Advocates say forecast bleak for Ky. solar industry under proposed bill

Published 8:51 am Friday, February 9, 2018

Power struggle

When the sun shines bright on Kentucky, that’s good news for John Cotten.

Cotten is manager for Wilderness Trace Solar, a small Danville-based startup that began installing solar arrays for homes and businesses in 2015.

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“We’re a small homegrown company — it’s a family-owned business,” Cotten said. “We put a lot of investment, a lot of hard work and sweat equity into this thing to make it happen. We’re still working — we’re not profitable yet. Like most small companies it takes a few years to get there, but we’re getting there.”

But Cotten sees a cloud threatening to make it a lot harder for Wilderness Trace Solar and the other solar businesses around Kentucky that employ an estimated 1,200 people to turn a profit: House Bill 227.

The proposed bill, which was passed Thursday by the House Natural Resources & Energy Committee, would substantially reduce credits given to utility customers who install new solar arrays.

The current “net metering” setup essentially winds a customer’s electricity meter backwards when their solar array generates excess power that flows back onto the power grid. If a customer feeds one kilowatt hour of power onto the grid for other customers to use, they get a credit for one kilowatt hour on their bill at the full retail rate.

House Bill 227 would instead allow electric utilities to credit that solar power at their wholesale rates — the amount they pay when they buy energy from other sources. The wholesale rate is about a third of the retail rate, meaning it could reduce solar customers’ bill credits by more than 60 percent.

The bill would allow current net metering customers to continue receiving retail-rate credits for 25 years.

John Cotten, manager of Wilderness Trace Solar, says House Bill 227 would have dire consequences for Kentucky’s solar industry. (Photo by Ben Kleppinger)

“If they drop the net metering to what they’re wanting to do … it dramatically changes the return on investment for people who install solar,” Cotten said. “It basically is going to kill the rooftop solar business, companies like ours. It’s going to have a very dramatic effect on it. It’s going to take the average payback ratio (the time it takes for a solar array to pay for itself in electricity savings) from seven to 10 years and increase that (to) somewhere between 15 and 20 years.”

Cotten believes House Bill 227 is designed to eliminate competition for solar business so the utilities can monopolize it.

“This really comes down to the fact that the utility companies are wanting to put us either out of business or reduce our business to the point that if you want to have solar, you’re going to have to come to them to lease it or you’re going to have to come to them to buy it,” he said. “It won’t be profitable enough for the solar companies to stay in business.”

Utilities’ perspective

While Cotten sees a David vs. Goliath fight in House Bill 227, the utility companies and those allied with them say the bill is an attempt to contain an unfair subsidy before it gets out of hand.

David Freibert said the solar industry in Kentucky has a “pretty lucrative deal” as things stand right now.

“It’s understandable” that solar businesses are lobbying against the bill, said Freibert, who is vice president of External Affairs for Kentucky Utilities. “They’ve got a great deal and if I was them, I would defend it aggressively, as well.”

Freibert said Kentucky Utilities “loves all our customers” — the hundreds who have solar arrays and the other 1.2 million who don’t.

The problem with net metering is it assumes the energy generated by a solar array is worth exactly what customers pay on their bill. The reality is end users’ bills actually represent the cost of generating energy and the cost of maintaining the power grid that delivers the energy, Freibert said.

When solar customers get credited the retail rate for their excess power, they are essentially avoiding paying their fair share for maintenance of the grid, which, Freibert said, means other customers without solar power pay for it instead.

“That subsidy is real,” he said. “It is not a staggering amount of money, but it is real.”

Jerry Carter, president and CEO of Inter-County Energy in Danville, said opponents of House Bill 227 try to argue the costs of net metering to non-solar customers are “tiny.”

“When is a ‘tiny’ subsidy no longer ‘tiny?'” he asked. “Now is the time to make net metering sustainable, before it becomes a bigger problem.”

Net metering also ignores that solar customers get full credit for power returned to the grid, regardless of how taxed the grid is at the time, Carter argued.

“The excess energy that private solar owners produce during the day directly offsets their future use of the grid at a 1:1 ratio, at night, on cloudy days, or during inclement weather,” Carter said. “Since the costs of Kentucky’s electric infrastructure are shared by all customers, when a net metered customer uses the grid to receive a retail rate credit against future use, the costs they avoid paying are paid by other customers.”

Freibert said when net metering was implemented in 2004, the solar industry in Kentucky “wasn’t mature” and it still cost a lot of money to install solar arrays. Net metering was designed to help get a “nascent industry” off the ground.

Today, costs have plummeted and solar is taking off — there was a 100-perent increase statewide in the number of utility customers with solar arrays from 2016 to 2017, he said.

There are an estimated 1,000 homes with solar arrays in Kentucky currently.

Utility companies want to end net metering before solar grows even more and what is currently a small cost balloons into something unmanageable, Freibert said. And further growth in solar with net metering in place would also mean more people opposed to changing it in the future.

Utah had comparable numbers of solar customers to Kentucky at one time, but within the span of five years it soared to around 28,000, Freibert said — “it went from ‘ho hum’ to ‘oh my.'”

The debate in Frankfort is “loud and contentious” with just 1,000 solar customers in Kentucky. “Think about how loud it will be” if Kentucky grows to 15,000 or 18,000 solar customers, Freibert said.

Out of the frying pan

Solar advocates and the utilities are making their sides of the story heard in Frankfort and around the state.

State Rep. Daniel Elliott (R-Danville) sits on the Natural Resources and Energy Committee that decided to advance the bill yesterday.

State Rep. Daniel Elliott (R-Danville) speaks during a town hall meeting in Danville Monday. Elliott is considered an important committee vote on House Bill 227, which would reduce the “net metering” credit available to utility customers who install solar arrays. (Photo by Ben Kleppinger)

Elliott was one of 14 “yes” votes moving the bill out of committee for consideration by the full House; there were four “no” votes, four passes and one abstention. 

Earlier this week, Elliott acknowledged at a town hall meeting in Danville that he was getting a lot of contact from constituents about the bill.

Danville resident Jim Porter attended the town hall and told Elliott he is a “critical vote” on the bill; Porter encouraged Elliott to vote no and received loud applause from the town hall audience.

“I have heard from many of you and I have talked to many of you,” Elliott said. “… I have talked to (Natural Resources and Energy Committee Chair Rep. Jim Gooch Jr.) about some of the issues that I have with that bill. No piece of legislation is ever perfect.”

Elliott said he wants to see a bill that the solar industry and the utilities could support.

“We are still working to try to get a compromise that is acceptable to both parties,” Elliott said after the town hall. “… I’m still taking input. I’m still undecided on the present bill, but will continue to seek input from constituents.”

Danville resident Jim Porter encourages his state representative, Daniel Elliott, to vote against House Bill 227 during a town hall meeting Monday. (Photo by Ben Kleppinger)

On Thursday, Elliott decided to vote “yes,” but also said he was reserving his right to vote no later if amendments aren’t made.

“I believe that it does need to be amended and I think that there’s a compromise that should be able to be reached,” Elliott said during the roll call vote. “I’m looking at possibly filing an amendment myself on the floor, but I will vote ‘yes’ today and reserve my right to vote ‘no’ on the floor if some changes aren’t made.”

During Thursday’s Natural Resources and Energy Committee meeting, there was no discussion on House Bill 227 — Gooch called the roll call vote as soon as the bill came up. Some members of the committee said they believed the bill should be tabled until a compromise could be reached between the utilities and solar industry; others said they were unsure newly added committee members had enough time to know fully what they were voting on.

The bill was debated for more than half an hour by the committee at its previous meeting on Jan. 31. At that meeting, Gooch said the bill is about being fair to all utility customers.

“This bill is not any type of bill that’s intended to put the solar industry in Kentucky out of business,” Gooch said while testifying for the committee. “It doesn’t do that and any argument that it would do that is purely emotional.”

Brighton Ross, vice president of State Affairs for the Consumer Energy Alliance, also testified at the committee meeting in favor of the bill.

The Consumer Energy Alliance includes major utility companies in Kentucky, including LG&E/KU, Kentucky Power, Duke Energy and East Kentucky Power Cooperative; as well as Kentucky business interests: the Kentucky Chamber of Commerce, the Kentucky Association of Manufacturers, the Kentucky Association for Economic Development.

The alliance group also includes the national conservative political advocacy groups Americans for Prosperity and Americans for Tax Reform.

“Kentucky’s 14-year-old private solar program was designed for a different era and it’s time that it be updated,” Ross testified. “The structure used to incentivize private solar deployment leads to sustained losses in covering the costs of providing electricity 24/7 for the grid we all use. These costs are passed on to non-participants, no matter the income level.”

Ross made the same arguments put forth to The Advocate-Messenger by Freibert and Carter — that net metering leads to grid-maintenance costs going up on non-solar customers, many of whom can’t afford to invest in a solar array.

“We want solar to grow and expand,” Ross said. “Our concern is with the structure of the commonwealth’s existing policy that requires non-private solar participants to shoulder additional costs to maintain the universal grid.”

Tom FitzGerald, director of the Kentucky Resources Council, led testimony against the bill during the committee hearing.

FitzGerald said he represents low- and fixed-income people concerning utilities and environmental issues.

“If there were any evidence of a material subsidy, an unfair subsidy from non-participating customers to net-metering customers, I would not be here telling you that House Bill 227 is all about stifling competition,” FitzGerald said.

The proposed reduction in solar credits is “draconian,” “radical” and “unfair,” he said.

A recent study looked specifically at the question of net metering’s costs. “It concluded, for the vast majority of states and utilities, the effect of distributed solar on retail electricity prices will likely remain negligible for the foreseeable future,” FitzGerald testified.

FitzGerald’s organization, the Kentucky Resources Council, states on its website that it’s misleading to claim other customers are paying more because of solar customers. Such a claim is comparing “apples to oranges,” according to a news release on the KRC website.

“To date, no Kentucky utility has argued that a rate increase is needed due to the presence of net-metering customers in their service territory,” the release reads. “The bottom line is that other customers aren’t paying for or ‘subsidizing’ net metering customers.”

Where does the power go?

Sitting at a cluttered desk in his office off of North Stewarts Lane, Cotten can see Wilderness Trace Solar’s functional array out his window.

Cotten said he knows where the excess power from that solar array flows — it goes onto the grid, sure, but more specifically, it goes to Wilderness Trace Solar’s immediate power-grid neighbors, like the Commonwealth Cancer Center on Techwood Drive.

Part of the cost of running a power grid has to do with “line loss” — a reduction in power that occurs naturally as you send the power over long distances.

Utility companies can often lose anywhere from 10 to 40 percent of the power they generate as it’s transported over power lines, Cotten said.

Workers install new LED lighting inside Wilderness Trace Solar’s headquarters on Monday. The business currently employs six full-time workers and two interns, and Manager John Cotten said he expects to hire four to six temporary employees for the summer months. (Photo by Ben Kleppinger)

“We know in the physics of electricity, you get a certain amount of resistance in the wiring and the more resistance you have, the less final power output you have because it creates heat and you lose power,” he said. “When we’re transmitting from here to next door or up the street here to the cancer center … we’re only going to have somewhere between 2- and 6-percent line loss. So the power that goes off from here to the next point of requirement is a lot cleaner from that standpoint because you’re not traveling that distance.”

When excess power flows from Wilderness Trace Solar to a neighbor, that neighbor pays the utility company for the power at the full retail rate.

“What we’re being told by the utilities right now is (net metering) is a very expensive program for them to manage. The (solar) industry finds that very hard to believe because we know that the way this works, it goes to the next point of requirement,” Cotten said. “If it’s in a neighborhood, it goes to your neighbor’s house. It doesn’t go 10 miles down the road to a substation, then go another 10 miles to somewhere else; it goes to the next load draw. Wherever the next load is being required, that’s where it goes. Unless you’re way, way out in the country where it’s 5 miles between neighbors, that’s about the only occurrence you’ll ever have where it’s going to go any appreciable distance before its absorbed somewhere else.”

What’s the solution?

Cotten said what he and other solar advocates want is for the utility companies to agree to have the Public Service Commission — which regulates the utilities and the rates they charge — conduct a study of net metering. They want analysis that shows exactly what it costs to maintain the grid and what the real costs and benefits of net metering are. That study could produce a rate somewhere between the full net metering amount and the proposed wholesale rate, which both sides might be willing to accept.

“What we have asked for … is that an impartial committee such as the PSC do a study under oath, all the rates given would have to be factual,” Cotten said. “If it comes out that it’s less, OK. The federal studies done right now with the U.S. Department of Energy have already come out just last year and said the expenditures to the utilities are negligible at best … for the next 10 years.”

FitzGerald made a similar argument before the Natural Resources and Energy Committee in January.

“If we are going to solve this problem in a responsible way, we need to direct the Public Service Commission … open a case,” FitzGerald said. “Let’s get everybody including myself under oath and let’s look at the rates of each utility to determine: are there costs, over-benefits that are being shifted … to non-participating customers from net metering?”

That argument rings hollow for KU Vice President Freibert, however. The utility companies attempted to address the problem of net metering during last year’s general session with just such a proposal, he said: The utilities wanted to have the PSC conduct a study to determine what would be fair.

According to reporting from the Courier-Journal, the 2017 bill aimed at net metering would have allowed “each of the more than 20 utilities (in Kentucky) to be able to argue separately before (the) Kentucky Public Service Commission for different net-metering rates and charges every couple of years, with instructions to the PSC that utilities are to recover all costs necessary to customers that generate electricity.”

At the time, solar industry representatives said “the bill introduces uncertainty that would make it hard for customers to calculate the return on their investment in solar panels, effectively killing independent solar just as it’s starting to take off in the state,” according to the Courier Journal.

That 2017 bill never made it into law.

Freibert said after being “loudly opposed to that idea last year,” now to solar advocates, “last year’s really bad idea is this year’s only possible alternative.”

“They benefit from how murky and how arcane some of this stuff is,” he said.

Asked if the utilities would consider going back to the idea of a PSC study now that solar advocates support it, Freibert said he believes paying solar customers the same wholesale rate that all other energy generators are paid is fair.

“The bill still fairly treats net metering customers in that it continues to value the energy … that they push onto the grid,” he said. “And it’s fair to everybody else because it’s valued the same as all the other energy that we have to buy to put into the grid.”

The idea that solar businesses will be put out of business by House Bill 227 is “hyperbole,” Freibert said. But, he added, there is some obvious instability in the current business model for solar companies because they are subsidized.

“When your business model is predicated on somebody else paying for a big chunk of the cost of your system, I would be nervous as well,” he said. “… I believe this is a fair way to go and it reflects a fair result for as many people as possible.”

Cotten said the solar industry is already facing the impending end of a 30-percent federal tax credit available to people who install solar arrays.

“With this (House Bill 227), this will surely just wipe out this whole end of the business,” he said. “… There’s not an easy solution. I will compliment Rep. Elliott because he has been under the line of fire, to say the least. He’s had a lot of pressure put on him and he’s done a tremendous job of working with us. We’re not done yet.”