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Wednesday, Nov 30, 2022

Solar Feels Heat From State Fee

A new fee of up to $10 a month could hit residential customers of Southern California Edison and two other utilities in the state.

The utilities say the fee is necessary to offset the loss of revenue from customers who switch to solar power. The money will maintain the state’s power transmission grid.

But rooftop solar installers say the fee would cast a shadow on their prospects. With much of the industry’s growth now coming from middle- and lower-income households hoping to cut their power bills, they see the fee as a deal-breaker for many potential customers.

“Right now, it’s all about the ability of people to save money by switching to solar,” said Ken Button, president of Verengo Solar in Torrance. “You introduce a new charge that people must pay and lots of those people won’t switch. And that will cut into our ability to grow our business in California.”

The proposed charge was inserted into a bill last month after negotiations between consumer advocates and utilities, including Southern California Edison, a unit of Edison International in Rosemead. If the bill clears a state Senate committee, it will go to the full Senate and then to the governor.

The utilities say a new charge is necessary to help pay for fixed costs as more people install solar panels and pay less to the utilities. They argue that households with solar panels still need the transmission grid, either for more power than the panels provide or to sell their excess electricity to the utility.

Theodore Craver, chief executive of Edison International, told analysts on an earnings teleconference call earlier this month that this exodus of paying customers is a problem.

“Especially important is the ability to recover fixed costs through a charge carried by all residential customers,” Craver told analysts. “This is important because California policies encouraging residential rooftop solar are subsidizing those who install rooftop solar, and shifting fixed costs to those who do not.”

Consumer groups fought to keep the charge as low as possible and got a cap of $10 a month, or $5 a month for low-income customers. The exact fee levels would be set by the California Public Utilities Commission. The fee would be tacked on all household accounts regardless of whether they have solar panels.

Solar objections

But solar companies, including Verengo, were not part of these negotiations over the bill, AB 327 by Henry Perea, D-Fresno, and were alarmed when the amended bill language containing the fee was introduced last month. The fee will apply to customers of Edison, Pacific Gas & Electric and San Diego Gas & Electric.

“We see the monthly charge as taking California backwards when it comes to incentivizing clean energy,” said Bernadette Del Chiaro, executive director of the California Solar Energy Industries Association, which represents about 200 rooftop solar installation companies. “It’s $120 a year out of ratepayers’ pockets no matter how energy efficient they are or how much they offset with solar.”

For those who pay for solar upfront – typically small power users – this charge would mean it would take longer to recoup their investment, Del Chiaro said. And for those who lease solar panels, their monthly payouts would increase. In either case, some people might decide it’s not worth it to go solar, and that’s the calculation rooftop solar installers fear the most.

Patrick Redgate, chief executive of Ameco Solar Inc. in Paramount, said the impact will be felt most by those with small power bills.

“I’m looking at one customer’s bill with our company and it comes to about $440 a year,” Redgate said. “You add $120 in this mandatory payment to the utility and that’s a 27 percent increase over what they are currently paying for power. At the very least, our customers would be upset that their power bill is going up 20 percent or more. Word will get out and that will make it harder to attract others to switch to solar.”

Another solar panel installer said the fee would lengthen the payback time for households using low levels of electricity, most commonly found in multifamily buildings.

Ron Mulick, chief executive of Solartronics Inc. of Agoura Hills, said the time for someone with a $75 monthly electric utility bill to recoup their upfront investment in solar panels is now about five or six years. The $10 monthly fee, he said, would add a year or so.

“When you start talking about payback times of seven or eight years, that’s when it gets much harder to close a solar sale,” Mulick said.

Also, Mulick said, the monthly fee could go up in the future despite the negotiated caps.

“Who’s to say the utilities won’t be back in a few years with another bill that says the fee should be set at $50 a month?” he said.

Aging grid

Utilities say the fee is necessary to maintain the state’s aging power transmission system, which requires hundreds of millions of dollars in investment each year to prevent outages. Recent state policies to spur solar rooftop power generation have prompted thousands of residential customers to install solar panels and dramatically reduce their utility bills; sometimes the utilities even pay them for excess power they put back on the grid.

In an interview with the Business Journal last week, Craver said that even though households that switch to rooftop solar might stop paying the electric utility, they still use the grid and therefore need to pay their fair share to maintain it.

“When an air-conditioning unit is turned on or a pool pump turns on, these appliances use huge amounts of electricity all at once, more than the solar panels can handle,” he said. “Where does that extra power come from? It comes from power supplies elsewhere on the grid. And what about when they have excess power they want to sell? We pay them for the power, but they must still use the grid to transmit the power. And that grid requires more strengthening than ever before.”

Craver said that the maximum $10 monthly fee is modest. He said that about one-third of a typical $100 monthly bill goes toward maintaining the transmission grid, what he referred to as “fixed costs.”

But rooftop solar power installers object because they say residential customers with solar panels already save the utilities money as they cut the amount of power the utilities have to procure.

“Right now, with the shutdown of the San Onofre nuclear plant, there’s all this talk about where we’re going to get the replacement power and how much more that power will cost,” said Button at Verengo. “Well, if enough people switch to rooftop solar, Edison won’t have to get as much power, and that will save all Edison ratepayers money. That’s why I don’t understand why the utilities would back this fee.”

Amid this controversy, Edison took its first step into the rooftop solar business. The company announced last week it was buying Chicago solar rooftop provider SoCore Energy LLC for an undisclosed sum.

But Craver said Edison was not trying to play both sides of the issue. He said all the SoCore rooftop installations would remain outside of California, mostly at retail chains and other large industrial and commercial properties.

“Solar rooftop generation is a good business to be in,” he said, “especially in the commercial and industrial markets where solar power can be used as a hedge against power rate fluctuations.”

RELATED STORY: Edison CEO Says Nuclear Option Still on the Table

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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