California Rate Reform, the Utility Death Spiral and the Duck Curve

What did the California Public Utility Commission (CPUC) recently decide, and what does that suggest about the longer term California energy prices and their impact on the rapidly growing solar market?

On July 3rd, the CPUC voted for approval on the awaited changes to CA’s residential electricity rate structures.  Rather than immediately impacting electricity prices like a general rate case, these are guidelines for the design of new rates that will implemented over the next 2-4 years.  Let’s first highlight the main changes in the decision, and then take a look at what this hints toward for the solar deployment in CA over the longer term.

 

1. Net Metering

The decision does not involve changes to CA’s retail rate net metering policy, which is the #1 driver of solar growth in CA.  It is highly likely that this policy will change in the coming years, although no one can predict what it will look like at this time.  Nearly every PUC in the country is reviewing various proposals, and we are likely to see a variety of approaches tested out before a new standard arises in a heavily solarized world.  Rest assured that few energy policy decisions will be a closely reviewed, or as hotly contested, as changes to net metering policies.  Either way, the next few years will be some of the most interesting in CA’s energy history.

Impact: None at this time.

 

2. Fixed Charges vs. Minimum Bill

The CPUC denied the request by the CA Investor Owned Utilities to enact a $10 a month fixed charge on all customers.  Instead, they allowed for a minimum bill charge of up to $10 a month.  This has a lesser impact on solar economics, which was welcomed by solar advocates, however the door has been left open for fixed charges in future rates cases.

Impact: Minimal impact on solar economics, but could change in the future.

 

3.Tier Flattening

The biggest news is the reduction of the CA 4 Tier residential tariff structure to 2 tiers and a super-user charge for the heaviest consuming households.  This will have an immediate impact on solar economics in CA by reducing the charges on the heaviest users in the state.  For an in depth analysis of the reasoning behind this change, and possible impacts on solar, check out:

Inside California’s Rate Restructuring Plan

California Reaches Compromise on Utility Residential Rate Reform

Impact: Reduces solar savings for the heaviest energy users.

 

4.Time of Use Rates

The CA IOUs will be required to begin designing and testing TOU rates for residential customers, with all customers moving to default TOU rates by 2019.  This has the largest long-term implications, as TOU rates can facilitate a whole host of technologies like solar, storage, EVs, and smart homes.

Impact: Long-term change in pricing incentives for all kinds of technology.

 

5. The Utility Death Spiral and the Duck Curve

The implementation of a minimum bill instead of a monthly fixed charge should help to combat the Utility Death Spiral, the feedback loop where grid-wide fixed costs divided by a shrinking pool of customers drives up rates, causing more customers to go solar.  While commonly mentioned in the industry as the greatest threat to the incumbent utilities, pairing these charges with the shift to TOU rates should have a balancing effect.

As TOU rates come into effect and solar makes up an increasing percentage of the CA energy mix, over the long term we will see TOU Peak periods begin to shift away from midday when solar is plentiful, to early evening right when the duck curve peaks.  Without wide scale storage integration, we are likely to see a large decline in daytime power rates, which will rapidly eat into solar ROI.  The CPUC’s decision to pair a minimum bill with TOU rates may help to stabilize prices in the future, preventing a massive shift in either direction.

Bottom Line: The Utility Death Spiral and the Duck Curve may work to counteract each other in the long-term.

 

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