Orchestrated Confusion Over UniSource Proposal at Lake Havasu Corporation Commission Hearing

Reading the latest news story in the Lake Havasu News Herald, it would appear that operative from the rooftop solar industry have caused just enough confusion among ratepayers that the latest proposal to bring economic sense and equity to the energy market will require yet another hearing.

Thursday, in accordance with Arizona law, the Arizona Corporation Commission conducted a hearing in Lake Havasu to hear from ratepayers over a request by UniSource to modify its rate structure in order to iron out inequities in the way customers purchase electricity from the UniSource portion of the grid.

One of those changes would be the implementation of “demand charges” – a concept that charges a customer based on the highest demand placed by that customer during a given unit of time. Most demand is placed on the entire grid during early morning hours and early evening hours when users turn on more electrical loads in their households. It is at that time that the grid experiences its heaviest loads that ultimately costs in maintenance, repairs and even brownouts. (Read my earlier post on this concept.)

The UniSource request would allow the utility company to recover the costs of this demand while reducing costs during non-peak demand times.

Additionally, the request would also allow UniSource to adjust the price it purchases (credits) energy from rooftop solar users through net metering. Currently, that rate is sold back to utility companies at an inflated rate. That inflated rate is shifted to non-solar users who pay the difference causing an economic inequity. There are far fewer rooftop solar users than non-solar users so non-solar users are burdened by this rate inequity.

If approved by the Arizona Corporation Commission, UniSource’s request would not take effect until 2017 and rooftop solar users who purchased or began their leases before June 1, 2015 would be grandfathered into the proposal.

The political takeaway of this is that the rooftop solar industry has partaken of this form of corporate cronyism for too long. Because of a nationwide agenda to pick winners and losers in the energy sector, the solar energy industry has been heavily subsidized and given special breaks through policies like net metering. The industry cannot survive without some form of government intervention and when government pulls out and allows the market to adjust, these companies oftentimes go bankrupt leaving consumers on the hook and employees without jobs.

Here in Arizona, the battle to keep net metering in place is being waged at town hall meetings like we see in Lake Havasu.

NonSolarCustomers

When a utility company like UniSource proposes a innovative compromise to allow the free market to adjust properly to the benefit of all consumers, they are met with chaos and confusion orchestrated by the rooftop solar industry. These companies pay their lobbyists to circulate among a community to stoke the fears of ratepayers and senior citizens on fixed incomes.

What they won’t tell you is that they want a bigger bite at the apple of government subsidies and special deals. Meanwhile, its the ratepayers who bear the burden – those who cannot afford $40,000 systems and those who were told sunny days were ahead when they leased one.

Corporation Commissioners will conduct another hearing in Lake Havasu sometime in the next two weeks.

Guest Opinion: Demand-based rate strategy makes sense

Media coverage of the electricity rate case filed by UniSource Energy Services (UES) has promoted dire predictions from California-based rooftop solar leasing companies that oppose the proposal. We encourage every utility customer to consider the facts of the UES case.

UES has proposed residential rates that reflect both total energy use and peak energy use, or “demand.” This makes sense because utility costs are driven by the need to satisfy customers’ energy demands during peak periods. Arizona business owners have been paying demand-based rates for years and have found them to be fair, simple and easy to use. They include a basic service fee, a relatively low usage-based charge and a demand charge that’s based on their highest monthly power use.

Critics claim demand rates are “too confusing.” As smart thermostats and app technology grow ever smarter, this claim falls short. Demand rates give consumers a new way to save money by managing their use of electric appliances during peak usage periods. Smart technology can help customers take advantage of demand rates to lower their bills significantly. At the same time, reducing energy usage during peak times helps ensure the stability of the power grid statewide.

Because demand charges would be offset by lower energy use charges, most residential customers would see little impact from the proposed change. In fact, the UES proposal protects customers by reducing the generous subsidies handed to rooftop leasing companies at the expense of the 98 percent of consumers who don’t have solar. That’s why we’re hearing the loud voice of protest from the solar industry’s PR machine. UES’s proposal will create a sustainable free market for clean energy and send the right price signals to encourage future energy innovation. That’s important to every Arizona business. All of us want our state to stay at the forefront of the clean energy movement and to continue to create jobs in that growing sector.

Unfortunately, jobs have become a political pawn for the rooftop leasing companies. In Nevada, these companies fired their own workers and fled the state as punishment after policy changes took the brunt of subsidy payments off the backs of non-solar customers. They’ve threatened the same punitive behavior in our state. This “take our toys and go home” approach will hurt Arizona families and our economy. As reputable case studies and testimony explain in detail, rooftop leasing companies can continue to make ample profit under a demand rate structure should they elect to compromise, rather than litigate and flee to other states where generous profits are still to be had on the backs of non-solar customers.

Using employees’ paychecks as a bargaining chip is wrong. So is intentionally disrupting the businesses of local installers – the very people the California-based national giants once claimed they wanted to help.

Arizona needs an energy policy that encourages a broad array of technologies and the highest degree of freedom and fairness for all power users. The more control consumers have – absent subsidies paid by the vast majority of power users to fund technology for the few – the better off our state will be. To hear the rooftop solar leasing companies tell it, you would think the goal of energy policy should be whatever helps them sell the most systems at the largest profit.

We take a broader view. We sincerely hope the Arizona Corporation Commission will take that broader view as well.

Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce and Industry. Lea Marquez Peterson is the president and CEO of the Tucson Hispanic Chamber of Commerce.

Utility ‘Demand Charges’ Offers Best Solution to Utility Costs Problem

In a prior post I provided a primer on the economics and politics of the rooftop solar industry in Arizona. Net metering was essentially a solution to the initial introduction of rooftop solar into the residential consumer market. The rooftop solar industry took advantage of the political process by carving out a government-sanctioned incentive in the market that allowed them to operate and profit despite harsh economic realities in the renewable energy market.

Rooftop solar companies lease their solar panel system to consumers because the vast majority of consumers cannot afford a system that costs tens of thousands of dollars.  They needed an effective marketing message to “sell consumers” on leasing their product – an incentive to overcome the objection of cost. Thus net metering was offered as an incentive.

Here’s how it works. Most consumers do not use all the electricity generated by their rooftop system throughout the day. Net metering allows any excess electricity to be “sold” back to the main electrical grid. Consumers effectively build up a credit for the excess power they provide back to the grid. The amount of that credit is based on a retail rate that is higher than the wholesale market rate offered on the grid.

That difference between retail and wholesale electric rates is what has become the center of dispute between the rooftop solar industry and utility companies. It adds up to millions of dollars.

Utility companies argue that the cost to repair, maintain and upgrade the main power grid has not been taken into account as the market for rooftop solar has expanded. As utility companies continue the practice of net metering and purchasing back electricity at a rate higher than market value, it is negatively impacting the cost to maintain our electrical infrastructure. These costs ultimately get passed on to ratepayers, especially those who cannot afford to install and lease expensive rooftop solar systems. The result is that rooftop solar customers are paying less than non rooftop solar customers for the maintenance and improvement of our power grid.

This is where the idea of a “demand charges” becomes an economic and equitable solution for all users of the grid.

Rather than continuing an unfair solar net metering policy that gives wealthier ratepayers an advantage over lower income ratepayers when it comes to maintaining the grid, why not charge individuals for the demand that they actually place on the grid?

Most electricity consumers put most of their demand on the system during the early morning and early evening. It’s part of our daily routine: wake up, eat, prepare for work and head off to work. In the early evening, we come home, cook, clean and entertain ourselves before repeating the same routine the next day. Now aggregate that across millions of households and its easy to see how residential demand on the grid spikes twice a day.

Demand charges are determined by the maximum amount of electricity demanded by a consumer during a specific measure of time such as a day, week or billing period. This is the cost or strain placed on the grid when turning on appliances, air conditioning, etc. and is especially prevalent here in Arizona during summer months. Consumers who run all their appliances at the same time every day place a higher demand on the grid than those who spread their use of their appliances out over the same 24 hour period.

Here is a video put out by a South African utility company explaining the concept of energy demand charges:

Here in Arizona, the Arizona Corporation Commission is hearing a request from Tucson’s Unisource Energy Services – the utility that provides power to rural and southern Arizona. In its request it is seeking a rate increase and structure for ratepayers in Mohave and Santa Cruz County in order to alleviate the burden on the power grid and non-rooftop solar ratepayers. The request includes adjusting the net metering rates to current market values and implementing “demand charges” that allow it to compensate for the demand on the grid.

California-based rooftop solar companies are lined up in opposition to the changes and have even threatened to pull out of Arizona cutting hundreds of local jobs. These are the same companies who are profiting off the artificially-priced subsidy set in net metering. If UNS wins approval of the market rate adjustment in its net metering rate request, only new solar installations will receive the market-adjusted subsidy.

The UNS request also includes approval for a “demand charge” meant to cover the costs associated with peak demand. This charge would be optional for residents and small businesses but would be mandatory for any new rooftop solar installations which “create new cost burdens and reliability concerns for utilities and their customers.”

If approved, such changes will begin the process of correcting manipulations in the market and reducing special subsidies for residential rooftop solar industry.

As someone who opposes government sanctioned subsidies, it’s time that solar users finally help cover the cost of the grid that non-solar users have been paying for without receiving any benefit. Implementing “demand charges” and adjusting the net metering rate are necessary decisions to restore a free market solution to a corporate cronyism problem. It’s the fair and economically sound thing to do and maintain the reliability of our power grid to the benefit of all consumers.

The Economics and Politics of Solar Net Metering

It’s been some time since I’ve written on the topic of solar energy and the utility industry. This area has always interested me given my background in nuclear power, energy services and Arizona politics. In recent years, my curiosity with the off-grid lifestyle and homesteading has also fueled that interest.

Originally, I wrote from the perspective that the big utility monopolies were taking advantage of ratepayers by pushing for changes in net metering that would result in hurting the rooftop solar industry. It was the classic David vs Goliath narrative.

That was incorrect.

What further economic and policy research revealed was that the solar industry was actually being heavily subsidized by ratepayers via cost shifting from solar customers to non-solar customers. In other words, the full and long-term cost of energy was being redistributed from the solar haves to the solar have-nots.

Rooftop solar is still fairly expensive to the average consumer. It can cost tens of thousands of dollars in up front cost to purchase a full system for your home. Cost is one of the main reasons why the vast majority of consumers opt for a lease arrangement

Rooftop solar companies and policy makers figured out early on that they needed to create an incentive for consumers to move toward expensive solar. Thus, net metering was established.

You’ve probably heard about selling your solar energy back to the grid or spinning your meter backwards. This is an arrangement in which a customer who is generating electricity from their solar panels is sending any excess electricity back to the grid for distribution to other energy users. This practice reduces the energy cost to the solar customer by creating a credit. Utility companies have been crediting consumers at a retail rate rather than a wholesale rate. That retail rate is above the true market value of electricity and is actually a cost to utility companies which have to operate and maintain the grid. Those costs are ultimately shifted over to non-solar users who pick up the tab for not having solar.

Here’s a video put out by a electric cooperative that helps explains the cost shifting.

As you can guess, this was driven by policy makers who wanted to create an incentive for consumers to transition to cleaner solar energy generation and away from a dependency of fossil fuels – a laudable goal.

But there’s also a political motive in driving consumers to solar. As part of the leasing arrangement, some rooftop solar companies sell the excess energy back to the utility companies at the higher retail rate and pocket the difference above the wholesale rate and why shouldn’t they?

The rooftop solar industry found a way to “rent seek” and use public policy to protect the practice – even at a cost to the broader energy market

This reminds me of another moment in Arizona history when the Arizona legislature passed a law creating a tax credit for those who purchased or converted their vehicles to run on alternative fuels. Almost overnight, an industry of alt-fuel conversion companies sprung up in Arizona. Thousands sought conversions and these companies benefited from the special law. What was supposed to cost Arizona taxpayers $10 Millions ended up costing $200 Million. It was a major public policy failure that demonstrated the law of unintended consequences at the cost of Arizona taxpayers.

Here in Arizona over the last two years, the rooftop solar industry and utility companies have been engaged in a heated battle over the economics of solar energy and net metering policy. Ultimately, the Arizona Corporation Commission decides on any changes to policy which may include an adjustment in the rate that ratepayers sell back their solar electricity to the grid.

Rooftop solar companies like SolarCity have insisted that any reduction in the net metering rate will take the incentive away from consumers to go solar therefore hurting the Arizona rooftop solar industry. APS argues that non-solar ratepayers are paying the cost to maintain the entire grid while solar-users are being subsidized.

Corporation Commissioners have tried to broker a compromise with industry leaders. Meantime, the politics of this battle continue to play out as challenger candidates threaten to replace current commissioners and special interest groups promise to engage in the 2016 election.

The problem with net metering may all be resolved by this summer as other proposals emerge. One indication of a solution may be seen over the next few weeks as one smaller Arizona utility offers an alternative to how it bills residential ratepayers. That alternative is called “demand charges” and I’ll explain in a later post how it provides a workaround to the problem of net metering.