Q&A with John Farrell: People power a threat to the ’20th-century’ utility

A conversation with John Farrell, director of the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance.

San Antonio’s publicly owned utility, CPS Energy, recently argued in favor of ending net-metering on the grounds that upper-income solar owners were saddling low-income residents with an unfair share of maintaining the power grid. It’s not a new argument for a utility to make against rooftop solar. How do you respond?

john farrellMost of the studies I’ve seen that are carried out by independent third parties about net-metering programs have shown that there is a net benefit to the utility in terms of off-setting other investments they would need to make to meet peak demand or lowering infrastructure investment costs by producing electricity close to load, so I’m immediately always a skeptic when a utility says [rooftop solar] will cost them something.

I’m a little more willing to listen in the case of a public utility than a private one, because investor-owned utilities are making that argument out of disinterest in losing market share. They make their money by capital investments, so solar doesn’t add up for them. But I would still want to see a rigorous third-party analysis before I would immediately make the assumption that simply because solar is done by some people instead of other people that someone is winning and someone is losing. There are public benefits above and beyond private benefit.

The second thing that is really important and I think has to be at the core of whatever policy a utility adopts around solar is how you encourage participation and give everybody an opportunity to share in those benefits directly. What are the policies for community-based solar? Colorado has their solar-gardens law that requires that there has to be some measure of participation from low-income participants. I think that’s a really great example of quality policy.

When I think about environmental justice and economic issues, I’m reminded the percent of a low-income homeowner’s utility bill is going to be a bigger share of their expenses. And then there is energy security concerns like we saw in Sandy in the Northeast where people’s power was knocked out for weeks on end. Where else are such considerations having an impact on policy?

I don’t know there have been other policies from the economic or environmental justice approach, but it was a big focus behind a [Minnesota] solar-energy standard that’s pending signature by the governor. He’s promised he’ll sign it [and since has -gh], and we were successful in getting a community solar program similar to Colorado’s. Actually, it’s better because it’s not capped. We have been facing in Minnesota 10 years of an average of 4-percent retail electricity rate increases [per year], and solar is one of the ways that folks can get off this never-ending ramp up. To me, things like solar Mosaic and crowd-funding is a great example of how we can finance it.

Community solar is great because you can buy in very small chucks, you can buy 200 watts.
I think the California law is good with multi-family dwellings. That’s really going to be the key. How do you get those properties involved so the tenants there have a chance to participate? I think there are good examples but I don’t think many are in widespread practice yet.

Did you read this recent Edison Electric Institute report (pdf), essentially saying that decentralized energy is dooming utilities if they don’t act now to take control of the cost. Is it the end of the traditional utility?

solar vs natgasI guess what I would say is it’s the end of the 20th-century model of utilities. The investor-owned utilities out there are in a boat that is not necessarily of their own creation. We regulated them into this place to say we need these vertically integrated monopolies that can raise lots of capital because we need to build really big fossil-fuel power plants. That technological dynamic is gone. You can see it in California where solar bids in for less than the cost of a new natural-gas plant. I put out an infographic a week ago pointing out that the [natural-gas] peaking power plants that Excel Energy wants for Minnesota are more expensive than solar would be in Minnesota on a per-kilowatt-hour basis. It’s broken down completely. The model has to change.

If we don’t change anything those utilities will probably go bankrupt, especially if they keep investing money in the same way and trying to make their buck by building more infrastructure. Because we don’t need the big power plants, and we don’t need the big transmission lines to carry that power, they don’t have a way to make a return other than that. The only other thing they have is energy sales and when we do net-metering it comes right out of their bottom line. So from an accounting perspective, I buy their argument, this is the death-knell of their model. From a social benefit and energy cost-effectiveness to ratepayers argument, I think they’re full of crap and this is really just about playing defense for their bottom line.

What does it mean to democratize the energy network? How do you define that?

To me it’s simply allowing for ownership and control of the energy system in a fashion that is commensurate with what is technologically possible. So if I can power my community with wind turbines just outside the populated area and with solar panels on the roofs of the buildings then the people who live in that community should be able to own and control those things rather than some distant utility.

Do you feel like there’s a way through for today’s utilities? I mean, in San Diego they tried to stick a surcharge on the bills of those that have solar on their roofs to make up for a perceived loss of revenue tied to upkeeping the grid and it was declared illegal, that it was at odds with the intent of so many other solar laws in California. What do you think a utility today whether it’s public or private could do to adjust and end up being a good guy in this transitionary period?

What I think they should do, and this would be very difficult to do because there’s so much inertia, but the smart utility in my mind would sit down for six months and come up with a strategic plan that says, “OK, we know we’re not going to make money building big power plants. We know we’re not going to make money building big transmission lines. But what people will need is, they’re need reliability. What people would probably like to have from us would be some sort of distributed energy storage that captures some of the economies of the scale but is not massive. What they’re going to want is a smart-grid that is really reliable and efficient and full of information about their usage and their neighbor’s usage. And we are in a position to provide that.”

My idea would be to say essentially we know from a climate perspective that we have to reach a certain goal. We know from a technology perspective that your old model is dead. So let’s just say by 2050 we want to be 80-percent renewable. I think that NREL [National Renewable Energy Laboratory] study said recently that was technically feasible. So for every percentage point you get us there, that’s how you get paid. That’s your rate of return. And we’ll find ways for you to make money doing that, whether it’s by facilitating community solar, by developing energy storage, by making the grid more reliable, whatever it is. Things that will have for every dollar that they pour into it lots of economic value to the community, lots of spurring of private capital investing in energy sources. That’s the model we need to see, and I haven’t seen anybody do it yet. It’s going to be very difficult for utilities to come up with that on their own.

Especially if they have investors they’re answering to. I was going to ask you about that issue of decoupling. Here in San Antonio we have a municipally owned utility and the city gets, I think, 20 percent or more of their budget through the utility’s revenues. Who’s doing the best work on these various renewable strategies?

There are some interesting pilots out there but what I haven’t seen is any kind of market model for it. What I’ve seen is, “Let’s throw some money at this and see how it would work and what we can get out of it.” But I really haven’t seen is “How is this going to work? How is the utility going to make money, in the case of an investor-owned utility. Or how is a municipal utility going to have a future? I think there’s an opportunity there. I was just reading a book today about how so many municipal utilities today are tied into long-term power-purchase contracts for fossil energy like coal. And the monopoly power of railroads is going to make coal more and more expensive, assuming the federal government doesn’t step in and start doing its job, which is a fairly safe assumption. And so they’re facing a long-term fairly steady increase in their costs for electricity. The savior there is going to be renewables, and because municipal utilities have what I think is a very good history of being responsive to their community about reliability and cost, I think this is more likely to be something they can do.

When I look at CPS Energy, I’ve heard a lot of good things about their utility-driven solar investments, but I’m disappointed in this net-metering conversation because to me it’s all part of the same program. They just need to figure out the right way to structure it, to say, “How do we all work together to provide the energy needs of this community, whether it’s utility capital, that is, your tax dollars, or private capital, that’s bringing that power to us, and how do we tie it all together?” To me there seems to be some middle ground that could be found. That pitiful value of solar rate got beat back so I’m hopeful that that’s the start of that conversation.

All of the pressures are moving in the right direction. It’s really going to hinge on whether regulated utilities use their resources to hire lots of lobbyists to stop it, because they have that power, or if they pour those resources into how can we make this work in the energy future. Unfortunately, I have a guess where they’re likely to spend their money because they’ve gotten a pretty good return on their investment on their lobbying expenses previously. But the thing that I think is going to blow up is: I just don’t think they can win this one, even if they try that. You can see that in the way some of these things have been beaten back. People are being given an opportunity to get off the never-ending cycle of rate increases and to produce energy locally and renewably. It attaches to that American ideal of self-reliance. Something’s got to give. I just don’t think they can bring last century’s model into the 21st century.

Have you seen an other utilities making this EJ argument to backpedal or to slow down or get off solar?

In Minnesota we just went through a debate on a solar energy standard and the first utility argument was this will cost our ratepayers, especially those on fixed incomes and low-income, bajillions of dollars. That’s always the first words out of their mouths, frankly. What I haven’t seen in any case is a lot of data to back that up. I’ve never heard Republicans use the phrase “low-income” as much as I did during the debate over solar. It’s really quite remarkable.

I am sympathetic to coops and munis that are under these long-term power-purchase contracts. They’re in a bind and there is a problem there. But I think given that they can have a bigger vision than cost and reliability, that they can think a little more broadly about community benefit, about dollars staying within the community, I think they have an easier way out than investor-owned utilities for whom the shareholders, you know, they don’t even live in that community. They don’t care. It’s really about the bottom line.