I just returned from the 125th Annual Meeting of NARUC, the National Association of Regulatory Utility Commissioners, held this year in Orlando, FL. The agenda touched on a vast range of issues facing the energy sector. A good deal of discussion was devoted to what’s been termed the “net metering fuss”- concerns over net metering that are an extension of the investor owned utilities’ increasing distress about losing market share to lower cost, clean renewables like solar. We profiled these worries in a previous blog discussing the Edison Electric Institute’s January report titled, ‘Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business.’
Throughout the programs at the conference that touched on this issue, one of the recurring themes put forth by utilities is the concept of “cross subsidization,” which poses the idea that non-solar utility customers are subsidizing affluent customers who can afford to install solar at their homes. This is a theme that we’re beginning to hear more and more in the Southeast . It’s disappointing to hear this reductive argument repeated as it’s both factually inaccurate and deceptive to consumers.
One of the better responses I’ve seen is a piece by Cameron Brooks. I’m including it here in its entirety because I think it’s an effective response to this deceptive argument by the forces working against solar’s advancement.
“The Net Metering Fuss – Reverse Robin Hood or Sheriff of Nottingham,” by Cameron Brooks.
It’s been curious to watch the chorus of concern raised recently about the interaction of distributed generation (DG) and net metering policies. Utilities have proposed changes, calling them “reforms,” in how these customer-owned energy resources are treated under net metering rules, which credit solar customers at the bundled retail rate for surplus electricity they provide back to the grid. Industry gatherings have featured many discussions of the purported cross-subsidies imposed by customers having distributed generation – usually rooftop solar PV – on other customers who lack distributed generation.
Affluent customers, the narrative runs, install rooftop solar and in the process unfairly burden generally less affluent customers who are left to pay a greater portion of the fixed costs of the poles, wires, and substations needed to maintain the system for all customers. The resulting cross-subsidy, where non-solar customers pay a larger share of fixed costs, was dubbed a “reverse Robin Hood” scenario at several sessions of the summer committee meetings of the National Association of Regulatory Utility Commissioners in July.
There is no doubt that net metering and distributed generation polices can be improved, especially as we move from having hundred of thousands of DG customers to millions of them. But the Robin Hood narrative only holds if the discussion is limited to solar customers.
Every day $1 billion of electricity sold by the nation’s regulated and consumer-owned utilities results in wealth transfers at much grander scales than those from net metering. This is because poorly designed, non-time-differentiated pricing schemes in almost universal use in this country result in at least $10 billion of market inefficiencies and cross-subsidies. That was the undisputed evidence presented one year ago at the same NARUC summer meetings, yet no one made allusions to Sherwood Forest banditry.
According to the Brattle Group, 80% of low-income consumers currently overpay for their electric service. Collectively, all customers may be overpaying for electricity by about $7 billion/year. Cross-subsidization of “peakier” (empirically more affluent) customers, who may use air conditioning, for example, at or near critical peak periods, may be as high as $3 billion annually.
Why? Because flat rate pricing has decoupled usage from actual costs, which vary with time, often sharply. Peak demand has a vastly disproportionate impact on the cost structure of a year’s worth of electricity. The Government Accountability Office estimates that 1% of the year’s 8,760 hours may account for 10-20% of the total electricity costs for the year.
Paradoxically, it is precisely during these approximately 100 hours of the year – usually hot summer afternoons – that distributed solar energy systems are producing at or near full capacity. Perhaps it is only paradoxical if one subscribes to the “Reverse Robin Hood” metaphor, in which the air-conditioned affluent, who contribute heavily to the system’s costly peak, are exempted from the same scrutiny applied to solar customers.
Of course, the recent emphasis on the equity of net metering is not motivated principally by the utilities’ empathetic concern. If cross-subsidies are their real concerns, there are more immediate and much larger targets. This is a coordinated response by the utility industry consistent with its lament that, “Investors have no desire to sit by and watch as disruptive forces slice away at the value and financial prospects of their investment.” Those words come from the regulated utility industry as a whole. Earlier this year, the Edison Electric Institute, representing the nation’s principal investor-owned utilities, published a white paper that made plain their concerns about “disruptive technologies.” Innovations such as distributed generation that “improve a product or service,” “lower prices” and eventually create “a new market and value network” are labeled as threats within a broader suite of “energy efficiency and DSM programs that promote lower electricity sales.”
I live in Colorado, where Xcel Energy recently asked the public utility commission to modify its net metering rules. The company’s top executive in the state cited its desire to ”make it transparent; we want to know what the costs and benefits are. Then we can have a discussion about what’s appropriate.”
Transparent? Is this the same utility that has installed a smart meter on my home, but won’t let me see the information by download or network device? It’s true; I can’t extract information from my own smart meter. Any information about the actual cost of energy or peak demand is buried deep within regulatory filings, if it is available at all. I can only presume that, like the industry average, Xcel’s asset utilization rate hovers around 50%.
I, for one, would welcome a meaningful discussion about “transparency” within the investor-owned utility community. These utilities account for over 70% of the nation’s electricity retail sales. By sheer gravitational force, they exert enormous influence over the remaining municipal, rural cooperative, and other public utilities.
I suspect this discussion would, at a personal level, be welcomed by most state regulators that oversee these markets. At this point in history, beset as we are by unprecedented economic, reliability, and environmental challenges, it is a conversation that we need and deserve. If the conversation is going to be set in Sherwood Forest then let’s be sure to look at the entire cast of characters. Utility claims about “equity” and “transparency” remind me more of the Sheriff of Nottingham than of Robin Hood. Remember, it was the sheriff’s duty to enforce “law and order” throughout the lands claimed by the king, even if the king was corrupt and overreaching.
Distribution utilities today should be fairly compensated for investments in the poles and wires that comprise a “natural monopoly.” But as conversations about new rate regimes move forward, we should resist the limited perspective offered by the “reverse Robin Hood” economic theory. If there was once, there is certainly no “natural monopoly” around generation and energy management. Customers who install clean, resilient and intelligent technologies – exactly what we should want in a modern grid – ought to be encouraged, not penalized. If unwarranted subsidies are a concern, let’s address them all and put them in context.
And if the Robin Hood legend is in any way pertinent to this situation, which I doubt, I would argue that it is the Sheriff of Nottingham, not Robin Hood, who deserves the greater scrutiny.
Those of us in the South need to become more effective messengers to counter this type of misinformation put forward by utilities. As Mr. Brooks highlights, if we’re going to have a debate about net metering and any cross subsidization of customer classes, let’s have a full debate where we unbundle rates and talk about the full cost and benefit that solar customers bring to the grid, and evaluate all the other types of cross subsidization taking place. Selective analysis to slow clean energy is bad policy, and bad business.