California Utility Commissioner: Utilities Would “Strangle Solar” if They Could
January 20, 2014
In 2013, the Edison Electric Institute issued a paper warning that electric utilities face “disruptive challenges”, including the rise of distributed energy resources, like rooftop solar. In recent months, we have seen a building move by utilities to place roadblocks in the way of solar energy deployment, making it more difficult and expensive for businesses and homeowners to self generate electricity.
Now more confirmation. This will be a fight.
After resigning for health reasons, a member of the California Public Utilities Commission has warned of intense pressure by utilities to protect against the incursion of rooftop solar energy.
Commissioner Mark Ferron announced Wednesday that he could no longer perform his duties as commissioner after two years of treatment for prostate cancer. In a jocular parting report, he praised California for its leading role on energy and climate policy, while warning that its utilities “would still dearly like to strangle rooftop solar if they could.”
By order of the state legislature (Assembly Bill 327), the commission is poised to overhaul how much customers can be rewarded for generating their own solar electricity. Ferron, a former executive at Deutsche Bank and Salomon Brothers, warned that zealous legislators with little experience in energy matters have handed the commission “a poisoned chalice.”
“The Commission will come under intense pressure to use this authority to protect the interests of the utilities over those of consumers and potential self-generators” of solar electricity, he wrote, “all in the name of addressing exaggerated concerns about grid stability, cost and fairness.”
“You — my fellow Commissioners — all must be bold and forthright in defending and strengthening our state’s commitment to clean and distributed energy,” he stated.
Industry analysts and advisers, including the investor-owned utilities association Edison Electric Institute, have issued public warnings of a disruptive threat to existing utility business models by the accelerating adoption of rooftop solar, and other “distributed generation” of electricity by customers.
The timing of such transformative changes is unclear, but with the potential for technological innovation (e.g., solar photovoltaic or PV) becoming economically viable due to this confluence of forces, the industry and its stakeholders must proactively assess the impacts and alternatives available to address disruptive challenges in a timely manner.
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While tariff restructuring can be used to mitigate lost revenues, the longer-term threat of fully exiting from the grid (or customers solely using the electric grid for backup purposes) raises the potential for irreparable damages to revenues and growth prospects. This suggests that an old-line industry with 30-year cost recovery of investment is vulnerable to cost-recovery threats from disruptive forces.
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Due to the variable nature of renewable DER, there is a perception that customers will always need to remain on the grid. While we would expect customers to remain on the grid until a fully viable and economic distributed non-variable resource is available, one can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent. To put this into perspective, who would have believed 10 years ago that traditional wire line telephone customers could economically “cut the cord?”
To the list of industries at risk of complete obsolescence – which at the moment includes daily newspapers, government postal services, and men-only barbershops, among others – you can add U.S. power utilities. The creeping sense of impending peril that has enveloped the power sector was made explicit earlier this year in a widely distributed, and remarkably candid, report from the Edison Electric Institute entitled “Disruptive Challenges.”
Warning of “irreparable damages to revenues and growth prospects” of utilities due to the spread of distributed power generation from renewable energy sources, the report foresees “a day when battery storage technology or micro turbines could allow customers to be electric grid independent.” The result: a “cycle of decline [that] has been previously witnessed in technology-disrupted sectors (such as telecommunications) and other deregulated industries (airlines).”
A Bloomberg BusinessWeek story last week put an even finer point on it: “In about the time it has taken cell phones to supplant land lines in most U.S. homes, the grid will become increasingly irrelevant as customers move toward decentralized homegrown green energy.” NRG Energy NRG -0.04% CEO David Crane told the magazine that microgrids, small wind and solar, and net metering constitute “a mortal threat to the existing utility system.”
Climate Denial Crock of the Week 
January 20, 2014 at 12:01 pm
Public utilities in the US are a unique public/ private blend concocted to allow a monopoly, private investors, and consumers to coexist by regulating utility monopoly. It was necessary in the era of central power generation and power distribution. It provided a regulated rate of return for investors. Utilities used demand growth to spur rate hikes and increase generation. Now demand growth has stopped, central power pollution has caused new constraints, new forms of distributed generation and conservation have collapsed demand, and regulated utilities want to continue status quo. At the limit, ratepayers wind up paying more for less. It’s impossible. There is no reason to guarantee a public utility a rate of return when the central premises and social contract are changed. The PU exists for the commonweal, not investor profit. Once commonweal has turned elsewhere, there is no need for it any more than a horse and buggy is needed after cars were invented. They are arguing we should keep the horse and buggy we don’t use and pay for it even if we are using the car instead. To argue otherwise is to argue that we should make no technical progress. If there is still some benefit from PU, the grid, then that should be sorted out. However, the cost of the grid is a small percentage if present day rates. If that is the new public paradigm, it should be regulated appropriately. So the big PU investors lose because business may drop. If investors are smart, they get ahead of the changes and embrace them instead of clinging to the past in a desperate attempt survive. Ironically, we have private investors arguing that the regulated market should guarantee them a rate of return instead of free market principles. That’s a switch.
January 20, 2014 at 2:21 pm
Time to get out your hair-shirts and scourges you penitents!
Alas, just as Christopher Arcus points out the absurdities and hypocrisy of the maladaptive capitalist electric utility model, here’s an article and interview castigating “the market” as a magnificent failure when it comes to the obvious and obviously catastrophic future on offer should the First World continue on its gluttonous path to climate destruction. Not to mention the destruction of the farms and fisheries of the future. Social suicide…. hey, hey…. we’re on the way!
OK, I might be laying it on a bit thick here. But there’s some essence of truth in the views expressed by Richard Smith, a Lefty economist with keen powers of observation about the follies of human nature.
“Green Capitalism: The God That Failed”
http://www.truth-out.org/news/item/21060
[Aside: I can only guess that Elon Musk probably non-concurs. 🙂 ]
And the Richard Smith interview at Truth-out.org:
January 20, 2014 at 3:21 pm
There’s more than ‘some essence of truth” there. Smith makes a whole lot of sense.
January 21, 2014 at 2:17 am
Don’t forget the trump card: Americans/First-World people will exploit, kill, or ‘otherwise’ any other group in the 3rd world in order to get their hands on resources to keep them in the 1st world position. A long, drawn out WWIII over several decades/centuries for those last few rare-earth magnets and pieces of copper for wind could help overpopulation.
January 20, 2014 at 3:03 pm
Ok ray. Let me dare to venture into the territory of green on the outside, pink on the inside, just because I have a mind free to think. Check out the rsa video here on why capitalism always produces the 1%, (and sucks every resource dry).
http://crooksandliars.com/diane-sweet/s17-our-one-demand-end-capitalism
Then I can get back to my hair shirt and scourge.
January 20, 2014 at 4:25 pm
Hi Christopher,
I absolutely adore the RSA Animate series. It’s simply brilliant. Thanks immeasurably for the link. Somehow I’d missed this particularly trenchant Animate item the first time round (way back in 2010). 🙂
I’ve not quite finished the “Our One Demand: End Capitalism” video, but I need to have a place to make note of a particularly significant quote:
“… any sensible person right now would join an anti-capitalist organization.”
[Aside: This, of course, reminds me of an off-the-cuff comment by Adlai Stevenson, the Democratic Party candidate for President in 1956. After a particularly stirring stump speech, a member of the audience shouted out “Governor, you have the vote of every thinking person in America!”. To which Stevenson rejoined, “that’s not good enough, I need a majority.”]
So this is our conundrum. Any sensible person would be an anti-capitalist, except of course, for those sensible persons who profit from the capitalist system. But any honest study of the populace would indicate that sensible persons will always be in the minority. So we are bound and determined to muddle through and kid ourselves about the inherent contradictions of the human condition. The Slovakian Leftie Slavoj Zizek has more:
January 20, 2014 at 6:36 pm
The Zizek video is an example of “ethical consumerism”. As greenwashing is to green, capital washing is to capital. Its a way of swallowing the bitter pill with a sugar coating. You are keeping an indigent Venezuelan coffee farmer alive, and at the same time profiting a fund manager selling SB stock, and a nice board of directors. All in silent adherence to growth, GDP. On the treadmill. And everyday, the paper boy brings more. And every day, you have to deliver more. Because its the treadmill you are on. On the economic side, there are some interesting alternatives to traditional capitalism to explore.
http://en.wikipedia.org/wiki/Islamic_banking
January 20, 2014 at 8:55 pm
OFF TOPIC
Hi Christopher,
Islamic banking? Oy vey!
From my inch deep study of Islamic banking, I’ve learned that the main trick the Middle Eastern oil & gas derived banks are attempting to achieve is how to charge interest without calling it that.
Have you looked into the hawala system? I’ve become intrigued by this one because unlike the so-called Islamic banks, the halawa system is under attack by the conventional Wall St./IMF/BIS cabal. Apparently they view halawa as competition and it is therefore targeted to be crushed just as Wall Street has crushed labor, the environment and pesky government regulators.
http://en.wikipedia.org/wiki/Hawala
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As a rather secular fella, I’m much more inclined toward the public banking concept: http://publicbankinginstitute.org/
In particular, Ellen Brown has been an articulate advocate for this alternative to the Wall Street/City of London model of ruthless banking exploitation for the benefit of the 1%.
January 20, 2014 at 10:58 pm
Yes, go with public banking. I need to study it more. Hawala is OK, except for abuses for lack of records. But the real issue is does it have compound growth in it or not.
January 21, 2014 at 1:53 am
I’ll briefly throw a few incidentals out, based on my limited observations:
Capitalism (as we know it) works in a scenario when there are large amounts of resources and small amounts of humans and human productivity: before the industrial revolution, productivity per person was so low that it cost a lot just to buy a well fitting shirt and only nobles and other 1%ers could afford and maintain beds (maintenance alone took a lot of human labor). Amory Lovins explains it better in his Natural Capitalism lecture, where he submits that we’ve been ignoring our natural capital (bee’s pollinate our crops for free; nature adjudicates a lot of our pollution for free):
Indeed if you follow the plight of the service maid (scullery maid, kitchen maid, etc.) in the 19th century UK, you will see how capitalism delivers these folks a better life past the turn of the century, giving them leverage against the 1%:
Now over the last 300 years, we have some symbiotic relationship between fierce dedication to the scientific method, extremely cheap energy (coal/oil), and some socioeconomic means to exploit these. But, I’m half tempted to say a large vibrant middle class is just an anomaly, and that feudalism is the natural steady state; wealth and power accreating around a handful of single points; like the work of gravity in planetary formation…
January 21, 2014 at 3:43 am
Andrew – Hows your head? Did the equations pan out? The capitalism subject needs addressing. Lets leave it for now, but your comments are prescient. I don’t want to hog the blog.
January 22, 2014 at 1:58 am
Thanks Christopher – I felt a little slow at work today (my first day back since vacation), but I’ll live…
I haven’t been back to the equations – the general idea was established, and that was good enough for me.
I made a flaw in my area under the curve method where i was subtracting the AUC for the coal curve from the AUC of the overall energy curve, but I should have been adding the two curves’ areas then converting back down to one dimension to find the number to plug back into the growth equation. But I’m pretty confident in my original method though, as it was the simplest way to do it. If we knew the true size of the grid, we’d have gotten a more precise number. But for the purposes of a blog, it was OK.
January 23, 2014 at 6:38 pm
You are going about it a different way. I am sure you can make it work if you figure it out properly. Its easier for me to think of it the way I did. I think you can just ignore coal and concentrate on how much energy is required in 2050. I don’t quite understand what you are doing with the area under the curve, but thats OK. Its worth it for the education you gain by doing it. As long as my suggestions are helpful, I am happy. And if you can check my math to make sure its right, I can check yours.
January 21, 2014 at 12:15 pm
“I’m half tempted to say a large vibrant middle class is just an anomaly, and that feudalism is the natural steady state…”
Perhaps very true, and have you considered that the rise of “capitalism” was the reason that feudalism “receded” for a while? And that both the successes and failures of capitalism are what is going to take us back to the (slightly altered) steady state of corporate feudalism?
January 21, 2014 at 1:03 pm
The king got replaced with a new king. Here comes the new boss. The same as the old boss. There is a lot more to it when you bring up feudalism. You enter the world of class bias and culture. Serfs,knights, kings became proletariat, bourgeoise, politician and so forth. It’s much deeper. Still, it’s clear the transition to a sustainable economy will cause a socioeconomic and political shift to go with it. The present one does not fit. That’s Richard Smiths point. Otherwise known as, are you kidding me, this ain’t working.
January 22, 2014 at 2:55 am
What Christopher said, says it. Same story, different day; history rhymes.
Yes, the servant’s story in the link I posted showed how things got better for the 99% as capitalism started churning hot-‘n-heavy.
Regarding corporate feudalism: Because food prices will double by 2030, I’m thinking a hot lunch will be another ‘perk’ for working at a large corporation in the future, much like health insurance is today. Then fast forward some more and maybe corporate housing will be a ‘perk’, then…well then they own you. Little by little the frog gets boiled.
However, the internet may be the middle class’ savior. Before the net, knowledge could be easily hidden or destroyed by the powers-that-be who could do so for the purpose of keeping business as usual going. Now it’s very hard to destroy knowledge, not discounting the recent events we’ve seen with the Canadian libraries. The internet is a ‘free market’ place of ideas where the best ones eventually have some measure of triumph.
Welp, I suppose one could write pages on this stuff and still not have a complete argument, so I’ll just quit here as it’s late and I’m tired!
January 22, 2014 at 8:43 am
I commented earlier that the new corporate feudalism will be more benign than the historical version. The “serfs” will be guaranteed a reasonably comfortable existence—adequate housing and food, minimal health care, enough “vocational” education to be drones for the corporations, short vacations at “drone” sites, mind-numbing corporate-controlled mass entertainment.
There will be a managerial “control” class that will be more richly rewarded and better educated—the new royalty wouldn’t want to dirty their hands managing the serfs. It will not be Charlton Heston in full armor wielding a broadsword or Brave New World-1984 stuff, though. Think Leonardo DiCaprio or Brad Pitt in three piece suits in charge of a sort of “Truman Show” world of reasonable “contentment”. If you think about it, the heat has been rising under the boiling frogs for quite some time.
And what makes you think they won’t just “turn off” access to the internet when it suits them? It’s going to be difficult to communicate “ideas that might triumph” with smoke signals, especially at night, which is the only time the new corporate serfs/drones will have to do so.
Yes, “One COULD write pages on this stuff and still not have a complete argument”. Too bad the frogs are too busy boiling to do much of that.
January 20, 2014 at 3:29 pm
Ray – I could not agree more with Richard Smith. Let’s begin the conversation here and now. How to do that and accomplish those goals. What new social, economic, and political paradigm must exist to support a new world. Capitalism fails because it is a scheme which concentrates capital in the fewest, while voraciously consuming the worlds resources and rendering the planet uninhabitable. Compound growth driven by compound interest rates is the bedrock of capitalism, and results in inexorable exponential lemming like social suicide.
January 20, 2014 at 3:33 pm
[…] On the other hand: […]
January 20, 2014 at 3:37 pm
[…] In 2013, the Edison Electric Institute issued a paper warning that electric utilities face "disruptive challenges", including the rise of distributed energy resources, like rooftop solar. In recen… […]
January 20, 2014 at 8:52 pm
Although I am not the sort of person who is normally sympathetic to big corporations, this is one case where I don’t blame the electric companies – they have a legitimate complaint about solar. It’s not that I think people shouldn’t have the right to install solar PV on their rooftops (in fact, I have it installed on mine, but not grid-connected). It’s just that many localities have passed laws forcing the grid owners to buy the electricity generated by their customer’s home solar installations. Mid-day is when electricity demand is usually greatest, and since solar reaches its maximum output around noontime everyday, this can blow a big hole in the utility’s customer base.
Now yes, it should theoretically save the utilities some money on fossil fuel. But often it doesn’t because conventional coal plants can’t just be shut down at the flick of a switch. They take days to start up and days to start down. Almost none of their fixed costs are reduced by a noontime surge of solar-generated power.
To understand why the electric companies resent this situation, let’s use an analogy. Just imagine for a moment that you own a restaurant and lunch time is when you make the largest profits. But then your local municipal government passes a law saying that not only can your customers bring their own bagged lunches into your restaurant to eat it, but you actually have to buy any excess food they bring along. Thus, instead of having a restaurant full of customers at lunch time, you’ve got a restaurant full of vendors who you are required to buy from. Thankfully, your customers won’t be bringing in their own food during breakfast or dinner, so at least you’ll have some sales then. But if we add wind power into our analogy, then sometimes customers will be bringing food to sell us during breakfast or dinner, though it will be intermittent and vary in quantity so we’ll never be certain in advance whether or not we’ll have sales on any given day. Because of this uncertainty, we can’t fire any staff or keep less food in the refrigerator, since we don’t know when we’ll need it.
To make our analogy complete: due to the losses caused by our customers bringing their own food and selling it to us, we try to cut corners to stay in business. We don’t fix the leaky roof or bad plumbing, we lay off needed staff, we keep food past its expiration date. So our service deteriorates, and sometimes we can’t meet demand. But in the end, we go into the red and finally shut down. Now our former customers can still eat their lunches at home, but they can no longer sell their excess food to the restaurant, so it goes to waste.
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I’m fully expecting a few folks here to reject my little analogy above and go into attack mode, accusing me of being an AGW-denier, etc. Fine, bring it on. But if you’re one of those people who are cheering at the prospect of seeing your local electric company go bankrupt, would you mind telling me just who is going to run that supergrid you’ve all been dreaming about that will bring you green energy when the sun isn’t shining and the wind isn’t blowing?
January 20, 2014 at 8:55 pm
Whoops, I forgot to add…in my analogy above, the customers at our restaurant are getting government subsidies, reducing their costs for producing lunches that the restaurant is forced to buy.
January 20, 2014 at 9:25 pm
No problem paying for grid – at a fair rate. A 100/month access fee is not a fair rate. The amount of your bill for the grid is a low percentage. In Arizona, they went for a lower fee that could balance the two. In Germany, the populace has tried to buy out the utilities, and some utilities have switched to a grid model of business. The losers are private investors in large coal and other central thermal PP. Large generation is losing out because demand is decreasing. Thermal PP need increasing demand to survive. Things are changing. In a free market, we normally accept that there are winners and losers and snoozers are losers. Utilities latching onto the decaying past are losers. I don’t want to pay for their largess. They want to invest, get a guaranteed rate of return when things are good, and pass the losses on to the ratepayer when things are bad. I say they took the investment risk, they get the rewards, when risk goes bad…. they take the loss.
January 20, 2014 at 10:05 pm
Excellent analogy and excellent closing question. It is not going to be easy, and several prior posts on Crock have pointed that out in various ways. We are on the horns of a dilemma, as the saying goes, and it hurts.
January 20, 2014 at 10:54 pm
Its a bad analogy. I am all for a fair return for the grid, but we got a bigger picture here. The public utility system was set up in recognition of the fact that ratepayers are at a disadvantage with a natural monopoly like electric distribution. So the monopoly was legalized and supposedly the PUC would regulate to protect the ratepayer. In a twist, investors are allowed, and in exchange for low risk investment, get a regulated rate of return, almost like a municipal bond. Abuses have happened where ratepayers are charged because new generation gets paid for before construction is completed. Thus cost over runs are paid by the customer. In the past, the investments paid for large central power stations, that were mortgaged from growing demand. Now demand has declined. Now they want to pass those losses from those bad investments on the ratepayer. CA rooftop solar is designed to lower the bill, but rarely pay the ratepayer. So it looks like conservation to the utility. Why complain about rooftop solar, and not about conservation and efficiency? Where are the investors in the analogy? Wheres the part about how the investors get a guaranteed rate of return when things are good, but then dump those losses on the customers when they go bad? Where’s the public utility commission? IMO, The investors are not a charity or a social system. If they take the profit, they take the loss, too. No corporate welfare. That was their deal. No going back on it after the fact. No, you can’t have your chips back at the gambling table because you want to try a different deal. Same deal for everyone, and none from the bottom of the deck. I like that analogy better.
January 21, 2014 at 12:03 pm
Sorry to disagree with you, Christopher—-we agree on so much here on Crock—-but I think you are perhaps letting ideology and emotion get ahead of reason here. We have both spoken about the immorality of runaway capitalism and free-market “berserkers” destroying the planet. You should not let that feeling lead you away from looking at the complexities of undoing what we have and putting in what we SHOULD have. For better or worse, the system is what it is, and “corporate welfare” and corporate involvement in the solution can’t just be wished away.
Cy’s analogy recognized that the power companies are “caught on the horns”, as we all are, and is even better in my mind on second reading.
January 21, 2014 at 1:35 pm
I am not sure what you object to from your comments. I agree that corporate welfare won’t just stop. I may have not made it clear enough that I don’t want consumer misbehavior either. Nobody should get services for free at the expense of others. I wonder how clear the case of ratepayers with PV is. Some say there is a net benefit for the utility and the other ratepayers. Juries out. I would like to see more evidence. I don’t think PV owners not paying their way is a cut and dry case. That’s why I brought up conservation. I suspect the PU has self serving interests that impede progress. Existing economic paradigm has failed. It encourages growth. What do you do about people who conserve? The real problem is an economic model based on growth. Then we say, no, conserve. Growth stops and guess what happens. That speaks more to the horns you are talking about. Now we are stuck. What do we do, tell the guy we will penalize you for buying less? We really do this. Now we see what the model might really be like. The PU becomes insurance. You pay even if you don’t use, and that’s OK, it’s just for emergencies. Change causes pain. We’re stuck with it. Beyond that I don’t. You are a wise old guy. Speak to me.
January 21, 2014 at 3:04 pm
The only thing we really disagree on is Cy’s analogy—I liked it, you didn’t. I was suggesting you step back and look at just the analogy again, without perhaps being influenced by his opening and closing paragraphs. I think his analogy aptly captures the situation the electric companies find themselves in.
January 21, 2014 at 6:08 pm
I get your drift, I think. They are in a ditch. They can’t get out of it without some help. Yes and the analogy of people bringing food to the restaurant that the owner pays for, yes I get it. We won’t get past it without doing something to make it work. Back at Florida, DB incorrectly defined a cubic equation. I’m done. No sense in talking math with some one who does not comprehend it.
January 21, 2014 at 2:49 am
Read This:
http://cleantechnica.com/2014/01/19/xcel-fiction-four-lies-utility-told/
January 21, 2014 at 10:36 am
The Guardian has a fascinating look at the airline industry up on their website.
http://www.theguardian.com/world/ng-interactive/2014/aviation-100-years
They make some very good points about this industry and its impact on climate, albeit not directly.
Some take away points:
Airlines contribute about 2.1% of global greenhouse gases.
Growth in airline travel has been exponential since 1950.
China has become a major player in air travel almost overnight. Between 2010 and 2015 they will have added 70 new air terminals across China.
On a more personal level, a jet setter traveling on a Boeing-747 from London to Singapore first class will be responsible for the consumption of 9 barrels of oil.
So here is my contribution to the ecological revolution. I simply won’t book that particular flight today. 🙂
January 23, 2014 at 6:53 pm
Air travel is one of the few holdout areas without a clear technical solution. There are some interesting approaches, but few match the success of EVs or wind energy just yet. Hydrogen is good, but bulky. Biofuels have been too expensive and not plentiful. The truth is, we cannot just substitute new for old everywhere at the same expense and continue our jolly ways growing. I believe you mentioned copper. Aluminum is a cheap (depending on the energy source for smelting), plentiful substitute, but requires more bulk and has contact resistance issues. In the past, we jumped from more polluting, to less polluting, or scarce to abundant (Hubbert style) substituting as we went. That left a trail of Hubberts curves. Thats what we are doing now with oil. IEA just calls it unconventional liquids and gases. In reality, we are witnessing conventional oils Hubbert peak, followed by an attempt at the substitute, tar sands, and shale gas. Shale gas will die quickly. Tar sands will be water and natural gas limited, not tar sands limited, but that can go on a long time like China coal and pollution. What we really have now is economic peak oil. Without Saudi Arabia’s ability to increase production, prices have increased. Peak oil is the end of cheap oil. So aviation sees the same impact, but there is no way back. The substitutes are not as easy and cheap. Air travel may never be the same again. Airlines have increased population and improved fuel efficiency in their favor. Against, the fast rise in fuel costs. The backdrop is the end of cheap oil.
http://www.denverpost.com/ci_22331309/report-u-s-airline-industry-will-see-decline
January 27, 2014 at 8:48 pm
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