SDG&E Wants Solar Customers to Pay Up

This post has been updated.

Solar companies in San Diego and elsewhere have long sold the technology as an investment that pays off for both the environment and pocketbooks.

A trio of impending policy changes could collectively change the game.

One is a federal rebate facing extinction and another is an expiring state mandate that allows solar customers to shrink their energy bills. Here’s the third one.

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The state’s energy rates have long made the decision to go solar easy for San Diegans who use lots of energy. It’s about to get more complicated.

San Diego Gas & Electric charges customers based on how much energy they use. Those who consume the most energy pay the highest rates. Right now, high energy users pay as much as 25 cents more per kilowatt hour than the region’s lowest energy consumers.

So high-energy users see the biggest financial win in going solar because they don’t have to tap SDG&E’s grid as much as they used to and can escape the highest price tiers for energy use.

SDG&E and the state’s other top utilities want these rules to change. It’s going to happen, but we don’t yet know exactly how. The ultimate decision, like other coming changes to the financial incentives for solar power, are going to shake up the industry and, solar advocates fear, could slow growth.

Two years ago, Gov. Jerry Brown signed AB 327, a bill that mandated reform to solar rates. The law came more than a decade after emergency legislation during the 2001 climax of the California energy crisis, which increased the number of energy rate tiers and capped rates for the lowest energy users. The latter move saddled high energy users with all future rate increases. That helped the solar industry grow.

AB 327 opened the door for rate increases for lower energy users who had been shielded from rate hikes.

The state Public Utilities Commission is deciding how to transition to fewer energy usage tiers, which would result in a smaller gulf in rates between high- and low-energy users. Minimum charges on all customer bills are also on the table.

The process has the solar industry nervous. A smaller gap between rate tiers could give higher energy users less incentive to install solar panels. It could take longer for them to pay off their systems and to get the energy savings they desire, whether they go solar now or in the future. Higher energy rates for lower energy users, however, could push some of those customers to get panels.

Regardless, said engineer and renewable energy advocate Bill Powers, the new structure would “eliminate the no-brainer market” for solar panels.

“It now becomes a situation where each potential buyer has to be shown that the solar system is in fact going to save them money,” he said.

The rate changes are just one factor that could make getting solar panels more expensive – at least in the short term.

Another – known as net energy metering – is the state-mandated program that allows solar customers to offset their energy consumption in the utility’s most expensive energy tiers. It’s the vehicle for those smaller bills for heavy users. That program will sunset soon. Throw in an expiring federal tax incentive, and you have a solar industry at a crossroads.

While the price of panels has decreased over the last decade, the cost structure that helped motivate those environmentally friendly investments is changing – and it’s likely to become less attractive than it is now.

State regulators are still hashing out how the new rates will look, which adds to the uncertainty.

Here’s what SDG&E is charging customers now and what the utility asked regulators to approve:

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As you can see, there’s now a big gap between what low-energy users and high-energy users pay per kilowatt hour.

Right now, there’s a 144 percent difference between the lowest and highest tiers in SDG&E’s rates. In the company’s proposal, the difference would be just 20 percent going forward. The utility also called for a fixed charge starting at $5 and increasing to $10 on all bills.

Tom Brill, SDG&E’s special counsel and director of strategic projects, argued those changes are necessary so solar customers are paying their fair share, and not being subsidized by customers without panels.

A fixed charge and fewer tiers would help address that, he said.

“If rates are set up so that solar customers get free services with the result that rates to other customers increase, solar customers are going to be in favor of that kind of rate design,” Brill said. “But it’s not fair to the customers who have to pay for the services those solar customers receive.”

Solar advocates like Sullivan Solar Power president Daniel Sullivan say SDG&E’s suggested approach would make it more difficult for high-energy users to recoup their solar investment and would increase those customers’ energy bills.

“We’ll no longer have a rate structure that incentivizes conservation or renewable energy assets,” Sullivan said.

Sullivan and others also argue that other SDG&E customers aren’t subsidizing solar customers because their panels are contributing energy to the grid and helping the utility avoid purchasing it’d otherwise have to make – and that the proposed changes don’t properly account for that.

A proposed decision released by regulators in April largely echoed SDG&E’s call for more parity in energy rates. But regulators weren’t on board with the fixed charge SDG&E wanted. Instead, they requested utilities charge minimum bills, which could allow some solar customers to partly avoid some of the increase cost. It would, however, allow SDG&E to eventually collect a fixed fee from customers.

An alternate approach promoted by Public Utilities Commissioner Mike Florio rejected the notion of fixed charges and suggested three energy usage tiers, with rates increasing 33 percent between each.

SDG&E ran the numbers on both proposals at the Public Utility Commission’s request. Here’s how the utility said those proposals would play out by 2019:

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Florio’s proposal wouldn’t hit solar customers’ bills as hard.

The commission is set to vote on the rate changes in late June.

This is part of our quest on whether solar will pay off for San Diego. Check out our previous post, The Sun Might Be Setting on Solar Customers’ Billing Deal, here.

Clarification: We updated a section of the story to clarify that SDG&E sought a fixed charge, in part to help address costs associated with solar customers, not a fixed bill.