Former Regulatory Commissioners Weigh In on Rooftop Solar

During a recent CSG eCademy webcast, “Pricing Rooftop Solar: Sustainability, Fairness & Promoting Productivity,” two former regulatory commissioners discussed the process used to set utility rates and how to ensure cost fairness and affordability while enabling the growth of distributed generation.
The presenters—Gary Pierce, former chairman of the Arizona Corporation Commission, and Ashley Brown, executive director of the Harvard Electricity Policy Group and former commissioner of the Public Utilities Commission of Ohio—said that although solar-generating customers get credit for excess energy produced on their rooftops, energy from the grid must remain available to solar customers even if they don’t need it. This can result in unfair consequences as non-solar customers continue to pay demand costs.  
Public utility commissions set the price of electricity through rate design, or ratemaking, Pierce said.
“When it begins, it is really no different than a family sitting down and setting their own household budget,” he said. “Families must have certain items that are necessities, should have some items that are generally needed and would like to have a few items that are purely unnecessary.”
A basic rate is established that takes into account demand for power and operating expenses. However, customers rarely pay the basic rate because the rate increases after special interests become part of the equation, Pierce said. He described a “wedge and sledge” process in which special interests, the wedges, can drive up prices with a jackhammer or sledge, depending on influence.
“All of these wedges, if allowed to go into effect, will raise rates on customers,” he said. “Some will raise rates on all customers while others increase rates on a portion of customers of the utility while reducing rates for others.”
Net metering, the main billing mechanism used to credit owners of solar energy systems, is a wedge that allows solar rooftop customers to get credit for unneeded electricity sold back to the utility at the retail rate. It is imperative that utilities have fair net metering rates, Pierce said.
Brown, however, said net metering is the “product of a bygone era” when meters could only do three things: stand still, move forward and move backward.
“It couldn’t measure in real time,” he said. “This is critical because if you look at the price of energy and electricity, the fluctuation on any given day is enormous. At times, at peak demand, the price is substantially higher than times of slack demand. But with net metering you’re paying a flat rate for generation.”
Solar peaks in generation around noon and lasts until 2 or 3 p.m., he said. By 4 or 5 p.m., when demand is usually higher, solar isn’t producing much energy at all, Brown said.
Still, the utility has to have all the energy that could be needed by the entire population “24/7 no matter what the solar guy is doing,” he said. Rooftop solar customers can’t determine when the sun will shine and therefore can’t determine when they will incur demand costs.
“The only time they pay all the fixed costs attributable to them is when they’re importing from the system,” Brown said. “So somebody has to cover those fixed costs because they don’t vary with whether the solar customer is buying energy or not.”
Those fixed costs are passed on to the non-solar customers, Brown said.
As regulatory commissions and state legislatures debate the future of rooftop solar, many factors should be considered, including lower costs to install rooftop solar and the availability of smart meters that can measure consumption in real time, he said.
“So one would expect, with all those factors, you would change the pricing arrangement, and that’s what the fight’s about,” Brown said.