Utility Business Models Are Outdated; Public Utility Commissions Should Update Them Posted on Mar 25, 2021

Our public utility commissions should support the private cleantech industry demanded by voters in the form of laws that protect the right to own private clean energy sources, such as solar and microgrids (“Distributed Energy Resources” or “DERs”).


There are more than 1 million locally owned DERs in California alone, which is the equivalent of approximately nine gigawatts of solar energy or the size equivalent of six large natural gas power plants.(1) Consumer demand for DERs is only increasing due to the innovation of the private cleantech sector. Some utilities and even Community Choice Aggregators (CCAs) are trying to stop this market growth and innovation.

The notion that we need utilities at the cost of DERs to meet climate change goals is outdated. The market for DERs is practically endless and provides more than just a solution to climate change such as also resolving threats from wildfires, public safety power shutoffs, environmental justice and energy resilience problems.

Across the U.S., misinformation campaigns are discounting the value of DERs, such as solar, storage and microgrids, and arguing that favorable tariffs for DERs hurts non-DER owners. The regulatory authorities implementing laws to protect DER ownership are being extensively lobbied in an effort to slow the cleantech market’s growth due to outdated thinking, albeit sometimes well-intentioned. As a result, unfair and overly burdensome regulations affecting DERs is imminent in many states.

The DER market’s potential to be a standardized building fixture, such as plumbing or heating, is the most cost-effective solution for all customers to have resilient clean energy with only a limited need to connect to the grid; but, progress is stalled in a tug-o-war between legislation and regulation.

Case Examples: Two California Proceedings at the California Public Utility Commission

In California, the tug-o-war between DERs and utility scale renewables is on center stage in two rulemakings (“Rulemaking”) at the California Public Utility Commission (“CPUC”). The Rulemakings were implemented pursuant to legislation designed to enable people to own private solar, storage and microgrid technologies connected to the utility’s grid. Each of the Rulemakings, relates to the fundamental ways that people who own solar, storage and microgrids can connect their systems to the utility’s grid in a fair manner, as follows:

  • CPUC Rulemaking 19-09-009 (“Microgrid Rulemaking”)

Senate Bill 1339 directed the CPUC to facilitate the commercialization of microgrids and remove regulatory barriers to their development. The CPUC’s implementation of SB 1339 through Rulemaking 19-09-009 consists of more parties and ex parte communications than most experts have ever seen.

  • CPUC Rulemaking 20-08-020 (“NEM-3 Rulemaking”)

California law states that the CPUC must adopt a tariff that allows solar to grow sustainably and that net energy metering (NEM), the mechanism that provides solar customers with bill credits for their solar energy production, must be based on the costs and benefits of the generation facility. The CPUC’s third iteration of how NEM is calculated is being determined in this Rulemaking with implementation set for Q2 of 2022.

Lobby Efforts & Misinformation Campaigns

Misinformation campaigns written about solar, NEM and microgrids are proliferating in paid news cycles. Sophisticated lobby, PR and organizational companies are weaving stories about how pro-NEM and solar policies are hurting low income customers without access to solar, how utilities are the only way to stop climate change in time and how private companies cannot be regulated into good behavior.

Another example of this misinformation campaign is the false claim that the cleantech industry is enjoying a “gold rush.” In reality, the private cleantech sector employs over a hundred thousand people in California alone and is working in a highly fragmented landscape in which individual players have to be competitive.

Utility scale renewables have an obvious financial incentive to perpetuate misinformation since the development of DERs invade their opportunity to supply energy and build electric distribution rate base. For DER companies and owners, facing the cost, delay and uncertainty of challenging such large pocket books is potentially fatal.

Misinformation campaigns are influencing the minds of environmentalist, social activists and progressives. As a result, even some progressives are arguing against policies, rules and regulations necessary for the transition to a clean and resilient energy grid that fosters DER development.

The truth is that non-solar customers are not subsidizing solar customers, but everyone is subsidizing wildfire responses and climate change impacts. Low income customers already have access to DERs through financing now amply available through the same mechanisms which have made buying and financing cars so accessible. Third-party financing providers allow DER owners to own their own power supplies at the end of the financing terms just like car owners get a car after paying off their loan.

Too few low income customers exist to drive the innovation solar needs and existing regulations working for the rest of the market could be taken away. Local solar and storage is the most cost-effective way to transition to clean energy and estimated to save consumers $373 billion.(2)

California’s current grid infrastructure is outdated. Despite massive wildfires caused by overhead power lines, utilities continue to rebuild uninsulated, overhead power lines even in the most fire-prone areas. The truth is that California’s current grid infrastructure is dangerous, antiquated and cheap.

What’s the Solution?

We are in the Anthropocene: a time in which humanity’s actions affect the world more than any other force. The impacts of human caused climate change are getting more and more severe and will be shaping the future of the planet. On the flip side human action and invention is the only force that can stop or revers this impact. It’s in our hands.

1. Equal Representation on Public Utility Commissions

The private cleantech sector should be represented on public utility commissions. Over the past thirty years, the private cleantech sector has grown a distributed solar, storage and microgrid industry from hippy enclaves to corporate board rooms across the world. This skill set should be tapped to help lead utility innovation.

2. Broader Policy Approaches

Public utility commissions and states should adopt policy approaches that include multi-pronged campaigns that track current business models and move utilities and CCAs toward a role as distribution system operator that welcomes and encourages DER generally, and microgrids in particular, consistent with broader state policy. Public utility commissions should require utilities to take a different view of their integrated resource planning, and should revise and eliminate outmoded tariffs and other regulations that create barriers to market entry.

3. Regulatory Innovation Designed to Match Private Technical Innovation

The tug-o-war between legislation and regulation is slowing down the construction of clean technologies needed to halt climate change. The fight to reverse climate change cannot be won with a single business model or supporting outdated ones. Transformative, consistent regulations must allow private cleantech industries to grow, innovate and serve the market demanded by voters.

Public utility commissions should be making it easier for people to get DERs and microgrids so they can control their energy, bills and keep the power on. With microgrids, almost every property can have complete, private control of its own clean energy supply and storage, including all of the wires and controls necessary to manage their supply and demand as a highly functioning contributor and resource to the broader grid. This is not just possible for the wealthy. Microgrids are safer and more reliable than utility operated grids, and public utility commissions must support them and the shovel ready solar and microgrid projects lining up in droves worth billions of dollars, state-wide.

4. Grassroots Campaigns to Address Regulatory Gaps

The cleantech industry and voters should continue grassroots campaigns to protect customers’ rights to own DERs through legislation that takes into account the regulatory roadblocks the private cleantech sector is experiencing when developing cleantech projects. The desire for people to own their own power supplies is a non-partisan issue. Seven out of ten California voters want California to do more to encourage the use of solar power – not less; 41% want California to do “much more” versus 14% “much less.” (3) Voters are aware of the current advancement of microgrid technology, and they want them. People want to be able to depend on their own solar, storage and microgrid controllers, and operate them when the grid goes out, especially when they see the egregious behavior of the utilities with respect to wildfires, public safety and public safety power shutoffs, let alone frequent bankruptcies and bailouts.

The Future

With respect to the DER and microgrid sector, California has fallen behind. California must listen to the private cleantech sector’s needs, if it is going to be the world leader on the path to net zero emissions that the world needs.

Footnotes:

(1) https://calssa.org/press-releases/2019/12/12/california-celebrates-reaching-one-million-solar-roofs-milestone-new-focus-on-one-million-solar-batteries-goal.
(2) See Business Wire (December 14, 2020) “Expanding Local Solar and Storage Could Save Ratepayers Nearly a Half a Trillion Dollars.” https://www.businesswire.com/news/home/20201214005720/en/Expanding-Local-Solar-and-Storage-Could-Save-Ratepayers-Nearly-a-Half-a-Trillion-Dollars.
(3) This data is from a recent California Solar & Storage Association (CALSSA) public opinion poll conducted in 2021.