People with rooftop solar should pay a fixed charge to support California’s grid, the consumer arm of the state’s utility regulator argues in a new proposal that solar groups warned would kill small-scale solar growth.
The Office of Ratepayer Advocates, in a filing with the California Public Utilities Commission (CPUC), pitched preserving net energy metering (NEM), the policy that allows those with rooftop photovoltaics to earn electricity bill credit for excess power sent to the grid. But under ORA’s blueprint, starting in roughly 2017, NEM customers would pay new fees based on the size of their system.
Monthly charges would start at $2 per kilowatt-hour of capacity and rise as the number of customers with net energy metering climbed. It could go as high as $10 per kWh once the share of those with NEM hit 7 percent of a utility’s combined customer peak demand.
The average size of a rooftop system is 6 to 7 kilowatts. ORA’s proposal would mean as much as $70 per month for those people, a new high nationally, said Robert Harris, spokesman for the Alliance for Solar Choice, a coalition of companies including SolarCity Corp. and Sunrun Inc. Harris also works for Sunrun.
"That would be catastrophic for a solar customer," Harris said. "The economics [of adding a system] would not pencil out."
A customer with the $70 charge "in addition would have paid for the solar system" or would owe payments for leasing it, Harris added. "It just doesn’t make sense for solar customers to install solar anymore."
The proposal from ORA comes as the CPUC looks at revising net metering, a benefit available in some form in 44 states. Utility regulators in several places are looking at revisions.
The $70 in ORA’s proposal would top the up to $50 per month in fees that the Salt River Project in Arizona approved for those with local PV. Solar advocates say interest in adding solar plummeted as a result (EnergyWire, Sept. 23).
California by 2016 is expected to propose a revised way of handling solar customers, a case referred to as NEM 2.0. Utilities have argued that it’s needed because customers without solar panels pay more to support the grid because those with net metering pay less.
Pacific Gas and Electric Co. (PG&E), the state’s largest utility, last month proposed demand charges for solar customers that would start at $3 and rise with consumption. Bills would be a minimum $10 per month, even if net-metering credits were greater than charges for energy used. Other utilities put forward similar plans.
‘A total flip flop’
ORA had earlier backed protecting net metering, said Susan Glick, senior manager of public policy at Sunrun, so the change is alarming.
"ORA has done a total flip flop," Glick said.
ORA did not immediately respond to a request for comment. But the group in its filing appears to side with utilities on the cost-transfer issue. Net metering was established in 1995, ORA said. Over two decades, solar PV costs have fallen dramatically. But the decreases have not translated to lower costs for all ratepayers, it said.
"This is one of the fundamental problems with the current California NEM tariff," ORA said. "Specifically, solar PV cost decreases are not passed on to California ratepayers through lower NEM program costs.
"This problem is in contrast to the declining costs for solar resources procured by the utilities on behalf of ratepayers through competitive mechanisms, which are passed on to ratepayers through lower power purchase agreement prices," ORA added.
Another consumer group opposes the charges that ORA wants. The Utility Reform Network (TURN) said it believes fixed fees on any customer are a bad idea.
Fixed amounts buttress the utilities’ desire to add fees across the board, said Matthew Freedman, a TURN staff attorney. Utilities are interested in adding those for all customers, he said, and hope to start making them acceptable by first putting them on bills of those with NEM.
"They want to be able to argue that solar customers can survive under fixed charges," he said, and that therefore "they should be able to have those for all customers."
State legislation passed last year limited new fixed fees to $10 a month (ClimateWire, March 28, 2014). Freedman said he expected utilities to lobby to raise that ceiling.
TURN advocates split system
TURN, meanwhile, is advocating changing NEM to a system that would charge those with solar PV for power consumed, then separately credit them — at other rates — for power sent to the grid. The latter amount would be based in part on how much the solar PV deferred utility costs of transmission and distribution, Freedman said.
That divided system would encourage those with PV to conserve power, Freedman said. TURN also advocates having utility payments to PV owners high enough to ensure that those who add solar make enough to pay off their system’s cost in a decade.
"The state is committed to having a solar industry that grows significantly," Freedman said.
Southern California Edison Co. (SCE) in its proposal on NEM 2.0 argued for a $3 per kW-month "grid access charge" based on the capacity of the renewable system. Those customers would then be paid for power delivered to the grid, an "export compensation rate" of 8 cents per kWh.
"We feel that our proposal strikes the right balance in terms of reducing the cost shift that exists while providing a value proposition for customers that allows for continued solar growth," said SCE spokesman Robert Laffoon-Villegas in an email.
SCE, like ORA, said that net metering has outgrown its original design.
"SCE’s customers are increasingly installing renewable [distributed generation] systems, and particularly rooftop solar under the NEM tariff," SCE wrote in its filing. "The existing NEM tariff was designed to encourage the installation of rooftop solar at a time when it was very expensive to do so, and has contributed greatly to the growth of solar DG.
"But NEM has also had the unintended consequence of allowing NEM customers to avoid paying for the power network that all customers use. As a result, the benefits that customers in the NEM program receive come, in part, at the expense of non-participating customers," SCE added.
Harris said that solar groups have proposed concessions including PV customers paying interconnection fees and minimum bills.
"We’ve been very aggressive in trying to propose alternatives here," Harris said. "There are definitely parties that are trying to do one thing here, which is kill solar."
Tax implications for PV owners
Meanwhile, solar groups are concerned that the proposals from both utilities and TURN could result in a tax liability for those with net metering.
If customers pay separately for power consumed, and they receive a payment for power produced, the IRS could see that as income, said Harris with the Alliance for Solar Choice (TASC).
"The more it looks like the purchase and sale of power, the more likely it’s going to be a taxable transaction," Harris said.
TASC had a tax attorney look at the utility proposals and reached that conclusion, Harris said. Edward Kleinbard, a law professor at the University of Southern California, earlier was chief of staff of Congress’ Joint Committee on Taxation. In a filing for TASC, he described the payment for power as a kind of feed-in tariff model.
"Alternative feed-in tariff arrangements to net metering that have been proposed for retail ratepayers in California create a risk that a homeowner could be treated for federal income tax purposes as selling electricity (which in turn would give rise to gross income includible on the taxpayer’s federal income tax return)," Kleinbard wrote.
Utility SCE declined to speak about that, while PG&E and San Diego Gas & Electric did not respond to numerous requests for comment.
TURN said it believes its proposal would avoid tax consequences because the payments for the energy delivered to the grid would be credits on the same bill as the charges for power. They could be rolled over for up to a year.
"We think that [solar groups are] wrong, and they’re attempting to scare regulators into not making any changes to the current net-metering system," Freedman said.
Harris said he believed that putting it on one bill wouldn’t eliminate the tax liability problem. He based that on TASC having Kleinbard review proposals.
"I’m confident that there’s a tax liability issue with what they’re proposing," Harris said. "They don’t have any proof otherwise."
Correction: An earlier version of this story misstated the year by which California’s NEM 2.0 is expected to be proposed.