When a family decides to put solar panels on the roof of its house, it relies on the rules for electricity charges that the state Public Utilities Commission has in place. There is an equipment cost, often financed through a solar panel installation company. Without assurance about what the charges and the savings will be during the system’s likely lifetime, a family can’t sensibly choose whether to make that investment.
In the two weeks before Christmas, Nevada’s PUC exploded the assurances Nevada families and businesses had relied upon, while California PUC Chairman Michael Picker forcefully refused to do so. Worse, Nevada appears to have made its decision retroactive. Picker’s proposal, by contrast, grandfathers in for 20 years the terms present solar panel owners were promised at the time they installed. He would, however, allow for a one-time hook-up charge for new solar customers.
The electric utility companies in each state had good arguments. An electric utility is obliged to provide all the electricity consumers are likely to need. The utilities build enough capacity, and buy enough power on long-term contracts, to handle expected average demands, not the absolute maximum that will be used at peak times. To build or contract for the maximum would result in much unused capacity most of the time.
Arriving at the proper percentage of the maximum use for which permanent supply sources are arranged requires delicate estimation. The entry of solar panels at the level of individual homes and businesses burst upon the public utilities’ calculations after many long-term decisions had already been made. Encouraged by both state and federal tax incentives, and their own sense of environmental responsibility, homeowners and businesses have changed the utilities’ estimates of long-term demand in two ways.
First, the utilities counted on a certain amount of usage to recoup their investments over time through a per-kilowatt charge. The fact that the solar-panel equipped home or business uses less wattage upsets that calculation. Second, because solar-panel owners were given the right to sell the occasional excess power from their panels to the utility when they generated more than was needed, the utilities overestimated the supply they would need from other sources.
The utilities argued that homeowners benefit from being linked up to the utility’s power grid, if only for their dependence on the grid on cloudy days and at night. Is it not fair for the customers – who are also suppliers (via solar panels) of the new source of energy which the utilities are obliged to buy – to shoulder more of the costs they caused than their other customers? Should not those new suppliers who rendered the utilities’ previous good-faith investments in supply redundant bear the consequence of their privileged position?
In addition, it rankled the utilities that they had to pay the same price to the solar panel owners for any surplus kilowatts that they charged the consumers. Their logic was that the utility has an obligation to buy, but the homeowner has no obligation to sell. Indeed, the homeowner could tear out the solar panels or fail to service them properly or leave them unreplaced after being damaged in a storm. This introduces uncertainty in supply that the utility has to handle by purchasing more back-up capacity than it would in dealing with more predictable suppliers.
Electricity consumers currently pay more for guaranteed than for interruptible service. By analogy, the solar power supplier gets a higher quality of service from the utility (guaranteed purchase of excess, guaranteed supply of need) than the utility gets from that solar power supplier (interruptible supply); so a price difference is appropriate.
Mr. Picker took these points into account by allowing the utilities a one-time charge for new customers. It is possible that the full California PUC, when it considers this later in January, might allow the price difference sought by the utilities as well, once more for future solar installers only.
Whether it does so , the PUC should side with Mr. Picker that the rules for solar panel users not be changed from what they were when they bought the panels; indeed, it would be beneficial to guarantee stability not just for 20 years but in perpetuity. Nevadans have to worry that the math on which they based their decisions to go solar might no longer be valid, and potential new solar users will hesitate to make the investment. California has the better approach.
Tom Campbell is dean of the Fowler School of Law at Chapman University. He is also a professor of Economics at Chapman. He was California state finance director, a California state senator and a U.S. congressman. He and his wife have installed solar panels on their home. These views are his own.
