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When Conservation Puts A Squeeze On Utilities (Demo)

SOLAR PANELED ROOFTOPS

On February 15, 2015, Michael Hiltzik writes in the Los Angeles Times:

The citizens of Claremont showed what they thought of their local water company’s rates last November, when they voted overwhelmingly to let the cityseize the private company and begin the process of converting it into a municipal utility.

Measure W, the first step in converting the company into a municipal utility, passed overwhelmingly, 71%-29%. One key issue in the Measure W campaign was the water company’s practice of collecting higher rates from residents when they used less water, as allowed by the state Public Utilities Commission. “If we conserve,” Mayor Joe Lyons said, “we don’t benefit.”

The conflict in Claremont over how to compensate utilities when customers reduce their usage, and therefore the firms’ revenue, is being replicated across California and nationwide, and over electric rates even more than over water. Regulators and consumer groups are grappling with how to force utilities to encourage their customers to conserve, even though it means less income, while also ensuring that customers see the benefits of conservation via lower bills.

“The conversation about what’s happening to utilities, and are they going to continue to exist, and what’s the future look like, has moved so fast in the last couple of years,” says Elisabeth Graffy, a senior scientist at Arizona State University’s Global Institute of Sustainability.

What’s driving the conversation is the surging growth of rooftop solar technology. Some states, including California, have “net metering” rules requiring the utilities to pay homeowners or businesses for their rooftop generation.

The terms of the debate are already clear. Consumer advocates fear that utility regulators will overcompensate the companies for their lost business, and the utilities fear that they’ll be left without enough income to support their past investments in power plants and the electrical grid.

The utilities have raised the specter of a “death spiral” — as more consumers shift to solar, those left behind will face higher rates to pay off the old plants, which will drive more of them to solar. The last holdouts won’t be enough to cover a utility’s fixed costs, and the utility perishes.

The industry’s preferred remedy is to seek higher fixed rates from regulators — that is, collect a higher proportion of their rates from all consumers, regardless of their electricity purchases, leaving a smaller proportion tied to meter readings. A Wisconsin utility proposed one of the more aggressive plans: increase the fixed-rate portion of its monthly bills from $10.50 to nearly $70 over three years, a step local consumer advocates charged was designed to “stifle customer use of energy efficiency.” The utility eventually agreed to pare its request to $20 for 2015 and hold off on further increases.

Such a draconian increase in the fixed rate wouldn’t be possible in California, where no more than $10 a month can be fixed, thanks to a 2013 law. The PUC is currently pondering how much to allow each of the state’s major utilities — Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric — as a fixed rate. A ruling is expected as early as this summer, along with a decision on other changes to utility rates prompted by the 2013 law.

Environmentalists and other solar advocates assert that even a $10 monthly charge would cut deeply into solar installations by cutting the savings high-volume electric users could reap by moving to solar. Customers would have to pay at least $120 a year to their local utility no matter how much electricity they consumed, which could lead to a 42% drop in solar installations, the Sierra Club calculated.

That could threaten California’s position as the nation’s biggest solar state: As of 2013, California had installed almost as much solar capacity as the next five states combined.But there still is plenty of room to grow: Solar accounted for less than 2% of all power consumption and 2.15% of all electricity generation in the state.

Whether the death spiral is a real possibility or merely a utility-industry boogeyman is hotly debated. “The death spiral is a myth the utilities are using to support their huge requests for rate increases,” scoffs Marcel Hawiger, an energy expert at the California consumer group Turn. Even in California, where per-capita energy consumption has remained flat for decades, consumption is still growing along with population. At least through this decade, he says, “reports of the utility industry’s death are greatly exaggerated.”

There’s less doubt that traditional utility economics are on their way out. The firms are granted monopolies, and awarded a set rate of earnings on their capital investments. The idea is to guarantee them enough profit to reward them for economically risky capital investments in new plants.

“The utilities feel, for good reason, that they made a deal with society,” says Graffy of the Global Institute of Sustainability. “They’d provide reliable energy, and in exchange they’d have a reasonable amount of stability,” which is necessary to attract outside investors with capital.

“That regime works well when demand is growing fast and costs are declining” through economies of scale, says Galen Barbose, an energy policy expert at Lawrence Berkeley National Laboratory and coauthor of the lab’s 2014 report on the implications of the solar transition. “Then they get to sell an ever-increasing amount of kilowatt-hours at higher per-unit prices than what they’re paying to produce them. But sales are not increasing as they once were.”

The report calculated that solar adoption rates reaching even 2.5% of utility sales could begin to erode shareholder returns significantly. Rate-setting tools exist to maintain utility profitability, the report observed.

California has been trying to strike a proper balance for years. In 1981, the state adopted “decoupling,” which eliminated the direct link between utilities’ profits and the amount of electricity they sell. In 2007, regulators instituted “decoupling plus,” which allowed the utilities to earn incentive payments when consumption fell below projections — in effect, sharing the gains from efficiency with their customers.

Those initiatives have made the utilities unhostile to conservation, says Mike Campbell, project manager on electric pricing at the PUC’s Office of Ratepayer Advocates. But the arrangement isn’t perfect. “It’s a point of raging debate at the PUC whether utilities should receive incentive payouts for energy conservation” by their customers, Campbell says.

The experience of Claremont’s water users may be the canary in the coal mine. California’s water utilities are small and local, so the impact of declining demand on them and their customers is magnified compared with that on the state’s three electricity behemoths and their millions of ratepayers. But changes in how and where electricity is generated in the state — less from massive fossil-fuel power plants and more from their rooftop solar panels — as well as how much homes and factories use, will inevitably change the business and billings of the big utilities. Customers will be along for the ride, and whether they get cut-rate tickets isn’t clear at all.

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-20150215-column.html#page=1

This excellent article by Michael Hiltzik points to an urgent need for new approaches and solutions to transforming to a sustainable, renewable and conservatively efficient utility service structure. We need to ensure that utilizes structured for profit are fully employee-owned, or better yet that they are structured as a Citizen Land Bank specifically owned by the end user beneficiaries of the energy produced or the water consumed. A Citizen Land Bank (CLB) can serve as an alternative to any other structure where no one has a property stake or where there is a State monopoly, such as municipal or regional utility.

A Citizens Land Bank is a for-profit, professionally-managed, citizen-owned-and-governed community land planning and development enterprise, designed to enable every citizen of a community of any size to acquire a direct ownership stake in local land, natural resources and basic infrastructure.

A CLB is a social vehicle for every man, woman and child to gain, as a fundamental right of citizenship, a single lifetime, non-transferable ownership interest in all the Bank’s assets, share equally in property incomes from rentals and user fees from leases or use of the Bank’s assets, accumulate appreciated equity values from enhanced land values, and gain an owner’s voice in the governance of future land development.

A CLB is an innovative legal and financing tool empowered to borrow on behalf of all citizen-shareholders and service the debt with pre-tax dollars to meet the land acquisition, capitalization and operational needs of the Bank. The CLB shelters from taxation the equity accumulations of citizen-shareholders and protects the outside assets of the citizens in the event of loan default or if the enterprise fails.

A Citizen Land Bank is a social tool designed to encourage a just, free and non-monopolistic market economy. It applies the democratic principles of equal opportunity and equal access to the means to participate as an owner as well as a worker. It demonstrates that anything that can be owned by government can and should be owned, individually and jointly, by the citizens.

The Citizen Land Bank is a major feature in a proposed national economic agenda known as “Capital Homesteading for Every Citizen” and embodied in the proposed Capital Homestead Act (http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf), which is designed to reform existing monetary, credit and tax barriers to provide every American an equal opportunity to share in the governing powers and profits from new entrepreneurial ventures, new technologies, new structures, and new rentable space built upon the land. Capital Homesteading offers a “Just Third Way” of reversing unsustainable federal deficits and debt, and revitalizing and growing the American free enterprise system in a sustainable and environmentally sound way.

Comments (2)

Mr. Hiltzik did write a good article on a very interesting subject.

The idea of a employee-owned Citizen Land Bank (comment above) is groovy. Profit sharing and employee ownership should increasingly be part of business as usual, as in tech start-ups.

This issue of the future of California’s electrical utilities, rates, and rooftop/distributed solar is cutting edge, and dominantly influential in the progress of the state’s climate efforts.

“What’s driving the conversation is the surging growth of rooftop solar technology.”

Yes. Solar is good for the environment, and allows people choice and control — to some degree currently, to a greater degree after battery storage is improved — of their electrical energy source and use. I’ve gone solar, and my mom has gone solar. To get chunky new flat fees that studies do not support as necessary — and that eat into the profitability of our systems — doesn’t seem kosher, reasonable or just. It seems shady, desperately reactionary and antagonizes solar users.

“The utilities have raised the specter of a “death spiral” — as more consumers shift to solar, those left behind will face higher rates to pay off the old plants, which will drive more of them to solar.”

Possibly. But utilities should modernize into smart grid service providers, and get out of fossil fuel plants if they don’t want to be left behind. The CPUC is still green-lighting natural gas (fossil fuel) plants for big utilities that demand projections for future need do not even support. (http://www.hbindependent.com/opinion/tn-hbi-me-1106-commentaryaes-20141024,0,3085943.story )

The CPUC should not unjustly and unreasonably favor one industry and protect it, at the cost of ratepayers and the environment.

Ratepayers not using their own solar will have to pay for these plants, which aren’t needed.

They’re trying to stick bloated “flat fees” that are not use-based to solar users to continue their profit train. Some say this just ‘redistributes’ the same amount of revenue collection. But see below: they would charge more for flat fees than people actually use if they get their way. This is completely changing their business model, and does not seem fair to those who conserve and/or have adopted solar power. It is a slippery slope, and we must be vigilant that any fees added to our bills are reasonable and just. Their actions are just for profit, stuffing their pockets like someone at the end of a buffet when no one is looking, and they want to get as many chips off the table in their pockets before the music stops.

Studies have shown that increasing these flat fees discourages the adoption of solar, which is against state law.

The “death throes” or “death spiral” of an industry that is not changing and becoming obsolete is not pretty and a little unfortunate. But that is the price of progress.

The asbestos industry had a good polluting run too before it petered out (and became the greatest TORT case in U.S. history). Some industries just peter out, or become obsolete. Some do not modernize or adopt change quickly enough.

So ultimately us lamenting the demise of state utility monopolies still relying on unjust fees and growth (that is not there) and still places fossil-fuels ahead of renewables — as per state loading order rules — can’t be too sorely missed.

They’re setting the stage for CCA’s — community choice aggregation — where a community bands together to produce their own local, clean energy. At prices cheaper than the utilities provide. That is a growth industry, and worth the author covering in his next piece. https://sonomacleanpower.org/ A number of California communities up and down the state are now actively studying the feasibility of CCA’s for their communities.

They’re setting the stage for people to get battery back-up for their solar panels, and these people will cut their cord to the utilities. Again, utilities should be modernizing into smart grid service providers, adopting clean renewables such as solar and wind gardens for any new needs arising, supporting their customers wholly who are willing to pay for or become the recipients of rooftop solar production, and get out of fossil fuel plants if they don’t want to be left behind

Also, as sent to you for a correction, the California law you referred to (“… where no more than $10 a month can be fixed, thanks to a 2013 law….”[AB327]) only applies to the three state Investor-Owned Utilities (IOU’s): Pacific Gas & Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric Company (SDG&E). 

To be clear, the $10 is a maximum for IOU’s in AB 327; it is not required, but left to the CPUC to decide. They should keep that actual number fair and just, well south of $10.

But municipally-owned public utilities are exempt.

For example, Sacramento Municipal Utility District (SMUD) is already slated to go up to $20 in 2017.

https://www.smud.org/en/about-smud/company-information/document-library/documents/GM-Rate-Report-Addendum-2-06-16-11.pdf 

http://patch.com/california/elkgrove/cost-shifts-at-smud 

Worse, several states are considering even higher flat fees.

SDG&E down in San Diego has even publicly revealed its desire for a $65 flat fee. !

http://www.bloomberg.com/news/articles/2013-12-24/utilities-mimic-cable-with-monthly-fee-to-preserve-grid 

When I lived alone, even before I had solar, my TOTAL BILL was less $55.

Why should people be charged more than what they actually use? That does not seem right.

These flat fee efforts just increase the attraction to build out as much rooftop solar as possible.

Utilities and the CPUC should be earnestly planning for such a 100% renewable grid, or pods of grids, and managing it, or people are just going to take care of it themselves.

I’m sending this again as my computer is acting funny.

Mr. Hiltzik did write a good article on a very interesting subject.

The idea of a employee-owned Citizen Land Bank (comment above) is groovy. Profit sharing and employee ownership should increasingly be part of business as usual, as in tech start-ups.

This issue of the future of California’s electrical utilities, rates, and rooftop/distributed solar is cutting edge, and dominantly influential in the progress of the state’s climate efforts.

“What’s driving the conversation is the surging growth of rooftop solar technology.”

Yes. Solar is good for the environment, and allows people choice and control — to some degree currently, to a greater degree after battery storage is improved — of their electrical energy source and use. I’ve gone solar, and my mom has gone solar. To get chunky new flat fees that studies do not support as necessary — and that eat into the profitability of our systems — doesn’t seem kosher, reasonable or just. It seems shady, desperately reactionary and antagonizes solar users.

“The utilities have raised the specter of a “death spiral” — as more consumers shift to solar, those left behind will face higher rates to pay off the old plants, which will drive more of them to solar.”

Possibly. But utilities should modernize into smart grid service providers, and get out of fossil fuel plants if they don’t want to be left behind. The CPUC is still green-lighting natural gas (fossil fuel) plants for big utilities that demand projections for future need do not even support. (http://www.hbindependent.com/opinion/tn-hbi-me-1106-commentaryaes-20141024,0,3085943.story )

The CPUC should not unjustly and unreasonably favor one industry and protect it, at the cost of ratepayers and the environment.

Ratepayers not using their own solar will have to pay for these plants, which aren’t needed.

They’re trying to stick bloated “flat fees” that are not use-based to solar users to continue their profit train. Some say this just ‘redistributes’ the same amount of revenue collection. But see below: they would charge more for flat fees than people actually use if they get their way. This is completely changing their business model, and does not seem fair to those who conserve and/or have adopted solar power. It is a slippery slope, and we must be vigilant that any fees added to our bills are reasonable and just. Their actions are just for profit, stuffing their pockets like someone at the end of a buffet when no one is looking, and they want to get as many chips off the table in their pockets before the music stops.

Studies have shown that increasing these flat fees discourages the adoption of solar, which is against state law.

The “death throes” or “death spiral” of an industry that is not changing and becoming obsolete is not pretty and a little unfortunate. But that is the price of progress.

The asbestos industry had a good polluting run too before it petered out (and became the greatest TORT case in U.S. history). Some industries just peter out, or become obsolete. Some do not modernize or adopt change quickly enough.

So ultimately us lamenting the demise of state utility monopolies still relying on unjust fees and growth (that is not there) and still places fossil-fuels ahead of renewables — as per state loading order rules — can’t be too sorely missed.

They’re setting the stage for CCA’s — community choice aggregation — where a community bands together to produce their own local, clean energy. At prices cheaper than the utilities provide. That is a growth industry, and worth the author covering in his next piece. https://sonomacleanpower.org/ A number of California communities up and down the state are now actively studying the feasibility of CCA’s for their communities.

They’re setting the stage for people to get battery back-up for their solar panels, and these people will cut their cord to the utilities. Again, utilities should be modernizing into smart grid service providers, adopting clean renewables such as solar and wind gardens for any new needs arising, supporting their customers wholly who are willing to pay for or become the recipients of rooftop solar production, and get out of fossil fuel plants if they don’t want to be left behind

Also, as sent to you for a correction, the California law you referred to (“… where no more than $10 a month can be fixed, thanks to a 2013 law….”[AB327]) only applies to the three state Investor-Owned Utilities (IOU’s): Pacific Gas & Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric Company (SDG&E).

To be clear, the $10 is a maximum for IOU’s in AB 327; it is not required, but left to the CPUC to decide. They should keep that actual number fair and just, well south of $10.

But municipally-owned public utilities are exempt.

For example, Sacramento Municipal Utility District (SMUD) is already slated to go up to $20 in 2017.

https://www.smud.org/en/about-smud/company-information/document-library/documents/GM-Rate-Report-Addendum-2-06-16-11.pdf

http://patch.com/california/elkgrove/cost-shifts-at-smud

Worse, several states are considering even higher flat fees.

SDG&E down in San Diego has even publicly revealed its desire for a $65 flat fee. !

http://www.bloomberg.com/news/articles/2013-12-24/utilities-mimic-cable-with-monthly-fee-to-preserve-grid

When I lived alone, even before I had solar, my TOTAL BILL was less $55.

Why should people be charged more than what they actually use? That does not seem right.

These flat fee efforts just increase the attraction to build out as much rooftop solar as possible.

Utilities and the CPUC should be earnestly planning for such a 100% renewable grid, or pods of grids, and managing it, or people are just going to take care of it themselves.

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