Fighting the future
Large utilities struggle with small homeowners over rooftop solar
“We’re not sure how we’re going to work it out yet,” said Jeb Bateman. “Might split up the family a little while.”
Bateman and his wife have three children, all school age. Imagine uprooting them in the middle of the school year. Nor is it particularly easy for Bateman himself. He’s lived in Nevada his entire life, and now faces moving to Roosevelt, California, as a result of a decision by the Nevada Public Utilities Commission that caused the firm of SolarCity to leave the state. Bateman, a SolarCity field consultant, has accepted a transfer to Roosevelt.
And there are perhaps thousands of Jeb Batemans in Nevada, working for solar firms.
On Dec. 11, Fortune magazine posted an article, “Why Nevada Has Emerged As An Energy Tech Hub.” It began, “Every month another company, it seems, announces plans to build a factory in Nevada to churn out the future of energy technology. A year and a half ago, Tesla started building a massive battery factory. It has since been joined by a number of other high-tech companies involved in battery recycling, a futuristic transportation system, and electric cars.”
It’s the kind of publicity for which most states would happily pay. Even with the overstatement of the state’s accomplishments, it made economic development in Nevada sound like the coming thing.
Thirteen days later, Fortune reported again on the same topic, but the tone this time was very different. “Why SolarCity Plans To Ditch Nevada,” was the headline, followed by the lead sentence: “The battle over rooftop solar heats up in Nevada, a state that has long been friendly to the clean energy technology.” It was the kind of publicity most states would happily pay to avoid. And there was more to come.
Shortly before the end of the year, at the request of Warren Buffett’s monopoly NV Energy utility, the Nevada Public Utilities Commission voted 3-to-0 to reduce the payments homeowners receive for generating solar power and sending it back to the grid, the practice known in law as net metering. NV Energy had claimed, “These charges are based on the specific costs that the companies incur to provide electric service to customers who install intermittent, renewable generation.”
The utility said non-solar customers were being forced to subsidize solar rooftop users, a claim echoed by Gov. Brian Sandoval, though he said he had not run the numbers. But critics said that while such a situation may someday evolve, it does not exist yet, might never come to be—and that the only study supporting the utility’s claim was an NV Energy study. A study by the PUC itself found otherwise, and a legislative study found a financial gain for non-solar customers.
The PUC also slapped homeowners with a fee for access to the grid. While exact figures are hard to come by yet, it appears that the regulators have more or less eliminated the incentive for homeowners to go solar, in spite of a state policy encouraging solar. The likely monthly fee alone will be more than the average savings. In addition, the commission applied the new fee structure to homeowners who had already been lured—by the state—into outfitting their homes with solar generating systems. Some will not be able to pay for the systems with the savings those systems produce—the way the state net metering program was originally intended to work (usually over a seven- or eight-year period). Critics call it bait-and-switch, behavior that would not be permitted by a private business. “These actions are certainly unethical, unprecedented and possibly unlawful,” said SolarCity CEO Lyndon Rive.
Around the country, utilities are nibbling away in various ways to undercut small system generation, sometimes with the assistance of utility commissions, sometimes without. In Iowa, utilities ban customers who bank extra power, undercutting the financial viability of solar. They refuse to net meter third-party solar, in which third parties own systems and lease them to customers or sell them energy. Oklahoma and Arizona have hit consumers with surcharges. In Utah, the major utility opposes self-generating and limiting pollution. The American Legislative Exchange Council and the Edison Electric Institute have a nationwide campaign against net metering. (The EEI has issued a report calling alternative energy sources “disruptive challenges” for the industry.)
As SolarTribune.com puts it, “Utilities prefer a model where generation is distributed, but ownership is not.” Ending net metering would likely end home owners generating their own power.Who’s supporting whom?
Warren Buffett’s Berkshire Hathaway Energy, which owns NV Energy, has been working state legislatures, courts and utility rate-setting commissions to put an end to net metering. Buffett has said he is ready to keep building large utilities “as far as the eye can see.” His big victory came in the surprising locale of Nevada, which had been carving out a role for alternative energy in its economic development ("What will replace the casinos?” RN&R, July 29, 2010), and the PUC action sent tremors through green firms across the country. The clean energy site Clean Technica reported, “The Nevada decision sends this signal to both existing and potential rooftop solar customers in all 50 states: Solar deals may look great up front, but you’re going to be left holding the bag sooner or later.”
Two leading solar companies pulled out of Nevada. Headlines appeared around the country and even in Europe in both trade and mainstream forums—“How Nevada could cast a shadow over solar.” “Is this sunny state trying to kill solar power?” The dispute even became an issue in the race for the Democratic presidential nomination. (Hillary Clinton avoided taking sides, though one sentence of her statement seemed to favor existing net meterers. Bernie Sanders and Martin O’Malley denounced the PUC action.) The American Energy Alliance, a Big Energy lobbying outfit, praised the Nevada developments.
The change certainly made news in the financial community, and two assessments are particularly interesting—a Wall Street Journal editorial and a Forbes Magazine analysis. The Journal calls for the Nevada program to be held to a standard of business dogma, while Forbes assessed the program according to numbers and policies that apply in Nevada.
Wall Street Journal: “Sounds like a great deal—but there’s no free green lunch, and non-solar utility customers must underwrite this hidden subsidy. Nevada’s utility commission estimates that non-solar ratepayers—who tend to be lower income—subsidize each solar user in southern Nevada to the tune of $623 per year. Most of this flows to solar-leasing company investors such as J.P. Morgan Chase, Goldman Sachs and Citigroup.
“In short, net metering is regressive political income redistribution in support of a putatively progressive cause. Several states, including Hawaii, Arizona and California, have recently proposed changing their net-metering policies to reduce the cost shift. In October the Hawaii Public Utilities Commission cut by roughly half the rate paid to new solar customers after finding that the subsidy was unnecessary to encourage solar adoption.
“Nevada’s regulators went even further by slashing payments to existing solar customers from retail to the wholesale rate and raising their fixed charge for using the grid. Solar can strain the grid because the sun doesn’t shine all the time.”
Forbes: “The utility claimed that customers with rooftop solar panels were paying less than their fair share of the cost of providing electric service. To make up for the money not paid by customers with rooftop solar panels, NV Energy said it would need to charge customers without rooftop solar panels more for electric service. NV Energy stated that ’the rationale for its proposal [was] to reverse the inequity between NEM [net energy metering] and non-NEM ratepayers.’ The most obvious criticism of this rationale is that the inequity NV Energy proposes to correct does not yet exist—at least not according to just about anyone other than NV Energy.
“Even the PUC’s staff, which strongly supported NV Energy’s proposals to revise the NEM rules, recognized ’that NEM ratepayers do not impose any significant additional costs on NV Energy or other ratepayer classes at this time.’ An independent study of the economics of Nevada’s NEM policies commissioned by the state legislature in 2013 and completed in 2014 concluded that NEM ratepayers actually created a $36 million net benefit for non-NEM ratepayers. In other words, NEM ratepayers with rooftop solar were not free riders and NEM policies did not shift costs from NEM ratepayers to non-NEM ratepayers.”Days of future passed
The PUC study found, “Overall, we do not estimate a substantial cost shift to non-participants due to [net metering] going forward given the current and proposed reforms to the program.” That study has been cited around the country and had some influence on net metering decisions—but not in Nevada, which paid for it.
Some have challenged the notion of subsidizing homeowners, but virtually every big player in this drama is subsidized. Elon Musk, chair of SolarCity, would be unknown without other people’s money. Various Musk entities have received billions in subsidies, including, from Nevada, $1.2 million for SolarCity and $1.3 billion for Tesla. NV Energy receives a variety of grants and subsidies. According to a 2014 Mint Press News report, “Warren Buffett’s Berkshire Hathaway [parent company of NV Energy] received 310 subsidies totaling $1.06 billion.” For Forbes and the Wall Street Journal, there are periodical mailing privileges. Compared with these sizable subsidies, the PUC said the average annual subsidies for each resident on the solar net metering program was $471 in the north and $623 in the south. There are 14,832 net metering customers in the south (Nevada Power/NV Energy), 2,423 in the north (NV Energy).
MIT Technology Review described the situation succinctly: “The retail rate of electricity in Nevada is 12.39 cents per kilowatt-hour; the wholesale price for electricity in the region that includes Nevada averaged around 2 cents per kilowatt-hour in December. According to a report from Lawrence Berkeley National Lab, the cost of a residential solar system has fallen to around 25 to 30 cents per kilowatt-hour. With federal and state subsidies and tax benefits, that figure drops to 15 cents per kilowatt-hour or less. If the retail rate for electricity from the grid (absent net metering fees) is less than that, solar is a poor investment; if it’s more, solar is a good investment.”
All this was in pursuance of a state policy that found solar is good for Nevada, a policy the legislature has never actually changed. If the PUC negates the benefit of net metering, it could end rooftop solar. While no one expects encouragement of alternative energy to last forever, the legislative policy to do so now is still in place.
In any event, said former Nevada utility consumer advocate Tim Hay, “There are very good arguments that the rooftop customers do not receive any subsidies from other ratepayers.” Again, that’s what the PUC’s own study showed.
There are those who say the utilities are living in the past, that they are unwilling to adjust to an era when small fixtures as well as large plants generate power, when power flows both to and from the grid. “So instead of encouraging the use of Nevada’s greatest resource in providing electricity—the sun—the PUC’s decision further entrenches NV Energy in its traditional business model,” editorialized the Las Vegas Sun.
In August, U.S. Sen. Harry Reid told a group of reporters, “I think [Buffett’s] a good person, but I think he’s wrong on rooftop solar.” He said Buffett was still using a business template created by George Westinghouse and Thomas Edison.
If that is an accusation that can be made against utilities, then it can probably also be made against utility commissions, which seem to feel most comfortable within the traditional template for rate-setting, and their staffs, which sometimes have longer tenure than commissioners. That certainly suits the utilities, which want regulators to stay within cost of service in rate-setting and exclude societal benefits that some homeowners bring to the equation, such as smaller carbon footprints and less pollution. So far, the Nevada PUC is doing just that.
All utilities support solar, at least in their public statements and public relations. NV Energy says it does, but Bloomberg News has reported that the corporation in April told investors that it would “lobby to hold the subsidized net metering cap at current 3 percent of peak demand.” In August, Greentech Media disclosed the content of a strategic paper written by Berkshire executive Brent Gale calling for replacing net metering with policies that are on utility terms.Who makes policy?
After the PUC action, Reid’s language became stronger: “Looking at this as a lawyer, my personal feeling is that this is a violation of the Sherman Antitrust Act.” As threats go, this one is not terribly worrisome. Republicans have never been big on antitrust law, and since Democrats started tapping corporate funding for their party, they’ve lost a lot of their enthusiasm, as well.
But Reid’s influence in the state, as well as his congenial working relationship with Sandoval, can hardly be ignored. On Dec. 22, he said, “I also question the legality of the PUC’s decision to interfere with existing rooftop solar agreements. … No level of government, including the Public Utilities Commission, should be able to retroactively make it more difficult for those Nevadans to pay their power bills.”
More than one source expressed to us the view that the PUC’s foray into policymaking was bringing it into opposition with upscale figures with mailing lists, political savvy, and clout, like attorneys Peter Chase Neumann and Despina Hatton.
The solar installation companies have used some interesting verbiage of their own, linking Sandoval to the PUC’s decisions (italics added):
SolarCity: “This is a very difficult decision but Gov. Sandoval and his PUC leave us no choice.”
Sunrun: “We believe the Commission, appointed by Gov. Sandoval …”
It’s not clear why they are pushing this linkage. While it is true that governors appoint members of the Public Utilities Commission, those members serve fixed terms to insulate them from political pressure. The last time a governor tried to remove a member of the commission—in the 1980s—it blew up in his face and he was hauled into court to explain himself.
If the solar installers were trying to nudge the governor into inserting himself into the dispute, he was quick to call them on it: “I am also unsure what Mr. Rive [SolarCity CEO Lyndon Rive] meant by his statement for me to ’do the right thing.’ If such a statement suggests that I somehow influence the PUC’s decision, Mr. Rive knows—or should know—that such conduct is inappropriate.”
At another point, the governor said the companies “have attempted to pressure my office to improperly influence the PUC’s independent decision-making process and resorted to bullying tactics such as threatening mass layoffs of Nevadans.”
At the same time, the governor is not doing all he can to dispel suspicion spurred by his close relationship to a couple of utility lobbyists. Another solar installation firm, Sunrun, filed public record requests for Sandoval’s communications with energy figures, including utility commissioners and energy lobbyists. The company said he provided some documents, but not for the February-May period when the Nevada Legislature was crafting the new net metering legislation. Sunrun is now suing for the undelivered records.
Sunrun’s language crossed another line in a communication to the RN&R. “There’s a narrative of corruption in the Public Utilities Commission,” read one message. There is no known evidence—and certainly none presented by Sunrun—of corruption.
Some of those close to the case are surprised by the solar companies’ focus on the governor, to the exclusion of the Nevada Legislature. The net metering program was set up when the Democratic Party was in control. In 2014, the Republicans took over both houses, and the legislative attitude toward alternative energies changed. Some legislators hostile to the program were reluctant to buck public opinion to the extent of shutting down the program. What they did was enact Senate Bill 374, which called on the PUC to reassess net metering rates.
“This last legislature, under the influence of the industry, essentially punted the question to the PUC,” said Hay.
“The interesting thing about it is if you look at the history back to 1987, there are nine or 10 pieces of legislation that encourage solar and then rooftop solar,” he said. “The legislature kind of asked [Nevadans] to do it.”
Thus, a long-standing state policy of encouraging solar power and, more recently, rooftop solar, was torpedoed by an order issued by three little known utility commissioners. If the effect is to close down an industry the Nevada Legislature has been trying to encourage, does that mean the PUC is wandering outside regulation and into policymaking, a legislative province?
“I do think there’s some big legal flaws in the order, on whether they should allow a longstanding state policy reversed like that,” Hay said. “The legislature was fully prepared to pull the rug out from under the solar companies but didn’t have the nerve so that’s why they punted it to the PUC.”
The huge turnover in the new legislature may have meant that some legislators did not understand the implication of their enactment of S.B. 374. Or that they did.
Hay says nothing forced the PUC to take its action. “They did it without a rate case pending,” he said—which echoes the testimony before the PUC of economist William Marcus that the commission should avoid changing rates “between general rate cases.” The PUC, in other words, could have shown restraint, given the consequences.
“Because of the complexity of all these interlocking issues, the best thing to do was to leave the status quo in place,” Hay said. “They certainly didn’t have to make a major change.”