Thinking of getting solar panels? California utilities want to slash ‘generous’ subsidies

Ramon Torres, who lives in a subdivision between Madera and Fresno, used to pay hundreds of dollars a month for electricity in the summer. Lately, his summertime monthly bill from PG&E runs closer to $40.

The difference: Torres had solar panels installed on his roof three years ago. The rooftop array generates much of the power he needs to air-condition his home. Whatever he doesn’t use, he feeds into the state’s electric grid, and PG&E is required by law to compensate him with a credit on his bill. The combined savings are adding up quickly.

“It pays for itself,” Torres said. “It’s the best investment anybody can do.”

But as far as PG&E is concerned, rooftop solar is more than just a good investment: It’s a sweetheart deal for homeowners.

PG&E and California’s other major utilities, Southern California Edison and San Diego Gas & Electric, have petitioned state regulators to slash the bill credit they must pay to solar customers by more than half. Not only that, if their proposal is accepted by the Public Utilities Commission, the utilities would be allowed to charge these solar-using homeowners a monthly flat fee — around $70, in PG&E’s case.

These dramatic changes would only affect new rooftop solar installations. Customers who’ve already installed solar panels, such as Torres, would continue under the current arrangement.

Nonetheless, the utilities’ plan is infuriating solar-power advocates at a time when California is pushing more aggressively for renewable energy as a means of fighting climate change. State law says California’s electric grid must be completely fossil-free by 2045, and the California Energy Commission requires the installation of solar panels on most new homes and low-rise apartment buildings.

The solar industry says the utilities’ proposal would dramatically stall out California’s progress on carbon-free energy — while burying an industry that the electric companies view as a competitor.

“What they’re proposing would kill the rooftop solar market in California,” said Bernadette Del Chiaro of the California Solar & Storage Association, a lobbying group. Del Chiaro acknowledged that it’s likely the PUC will alter the price structure, at least to a certain degree.

The utilities deny their plan would ravage the solar industry. Instead, they argue that their plan would transform an overly generous arrangement for solar customers into a system that’s fairer for everyone.

As it stands now, the utilities say they’re being forced to subsidize their rooftop solar customers — heavily. The credit these customers receive for their excess power is much higher than the true cost of the electricity. This subsidy effectively shifts some of the cost of operating the utility — everything from power poles to tree-trimming — to the millions of customers who don’t have rooftop solar.

In PG&E’s case, the cost-shift translates into $170 a year in higher bills for non-solar customers, said utility spokeswoman Ari Vanrenen.

“Our proposal is really about modernizing the structure while reducing the burden on non-solar customers,” she said. “We’re just trying to make sure we’re balancing it out more.”

She also rejected the claim that solar will suffer, saying the industry has outgrown the need for such subsidies. “The solar industry is strong and it’s mature,” she said.

The proposal pending before the PUC doesn’t affect SMUD, the Sacramento utility, which isn’t regulated by the state. However, the utility released a report last year that echoes PG&E’s complaints that solar customers are getting compensated too generously. The utility’s staff plans to submit a proposal for a new financial structure to the SMUD board of directors in May, said spokeswoman Lindsay VanLaningham.

A SUBSIDY FOR CALIFORNIA SOLAR

An array of rooftop solar panels can cost $20,000 or more, and for years California officials have been pursuing policies designed to make solar more enticing for homeowners and commercial property owners.

In 1995 the Legislature passed a law mandating “net energy metering,” requiring PG&E, SMUD and other California utilities to offer bill credits to customers for the surplus electricity they fed into the grid. The compensation is equal to the retail prices those customers would be paying if they didn’t have rooftop solar. AT PG&E, that comes to an average of 25 cents per kilowatt-hour, Vanrenen said.

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By contrast, she said PG&E pays 3 cents for the power it gets from those industrial-sized solar farms that have popped up around rural California. The average California household uses 532 kilowatt-hours a month, according to the federal Energy Department.

(That 22-cent difference doesn’t mean PG&E is charging ordinary customers eight times as much as it should, Vanrenen said. The retail price reflects lots of other costs, such as wildfire safety and the expense of shutting down the Diablo Canyon nuclear plant, she said).

In any event, PG&E and the other two major utilities say the amount paid to solar customers has turned into an enormous and increasingly unjustified subsidy, totaling $3 billion a year between the three companies.

The compensation “is more generous than it needs to be,” the utilities said in their petition to the PUC. The PG&E proposal would reduce the credit from 25 cents to a range of 5 to 13 cents, Vanrenen said.

Certainly, solar energy has been a major growth industry in California. About 1 million homeowners have panels; the industry says it employs 70,000 Californians. Solar accounts for 25% of PG&E’s power supply, roughly half from rooftop installations and the rest from giant solar farms.

But as more and more rooftops sprout solar panels, a backlash of sorts has developed over the state-mandated subsidy. The Utility Reform Network, a San Francisco consumer group that normally fights PG&E on every issue, is also calling for the solar credit to be scaled back.

“There is a massive cost shift associated with the current cost structure,” said TURN attorney Matt Freedman. “This is not free money. This is not money coming from PG&E shareholders …. It’s coming from all the other customers.” The Public Advocate’s Office, a division of the PUC that represents consumer interests, is also arguing to reduce the subsidy.

The utilities have also raised an equity issue — arguing that the solar subsidy amounts to a gift to Californians who don’t really need one. “Participants tend to be wealthier single-family homeowners,” the companies said in their filing with the PUC.

They say their plan, while reducing subsidies for well-off customers, would increase the credits for low-income residents so more of them can get panels installed. That would effectively reverse a decision the PUC made five years ago when it reduced the credit paid to low-income customers. The decision was grounded in the argument that the credit equals the retail price of electricity, and low-income customers pay less.

California must “first expand solar access for lower-income families,” said Susannah Churchill, senior regional director at Vote Solar, an advocacy group based in Oakland.

Some solar advocates say the equity issue is vastly overblown — and solar panels are no longer the status symbol of the rich.

“Half of all new solar is going into working and middle-class neighborhoods,” said Dave Rosenfeld of the San Diego-based Solar Rights Alliance. “Solar is getting into the hands of working-class people.”

Torres, the rooftop customer who lives in a Madera County subdivision called Madera Ranchos, counts himself among the new breed of solar customers. The 53-year-old is a finance officer at a car dealership, and looks at solar as a way of planning for the day when he’s no longer in the workforce.

“I do well but I’m not wealthy,” he said. “By the time I retire, I want my utility bill to be close to nil.”

SMUD TAKES ANOTHER LOOK AT SOLAR

Two years ago SMUD’s staff came up with its own plan for fixing the solar subsidy. The Sacramento utility wouldn’t reduce its credit for surplus power but would have started charging solar customers a fixed fee, depending on the size of their rooftop array. For most homeowners, the fee would have started at $32 a month, increasing to $44 over four years.

Customers and the solar power lobby bombarded utility officials with complaints and the SMUD board shelved the idea without a vote.

But SMUD hasn’t given up on the notion that it’s paying customers too much for solar. Last year it released a consultant’s report saying the credit it provides for rooftop solar — 12 cents a kilowatt-hour — is nearly double what the power’s really worth. That raises costs to non-solar customers by as much as $45 a year, “and disproportionately impacts low-income customers,” SMUD said.

The utility plans to unveil another proposal in May, following two years of study and “a very comprehensive stakeholder process to find a solution that works for everyone,” VanLaningham said. A vote by the SMUD board is expected in the fall.

The proposals by SMUD, PG&E and other utilities represent the latest in a series of skirmishes between the electric companies and the solar industry overpricing. In 2016, the big utilities convinced the PUC to reduce the credit slightly, Del Chiaro said, a move that slowed the growth of solar’s popularity for a while.

Five years later, solar advocates acknowledge that more change is likely to come.

Vote Solar’s Churchill said the utilities’ proposal is too “immediate and drastic.” But she said California is generating so much solar energy these days that each additional electron becomes less valuable.

That in itself creates momentum for lowering the compensation paid to solar customers for their surplus power, she said.

Both Vote Solar and the Solar & Storage Association have submitted proposals to the PUC to reduce the credit given to rooftop customers — albeit less dramatically than the utilities. It’s an acknowledgment that the status quo won’t prevail, said Del Chiaro, of the Solar & Storage group.

“This is the position we’re in because the utilities are after us,” Del Chiaro said. “We will come to the table with what we think is a reasonable haircut so we can live to fight another day.”