Decoupling limitations & Solutions: Decoupling Part 3

When would decoupling be “anti-consumer?”

If the future means selling less power, then less rate revenue means recovering past investments in coal power plants (now stranded assets) becomes impossible.  Investors will not earn their allowed returns.  Time to remove utility returns from the MONOPOLY board!  Decoupling solves this problem, and that’s exactly why some consumer advocate groups don’t like it.  Some claim the utilities made bad long term investments, so their investors should suffer the consequences of continuing to buy coal!  Maybe, but keep in mind, customers always bear the burden of the bad decisions made by the regulated monopoly.  Others rightly claim that decoupling alone only guarantees returns for the utilities and does nothing to lower rates for consumers.

Decoupling alone does not encourage utilities to value demand management over production.  It only makes them indifferent to energy efficiency or alternative energy sources like DG.  Decoupling alone merely protects the utility investors from loss.  In fact, decoupling alone might lead executives to care less about efficient operations, because the mechanism does nothing to encourage energy conservation.

According to the study on decoupling by the Institute for Energy Research, Maine’s failed decoupling policy resulted in small customers’ bill increase, while their consumption fell. New York tried a decoupling experiment in the 1980’s for eight utilities.  “Four [decoupled utilities] saw conservation related expenses rise 370 percent, but the four that did not [have decoupling] saw even higher increases.”

The fact is, in utilities without decoupling, rate payers bear the weight of all utility investment decisions, and raising rates to recover lost income from decreasing kWh use  will eventually backfire.  Because customers can not choose between competitors, the status quo utility world will continue to increase electricity rates even as consumption decreases.  At that point, residential storage plus solar becomes a very competitive alternative.

Even though decoupling allows utilities to recover revenue at the authorized rate, regardless to whether or not consumption increases or decreases, it also creates a “true-up” amount in future rates to account for actual kWh consumption.  Decoupling opens the doors to new opportunities for cooperation between power supplier and power user.  The utility could provide power users with services and equipment, like smart meters, that could allow for real-time tracking of costs that help utilities manage peak hours and consumers save money.  Cooperation with solar/storage customers can lead to grid stabilization and security.  Incentives like energy efficiency rebates will continue to reduce consumption and save all customers money.

When California added incentives to decoupling in 2007, “allowing them to split the savings with customers whenever energy use falls below state targets,”  the utility was motivated to sell less power.  The Atlantic quoted Peter A. Darbee, the chairman, CEO, and President of Pacific Gas & Electric who said, “all of a sudden you’ve unleashed the power of these huge organizations to work with you rather than against you.” By using less energy, rate payers win in the long run.  The “California Energy Commission calculated that the state’s efficiency efforts had preempted the need for 24 large-scale power plants and saved state consumers $56 billion.”  (The Atlantic, Oct. 2009) That’s billions in capital investment that does not need to be passed onto rate payers.

State policies must ensure utility financial incentives help rate payers become more cost effective, create opportunities for energy savings, and encourage distributed generation.  For example, California’s decoupling policy sets up revenue adjustment mechanisms for programs like efficiency, low income assistance, research and development, and renewable energy programs.

Should New Mexico pass an increase in the RPS to 50% by 2030, it should also include a healthy DG carve out.  Consider decoupling as the first step to leading the nation in renewable energy production, job creation, and energy exporting.  Since California’s RPS cannot be met within its borders, importing renewable energy from New Mexico, a state rich in land and sunshine, is definitely an opportunity on the table.

The grid landscape will change drastically in the next ten years.  Decoupling shifts the direction from obvious pitfalls to cooperation and solutions.  The question is, do we prefer a functioning electric service provider and a healthy growth of the renewable energy economy over the status quo?

Say yes to the decoupling mechanism.

If you want to support our efforts to introduce decoupling to New Mexico, please support us here.

 

Why decoupling? Smarter renewable tech ahead!

Why Decoupling?

The near future grid will be unrecognizable.  According to a recent report by GTM research, 9 out of 10 solar systems will be paired with storage by 2023.  Smarter tech ahead has a mean result of lower electric rates, decreased revenue, and the ability of customers to go “off line,” means utilities could soon be in a desperate state.  Without decoupling, we’ll see a world of mergers, hostile take overs, grid defection, and business crisis.

At least in New Mexico, PNM recognizes that investing in the lowest-cost of power supply (solar + storage) is their best option.  However, real competition will continue to come from distributed generation (DG), including residential, commercial, and community solar systems.  Soon renewable energy technology will enable large power users to rely on microgrids through the addition of solar plus storage systems.  Once the utility starts losing the large industrial users, they will inevitably raise rates for the remaining rate payers.

As the rate payer base decreases, the cost of utility generated electricity goes up, and alternative sources of energy become even more attractive.  “If utilities are going to live or die solely by how low they can drive the short-term commodity price of electricity, they will have every reason to resist investments to reduce pollution or to help customers save energy,” said Ralph Cavanaugh, director of the energy program of the Natural Resources Defense Council, an environmental group.  He said he feared that utilities, instead of stressing conservation, would just try to sell as much power as they could to increase their revenues and profits. (New York Times, Aug. 8, 1994) And so, the cycle begins, known as the utility death spiral, which ultimately results in difficulty for poorest rate payers, as those who can afford to disconnect from the grid will do so.

It’s time to recast the utility’s business mission and change it from power provider to electric services provider.  Besides, we all appreciate reliable electricity, right?  The mechanism to accomplish this is called decoupling.  Its an ok-ok-ok solution that is a case  currently before the PRC.  The current rate case would create a pilot program for a single rate class to try decoupling.

This isn’t a new mechanism.  New Mexico can look to other states for direction.  California initiated it in the 1980’s, then revised and reinstated it in the 2000’s.  Regions from around the country have found ways to make decoupling work for consumers, the utilities, and the environment.  It is a no risk initiative, because the alternative is bleak.

If you want to support our efforts to introduce decoupling in New Mexico, please support us here.

Go to part 3:  When would decoupling be “anti-consumer?”

Decoupling Series: What is a regulated territorial monopoly?

This is part one of a three part series on the past, present and future of utility regulation alongside the growing renewable energy industry.  REIA supports introducing a decoupling mechanism to PNM because it will change the way utilities do business in New Mexico.  If you’re interested specifics about the rate case, that information is here.

Status Quo Blues:  Regulated Territorial Monopolies

Utilities set up as regulated territorial monopolies for a couple of reasons.  As utilities began, they needed enormous initial investment, a barrier to entry requiring government intervention.  With high fixed costs, utilities also needed large numbers of customers to obtain a meaningful return on investment.  Because competition created crisscrossed electric wire madness, the government allowed monopolies to form.  Competition usually discovers the optimal way to produce services to maximize profit and efficiency, so a monopoly does not naturally work to a customer’s advantage.  As a result, monopolies have potential for abusive behavior.  This made government oversight and regulation necessary.

In New Mexico, the Public Regulatory Commission weighs the requests of the utility against the public interest for consistent and affordable access to electricity.  Currently, regulated monopoly utilities provide a given utility service on a “cost-plus” approach.  The regulators determine the price of electricity as the “cost” and guarantees a rate of return(profit) of to the utility capital investors (shareholders).  In the past, this has been a good investment that brings consistent returns.

Utility Business Model:

While fixed costs can be pre-determined for service, markets fluctuate and can only be estimated.  Unfortunately, this regulation method has historically rewarded higher capital spending by utilities because regulators allow almost all of the company’s durable assets into the “rate base,” where it can earn the allowed return (profit).  This has resulted in a large pool of profits that can afford big executive salaries.  Fortune Magazine summed it up nicely in the quote from Erroll Davis, the former CEO of Wisconsin Electric Power, “your new desk goes into the rate base.  This is the only industry I’ve ever seen where you can increase your profits by redecorating your office.” (Fortune, Nov. 13, 1995) As a result, utilities have a natural disincentive to cut costs, increase productivity, or eliminate waste.  Coal and gas systems require centralized generating stations with high operation costs, fluctuating fuel costs (usually on an upward trend), and long-term amortization that relies on a large base of rate payers to reimburse.  Up, up, and up!

But times have changed.  Given more efficient ways of generating electricity, even static estimates no longer make sense.  Because the utility is a regulated monopoly, is has no incentive to find better ways to provide utility service on its own.

This has given rise to legislation like the Renewable Portfolio Standard (RPS) that legislates the percentage of generation that must come from renewable energy.  In addition, independent producers, according to the New York Times, “have been responsible for 53 percent of the new generating capacity in the last four years.”  (New York Times, Aug. 8, 1994) The traditional utility business model is under attack from all sides, and has been for a while.

Today, renewable energy technologies and energy efficiency products trend down in price (rather than up) and involve smaller upfront capital investments followed by minimal operational expenses. This throws a wrench into the traditional economic model of a utility.  For example, renewable energy built by individuals (distributed generation—or DG) creates logistical complications and competition for utilities.  These renewable energy mini-power generation stations add uncertainty to the traditional grid, while also reducing rate revenue for the utility.

In New Mexico, for example, the anticipated growth in the customer base of 1% is negatively offset by a 1.5% increase in distributed generation (DG).  With this direct hit to the bottom line, utilities request cost recovery mechanisms from the regulators, like solar tariffs or changes to net metering to make up for this shortfall. (See the report: “Nevada gets it wrong, big time”)

Utilities see the writing on the wall.  Some create rate structures or fees that disincentivizes renewable energy.  Others create long term contracts with high energy users in order to keep them as customers.  All of these measures work in the short term, providing temporary solutions to a growing problem.  As renewable energy technology becomes ever more accessible to the mainstream market, however, the inevitability of increased adoption means these sorts of rate recovery protection attempts will fail, eventually.

If you want to support our efforts to introduce decoupling to New Mexico, please support us here.

Go to part 2:  Why decoupling?

 

Green tech jobs on the upswing in New Mexico

New Mexico joins 8 other states in MONEY magazine that shows green tech as the “hottest up-and-coming job” in the state.  In New Mexico, solar panel installation employment has been projected to increase 25% between 2017 and 2019 with a mean salary of $42,920.  MONEY’s study identified the fastest-growing occupation in each state, and for New Mexico, solar panel installer wins the number one job.

This just adds to the argument that renewable energy is New Mexico’s future economic gold mine.  Add smart policy that encourages the adoption of renewable energy through tax incentives, utility decoupling policy, and PACE (a program that makes solar accessible to everyone by attaching installation costs to a property’s taxes) means New Mexico can look forward to a growing economy and rank first in the nation for something good!  New Mexico has long been recognized as one of the best states in the nation to install solar, so by removing roadblock to progress, New Mexico can rank first in the nation for green tech job creation.

State of Solar in New Mexico 2018

You probably already know that New Mexico gets an overall grade of B and is considered a solar friendly state. This grade is based on NM solar incentives and utility policy. But you may not know that much of this state’s friendly solar policy is due to the work of REIA-NM. A couple of examples include property tax exemption, sales tax exemption, RPS, solar carve-out, net metering and interconnection agreements. Your business directly benefits from these policies. Much of our work seems invisible, mostly because of the issues solar companies do not need to face, like the elimination of net metering and the implementation of solar tariffs. 

While New Mexico ranks close to last in the nation on other issues, Renewable Energy Policy puts us near the top, currently ranked 14.  The state’s position dropped a few spots with the expiration of the state solar tax credit, but through the hard work of REIA-NM, we will support efforts to renew that tax in 2019 to help reduce costs for customers who want to invest in distributed solar.  

Please contact us to see how you can help keep New Mexico a great state to have a solar business.

What you need to know about the complaint against Vivint Solar

It’s important to know exactly what Attorney General Hector Balderas identified in the complaint against Vivint Solar, so you can build a better sales team.

REIA-NM recommends all solar companies use the Distributed Generation Disclosure Form mandated through New Mexico law.  The recent case against Vivint Solar should provide you with enough reason to take this extra step to inform your customers.

It’s important to consider the counts brought against Vivint Solar and review your current sales tactics accordingly.  Sometimes company owners may not be clear about what sales people tell customers to get a sale.  Make sure your sales people are trained and reflect your brand appropriately. Check out this summary of allegations against Vivint Solar.  If you have any questions, please contact the NM Attorney General’s Office.

Count One:

Representing goods or services as having characteristics, uses, or benefits that they do not have.  This includes overestimating savings over time, promising unrealistic performance, or asserting your components’ vast superiority over other widely available components.

Count Two:

Disparaging the goods, services, or business of another by false or misleading representations.  AKA, be careful how you talk about competition.

Count Three:

Mislead customers about the price of goods or services, the prices of competitors, or its own price.  This includes overestimating utility increases over time.  Make sure your information is accurate, your math is solid, and all claims are backed by reliable sources.

Count Four:

Using exaggeration, innuendo, or ambiguity about material facts.  Unfortunately, this includes telling customers that their solar will add value to their homes.  Appraisers in New Mexico are still uncertain about the value that solar adds to property.  Again, only use reliable sources to back up claims.

Count Five:

Presenting false representations that transactions involves rights, remedies, or obligations that it does not have.  Don’t tell customers a solar system is an investment if they do not own it. Understand realestate terms like “fixture fittings” when it comes to real estate sales.

Count Six:

The biggest lesson here: don’t engage in unconscionable trade practices.  That means do not create marketing materials that claim solar is “free” or “never pay a utility bill again.”

Count Seven:

Don’t door-knock without a permit!   Doing so without a permit is considered an unfair or deceptive trade practice as defined by the Unfair Trade Practices Act (UPA).

Count Eight:

Executing contracts electronically without providing a fully completed copy to customer is considered unfair or deceptive.

Count Nine:

If you do not adequately inform customers of their right to cancel, and provide them with two copies of your policy, you violate the UPA.

Count Ten:

You can not get consent or agreement from customers to only receive electronic information from your company regarding communication, agreements, documents, notices, records, disclosures, or other information.

Count Eleven:

If the court finds willful use of methods or practices that violate the UPA, the plaintiff may ask for damages as relief.  In this case, $5,000 per offence.

Count Twelve:

False Advertising can be considered word design and statements that reflect any of the previous counts.

Count Thirteen:

All these counts can be considered fraud.  An interesting example from the suit is, “instead of buying your power from coal, you’re getting it all off your roof.”  Be careful how you explain DG to your customers.  If your sales people do not understand the interconnection process, its up to you to train them properly.

Count Fourteen:

Racketeering:  In this case, getting paid after misrepresenting utility rates, true nature of annual escalators, the actual price of the system, etc., qualifies for prison time.

Count Fifteen:

Because of the violations of the UPA, the plaintiff asks that the court declare all contracts null and void.

Count Sixteen:

Due to the alleged abuse, the plaintiff asks that the arbitration agreement (which says that each individual complaint be negotiated independently with / through Vivint only) be voided and unenforceable.

To read the entire complaint, please click here.

If you’re interested in a best practices sales training course, please contact us at executivedirector.reia@gmail.com

 

 

 

Suniva’s Solar Trade Case

suniva solar trade case

The US Government will move forward with Suniva’s Solar Trade Case. Suniva has requested a four-year tariff schedule on solar panels imported from anywhere in the world. If approved, the tariff would double the price of solar panels imported into the US. Although Suniva manufactures its solar panels in the US, they sold a majority stake and control of the business to a Chinese Company in 2016.

SEIA (Solar Energy Industry Association) has launched a campaign to stop the proposed tariff on the grounds that Suniva is not a representative of the domestic industry as it has been defined. REIA intends to everything in its power stop this blatant attempt to slow down the solar industry. The hearing is scheduled for August 15th at the International Trade Commission headquarters in Washington, D.C.

NCREB Funded Solar Energy Projects

Albuquerque RFP

The City of Albuquerque Purchasing Division is seeking sealed electronic bids for the
following goods and/or services by the designated times and dates:

RFB#: P2017000030
Description: New Clean Renewable Energy Bond (NCREB) funded Solar Energy Projects
Due by Date and Time: Wednesday, July 5, 2017 @ 4:00 PM

BID FORMS AND INFORMATION CAN BE ACCESSED AT
http://www.cabq.gov/vendor/solicitations.html

For additional information or questions, contact the City Purchasing Office at (505) 768-3320. For TTY call (505)768-2983.

Thank you,

Jenny Ramirez
Assistant Procurement Officer
City of Albuquerque
One Civic Plaza Dr. NW | 7th Floor, Room 7012
Telephone: 505-768-3330
http://www.cabq.gov/dfa/purchasing/purchasing/

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