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Reform drive focuses on rates paid to homeowners with rooftop solar

USA-ENERGY-9

Solar panels are added to the roof of a home being built in San Diego, California August 21, 2015. REUTERS/Mike Blake

A major driver behind the expansion of rooftop solar power in California faces broad calls for reform after researchers concluded the state's "net energy metering" system has benefited the wealthiest ratepayers at other residential customers' expense.

Proposals submitted last week to the California Public Utilities Commission call for restructuring a system that for 25 years has given homeowners with photovoltaic solar panels financial credit for any surplus power they contribute to the state's power grid.

Though supportive of solar credits as a concept, consumer advocates, environmentalists and the state's major investor-owned utilities urged the CPUC to address a mechanism that has in effect shifted distribution and other costs to non-solar customers including people least able to absorb them.

FIRING BACK

The rooftop solar industry has denounced the criticisms as an attempt by utilities to dodge blame for rising electric rates. A poll presented Monday by a coalition of solar companies suggested public opinion is solidly on their side.

"Once again, monopoly utilities are seeking to protect their guaranteed returns on infrastructure spending by trying to block customers from generating clean energy," Walker Wright, vice president of public policy for Sunrun, a San Francisco-based residential solar panel provider, said in an emailed statement.

But with an array of interests calling the current system lopsided, it may be that the key question before the CPUC is not whether to make changes but what adjustments it should make to its NEM program so that the benefits of solar power can be shared more widely while preserving a financial incentive for homeowners to invest in solar panels.

Any changes to the system could have a significant impact on the solar market in Bakersfield, which San Francisco-based utility Pacific Gas and Electric Co. says has more rooftop solar customers than any other city in its service territory — 37,000, or about 7 percent of the utility's total residential NEM customers.

"We think now the solar industry has matured and the compensation that solar customers are getting far exceeds the cost of energy," PG&E spokeswoman Ari Vanrenen said.

SHRINKING BASE

Since 1995 the NEM program has allowed rooftop solar owners to offset a large portion of their electric bills such that many pay little or nothing toward fixed costs such as grid maintenance, customer service and public-benefit programs for the poor. As a result, a slowly shrinking base of non-solar customers has had to cover those expenses.

The debate has quickly grown contentious as the solar industry and utilities wage a battle for public opinion through coalition-forming, informational campaigns and outreach to news media. Each side hopes to influence the CPUC as commissioners delve into a discussion expected to ramp up in the months ahead.

Critics of the existing system have focused on the price rooftop solar owners receive for electricity they contribute. They get paid a retail rate, which is generally at least two or three times greater than the amount utilities would otherwise pay, during the same hours of the day, to large-scale solar plants.

study commissioned by the CPUC and released in January pointed to a "misalignment" between solar customers' bill savings and the value their rooftop systems provide. It suggested a gradual transition to rates that, while allowing solar customers to recoup their investment, better reflect how much money their photovoltaic panels actually save utilities.

It also stated the financial burden non-solar residential customers carry to cover NEM costs amounted to as much as one-fifth of their electric rates.

A separate study by public-policy nonprofit Next10 and The Energy Institute at the University of California, Berkeley’s Haas School of Business concluded that, while California utilities' electricity rates greatly exceed their actual cost of providing energy, lower- and average-income ratepayers are "increasingly having to cover high fixed costs from a shrinking base as wealthier customers leave for rooftop solar."

'INCREDIBLY EFFECTIVE'

An online post Tuesday by the environmental nonprofit Natural Resources Defense Council Inc. said the CPUC's NEM system has been "incredibly effective" at growing California's solar market from about 10,000 rooftop installations in 1995 to about 1.2 million while also serving the state's transition toward clean energy.

But NEM has also led to a system in which solar customers are paid six times what their electricity is worth to the grid, including the value of reduced carbon emissions, according to the NRDC post, which also highlighted how poorer ratepayers cover the difference.

"In other words, the success of rooftop solar means that if we leave NEM the way it is, it will reduce the affordability of electricity in (California)," the post stated.

A variety of ideas has come forward for making the NEM system more equitable. Some would do more to incentivize home batteries that increase the benefits of home-based solar power, while others would align the credits system with market patterns that raise and lower the value of electricity throughout the day.

Three of the state's largest investor-owned utilities — PG&E, San Diego Gas & Electric and Southern California Edison — turned in a joint proposal Monday that would make a series of adjustments to the NEM.

ADJUSTMENTS PROPOSED

Existing rooftop solar customers would not be affected by the changes. But new NEM customers would have to pay monthly charges to help cover grid maintenance, improvement and operational costs, as well as a share of public-benefit programs and contributions to call-center and metering budgets.

Poorer customers would initially get a discount on some of these charges as a way of helping them pay for solar panels. Plus, there would be new assistance for people with solar panels to buy home batteries so they can store and then release energy during periods when the grid needs it most.

Potentially more significant would be a structural rate change in which solar customers would be compensated at different rates based on what time of day and what time of year they produce electricity.

That could be a hard sell. A recent poll paid funded by the California Solar & Storage Association trade group and the Solar Rights Alliance suggested voters in the state are suspicious of utilities' efforts to weaken the benefits of net metering. It also noted bipartisan support for additional action to promote rooftop solar.

The groups reported 64 percent of respondents opposed utility proposals to reduce the financial credit solar customers receive for surplus electricity.

UPHILL BATTLE?

Fully 80 percent indicated support for NEM, they said, and 71 percent want more done to promote rooftop solar.

"Voters are not buying an ongoing campaign by utility special interests to blame solar users for energy rate hikes," the industry groups said in a news release.

Groups not usually aligned with utilities have also weighed in with proposals favoring some type of reform aimed at improving NEM's social equity.

The CPUC's Public Advocates Office last week suggested crediting new solar customers at rates that more accurately reflect "the actual value of the energy" they provide. These ratepayers would also have to start paying more for their use of the power grid.

The office also recommended new incentives encouraging existing solar customers to install home batteries. But in exchange they would have to transition to the revised electric rates.

BLAMING THE CPUC

The Utility Reform Network, an independent consumer advocacy organization that often opposes PG&E, submitted a proposal Monday that opened by criticizing the CPUC for failing to seize an opportunity in 2016 to make needed reforms to California's NEM system.

It advised an immediate switch to rates more reflective of utilities' actual costs. But it also proposed offering solar customers an opportunity to lock in rates for the power they provide. Prices would be differentiated by the time of day the electricity is produced, and the new rates would remain in place for five to 10 years.

TURN rejected the idea of fixed customer charges, such as those proposed by the utilities. It said solar customers' grid-access costs should be based on their own power consumption, which could change monthly.

The group further suggested solar customers with home batteries pay rates closely aligned with real-time market conditions. It said those customers should be required to discharge their batteries when the grid needs power most.

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