A conflict between Connecticut electric utilities and business and residential customers who install renewable energy systems on their properties is coming to a head, and national and local industry leaders are meeting this week to discuss ways to avert a crisis threatening both the stability of the power grid and solar/fuel cell/hydro installers.
The Renewable Energy & Efficiency Business Association will convene a group of thought leaders from around the country Dec. 4 at the Sheraton in Rocky Hill to discuss how utilities can maintain a safe, reliable grid as more customers use less electricity, while at the same time not disincentivizing customers from installing renewable systems and making their businesses and homes more energy efficient.
The heart of the conflict stems from how utilities charge customers to be connected to and use power from the grid vs. how customers with renewable installations benefit from that rate structure.
“Changes to how the rate design is done in Connecticut could have a profound impact on the savings promised by the installation of renewable energy to customers,” said Paul Michaud, REEBA’s executive director. “It eliminates the price savings that the customer enjoys under the current rate structure.”
Currently, the utility cost structure, which includes connection and generation fees, incentivizes Connecticut Light & Power and United Illuminating to sell more power. Basic connection fees comprise a relatively small portion of customer bills while the rates charged by utilities for consumer’s actual electricity use make up the most significant portion. As a result, the more power a customer uses, the more money utilities’ make to maintain the grid and turn a profit.
Customers with renewable installations benefit from this cost structure because they use less electricity. After buying their own solar system or fuel cell to generate onsite power, they reap savings from not having to pay high utility rates. The same principle applies for customers who install energy efficiency measures — efficient lighting and appliances, weather-stripping, insulation — and end up using less energy.
What has REEBA and renewable installers worried is concepts pitched this January by the Edison Electric Institute, which is essentially the trade association for all electric utilities. In a report, EEI called solar and fuel cell installations disruptive forces on the utility market that will hurt investor interest in companies like the parents of CL&P and UI — Hartford-based Northeast Utilities and New Haven-based UIL Holdings Corp.
While the EEI paper did not propose new utility business models, it did urge utilities to start proactively working on solutions to the problems created by increased renewable system adoption — including looking at new fee structures and figuring out how to lessen the impact of renewable energy subsidies on customers that don’t install those systems.
One option could be for utilities to make the basic connection fee a larger portion of customer’s bills and to decrease their reliance on electric rates for revenues. That, however, would cause customers with renewable systems to lose some of the savings they receive by using less grid power.
“That would certainly change the dynamic and the landscape for solar,” said Mickey Toro, owner of Simsbury-based C-Tec Solar.
If utilities choose to shift more of the cost burden onto customers with renewable systems, that could make those systems less economically viable, Michaud said.
“What it really comes down to is the cost subsidization by customers,” said Tony Marone, UI’s senior vice president, who is speaking at the REEBA event. “When a person installs those [renewable] systems, they are paying less to the subsidies that support those systems. It is their neighbors that don’t install the solar that end up paying for those subsidies.”
Disagreements over rate structure are playing out on a small scale at the Public Utilities Regulatory Authority this month. Connecticut Light & Power in its latest rate case has asked for an increase in the monthly basic connection fee from $16 to $25.50, so customers would pay more regardless of how much energy they use.
CL&P’s proposed connection fee increase has drawn the ire of officials and special interests from Gov. Dannel P. Malloy to REEBA and the Connecticut Roundtable on Climate & Jobs, a coalition of labor, religious, and environmental groups that on Nov. 24 submitted 400 endorsements calling for PURA to deny CL&P’s connection fee increase. PURA’s initial ruling is expected as early as Monday.
In its rate case, though, CL&P also is asking for an increase in its distribution rates, so its proposal won’t cause as dramatic a shift in utility cost structure that REEBA and solar/fuel cell installers worry will suddenly make renewable energy systems less financially viable.
“You want consumers to want to use the least energy as possible, and if you move utilities to a fixed-fee system, you can’t accomplish that,” said Jamil Khan, deputy director of policy and electric markets for California-based Solar City, which is Connecticut’s leading solar system installer. Khan is speaking at the REEBA event.
The challenge is utilities must maintain the grid and — in states like Connecticut — cover the cost of government-mandated incentives for customers to install renewable energy and make efficiency upgrades. Customers with renewables need the grid to sell their excess power and provide power whenever their solar arrays or fuel cells don’t generate enough energy to cover their needs.
REEBA convened the Dec. 4 meeting so the renewable energy industry can figure out how a new utility rate model can include incentives for ratepayers to install renewables. In addition to SolarCity, UI, and CL&P, the forum will include representatives from Colorado researcher Rocky Mountain Institute, the National Renewable Energy Laboratory, and Boston utility consultant La Capra Associates.
“There is no silver bullet here,” Marone said. “The best way to move forward here is not to be adversaries, but to recognize there are financial issues here on both sides that need to be addressed.
“Job one is a reliable electric system that is affordable,” he said.
