Westar proposal sign of things to come as utilities cope with rooftop solar growth
Westar Energy faces a challenge — or at least it’s anticipating a challenge — in the growing number of Kansas homes sporting solar panels on their roofs.
Like other utilities, Westar relies on a pricing structure that largely depends on customer usage. The company charges a small monthly fee for customers to access its grid. But for the most part, how much customers pay each month depends on the number of kilowatt-hours of electricity they use.
As more customers install rooftop solar and feed homegrown electricity back onto the grid, those per-kilowatt-hour charges get lower and lower. But the company still has significant fixed costs to serve those customers — costs for things like building new power plants, upgrading old ones and maintaining electrical cables.
So Westar, like other utilities across the nation, is trying to find new ways to account for the value of solar users’ access to its grid and infrastructure.
But Westar’s latest proposal to do so has solar advocates burning mad.
“This is an attack on rooftop solar,” said Aron Cromwell, owner of Cromwell Environmental Inc. in Lawrence, during a recent phone interview.
Cromwell’s business installs solar panels. He and others in the industry are closely watching a $150 million Westar rate case before the Kansas Corporation Commission that would set customers with rooftop solar apart from those who don’t have it.
It’s a case that could be a harbinger, as utilities across the country cope with the growth of customers with solar installations. It has drawn the attention of the Alliance for Solar Choice, a national rooftop solar advocacy group that has petitioned to intervene in the rate case.
Westar challenged the alliance’s right to participate and the KCC agreed to block the group, which alliance spokesman Nate Watters said has not happened in other states.
“Kansans should be aware that the nation’s largest solar rooftop industry organization, created to protect consumer’s choice for solar energy, is being rejected from entry into a discussion that will significantly affect them,” Watters said.
Westar, the largest electric utility in Kansas, says it’s merely trying to protect the nearly 700,000 customers it serves in 55 counties — including those without solar who could end up paying more to subsidize the grid’s infrastructure for those who have solar.
“Customers who choose to install solar on their homes still use that infrastructure 24 hours a day, so the proposed rates recognize that everyone who uses the grid should help pay for it,” said Jana Dawson, Westar’s director of corporate communications.
The rate issue will be decided by three KCC commissioners: Shari Feist Albrecht, Jay Emler and Pat Apple. Emler and Apple are newer KCC commissioners appointed by Gov. Sam Brownback in 2014.
“There’s a huge push in the electric industry across the country to increase the customer charges to get more out of customers, because they see solar coming down the line and it really sort of wreaks a level of havoc with the utility’s cost structure.”
– David Springe, lead counsel for the Citizens’ Utility Ratepayer Board
But first there are public hearings scheduled for July 21 and 23 and a series of evidentiary hearings with interested parties, including Westar, in August.
The Citizens’ Utility Ratepayer Board, an independent state agency related to the KCC, will argue on behalf of Westar’s customers. In that role, CURB’s lead counsel, David Springe, must represent Westar’s rooftop solar customers and those without solar panels.
Springe said he has serious reservations about Westar’s approach in the case but applauded the company for bringing the rooftop solar issue to the forefront.
Right now only a tiny fraction of Westar’s customers — about 300 — have rooftop solar, Springe said. But as the panels get more efficient and less costly, that number is sure to rise. The utility, Springe said, is being proactive about what could become a major disruption to its cost structure and that of hundreds of companies like Westar.
“This is industry-wide,” Springe said. “There’s a huge push in the electric industry across the country to increase the customer charges to get more out of customers, because they see solar coming down the line and it really sort of wreaks a level of havoc with the utility’s cost structure.”
Westar’s proposal in the rate case is to split its current billing structure into three options, although only two of those would be available to future solar customers.
The first option would follow the existing design, with customers paying a $15 monthly fee ($3 more than the current rate) to access the grid and about 8.2 cents per kilowatt-hour for the first 1,000 kilowatt-hours used.
The second option would be to pay a $50 access fee, coupled with a much lower 2-cents per kilowatt-hour rate for the first 600 hours and a still-lower 7.8-cent rate for the next 400.
The third option would be to pay the $15 access fee and combine a 4.9-cent per kilowatt-hour usage charge with an additional $3 per-kilowatt “demand charge.” Demand charges are usually calculated based on a customer’s highest average energy needs during the billing cycle. They are meant to determine the capacity utility companies must build to prevent brownouts during times of peak demand.
Most Westar customers would be allowed to choose any of the three plans, including existing rooftop solar customers who would be “grandfathered in.”
“We believe that they made an economic decision to install solar based on the existing costs at the time, and we respect that,” Dawson said. “It makes sense for those folks to continue with their existing plan.”
But if the commission approves the plan, those who install solar after the rate case is decided in October would not be able to choose the first option.
Cromwell said that would instantly destroy demand for rooftop solar installations, because most solar customers are looking to cut their electrical bills by reducing their net usage.
With a cost structure more weighted to a flat monthly fee and less weighted to usage charges, that incentive dissipates.
“Under the proposed changes from Westar, you put solar on your roof, you use less energy and you’re staying the same (cost) as you were before,” Cromwell said.
Cromwell and his company also petitioned to intervene in the case, saying Westar’s proposal would hurt it financially.
Westar filed a May 18 brief to oppose allowing Cromwell’s company to intervene, calling talk of financial damage to Cromwell Environmental Inc., or CEI, “purely speculative.”
“CEI’s concern that Westar’s proposals will discourage solar development is invalid,” the brief states. “Westar has an ongoing partnership with CEI. As is discussed below, CEI has installed several solar facilities throughout Kansas that are either on Westar property or are funded by Westar. Westar’s proposals in this docket will ensure that its partnership with CEI can continue in the future and will foster the continued development of solar generation in the state.”
But Springe said he believes CEI has a solid case for being included in the KCC decision-making process.
“If Westar is allowed to do that (rate structure), if you are selling solar panels to someone, the economics have changed a lot,” he said.
Cromwell said a KCC decision in Westar’s favor would be a knockout blow to a solar industry that has received a couple recent body shots from state government.
Legislators voted this session to reduce the state’s renewable energy standard from a mandate to a “goal” and to limit to 10 years a renewable energy property tax exemption that had been permanent.
Cromwell said both of those measures are small potatoes compared to the Westar proposal.
The change to the renewable energy mandate was largely symbolic because most of the state’s utilities are already at or near the 20 percent renewable energy standard previously mandated for 2020.
Rep. Boog Highberger, a Democrat from Lawrence, made apocalyptic predictions about the property tax change’s effect on the solar industry, but Cromwell said those were largely overstated.
After 10 years of use, he said, solar panels have depreciated in value to the point where property taxes on them will be fairly negligible.
“I honestly don’t believe it will have that big of an effect on us,” Cromwell said.
But if the KCC approves Westar’s rate structure changes, the effect on CEI will be significant, he said.
Cromwell said he’s confused by what he considers repeated “attacks” on his industry.
The Kansas solar community is small, but he said job growth in the industry is ticking along at a 30 percent to 50 percent clip year over year. While other states encourage solar installation through tax credits, Cromwell said Kansas solar companies don’t ask state lawmakers for any such sweeteners.
“Frankly, it’s basically, ‘Don’t make it worse for us,’” Cromwell said of the solar industry’s lobbying philosophy. “Don’t screw this up.”
Environmental advocates are keen to support energy sources like solar and wean the nation off fossil fuels like coal that remain cheaper but carry hidden costs in pollution and health effects.
Dawson said Westar is committed to environmental conservation, with nearly 1,300 megawatts of renewable energy in its portfolio, a wetlands restoration project and new proposals to allow individual customers to voluntarily pay a little extra each month if they want more of their energy to come from solar arrays.
“Westar Energy has continued to make investments in both wind and solar energy, while taking a common-sense approach: Keep electricity reliable and cost-effective while making renewable energy available for everyone,” she said.
Dawson also said that environmental upgrades to lessen the emissions of an existing coal power plant were “one of the key cost items” that caused Westar to seek the $150 million rate package.
Springe said the dispute with the solar industry is only a small part of the $150 million package.
He said his agency will recommend that the KCC split the solar portion from the rest of the rate request and hear it separately, so that it does not become a disproportionate distraction.
That said, Springe believes the solar debate is one worth having, on its own merits.
“We expect solar to grow, so how we price solar or how we design rates on Westar’s system appropriate for solar is a big question,” he said. “I think it’s a question that’s really important we get our hands around and we do it early.”
Springe said splitting the solar dispute into a separate rate case would give his agency the time to bring in experts on solar generation, storage and the grid to help form recommendations fair to both rooftop solar users and non-users alike — before more roofs sport the gleaming panels.
“We’ve got to have some very deep discussions going forward about how we do pricing,” he said. “I think we have time to try and come up with the right answer.”