And FirstEnergy Shows Its Hand on HB2201

Today, The State Journal published energy reporter Sarah Tincher’s story on the differing views of HB2201.

In her story, she quoted FirstEnergy PR guy, and our old friend, as follows:

“FirstEnergy is concerned about the way we credit customer generators because we credit them back at a rate that is equal to the retail cost they pay for electricity,” said Todd Meyers, a spokesman for FirstEnergy’s West Virginia subsidiaries, Mon Power and Potomac Edison.

“Those smaller generators get the benefit of using our electrical infrastructure to sell back the electricity they generate without paying to use that infrastructure,” Meyers said. “In principle, we don’t believe it is fair for the rest of our Mon Power and Potomac Edison customers in West Virginia to subsidize small generators.”

So, now FirstEnergy’s PR guy is directly contradicting FirstEnergy’s chief lobbyist Sammy Gray’s statements to the WV House Energy Committee and the WV Senate Judiciary Committee that FirstEnergy interpreted the “cross-subsidization” language in HB2201 as applying only to direct costs of connecting individual net metered customers to a power company.

Has FirstEnergy changed their minds?  Or was Sammy hiding something from WV legislators?

Ms. Tincher does a great job of blowing Toddy’s argument out of the water, by pointing to studies done by PSCs in Missouri and Mississippi:

Among such reports is a Missouri Energy Initiative study, released in winter 2015, which evaluated the benefits and costs of net metering in Missouri, which has a similar fuel mix and retail electricity pricing to West Virginia.

The study quantified the benefits of load reduction and reduced greenhouse gas emissions, in addition to the costs associated with cross-subsidization among consumer groups, and increased administrative costs in managing a new customer class between 2008 and 2012. According to the report, the net effect was positive for the state each year.

The MEI study also suggested benefits of a decentralized energy system, reduced energy prices, local economic boost from manufacturing and installation of net metering systems.

Another study, conducted by Synapse Energy Economics Inc. for the Public Service Commission of Mississippi in September 2014, modeled the costs and benefits of net metering to the state of Mississippi, which doesn’t currently employ a net metering program. The agency’s Total Resource Cost assessment, which included costs of solar panel installation and administrative costs, as well as benefits of avoided costs to the utility, suggested net metered solar rooftop would result in $27 per MWh of net benefits to the state of Mississippi.

FirstEnergy and AEP had better watch out.  If similar studies are done for the WV PSC, they may have to end up paying net metered customers more for their electricity, not less, to pay us for the benefits we give to all customers.  By the way, that is called a feed-in tariff.

WV PSC Files IRP Order

The WV PSC filed an order laying out very modest guidelines pursuant to the toothless, voluntary Integrated Resource Planning law that AEP and FirstEnergy slipped through the WV Legislature back in 2014.

The WV IRP law, and the PSC’s minimal approach, is a far cry from the kind of law supported by WVU Law School professor James Van Nostrand and Energy Efficient WV in the 2012 and 2013 legislative sessions.

 

AEP Shows Its Hand on HB2201

The Charleston Daily Mail ran an op ed by AEP’s Jim Fawcett today that revealed for the first time AEP’s interpretation of the just passed HB2201:

The bill defines cross- subsidization as “the practice of charging costs directly incurred by the electric utility in accommodating a net metering system to electric retail customers who are not customer generators.”

In other words, whatever it costs to serve a net metering customer should be borne by the net metering customer, not other customers.

Net metering was first created to encourage the budding solar industry by requiring electric utilities to purchase at the full retail rate any excess energy generated by a customer.

That full retail rate includes the costs of the poles, wires, meters and other infrastructure that keep the electric grid running.

By allowing solar providers to avoid the cost of a service that they benefit from and by paying an inflated cost for the power provided by these solar providers, all customers — even low income customers least able to afford solar panels on their own homes — have to help pay for those who have solar generation installed.

So AEP has just revealed that they believe 2201 throws into question the fundamental one-to-one kwh credit system (which Mr. Fawcett refers to as “inflated costs”) that exists now in WV.  Keep in mind that the actual language in 2201 which defines “cross-subsidization” is not as clear as Mr. Fawcett claims.  The total costs that Mr. Fawcett refers to are indirect costs generally included in AEP’s base rate calculation.

Here’s what 2201 actually says:

 (c) “Cross-subsidization”, for purposes of this section, means the practice of charging costs directly incurred by the electric utility in accommodating a net metering system to electric retail customers who are not customer generators. [emphasis mine]

(d) The Public Service Commission shall adopt a rule requiring that all electric utilities provide a rebate or discount at fair value, to be determined by the Public Service Commission, to customer-generators for any electricity generation that is delivered to the utility under a net metering arrangement. The commission shall assure that any net metering tariff does not create a cross-subsidization between customers within one class of service.

HB2201 does not say all costs, direct and indirect, connected with serving all net metered customers.  It says “costs directly incurred by the electric utility in accommodating a net metering system.”  Costs that cannot create “cross-subsidization” must be “directly incurred” “in accommodating a net metering system.”

Under current PSC net metering regulations, the direct costs required to connect a net metered customer to a power company must already be paid by the net metered customer, and are not passed on to anyone else.  If a special meter is required, or a new transformer must be installed, the net metered customer must pay for it.  There is no “cross-subsidization” as defined by the new law, and there never has been, when it comes to direct costs incurred by the power company in accommodating a net metered customer.

Apparently, Mr. Fawcett thinks otherwise.  And we know where his thinking comes from.

I heard FirstEnergy lobbyist Sammy Gray state twice during the just concluded legislative session, once to the House Energy Committee and once to the Senate Judiciary, that FirstEnergy disagreed with Mr. Fawcett’s (and apparently AEP’s) interpretation of the bill and agreed with my reading.  It will be interesting to see how FirstEnergy responds officially to Mr. Fawcett’s interpretation of HB2201.

When they were encouraged to support language which would further clarify HB2201’s definition of “cross-subsidization” in the law, AEP’s lobbyist Steve Stewart refused to accept any changes.  We also saw AEP misleading legislators from the beginning on HB2201.  Until Mr. Fawcett’s op ed, however, AEP has never stated publicly or privately what their actual interpretation of HB2201 was.

Now we know.

HB2201 Now on Gov. Tomblin’s Desk: Veto Needed

HB2201 is back on Gov. Tomblin’s desk.  He has until Saturday to veto it.  He needs to veto HB2201 a second time.  HB2201 is completely unnecessary, because net metering was protected in HB2001, and all of the contents of HB2201 are already covered in the WV PSC’s net metering rules.

The Charleston Daily Mail ran an op ed by eastern panhandle solar power installer Bill Anderson today that does a good job of explaining why Gov. Tomblin should veto HB2201.  His piece contains this common sense nugget:

HB 2201 is not a good bill. Good bills are written to fix a well-defined problem. The purpose of HB 2201 is obscure to both legislators and the public.
A week ago, the Charleston Gazette ran my op ed that provides a little more detail about how HB2201 got so bad.  My piece also shows how AEP and FirstEnergy lobbyists perverted the course of an initially well-intentioned bill.
The result of all this meddling and manipulation is that HB2201 is now a mess that casts a cloud of regulatory uncertainty over business investment and innovation in West Virginia.
And as Mr. Anderson concludes his piece:

I respectfully request that Gov. Tomblin veto this bill again. (He vetoed an earlier version due to technical flaws).

A veto will serve the interests the governor’s constituents and enhance the prospects for private investments in energy generation far into the future.

Wellinghoff Nails Net Metering Cross-Subsidization Fallacy

When Jon Wellinghoff was chairman of the Federal Energy Regulatory Commission, he advocated simply horrible policies concerning electric transmission.  Here is just one example.  Since he resigned from FERC, however, Mr. Wellinghoff has become an outspoken champion of sensible electrical policy in the area of new decentralized power.

Mr. Wellinghoff co-authored two excellent articles, here and here, that expand on what I said last week in my post on “cross-subsidization” claims by the electric power industry.  And Jon Wellinghoff knows a heck of a lot more about the electric industry than I do.

Naturally, local distribution utilities feel under-appreciated, if not indignant, when green advocates, tea party activists, and upstart businesses push hard for policies they believe may jeopardize the grid. This utility angst is compounded by declining revenues from waning demand growth and the emergence of disruptive innovations, such as smart thermostats and rooftop solar. Utilities want to slow down change, or at least ensure full recovery of their investments.

Cue the fixed charges

To this end, utilities have been pushing for more fixed charges. Some fixed charge increases simply augment existing “customer charges.” Others are targeted primarily at consumers who choose to install rooftop solar PV systems.

Arguments for these charges tout basic economics and fairness. The basic economics argument contends that since most costs of electric services are fixed, customer fees should also be fixed. Utilities assert that using volumetric pricing, or charging per kilowatt-hour (kWh) consumed, to recover fixed infrastructure and operations costs creates utility risk. Risk raises utilities’ cost of capital and ultimately prices for all customers.

The fairness argument takes aim at solar customers, contending that by significantly reducing the kWhs they consume, they avoid their fair share of the fixed cost. Fixed charges imposed on solar customers, it is assumed, would prevent an unfair shift of cost burdens to non-solar customers.

The reasoning for this shift to fixed charges may seem logical. Utilities are legally entitled to fair compensation for the service they provide. And customers connected to the grid should indeed pay to use it. Both assertions are indisputable. Yet neither proves the need for fixed charges – especially for solar customers.

As we argued in our previous piece, the assertion that solar customers do not pay their fair share is based on a flawed assumption that cost shifters are necessarily freeloaders.

The “economics” argument is equally wrong. As Severin Borenstein, a respected economist and a sharp critic of current solar policies, writes: “…the statement that I have heard a number of times recently that ‘the utility should cover fixed costs with fixed charges’ has no basis in economics when it comes to system fixed costs.” [1] Borenstein accurately notes that fixed-cost recovery can be addressed through smarter, more efficient kWh volumetric pricing that accounts for all cost variations due to timing and location, as well as externalities such as carbon emissions.

Wellinghoff points out that rather than supporting a “free market” and “efficiency” fixed charges on net metered solar producers distort the pricing mechanisms of the electricity market and create incentives for wasted investment.

Utilities have traditionally built enough capacity to ensure peak demand is always met, even during relatively rare moments when every single air conditioner is running at full throttle. But across the nation, peak usage is diverging from average usage (see the graph below). This means that increasingly, much of grid infrastructure is going unused at any given time. In other words, much of what is called “fixed costs” actually represents overcapacity, or waste. And that waste is growing.

Expanding fixed fees does nothing to reduce such waste. In fact, it encourages the opposite. Instead of increasing fixed fees, we need to consider instituting dynamic or time-varying rates that align prices with how and when utilities incur costs. This would both strengthen historical fixed cost recovery mechanisms and reduce investment waste.

Public policy has long resisted time-varying rates for consumers, in large part because they are deemed too confusing for consumers. The expansion of rooftop solar, however, questions conventional wisdom. As Borenstein notes (albeit cynically), the rapid growth of rooftop solar in California is largely attributed to solar installers’ success in explaining the state’s incomprehensible rate structures to consumers. The California experience suggests that, given strong market incentives, third-party providers can effectively assist consumers in understanding sophisticated pricing structures and provide them appropriate options. The goal of policies then should be to develop market incentives consistent with a strong, reliable grid.

Myriad distributed energy resources (DER) offer consumers countless tools to better manage their consumption and reduce grid costs: intelligent communicating devices can enable greater demand response at peak times or automatically start or stop dishwashers and washing machines depending on the high and lows of daily energy prices (see below). Electric vehicles can interact with grid market signals to charge batteries when prices are low and supply grid services when the market allows. And distributed photovoltaic systems can sync with all of the above, deciding when to use generation internally, when to sell it to the market and when to store it locally.

Just as WV legislators are expanding power companies’ monopoly control over net metered customers, other states have been making wiser choices, as Mr. Wellinghoff points out:

The traditional regulated electric utility model is on an unsustainable trajectory – some say a death spiral. Regulators at mission control will need to take creative and likely unconventional measures to guide it back to a safe landing. We commend commissions in New York, Hawaii, Massachusetts, California, and Minnesota for acknowledging the challenge and exploring ways to modernize the grid with DER. We applaud commissions in Idaho, Louisiana, Utah, and others for rejecting proposals for fixed charges on solar customers because of insufficient data.

While other states are moving forward, WV continues to move backwards — which is exactly why Gov. Tomblin needs to veto HB2201.

WV Far Behind in Solar Industry Job Creation, HB2201 Would Only Make It Worse

Dan Heyman has a solid piece on Public News Service about the impact of HB2201 on WV’s already dismal job creation record.

An annual census by The Solar Foundation found the number of jobs in the solar industry is up by nearly a quarter over the year before, and up nearly 90 percent since 2010.
Those are national figures.  When was the last time you heard of any job category in WV that was “up nearly 90 percent since 2010?”  Yeah, me neither.
Solar Foundation president and executive director Andrea Luecke says most of these jobs pay well, and says much of the new work is in sales and installation. As solar power becomes more competitive, Luecke says more people will want it installed.

“It’s been phenomenal. Homeowners, commercial owners, even utilities,” she says. “And as we have more solar installed on rooftops, on land, in parking lots and on top of landfills, we need people to do those installations.”

But WV young people who want to work in this rapidly growing industry will have to leave the state.
But in West Virginia, Luecke says state energy policies have limited the growth of solar employment. A good example is House Bill 2201, now sitting on the desk of Governor Earl Ray Tomblin awaiting his signature or veto. According to solar supporters, the bill could limit the ability of homeowners and businesses who have installed solar power to sell any excess power back to the grid.
Dan ends his piece with the following dismal news:
Only about 300 West Virginians work in solar-related fields, while the census says there are nearly 175,000 people employed in the industry nationwide.