minority DER solar owners, who get paid much less than the utility rates, and b.) the majority poor, non-solar, customers, who shoulder the bulk of the additional charges. Judging from the lessons of the past, it seems likely for the cat and mouse game between the utilities and CPUC to continue for a long time, with the sitting duck customers watching carefully, but, not being able to do much, eventually losing the battle.

And as it usually happens, the biggest losers will be the poorest among us. It never fails...

Anco S. Blazev

January 22, 2014

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