The Fantasy of Distributed Generation, Efficiency, and Storage Raising Electric Rates

In 2012, the Virginia Governor proposed a tax for the sales of energy efficient cars because they use less gasoline, which means less money goes into the highway trust fund to repair roads. Hybrid and electric car owners, like myself, went nuts — why should those saving gasoline and significantly reducing pollution be penalized? By the end of 2013, a bipartisan coalition abolished the law.

Now the same movement is underway regarding energy efficiency, renewable energy and the electric grid — and it’s as misguided as the reasoning above.

The State of Ohio abolished its energy efficiency programs and delayed its Renewable Portfolio Standard (RPS) for two years on the guise it will raise electric rates. According to Electric Choice, in 2013 Ohio’s average electric rate for all sectors was 9.49 cents per kWh with the energy efficiency and RPS in effect. Ohio’s electric rates are slightly higher than Illinois, which has the lowest electric rates in the region and also has an aggressive energy efficiency program and an RPS. But somehow the electric utilities continue to bang their drums of fear and make headway without any independent analysis.

A purported consumer group has just published “The Unintended Consequences of Net Metering,” which claims: 

On the surface, the concept of promoting rooftop solar energy seems like a good idea: homeowners are incentivized to buy or lease solar panels; they benefit from reduced reliance on the local utility for electricity; they benefit directly from clean solar energy; and they sell any excess power to the electric utility for credit or payment.  The subsidies, in theory, make solar energy an affordable alternative for consumers. But, that is not the whole story…net metering can produce many unintended consequences that lead to higher costs for consumers. 

Of course it has the same theme of the VA electric and hybrid vehicle tax — net metering causes higher rates for all other consumers who are not net metering. 

On August 26th, the Pittsburgh Post-Gazette reported on a new regulation proposed by the Pennsylvania Public Utility Commission, which proposes to cap electricity production from on-site energy sources at 110 percent of the owner’s demand. The article reports: “The Office of the Small Business Advocate has been a lonely voice of support for the regulations thus far. The group welcomed the proposed rules saying they are necessary to protect small business customers from bearing the cost passed down by utilities that have to pay retail price for net-metered generation.”

Is this argument valid? Not really.

Alden Hathaway, PECEM, of Sterling planet In Georgia explains it most succinctly in his Februrary 2013 article in NAClean Energy.

Over the course of almost a quarter of a century of focusing on load management strategies in Vermont to meet load growth, the Central Vermont Public Service Company successfully increased the average (electric) system load factor from 55 percent to 70 percent…and a reduction in costs to the electric system of 4 percent…and they met additional load growth with energy efficiency and renewable energy…Unfortunately regulators tend to place little emphasis on improving grid efficiency by requiring increases in system load factor. Instead, regulated utilities are rewarded by additional power plant capacity to meet electric system peak increases. Since they are allowed to recover their costs, plus get a return on their facilities built for (generating) electricity, incentives are tilted toward adding new facilities  — which is, in fact, where utilities are currently investing. 

This conventional practice, or “old” set of incentives, does not add up to more electric grid efficiency, and electric rates actually go up for all ratepayers.

In National Geographic’s December 2013 article on this issue, solar leaders in California “scoff” at the notion that on site renewable energy production increases electric rates.

Adam Browning, executive director of the nonprofit Vote Solar Initiative, scoffs at the higher figure, which includes not only energy the solar households send to the grid, but the power they keep for their own use — energy that never touches the grid and has no impact on other ratepayers. ‘It’s the functional equivalent of you turning off your lights and getting accused of raising everyone else’s rates,’ Browning said. CALSEIA’s Del Chiaro agreed. ‘If you were to put an energy-efficient refrigerator in your home, and you cut down your refrigerators’ electricity usage in half, would that be a cost to your neighbor? Of course not,’ she said.

This issue just doesn’t touch energy efficiency and renewable energy, but electric energy storage, as well. As REW’s Cinnamon and Maguire noted in their June 12, 2014 article: “Ironically, there is renewed interest in battery backup systems because utilities are placing limits on net metering. So rather than connect the solar panels directly to the grid and ‘run the meter backwards’ during the day, people are essentially storing their own electricity in home battery systems — thereby avoiding caps and special charges that may apply to net-metered systems.”


Frankly, on-site battery storage with on-site renewable energy will be the trend if electric utilities and regulators put up net metering barriers. While the consumer will not be “credited” for any excess electric power they produce, they will have back-up electric power (much more reliable than the electric grid) and electric power quality (no surges, sags and transients) that are becoming more severe in this country’s aging distribution grid — saving customer losses of digital equipment including appliances, office machines, computers, web routers, and microprocessors.

Actual substantive studies basically confirm what Hathaway and Browning stated. Crossborder Energy’s CA Energy Net Metering Study published in January 2013 states:

The economic impacts of net metering on non-participating ratepayers are highly dependent on underlying electric rate design. We show that modification to existing residential rates — including 1) the gradual narrowing of rate differences between tiers of today’s block rate structure under which most of the residential customers of the IOU (independently owned utilities) take service, 2)a move to greater adoption of current time of use rates among net-metered customers, and 3) increased use in an increase of simpler non-tiered time-of-use rate structures available today — will result in an increase of net benefits to non-participating ratepayers from residential net-metering.

There have been eleven substantive studies on the benefits of net metering for both net-metering customers and electric ratepayers. And virtually all show cost reductions for both electric customers and electric utilities on frequency control and electric power quality (less surges, sages and transients), lower distribution grid bottlenecks and transformer blow-outs that are precursors for outages, and less need to build electric power peaking plants that sit idle most of the time.

Through their public service commissions, state governments control electric rates and the rules. These rules favor and reward more electric generation and less conservation and on-site energy generation. This practice drives huge amounts of investments into less efficient electric systems rather than focusing on the customers’ requirements of less outages, improved electric power quality, less swings in electric rates due to increases in global energy commodities (uranium, oil, coal, and soon, natural gas), and more precise matching of electric generation to electric load by improving electric system efficiencies.

In my two interdisciplinary energy courses at The George Washington University, my students are made aware that energy utilizes more water than agriculture. Since water supplies are at all time lows country-wide and the overall climate is warmer, our energy practices will significantly drive up water costs and in turn will further drive up energy costs. So maximizing energy efficiency, energy storage, and on-site renewable and distributed energy will have some substantial impacts on addressing this growing problem, and moderating anticipated steep increases in costs for water at all levels within the U.S. economy.

The results of a recently published ACEEE analysis, which examines energy savings opportunities and economic development benefits in each of the 50 states, finds that every state can use energy efficiency to boost economic development — with job gains of more than 600,000 nationally, along with nearly $50 billion in net economic benefits — by 2030. And yes, my students learn that it is always less expensive to save energy than generate it from any source.

To read the testimony from ACEEE on Capitol Hill, click here

Whether you’re in the Tea Party staunchly against government-supported monopolies or an environmentalist severely concerned about global climate change, the one thing the entire political spectrum should agree on is that spending trillions of rate payer dollars on generation facilities will not provide stable electric rates or lower costs for consumers. In fact, the opposite is true — saving energy and meeting a significant portion of one’s own needs through private investments will insure a more effective low-cost energy system. 

In the early 1970’s, the management of MA BELL, our only phone company, said cellular was a whim in a country with 99.8 percent quality service — who would pay 15 times more for a unit of communication? It’s déjà vu all over again. I am hearing the exact same thing from many electric utilities and their regulators. Sorry Charlie, we’ve heard that all before.

Lead image: Books via Shutterstock

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Scott, founder and president of The Stella Group, Ltd., in Washington, DC, is the Chair of the Steering Committee of the Sustainable Energy Coalition and serves on the Business Council for Sustainable Energy, and The Solar Foundation. The Stella Group, Ltd., a strategic marketing and policy firm for clean distributed energy users and companies using renewable energy, energy efficiency and storage. Sklar is an Adjunct Professor at The George Washington University teaching two unique interdisciplinary courses on sustainable energy, and is an Affiliated Professor of CATIE, the graduate university based in Costa Rica. . On June 19, 2014, Scott Sklar was awarded the prestigious The Charles Greely Abbot Award by the American Solar Energy Society (ASES) and on April 26, 2014 was awarded the Green Patriot Award by George Mason University in Virginia.

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