Nevada killing solar?

I must admit to a kneejerk reaction to this op-ed in today’s New York Times. The writer, Jaccques Leslie, accused Nevada’s utility regulators of trying to scuttle the burgeoning solar industry in that sun-drenched state.

In late December, the state’s Public Utilities Commission, which regulates Nevada’s energy market, announced a rate change drastic enough to kill Nevada’s booming rooftop solar market and drive providers out of the state. Effective Jan. 1, the new tariffs will gradually increase until they triple monthly fees that solar users pay to use the electric grid and cut by three-quarters users’ reimbursements for feeding electricity into it.

Does that make you angry? What about the further accusation that nefarious politics was behind the deed? Blood boiling?

Well, what’s really going on? As it happens, Nevada Energy, the huge investor-owned distribution utility, sought to increase its basic service charge to recover fixed costs imposed on all users of its electric grid. The state’s PUC approved the increases. The changes will impact residential solar customers more than those who have not installed panels, since the fixed charges represent a larger portion of the retail bill than the variable energy component. While the increasing service charge will deter some customers who would have otherwise installed solar panels, I doubt that the increases will destroy Nevada’s solar industry.

We customers of the Snohomish County PUD do not (yet) pay a service charge. The entire bill is based on multiplying two factors: a unit rate and total units (kilowatt-hours) consumed. Those who use more electricity contribute more to paying the fixed costs of the utility (e.g., salaries and equipment). Those who use less, including customers who have installed solar panels on their roofs, pay less toward those fixed costs.

Almost since I’ve been on the PUD Board of Commissioners I have advocated unbundling rates. I have long believed that fixed costs should be recovered through fixed fees (e.g., a basic service charge) and that the energy portion of our bills vary according to our consumption of electricity. The bill, then, would be divided, with both a fixed and variable component.

Let’s make a hypothetical case. Suppose that a PUD customer consumes 1,000 kilowatt-hours in a month. Suppose further that the energy rate is 10 cents/kWh. Under the current structure the customer pays $100. That takes care of the electricity and the fixed distribution charges (all non-energy costs). As it happens, the fixed costs for the residential sector are about half of the total. The variable energy portion making up the other half.

Now we’ll imagine the PUD’s establishing a basic service charge to recover those fixed costs. The PUD would then lower the variable energy component to reflect the new basic charge.

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The total bill would not change for this customer, should rates be unbundled.

But suppose that you are a solar customer. You’ve installed panels on your roof, for which you have received a rebate from the PUD to pay for some of the costs. Today, under bundled rates, your bill drops after the installation, because you are now generating some of your own electricity and you don’t need to buy as many electrons from the utility. Again, you are not being charged a fixed fee for the non-energy costs you are really incurring. Yet, the PUD still needs to read your meter, pay for the trucks it uses, and the paychecks of its employees.

Now suppose that more and more customers decide to install solar panels. Those fixed costs do not go away. But the PUD is recovering fewer dollars, since electricity purchased from the grid declines, replaced with solar energy.

The PUD still has to pay its bills. It has two choices: raise everyone’s bundled rate; or establish a fixed charge to recover some or all of the fixed costs.

In Nevada’s case, where the sun shines more often than not, the aggregate reduction in electricity consumption was impacting the utilities’ bottom line. Nevada Energy elected to raise its basic service charge, while, at the same time, lowering its variable energy charge. The regulatory commission approved the request. (You can see for yourself here.)

I, for one, do not want the PUD to get in the way of customers’ desire to generate their own power. Indeed, the PUD encourages the installation of solar panels through its rebate program. Over time, however, as more customers switch to solar, the PUD will have to adjust. Again, I support unbundling the rate, instituting a fixed charge and a lower energy rate. In so doing, the utility recovers its costs and becomes economically indifferent to solar customers.

Also, the same logic applies to conservation. Those customers who take advantage of the PUD’s programs or do so on their own, lower their energy bills. But those fixed utility costs remain. A basic service charge, combined with a lower energy rate, would more accurately reflect the utility’s cost structure.