EMP S2E22: the California Solar and Storage Association's Bernadette Del Chiaro discusses the CPUC's pending decision on net metering and her view that the utility-sought proposal threatens vital growth in solar-plus-storage adoption.

The California Solar and Stage Association's Bernadette Del Chiaro discusses the California Public Utilities Commission's pending decision on net metering and her view that granting utilities' request to ratchet back net metering compensation is a threat to the vibrant growth California has experienced recently in solar-plus-storage adoption. She describes the CPUC's pending proposal as part of a concerted, nationwide campaign to limit rooftop solar net metering, which the Edison Electric Institute described 10 years ago as an existential threat to the utility industry. The industry has employed an army of lobbyists and consultants using "bogus PR and bogus math" to convince state lawmakers to limit net-metering compensation for small consumers, she says.

Transcript

EMP S2E21, Bernadette Del Chiaro, executive director, California Solar and Storage Association
(edited for clarity)

EMP: Welcome to the Energy Markets Podcast. Our conversation today is with Bernadette Del Chiaro, executive director of the California Solar and Storage Association. Bernadette, welcome.

BDC: Thank you. It's great to be here.

EMP: So we invited you onto the podcast to discuss a pending, highly controversial decision by the California Public Utilities Commission that you say will blunt market entry by important, fast-developing, consumer-based distributed energy resources – rooftop solar and battery storage. The decision, expected December 15, involves what is called net metering, in which small consumers with rooftop solar sell some or all of their energy production back to the utility, typically at the same price at which they would purchase energy from the utility. In a recent commentary you authored in PV magazine, you cited the CPUC’s pending decision as being among, quote, “plenty of examples of big utilities using their monopoly status and wealth – the latter derived from profits guaranteed by state governments around the U.S. – to try to block customer access to self-generation technology.” I especially want to talk about this as part of the trend we see nationwide. But first, please tell us about the CPUC’s NEM3 proceeding – NEM meaning net energy metering – which when finalized, you say, will make rooftop solar adoption in California uneconomical. How was it initiated and who supported it versus who opposed it?

BDC: Okay, great questions. So, first of all, taking a step back. California's distributed solar industry and market is actually about half of California solar. So it matches – we've actually outpaced the utility-scale installations in the past couple of years. It is a lot of clean energy that's been built via the net metering program – net metering is the foundation of California's distributed generation. And so it's incredibly important to California and clean-energy markets throughout the U.S. So that's number one. Number two is the decision has not yet been finalized. They're expected to vote on the decision on net metering on December 15. But that could get pushed back and the proposal could change. They could vote on something modified to what they propose. So we don't yet know what the changes will be exactly at this point in time. The genesis of this whole fight is back in 2013, back when the utilities were talking about a “death spiral,” the Edison Electric Institute had put out a paper all about the death spiral of the utilities. They managed to pass a bill in California to direct the California Public Utilities Commission to basically be in charge of net metering and to make modifications at their discretion. Sort of taking net metering out of the hands of the Legislature, who had established it in 1996, and handed it over to the state agency. At that point in time, the agency declared that they were going to make some changes to net metering – changing the level of compensation for the credit the customers send energy back onto the grid. In 2016, as a result of that, three years later, there was a major decision – it was called locally, we call it NEM 2.0. In which case, two major changes were put in place one is a couple of public purpose programs were subtracted from the export credits. So what most customers get today is retail minus two to three cents to pay for low-income, build-assistance programs and other such things. The second big change put in place in 2016 were new solar customers were forced onto time-of-use rates, time-of-use rates, decrease the value of solar, put on the grid during the day and increase the cost of solar or any electricity consumed in the evening. Those two major changes caused the California market to take a nosedive of about 20%. And it's only actually been this year that we have actually rebuilt the market back up to where we were in 2016. What's on the table today is a draconian version of that change. What they’ve proposed is that California basically cut the compensation – the credit – 75%. So from roughly on average 30 cents per kilowatt hour down to on average five cents. That drastic cut would happen overnight, it would go into effect April of 2023 and would severely slow down and harm the market – sort of flies in the face of everything California stands for from the need for more energy, need to fight climate change, and also the need to make clean energy more equitable.

EMP: As you stated, the Edison Electric Institute declared war against net metering a decade ago. In your commentary, you summed it up well. You said utilities see the falling prices and rising availability of clean solar power as a threat to their business model. The business model ties profits to the amount of capital investment they make in the grid, and usually to the amount of electricity they sell. We had EEI’s Phil Moeller graciously came on the podcast earlier this year, and he said he was eager to talk about this subject because it is, what he called, an “equity issue.” He said it was about electricity customers “paying their fair share” to support maintenance of the grid and other things. You had an interesting take on that in your commentary. You wrote how utilities, quote, “use their wealth and status to influence policymakers, hiring PR firms to push out fake math and false messages around equity and ratepayer protection, and they generally work to block-and-tackle competition in the marketplace.” Please elaborate on that. Is net metering favoring wealthier electricity customers at the expense of those with fewer financial capabilities? Is it a threat to the grid?

BDC: Yeah, this is interesting. I've been at this for a very long time – at this, meaning, advocating and doing policy work around distributed generation and distributed solar for over 20 years. And if you go back in time, you see the story arc of what the utilities have used – what has been their message that they have used to try to slow down and block-and-tackle, as I said, consumers figuring out how to generate their own electricity and be less reliant on them. At first, they were like in the early 2000s, it was, oh, solar. there's cloud cover. You know, all of their talking points were about cloud cover, solar was unreliable, it was too intermittent. That was the number one talking point. Then, you know, Enron happened, and we realize just how unreliable natural gas in our current grid is. So they quickly shifted their messaging to around cost – of solar is too expensive. It's just what you know, will raise energy bills and won't, you know, be bad for people. And then, you know, we pushed through that and then California established the Million Solar Roofs Initiative, which, of course, grew through economies of scale the market and shrunk prices. And we dropped our prices for solar 80%. So then they went okay, death spirals. We already talked about the death spirals. 2013 Edison Electric put out this missive about oh my goodness, we're all going to be – we're too big to fail. Oh, dear governments, you can't let us fail. We're too important. And so don’t let people go off and generate their own electricity. That, of course, did not last very long because of electrification. Suddenly, you know, Americans started buying electric cars and there's a push for electrifying buildings. And they realized the death-spiral message wasn't really going to hold because they were about to subsume, you know, ExxonMobil's market share in energy. And so they quickly shifted in the past two years, led by their fight in California, but reflected and repeated in other states, Florida and elsewhere, where the investor-owned monopoly utilities are attacking distributed generation, self-generation. They are now packaging themselves up as the saviors of poor people and their packaging solar up as this great, you know, sort of reverse Robin Hood technology. So it's all messaging. It's all PR. But to get to your question of is there any legitimacy to it? The answer is absolutely no. And the data is crystal clear. In California over 40% – almost 50% – of all new solar adopters are families of low and moderate income. We have finally gotten to the point where this fantastic technology, right, that makes people's lives better, is within reach of average everyday people. That is because we have lowered prices and increased the value of the technology. So people are actually investing in it and they can save money and they're getting loans. They're financing it because they don't have this money sitting around the bank. But the economics are good enough that average everyday people are willing to take that risk and make that investment. It's not for only the rich. That is an old, kind of, you know, concept that the utilities are using right now and repeating over and over again. And if you repeat a lie enough, it starts to kind of stick and seem true. And then if you fuel a lie with a lot of campaign contributions to politicians, it's amazing what actually sticks and starts to seem like it's the truth. So we've been subjected to this bogus PR and bogus math around this, quote unquote, “cost shift” in California. And it is frankly just sort of gotten a lot of otherwise good policymakers quite confused. And it has led us to this point of, you know, having the most important state agency in the state of California proposing a solar tax. And then following up with a solar tax with a draconian, you know, slashing of the value of solar energy overnight. And what we're hoping is that because the public is 100% against these ideas –  the public doesn't buy the equity arguments or the cost shift arguments or any of this – that our highest-level politicians the ones most accountable to the voters, step in and restore some balance and some you know, sanity to California energy policy.

EMP: Sanity and California energy policy. I'll let that one go. But I can't let go your comment about “then Enron happened.” One of the things I hope to push back on with this podcast is the idea that Enron caused the California energy crisis. I was at FERC when the staff investigated the crisis, and they clearly concluded that it was not Enron causing the crisis but taking advantage of the crisis, and that the insane market structure that they adopted was at fault. And as for natural gas, the problem was a pipeline explosion – I believe it was in New Mexico – that limited gas supply. And in terms of manipulating natural gas, it was a trader with Reliant, who was who was doing these, I forget what they call them, but driving computer-generated trades that drove up the price. So I don't mean to digress but that's a personal issue with me.

BDC: Let me just respond to that. Because I think it's a great point. When I said “Enron happened,” to the public, we I was talking about messaging and the way in which these monopoly utilities message their attacks on distributed generation. Their message was all about the lack of reliability of solar. Enron happened, which is a colloquial way to refer to, you know, the electricity crisis that California experienced in 2001-2002. That told consumers that the grid was not reliable – for whatever reason – we had rolling blackouts, we had price spikes, things were not normal from that point on. And it made consumers question and doubt the system we had – we were living in. And that is what then kind of killed the reliability argument for the utilities that that was simply my point.

EMP: You talked about bogus arguments and there not being any facts to this whole equity issue. But that's also a part of their argument that by losing load to self-generation, they're not getting the revenue stream they're going to need to support the grid. Is that true? Or the reverse of that question is, does rooftop solar provide benefit to the grid?

BDC: Yes. And so, no, it's not true. And yes, they do. Distributed generation does provide benefits to the grid. A study was done by Chris Clack last year that shows that if we actually were to build out solar and storage – and we do need storage to come to the fore, and we can come back to that – that distributed generation can actually reduce the overall costs and maintenance of the grid. So what the utilities are basically saying is, we want to make more money. We want to build more infrastructure, get our guaranteed rate of return on building that infrastructure. And we don't want distributed generation to reduce the overall need to build out a bigger grid because that'll cut against our profits. And they're spinning that as a cost shift. But really, what it is, is a cost savings for everybody whether you have solar on your roof or not. If we build and generate electricity locally – where we live and work and play – it will result in fewer investments being needed to make a bigger, more robust grid. We're still going to need to build new transmission lines. We're going to need new utility scale projects to get to 100% an all-electric economy. But we'll need less of that and fewer of those things which utilities have a Pavlovian response to, which is no, do not slow down where we get our profits from.

EMP: Well, given that, what do you think has convinced the CPUC that this is something they need to ratchet down?

BDC: Well, what's really interesting is, when you look at the CPUC’s analyses that they're using to base their NEM decision on, it's all coming from consultants that actually spend most of their time working for utilities. So they're cooking the books and using funny math. They're doing things that purposefully and intentionally devalue the benefits of a robust build out of distributed generation. They're doing things like assuming that solar and distributed solar is only going to have a benefit for a year or two, as opposed to 30 years that these systems are expected to really be generating electricity. They’re ignoring the fact that as we get to 2035, and 2045 – California at 100%, all-electric, all-decarbonized economy, we're going to need – and it's going to be very expensive to do all of that through utility scale. And in fact, I think it's questionable that we can do it all through utility scale. We're absolutely going to need distributed generation, not just to generate the electrons, but to keep the price of that electrification plan within, you know, reasonable terms. And they're not calculating that, they're not considering that, they’re not looking long term at the picture of California going forward. So that then spits out in their models smaller value – to get to your question of are they devaluing the benefits of disturbed generation? Absolutely. So if you lower that, then it comes out as, oh, we're spending money on something that's not going to provide any value to ratepayers. And they're cooking the books in order to do that using utility economists and utility consultants to do all of the work. Our state agencies no longer do this work themselves. These aren't these public servants that are, only serving the public interest. These are consultants that make their money mostly working for utilities.

EMP: As you alluded to, in your commentary, I think it's clear that the utilities prefer the large-scale investments. That's where they can get the bang for their buck in terms of delivering a return for their shareholders. So given that, you talked a bit about how this development in California is part of a national trend that we're seeing since the EEI declared it an existential threat a decade ago. You noted that utilities across the country are using their money and clout to push policymakers to undercut solar power and make it harder for homeowners and small business owners to produce their energy. You cited a report by the Frontier Group and Environment California that details more than a dozen examples of this concerted industrywide campaign across the country. You want to elaborate on that?

BDC: The Edison Electric Institute, top among but there are other think tanks involved in this. They basically sit around and come up with ways to tackle competition and to help the investor-owned utilities who are their members. And you can see this because what happens is, there's the same exact messaging, the same exact campaign strategy and tactics that suddenly sort of spring up all around the country. I think the most notable battlefield on net metering is Florida – where we saw California propose a solar tax on solar panels, including those with storage, last December. And then a few weeks later, we saw the Florida Legislature vote on a very, very similar proposal. Now, fortunately, both Gavin Newsom governor of California stepped in and put the kibosh on that idea and the governor of Florida DeSantis did the same thing, shocking everybody by vetoing that bill. And so the solar tax, you know, kind of suffered two big political blows earlier this year. But the arguments in Florida that Florida Power & Light, a member of the EEI, put forward are identical to the arguments that PG&E and Southern California Edison are putting forward here in California. And what is so interesting about that is, most people know Florida’s solar market is still quite nascent. There are as many people in the state of Florida that have solar as there are people on CARE, rate-assisted rates in California. So we have 150,000 extreme low-income ratepayers with solar in California. That's just our low-income market the size of our low-income market today. And that is actually that's more than the total number of people with solar in Florida. How is there a huge problem to solve in Florida? A big runaway costs shift? A burden? Like that market is just getting started? And yet the equity and cost-shift arguments were repeated in that state in order to push that bill through the legislature. So we see this time and again, some states stand up and reject it. Other states fall prey to the pressure of the utilities, and it's a patchwork quilt of what takes, you know, what takes and what doesn't take. One concern we have is you know, where California goes, so goes the nation. And that works in the reverse of leadership. So if California really does something very damaging to net metering and very damaging to our market in the next couple of weeks that could set a precedent for other states to follow suit in a very damaging way.

EMP: It's interesting that you mentioned FP&L. They're a subsidiary of NextEra Energy, which is widely touted by Wall Street as one of the leading green-energy companies to invest in. But, you know, they are a monopoly utility and, and this is a good example of how they only want large-scale investment that they can earn a rate of return on. FP&L touts their huge solar arrays that they're investing in while they're working assiduously, I would assume, to block rooftop solar by small customers. They're more than welcome to go out into other states that have a competitive market and make a profit there, but they work like heck to prevent competition within Florida. Tell us about the California tax.

BDC: So we have not yet had a solar tax adopted in California. We have so far successfully fought that off, thankfully. It was proposed last year. And, and because of, you know, our campaign and our fighting, we were able to get it taken off the table. What was then just proposed this past November did not include the solar tax. What California has put in place is a fixed charge on all ratepayers, all residential ratepayers. California passed a law this past summer directing the CPUC to adopt a fixed charge on all residential ratepayers, not just those with solar panels. That is a better approach if you're going to try to cover actual fixed costs through a fixed charge is you apply it to everybody. Of course, that fixed charge needs to be based in reality, and not just a blank check to the utilities. But if it is a reasonable, fixed charge based on real fixed costs, then that's something that California is likely to move forward with next year. But that is again extremely different in nature and in execution and impact to a solar fee or tax just on solar users. The way in which it was proposed was quite phenomenal. They basically assessed a fee based on the size of your system. So the bigger your solar system, the bigger your tax. And the logic was, you're not buying electricity from PG&E. So we're going to tax you for the electricity you would otherwise be buying from PG&E. They actually held on to that idea up through even August where it got snuck into a bill to extend the Diablo Canyon nuclear power plant license. We had to fight that off and fend that off. So they were really, really determined to tax solar systems to try to slow the market down that way. Again, with that now off the table. Their focus is now solely on the export credit and what is that credit valued at. And the challenge we face right now is if the credit declines too quickly, too rapidly, the market will not respond favorably with batteries. We will not be able to bring batteries to scale within the next four months in California. And so we're going to take a big nosedive. It'll be another Hawaii, the market will collapse and it'll take years and years for the market to rebuild itself. And not only would we lose precious years in building clean energy, but we will see the market revert to truly an inequitable one where only those with money will make these investments because the return on their investment is so bad.

EMP: In your commentary, you said California solar companies are suffering from regulatory uncertainty as this proceeding has been dragged out. Can you elaborate on that?

BDC: Yeah. Um, you know, this proceeding was supposed to happen in 2019. Because of the wildfires and the blackouts combined with COVID and then because of the overstep, the overreach, of that proposal in 2021, that one with the tax, we are still sitting here in 2022 – it's almost 2023 – without a decision. And there's two things happening. One is there's a mad rush to go solar in California, especially among residential customers, that everybody can see the writing on the wall. Net metering is about to get really, you know, go back. And so they want to get in under the deadline. There's a lot of uncertainty in the longer-scale customers, commercial projects where it's not clear what the market is going to look like. And those projects have a much longer timeline. So it's a little rockier there on the commercial side. But if you're a (solar) company, you are faced with this very difficult decision of, do you hire more people, purchase more, you know equipment, expand your warehousing capabilities and meet this balloon in demand driven by this mad rush in the transition to NEM 3.0. And then shrink down, lay people off, have all of this, these assets that you've invested in expensive assets that can't be used now because your market is just cut in half. Or do you just ride this wave out? And hope for you know, the long timelines as you ask people to sign contracts and wait to get their system installed? There's a lot of uncertainty there. How much do you buy for 2023? What should your product look like? You know your product supply look like? The market is going to definitely shrink down after April. Sales are going to shrink even if we have a long tail of projects to still build out post April. That uncertainty is a problem. This is a problem for businesses. And one of the things California has always done well up until now. And it's a question mark whether we will stop doing this well. But we have been the state of consistency. You know when you look at other distributed generation markets, New Jersey, other places, they've been subject to a lot of fits and starts right there's no SRECs anymore. Okay, now there's more SRECs, you know, feed-in tariff SREC-based markets. It's a lot of ups and downs. In California we have tried very hard to avoid that and just have a nice steady growth. Not crazy, you know, shoot-through-the -oof growth and no drops in the modern era, you know, NEM 2.0, we sort of prevented something too crazy. You know, we did see a little spike and then we saw that 20% drop and that was not good. But in the scheme of things, you step back and pan back it's not as extreme as other markets. We're facing right now something – so, you know, more extreme than California's ever experienced and it is hard on businesses. And it is leading to this uncertainty. A level of uncertainty California has never experienced before and it's a problem.

EMP: Well, we briefly talked about the Western Energy Crisis that stemmed from the California problems that spiraled out of control there. In the wake of that, policymakers in the state clamped back. They grandfathered mostly large companies that have access to the market – can bypass the utility and buy from a third-party supplier. But for everybody else, they've really retrenched back into this model that we've had for over a century now of a protected monopoly and customers being captive to that monopoly. Do you think that the transition to a clean-energy grid and a clean-energy economy would be better enabled if we had a more liberalized retail market?

BDC: Um, it's a good question. I think if we had true competition, if we had true pricing that reflects the cost of, not just the electron to generate, but the cost of delivery. And we let go and got out of the way and got the utilities out of the way of solutions, alternatives, like distributed generation, I think we could, you know, at least keep prices under control a little bit more. I don't know that we can promise to lower costs in California, but we can at least stop some of the bleeding that we're experiencing with just astronomical rate increases that come and hit us almost every year now. But PG&E just always comes out on top. Despite the promises and that they initial goals, they come out on top. And they just don't have very good track record of producing a product that's reliable and affordable and clean. And so, you know, we would have to really get them out of the way and get them out of the equation and do the right kinds of policies that really allow markets to be established and be really competitive, truly competitive. And it's just, it's hard to see, it's hard to see that happening. So the answer is just complicated and convoluted because of the politics and the political role that PG&E plays and sort of lords over every energy decision in the state.

EMP: Yeah, you said PG&E comes out on top - and that's despite two bankruptcies. But I guess – let me just try this another way. It seemed to me that from your commentary that you see the entrenched utilities as a barrier to greater proliferation of the product that your members are trying to sell. So you all don't aspire to a market structure in which the utilities are set aside and left to be just wires companies and they're out of the retail market and we do have a fully unfettered competition at retail?

BDC: Oh, no, I think if we could actually get to that place where PG&E simply, I mean, the challenge here – so let me say, in theory, that is a brilliant vision, right? Somebody needs to own and run and manage the roadways on which the electrons are shared. If we could really get to this place in which distributed generation is built out in a robust way and mixed in with utility-scale projects and managed in a dynamic, modern, 21st century manner. And the utilities were simply the internet, the roadways on which these electrons move. And their profits were based on how well they manage the sharing of the electrons, not based on how many of those roadways they build – that is, I think, this optimal view, you know, way to go in the future. That is absolutely the optimal way to go. We have yet to see anybody pull that off. You know, there's a lot of attempts at that in New York. Some attempts in Hawaii, everybody, people come kind of, they take little bits and pieces of that concept. We haven't seen anybody really do it. And it would just take such leadership, you know, on par with what the federal government accomplished in getting Ma Bell out of the way to allow cellular technologies to flourish in the United States. I mean, that was a massive shake up of a monopoly. And we would need to see that level of leadership and that level of vision. And right now, PG&E, and Sempra, and Edison, they have a stranglehold on the energy policy decisions made in the state of California. And it's hard for me to imagine that that's actually going to happen anytime soon. I don't mean to be pessimistic. It's just . . .

EMP: No, I agree. It's not politically feasible. You know, the utilities in every state capitol across the country are the 800-pound gorillas that control policymaking decisions because they have the deep pockets and they provide the campaign contributions that the candidates need in order to get into the legislature. You ended your commentary this way. You said, “Time will tell whether California remains the incubator of innovation and consumer choice or if it falls back into the arms of the monopoly-utility past to the detriment of solar industry and consumer alike.” I guess we’ll find out Dec. 15?

BDC: Yep, that's absolutely right. There's a huge opportunity for the distributed energy sector if California were to get net metering right. If we were to usher in gradual changes, if we were to incentivize batteries, allow the market to grow and come to scale the way we did photovoltaics, if we were to unleash a multi-pronged strategy to remove all the friction – all of the barriers from permitting to interconnection – if we were to do those things, and we were to build a million sun-charged batteries in the next five to seven years, then this would really usher in a new modern era of clean energy and a new it would it would, it would precipitate the changes to the grid and the way we manage electricity that we were just speaking of. The consumer demand for this alternative for, this better product than what the utilities can provide, would usher in that change when the politicians sort of were unable to do it themselves. But we could also see California, as I said before, sort of follow the ways of Nevada and Hawaii, make a massive misstep, really ruin the market for a couple of years, have to revise it and revamp it. And we'll rebuild, you know, from the rubble. Solar is never really ever killed or threatened to be killed. What is under threat is a robust, promising, and forward-looking clean-energy revolution and transition to the 21st century and to do that without tripping over ourselves. That's really what's at stake, and we will see what happens but we're going to fight like hell between now and then and not let California make a mistake.

EMP: Bernadette Del Chiaro, Executive Director of the California Solar and Storage Association, thank you very much.

BDC: My pleasure. Thank you so much.

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