Don’t Follow California’s Lead on Rooftop Solar — Episode 192 of Local Energy Rules

Sachu Constantine:

I’m pretty optimistic that this is a setback, but if we respond appropriately, this can be a call to action and a way for us to really continue to make distributed energy resources and consumer sited solar and storage and resources, a part of the mix instead of something that utilities are trying to always deal with and suppress.

John Farrell:

California has long led the nation in clean energy development, particularly from rooftop solar projects. So it was a bitter pill to swallow when the state’s energy market regulators, the California Public Utilities Commission, bought in heavily on arguments against local solar provided by the state’s three investor owned utilities, and played down many of the benefits when they decided to slash rooftop solar compensation by 75% in December, 2022. Joining me in August, 2023, Sachu Constantine, executive director of Vote Solar, explains how the commission was wrestling with necessary transition to a more mature solar market and where it went off the rails. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Sachu, welcome to Local Energy Rules.

Sachu Constantine:

John, thanks for having me. It’s great to be here. And I should say that I’ve been a long time admirer of your work and ILSR as well, so Mutual Appreciation Society here.

John Farrell:

Very good. I love to start off by just asking you kind of how did you get into this work, like you do it now about solar at this intersection of solar and equity, and I also took a little time to read your bio and I’m just curious too, if you could mention with the woodworking projects that you like to do, have you ever managed to incorporate solar into a woodworking project?

Sachu Constantine:

I am very pleased to have an answer to that question, which I will get to, but John, thank you. Listen, like I said, it’s great to be here. I am really excited to talk about this. This has been my career for the last couple of decades, but let me take you back to the last century when I was walking out of my undergrad, I had a commission to the Foreign Service, but I didn’t really know what I was going to do with that, what was my purpose, and I ended up deferring that and joining the Peace Corps serving in West Africa and ended up working with my country of service for the next decade. So I was in Ghana, which another story is that was the last place on earth I thought I would find, but it was probably the best place for me. So here I am in Ghana, I’m working on an environmental project and I knew I wanted to do something with the environment anyway, this was around forestry.

But really the takeaway from that for me was how important systems were. The system, the economic system that the desire to create economic efficiency, for example, in Ghana, had absolutely bankrupt all the local rice farmers. Had undermined local ecosystems because of extractive policies that were being used for very economically efficient processes in the US and elsewhere. Big grain production, centralized grain production really hurt these local farmers. So I come home from the Peace Corps, continue to work with Ghana, ended up working in policy and thinking about how do systems work, how can policy help change the system? We recognize the efficiency in the power of the market of course and all this, but if you don’t have guardrails, if you don’t have something in place, what you end up with is the kind of exploitive economies, the kind of centralized monopolistic economies that have undermined international development for decades now that have led to adverse outcomes.

And even where they’ve worked very well, like here in the U.S., the systems that we’ve built have led to inequities. They’ve been based on inequities after all, we started with some original sins, if you will, some maldistribution of resources. If we don’t correct those, if we don’t build a system that is designed to correct those, we’re going to end up with bad outcomes. So we come now I’m working in energy efficiency. I’m working in Ghana, trying to help change the choices that people have, change the system that’s delivering their energy to them. And I’m really starting to focus more on energy and energy efficiency, working at the lab and then Alliance to Save Energy in DC and I recognize that our power system from the grid down to the retail rates that we have is not really designed to give people agency, it’s designed to as efficiently as possible, as economically efficiently as possible, deliver electrons for people to buy and to pad the profits of the monopoly providers.

Unfortunately, economic efficiency doesn’t really do a good job or hadn’t, and certainly as we were designing that system, hadn’t done a good job of making sure that equity was part of the solution, making sure that resource management, good resource management, thinking about the whole ecosystem was part of what we did. And it also has been very slow to recognize the threat of climate change, both the physical threats, so the threats to the physical infrastructure as well as the threats to society and our food production systems and all the systems which now depend on a modern power supply.

So what I get out of all of that is that you can’t build a system that produces inequitable outcomes because that will be a fragile, weak, unsustainable system. You have to have access, you have to have affordability, and you have to have a real conscious and intentional effort to continue to maintain certain levels of equity. We do better when we look out for the least capable, the least resourced, the communities without agency because helping those communities ultimately builds a stronger, better system for all of us. I think that’s the core of my approach to centering equity in the work that we do. I recognize the technical pieces of it. I am steeped in all of the acronyms and the alphabet soup and all that we throw around the energy sector here, and I think those are important, the technical pieces, but if we aren’t centering equity, this system will not deliver the benefits and the results and the outcomes that we want.

John Farrell:

I just have to say it’s a long time Minnesota liberal. You didn’t say it exactly the way that former Senator Paul Wellstone said it, but he used to say, we all do better when we all do better. You captured that very well in the way that you described looking out for the least resourced. Let’s pivot and talk about how folks have been impacted broadly both at the high end and in the margins of society around solar policy and specifically California has been a long time leader in solar policy.

I think back to the Sacramento Municipal utility district in the 1990s had a fascinating rooftop solar program was one of the first in the country to help customers put solar on the rooftop called Solar Pioneer. We actually interviewed someone from there many years ago now on this podcast. California had the million solar roofs initiative. So of all the places that really went gung-ho on clean energy and on solar, California really started off saying, Hey, we got all these rooftops, why don’t we stick panels on ’em and take advantage of that? And net metering was this foundational policy that allowed it to happen. And without getting too much in the weeds, we’ll link in the show notes if you want to see a little video or see some background on that. But basically it said, if I produce energy and I’m using it on site, great, and if I send a little bit back to the grid, that’s fine. I’ll just pay for the net amount of electricity that I consume on a monthly basis against that amount that I produce or that amount that I use from the utility.

So on this whole background of really supporting the growth in local solar that happened for years and years, late last year in December of 2022, the California Public Utilities Commission has this proposed decision in front of itself to slash net metering compensation for local solar. Can you talk about what is it exactly that California adopted and what are you seeing so far in terms of its impact for not only for solar writ large, but the impact for equity in terms of the ability for folks across the economic spectrum, across the racial spectrum to have access to solar?

Sachu Constantine:

John as your intro there suggests, this was a very wide ranging and complex issue. There’s a lot of policy concerns at play and just as an aside, anytime I get to be compared favorably to something that Senator Wellstone said, I’m feeling like I’m in a good place, so I’m going to really lean into that if I can. Here. Million solar roofs is core DNA for Vote Solar. That’s where we started. We started with this idea that solar, this emerging technology, which frankly had been around even in the nineties when I was in Ghana, solar panels were littered around the mostly in failed projects. I have to say this was early days. There wasn’t a real policy in place to encourage the use and the harvesting of the value of those solar panels. In California in those late nineties and getting into the early two thousands, solar technology was still cutting edge. NASA had developed it obviously for remote uses and that’s largely where it was being used. It was very slow getting it integrated into the system.

So as you said, people start to recognize there’s rooftops around, there’s this nascent industry that needs some support and it can really work if it has the right market structure, the right incentive. So net metering at that time, which was as you just described it really simply a way to account for the production from your solar panel that you don’t use on site. How does it get used out there on the grid at these low penetrations? In these early days, it was really easy to just say, let’s just net them against each other. There were other pillars to that. Those early days, we had expedited interconnection for this distributed energy resource. We had of course the upfront incentive to customers to buy down that first cost, and there were a number of other elements to that policy.

But essentially the theory was through this elegant net metering arrangement and through these other incentives, we can drive volume in the solar market. We can drive costs out of the solar system, the solar resource that we have. We can get some practice with our workforce and with companies and market innovation to have a true choice for consumers, an ability to invest in their energy going forward. I mean, essentially that’s what solar is, right? I as a customer, if I buy a solar system, I’m buying 20, 25 years of my energy. I’m just paying upfront for it, and what I need is a way to recover that investment. So I need some kind of clear signal, some assurance that I’m going to be able to recoup that. Well, net metering and the early California solar initiative structure really helped do that. Now, that full retail exchange of value, a one for one kilowatt hour for kilowatt hour exchange, which is what net metering does, that is in fact quite a generous exchange. It’s quite a generous compensation for customers.

But as we pointed out, a nascent industry, it needed development. We needed to drive that volume and we also had to keep it simple for customers. So that was all being achieved by net metering and it allowed 1.5 million customers to interconnect. We drove 80, 90% of the cost out of solar. We had a growing industry. California still accounts for about 44% of the net metered customers in the entire country. California been a leader on this. So of course it gets to the question of, well, how do you make this policy sustainable sooner than a lot of other states did? So yes, the decision for NEM 3 just came up, but really it had been brewing for years. We had a mandate even back as much as 10 years ago to start thinking about what the next generation of net metering would look like.

The commission I think really bought into the dubious assertion that solar was a big cost driver, that it somehow shifted costs from solar customers to non-solar customers rather than looking at all the benefits that solar was providing, rather than looking at the way that it was reducing costs overall, they started to get concerned about revenue erosion for the utilities, loss of monopoly control and the sort of generosity of that net metering arrangement. So we rightfully considered how to resolve that over-generosity to think about adjusting the rate at which you were compensated for your solar going out. So that was the export rate, which under NEM was one-to-one but was going to be reduced. But all of that consideration was happening in this atmosphere of, oh, well solar is bad and it’s driving costs and it’s hurting the utility. And then we started to introduce this argument that it was hurting low income customers. So part of the rationale with the commission as they rolled out this new policy and went through the discussion with all of us was, well, how are we going to reduce that cost to all of the other customers? How are we going to reduce the negative impact on low income customers? And the end result was NEM 3.0, which drastically reduce the export rate, so you’re no longer getting to exchange the solar that you produce on your roof in the middle of the day, but don’t use, for electrons that you use later in the day. You’re going to be paid low, basically a wholesale rate for your electrons that you export to the grid and you’re going to pay the regular retail rate for the electrons that you buy back in the evening when you need them. Ostensibly, this would encourage you to install batteries. That was one of the main drivers as well. How do we get more batteries attached to these solar systems?

And that becomes really important. We could see an illustration of that last September during the 10 days of heatwave that we had those batteries attached to the solar systems on people’s roofs and businesses and buildings across the state showed up when we needed it. They really helped drive the peak down. So the commission is not barking up the wrong tree here saying, let’s adjust the compensation, let’s try to incentivize storage attached to that solar. But the ultimate decision was a reduction in the compensation, so really hurts the value proposition of solar. So that’s bad in and of itself, but it does not achieve what might’ve been the most justifiable effort here, which was to get low income, low wealth communities, folks who are not in the CARE and FERA program, for example, but are below 80% of average median income. Doesn’t give them any real advantage here, and while we’re still driving costs out of batteries, you’ve suddenly made the solar system more expensive.

Well, the net result is a reduction in the volume of business and we’re already anecdotally starting to see the major solar installers think about shrinking their workforce, think about moving their focus out of the state. So I think when we look at the final results, the California Public Utilities Commission may have undermined its own goals here with this decision: locked in inequities, made it harder for low income households or low wealth communities to go solar, and really I think done some damage to California’s position as a leader in this space.

John Farrell:

One of the things I’m interested in, if you want to get in the weeds here, I just want to invite you to, because this is an issue that I’ve followed in the news, but not at the docket level where I’m sure Vote Solar was really weighing in. I think my big question here is just why did California do this? Because from the outside it looked an awful lot like utilities here have a conflict of interest and they see a competitive threat from rooftop solar. Even though California utilities by and large don’t own power plants anymore, which is where you usually see this conflict of interest of grid ownership and local solar, they do still build and own transmission lines, and so utility scale renewables, utility scale power plants are still better for the Pacific Gas and Electric, Southern California Edison shareholder than rooftop solar because it usually means you also need to build transmission to support that.

That being said, this idea about cost shifts in electricity service matters not just for solar. There are other ways that we shift costs. In some cases, residential customers get a subsidy compared to industrial customers. Under some utilities it’s the other way around and industrial customers pay far less. I’m curious what rationale the regulators gave for this. Did they give you some numbers that made you feel like, oh, a scale of the problem justified the level of response? Are there other cost shifts going on in electricity service that are actually a lot bigger that they could have been paying attention to? What did regulators say, maybe what did others say that you were hearing from and what is your take on why California did this? I guess I would also be interested in knowing, as you said, they made very drastic cuts to that compensation. Was the problem the magnitude or was it really also in this notion of not understanding the way that the system was transforming?

Sachu Constantine:

Listen, like so many of these answers, there are paths that we could branch off to. There’s a lot to talk about in that question. We were very concerned. Vote Solar has spent a lot of time trying to demonstrate what the benefits of distributed solar, but all solar is, and let’s be honest, it is important to build utility scale solar. It is important to tie the country together with better transmission planning. There’s a whole, I’m sure you have a number of podcasts where you’re going to talk about the issues we have with transmission planning, but with specific respect to these distributed resources, which has been Vote Solars, raison de’etra, right? We’ve been touting consumer choice and fair compensation policies and also very importantly, how do we harvest the benefits of these systems once they’re deployed? Because we think about utility planning, and right now a quarter of California’s energy is supplied by solar, and a large portion of that comes from the residential and commercial distributed solar resources out there nationwide. It’s a significant portion because that’s where a lot of the deployment happened.

So as those volumes grew, the impact of those distributed resources on the system, on utility revenues and cost basis, we did want to reconsider the compensation policy. What we would’ve liked to have seen is a very gradual decline for the export rate to some sort of avoided cost or wholesale rate. That makes sense, right? Electricity out on the grid, it’s got to be moved around on the grid. There should be compensation for the energy, but somebody has to pay for some of that moving the electricity around. We want to leave onsite consumption intact. The commission did listen to us on that, but we also felt there were these other benefits to solar. There were other services that you could get from inverters, grid forming inverters from the energy itself. You are helping perhaps with voltage, with frequency regulation, with other services. We needed to harvest all those. We wanted that to be under consideration in the net metering proceeding.

We also wanted to think about the fact that we did achieve the purpose of net metering and the solar structure that we had. We’d driven the cost out. We’d finally made it affordable for low-income households. We’d started to think about how to put it on apartment buildings and make it such a good value proposition that everybody could participate. It is fair to say that if we hadn’t carved out, the original NEM carved out 10% or so for low-income families, that it would’ve been very hard for many low income or disadvantaged or low wealth communities to participate, but now suddenly we’re on the verge of mass market adoption. I think that started to worry utility planners. They needed to think about how do we control all of this, and also this is a threat to our monopoly power.

So under the guise of protecting those same low wealth communities, the commission decided to really drastically reduce the export rate and to start to really restrict the value proposition for solar in general. We think it was a good idea to add storage in. I’m not going to disagree with that. I think that’s a great addition and something that California has done well, but by essentially positioning rooftop solar as a cost driver on the system and ignoring all the benefits, I’m not even talking about resilience benefits. I’m not even talking about the need to have a more robust system in this age of extreme weather events and extreme climate change just on cost basis alone on the services that can be provided by solar. We thought the commission should have taken more consideration of that in thinking about how to adjust this rate, how long to take for it, and we would’ve liked to have seen them focus more on really good time of use rates, high differentials in the time of use to encourage better alignment of the production and export of solar with the needs of the grid. That’s what price signals are for. We think that a very moderate fixed charge and a good time of use structure and explicit intentional policies to help low-income communities and families, tribal communities go solar, adopt solar for their use while we harvest all this value, that would’ve been the way to go.

What the commission did was that it narrowed its focus. It said, Nope, we just want to make sure that we aren’t pushing any costs over onto non-solar customers and we’re going to do that in the most draconian way possible and we’ll worry about value in other proceedings. We’ll do that in other places and we’re going to do some set-asides for certain low-income customers, but not for everyone, not for non CARE or FERA, those are the California low-income programs, non CARE or FERA customers who are still below 80% of AMI, which we know is actually a majority of the folks who are below the AMI. So misses the mark on extracting value from solar, misses the mark on keeping a sustainable industry, misses the mark on helping low income communities, low wealth communities really adopt this amazing technology which has so many benefits.

John Farrell:

I have a couple specific questions I want to ask about the decision or about some other alternatives, but one of the global questions that bothered me about this, and you see it – well I’ve been tweeting about it in the past week was California has broadly some very significant goals related to climate change. It’s still producing electricity from fossil fuel resources. It still has pollution from the electricity sector, and I guess one of my questions is, okay, so there’s a cost shift going on or there are potentially system costs from the compensation level for net metering customers, but we’re still trying to address climate change and you have all these people out there who are willing to bring their own capital, put down their own money or sign up for a lease or whatever for solar and to help the state actually meet its climate goals and to reduce emissions from its electricity sector.

It seems really odd to be making a policy change that will reduce the adoption of solar, presumably at a time when we’re in a climate crisis that only seems to be getting worse. I mean, whether it’s the Maui wildfires, California of course has had catastrophic wildfire seasons over a number of different years, now you’re getting some amazing tropical storms. I mean all of this stuff, I look at it and I think to myself sure, if you’re just, and maybe this is the narrowness of focus of a public utilities commission, right, is that they are not thinking about this issue broadly enough. Although I think your commission probably has the legal charge to be dealing with climate change. I mean, how do you react to that? There’s a part of this just seems like completely backwards to be changing your compensation structure in a way that’s now going to make it harder to reach these goals that you have broadly societally, that have benefits for everybody.

Sachu Constantine:

I am also a little bit baffled if we look at this NEM decision inside of a pattern of other decisions, it is concerning, right? I mentioned the fixed charge. There’s a separate fixed charge proceeding. Suddenly we’re going to move from volumetric charges to fixed charges. By and large, there’s a VNEM proceeding where we’re making it harder for apartments and multifamily buildings to go solar across the board. We are cutting off our nose to spite our face with respect to climate change to this bigger question, not only of displacing gas as fast as we can with as many resources as we can, displacing gas and coal, obviously all fossils, but also we have to build more resilience into the system. We have to make sure that the energy burdens are spread out evenly. If we maintain the same system that we have right now but manage to successfully switch to only renewables fully centrally located, I think we’re still going to be leaving people out. We’re still going to be leaving people fighting for crumbs at this table.

Solar does so many things at once. It does help us displace gas. It helps manage the energy burden. It’s sort of a bound on energy efficiency and demand response and solar and storage once those costs are within a family’s budget and there’s good payback on those things, these are real tools for managing your energy burden and quite frankly, your energy security. Now you have lifelines when inevitably the power does go out, that is going to happen more often in this world of firestorms and earthquakes and hurricanes. All of that is going to be true. So there are so many reasons why encouraging distributed solar should be a cornerstone of our climate policy. I’m not saying it’s the only solution. It’s not a magic bullet. We do need those utility scale solutions and quite frankly, we need that demand response. We need that energy efficiency. We need electrification, we need transmission improving.

But the California Commission, when they were looking at this, their mindset really was, well, we have cost drivers and I’m just guessing, I don’t want to put thoughts into their head, but what we heard from them was there’s all these cost drivers, can’t do too much about the wildfires and a lot of handwaving about the ultimate culpability of the utilities themselves in those costs. And they said, well, here’s one thing. Here are solar customers. It’s largely been white coastal customers who got these solar systems. It was an easy target to say they are causing these costs. You use the term cost shift. I try really not to talk about that too much because it has really been abused in this conversation and in other conversations, cost shifts happen all the time. Of course, we average between the low cost of service for urban apartment dwellers and the high cost of service for large homes out in the central valley with air conditioning and a pool. They pay the same rates essentially. They might have different bills, that’s fine, but the rates are the same. Well, that’s a cost shift in and of itself. We gave the utilities 10.6 guaranteed ROE, they don’t need more than eight to get low cost of capital. So that’s a cost shift. We’re giving more profits, shareholders, and to executives who are being compensated quite adequately if the public records have anything to say about it. Right?

So this whole discussion though, the California PUC mindset on this about addressing free riders and cost shift and the poor uptake by certain communities of color and frontline communities, I think lost the plot a little bit and especially if we see it in this larger context, distributed solar can help mitigate a family’s energy bills if you combine it with storage, it also helps provide with good resilience, it stimulates local jobs. These are boots on the roof in their communities. That’s economic development, which makes us all more robust in the face of these kinds of threats from climate change. It contributes to the national economy and when you harvest, when you plan for those systems to be in place, both the generation capacity, the storage capacity and all of those other features, you can design a lower cost system for everybody. We’re still going to be shifting costs around within that system, but we have to have as a goal decarbonizing and de-risking our energy grid, and I think if we miss that in these decisions, which is what I think we have missed with this NEM 3.0 decision and with various other decisions, then we are not doing the best job that we can to get us to a climate friendly future.

John Farrell:

We’re going to take a short break. When we come back, I ask Sachu why we aren’t asking the utility to solve the collective challenge of managing distributed solar. We talk about my pet question related to west facing solar panels, and we discuss the national implications of the California net metering decision. You’re listening to a Local Energy Rules podcast with Sachu Constantine, executive director of Vote Solar.

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John Farrell:

I love that you brought it back to this issue around planning because one of the things I wanted to ask you about the California decision is that to the degree that it slashed the compensation for an individual solar owner and basically used that as the incentive to get a battery of like, well, you’re not going to make very much money if you just try to sell your solar back to the grid or to let the solar roll back to the grid, you better get a battery or it’s not going to work for you. I just think it’s interesting conceptualizing this here of we have utility companies whose job it is to manage a diverse pool of resources all the time and to keep the power on and sometimes they don’t. I actually was interviewing communications candidates recently and we had asked them for an example of a really good communications campaign and somebody brought up public safety power shutoffs as like the biggest comms win you could have of these utilities basically being like, we are going to stop offering you service, but we’re going to call it a public safety power shutoff. It just still galls me this idea that it’s accepted of like, well, this is a price we all have to pay for electricity services not to have electricity service from the utility who’s the literal job it is, is to provide electricity service.

But anyway, where I was going with this is this idea that whether it’s costs or whether it’s reliability issues or managing load, supply and demand at appropriate times from solar, the idea seems to be out of this solution, we’re going to push that problem back onto the individual. You have to get a battery individually to manage the output of your solar array to better align with the system when like a gas plant doesn’t have to do that, a utility owned gas plant, a utility scale solar array doesn’t necessarily have to do that, and it would be silly in some way to make each individual project do that because the purpose of having a grid and having the connection to one another is to allow us to take advantage of that network. It works in social media. If your network doesn’t have a lot of followers, it’s not worth very much, but it has a lot has of value whether or not your weird boss is out there saying racist things, pick your social network. And the same thing with the electric grid.

I look at this solution, I think to myself, how are we not asking the utility like you solve this problem. Tell us what you would do to capture all the value from these solar arrays and minimize whatever cost shift there is. What is it that we can do in managing this system to make it more equitable first before we go out and say, let’s destroy all that value or reduce all that value in a way that will make people less willing to bring their money to bear to help us solve the pressing problems that we have?

Sachu Constantine:

Lemme turn one piece of that on its head. I do think it’s a good idea to attach as much storage to our solar production as we can, but the point that you’re making about it being forced as a coping mechanism on individual consumers, rather than saying, I’ve got neighborhood batteries or I’ve got at the bus bar at my transformers or substations with the utility planning in mind, rather than having the solution there, we’re pushing it onto the individual so there’s some good and bad in here. We do think most solar going forward will be installed with at least some amount of storage and that’s a good thing. It does provide resilience.

We all face individual risks, but this is shifting in a massive way. All of the risk onto individuals away from the utility whose whole justification is that they’re managing risk for all of us. When they go to the regulator and they say, we need this guaranteed rate of return because we’re a monopoly market, so you’re regulating us, we’re taking all the risk, we’re managing all that risk, so you have to compensate us for it, and yet they push all the risk onto the individual customers. That is a little bit backwards in my view, but I do want to acknowledge that it is an extremely complex environment that they operate in the grid. The electric grid that we have is the single largest, most complex machine that humankind has ever built. Far more complex than launching rockets to the moon or anything like that. It is an incredible system, balanced all the time, has to always balance its input and its output. That is a key feature of this system and utility engineers and utility planners have traditionally thought about it in a very hub and spoke way.

Solar was disruptive to that because now the means of production wasn’t most economically concentrated in their single coal-fired or gas fired plant or nuclear plant as the case may be. It was distributed. We need better power electronics, we need better control systems, and we’ve seen advances in inverters. We’ve moved from central inverters to modular inverters in all the individual panels. In many cases we’ve seen drastic improvements in battery and battery management systems and in demand response and the control that utility operators have over the system, but there is a disconnect in the incentive here. Many of these utilities are owned by big holding companies which have fossil interests at their heart. Many of these utilities, while they ostensibly answer to state and local regulators, really answer to Wall Street shareholders, and so their incentives are very much at odds with the public outcome that we want. What do we want, what we want? Affordable, resilient, reliable electricity. We want a strong economy, we want local production, local control. All of these things are at odds with some of the incentives that are in front of utilities. So if we look across the country, not just in California, California certainly led on growing the solar industry. As I said, we still are a majority of the distributed solar systems out there, 44% I think nationwide. That’s true for batteries as well. It’s probably largely true for electric vehicles and electrification. All that’s great, but this incentive alignment, this planning alignment or misalignment problem is nationwide. We don’t see the utilities being really incented to deliver this service, the access and the equitable distribution of services to the communities and customers and families that we want, and solar is in many ways just the physical manifestation of that.

It’s something that they can buy eventually they’ll be able to buy it off the shelf and we should be able to plug it in and manage it. Well, where’s the innovation around that? To be fair, utilities are doing some of it right? We’re seeing some of it, but there is still this foot dragging and this resistance and these kinds of decisions only exacerbate the pain of this transition, make it longer, make it more difficult. We would’ve been far better ripping the bandage off and saying, utilities, you’re going to have to put up with customers being able to put as much solar and storage on as they want. What are you going to do to manage that flow of electrons? Where are you going to put batteries? Where are you going to put demand response resources and controls in place? We’ll compensate you for that. We will make you whole for those investments if you are providing the access that these customers need and if you are making sure that the least capable, the least resourced customers and the most impacted customers get these services first and foremost because if you’re doing that, it’s a pretty good indicator that our whole system is doing better.

John Farrell:

You kind of alluded to this already, California as a leader in distributed solar as a leader in battery storage, what implications do you think this decision to slash net metering and to do it in a way that as you mentioned, doesn’t necessarily account for the benefits, it doesn’t maybe put enough onus on the utility to manage for one, and you already mentioned this, there’s now another proceeding to consider similar cuts for projects that use virtual net metering or as you call it VNEM. That would be for apartment dwellers and so there’s going to be a spill over there and I think Vote Solar, if I remember, was already quoted in the piece, is saying this is essentially taking that same problem before and now we’re applying it specifically to the audiences we were trying to reach, which is lower income folks and renters. But I’m kind of curious as well, what implication do you think this decision might have for other states? I think Arizona, if I’m not mistaken, is now has its public service commission or whatever the name is there considering similar cuts to solar net metering, and I wonder how you think that California decision might affect that.

Sachu Constantine:

I’m glad you mentioned that Arizona case and thankfully John, at least the latest decision from the ACC, the Arizona Corporation Commission, which is their version of the Public Utilities Commission, the amendment to have a drastic cut to the compensation rate was pulled and they stayed with the normal step down. And I think that one thing that California tried to do, which is an example we’d like to see spread across the country as solar penetration grows, we want an orderly step down to a sustainable compensation structure. We want to give the industry time to adapt. We want to make sure that everyone from the grid operator down to the individual knows what’s happening. And California really tried to have an orderly decline in the compensation. This decision was a little steep and it sent again the signal to other states that, hey, we built this solar up and now we’re tearing it down here.

That’s the green flag for the opponents of distributed solar to go after compensation for solar customers, interconnection for solar customers, ownership of the resources. And the Arizona proposal was just another example of that. Basically built on the same logic that somehow solar is a cost driver rather than an opportunity to save costs based on the idea that solar customers are taking advantage of everybody else instead of providing resilience and low cost energy and low carbon energy to the system and making their own investments in the system. That logic, we’re seeing it spread like wildfire. Unfortunately across the country, you’re seeing anti distributed solar proposals crop up in many commissions. You have states with maybe a thousand or so solar systems in them insisting that the impact from these systems, which is far less than a rounding error on their books, the impact is so egregious that they have to now restrict the compensation or restrict the interconnection or cap the interconnection of solar and all this decision in California does, in our fear and our worst nightmares, all this does is signal to them that is an okay path to go down and that if we just let the utilities phase out their fossil and build their own new next generation utility generation that will somehow get to our climate change goals that way. And I think that’s a dangerous proposition.

John Farrell:

What do you think California could have done instead? You’ve alluded this a little bit in terms of maybe the pace of the step down. I just want to point out for example, there’s this docket in front of the California commission called the high DER docket, the high distributed energy resources docket, which seems more oriented around accommodating a future with lots of local solar as opposed to cutting it. Curious if you see a solution coming out of there and then maybe alluding back to something you said before about making the utility responsible. I guess I’m also curious if the utility wasn’t responsible for things like interconnection and distribution grid management, if PG&E’s transmission arm was separate from a nonprofit entity that managed that thing, or in states like Minnesota where our utilities own power plants, if there’s a restructuring that should be happening here, that could change the outcome as well in terms of maybe also having utilities be a little less politically powerful in how these decisions are made. So how would you want to approach it?

Sachu Constantine:

California really needed to keep the solar industry in mind. That’s very important. Thousands of jobs are at stake. Thousands of kilowatts of carbon free capacity are at stake. Massive rooftop asset across the state are at stake, and that’s true nationwide as well. So we would’ve liked to have just seen more consideration of that. I think if we had been more explicit about targeting low wealth, frontline disadvantaged communities for these resources more explicit and more, I’ll say generous, in the incentives and the support that we provided. It’s not just incentives, it’s also means and opportunity. I think that we should have prioritized that more, and we do like the idea of storage, but we would like it more as a response to really strong time of use rates, a really strong signal about when and where the grid needs these resources because now it’s a solution to a problem that we all share rather than a way to mitigate a problem that’s being foisted on me as a consumer.

So now if I have to invest in storage along with my solar, I may forego that entire investment because it’s all now much more expensive for me and I’ve been told that it’s not part of the bigger solution – essentially being told to me, that’s the signal that’s being sent, but it is part of the bigger solution. It is part of an optimal system going forward that we can plan for.

John Farrell:

Let me ask you one follow on to the thing you just said about storage because it’s just a little pet question of mine is where are west facing solar panels in this whole equation? For example, I think you get at this a little bit with the time of use rates where I love how you put it there of right now people are having to seek storage to answer this sort of self-imposed penalty of cutting solar compensation. We could have structured it to incentivize them to get storage to actually address a collective problem, which is to say to help reduce demand when the grid needs more power, for example, and I don’t know if California has had any policies around making people point their solar panels west, but it seems like every time I saw the famed duck curve, go Google it if you want to know what people are talking about, about this whole ramp up in demand as the solar resource fades as the sun sets, it’s like face your panels west. I have some west facing panels on my Minnesota home and I feel like I’m doing a little something for the world that way. I mean, you shouldn’t spend that much time answering this question. It’s relatively small importance, but does nobody talk about West?

Sachu Constantine:

I love that you have that kind of granular detail in your head too. I have west facing panels on my roof. I also have, as it turns out, east facing panels on my roof and south facing panels. The point is I can extract value from all of them under a fair compensation system and they provide value to the grid. I also have attached batteries to them. I’m very fortunate to be able to do that. We need to make it possible for everybody to do that and for everybody to harvest value from it.

Going back to what should we have done instead, what should other states take away from this? I do have to highlight something that is really important to us at Vote Solar in all of this, a massive energy burden crisis under and including the climate crisis, a massive energy burden problem faces many customers in this country. They’re paying too much for the energy that they need to provide basic services to them. We should think of solar as both a means for those individuals to mitigate that energy burden, to make a sound investment with good returns that helps manage their energy burden at the same time that it is addressing this larger societal problem of fossil fuels and the vulnerability of our grid. So resilience and decarbonization. I think the way that we do that, and you ask about the west facing panels, the CSI program had a lot of effort put into, well, what do we do with West facing panels? How do we rate those? How do we give them resource adequacy value? What do we do with West facing panels? Is that going to help the problem with this duck curve at all? I mean by itself it won’t, but those are really technical questions that most customers shouldn’t have to think about. They should think about, do I have roof space for solar? Is it going to get enough sun to produce energy to make it worthwhile to make this investment? And then the grid should be able to manage that, whether it’s through pricing and the rate signals that we send or through additional battery or demand response assets and facilities.

Solar’s not going to do it by itself. We’re going to have wind on this grid. We’re going to have geothermal on this grid. There are many other carbon-free resources that we’re going to add that are going to help us with things like the duck curve and west facing panels will be part of that, but it’s kind of esoteric. That’s a little bit in the weeds, which I would love to dive into with you. I think it’s just also really important for other states to think about the ramp.

The ramp from where we are right now to where we want to be. We need a healthy, robust industry. We need a confident and somewhat knowledgeable customer base, and we need those two things to fit together. What we’re seeing right now is a whole lot of discussion and propaganda and resistance and barriers to both the industry and the customer, having the right insight, having the right opportunity to get value out of these systems. So I might think about my home and my energy consumption and say, whoa, a west facing panel actually makes a lot of sense for me. I’m going to be paying a lot of money in that peak hour or peak hours from five to nine in the evening. And you know what? During the summer, I still have two, three hours of sunlight in that period if I’m west facing right, and I should just be informed about that. And if that’s important to me, then I’ll figure that out.

This is where we go back to what I opened the conversation with. Talking about systems and the built environment and designing that system, putting the right guardrails in then allows people to innovate and to choose and to negotiate their outcomes. They have agency in that system to get the outcome that helps them. That’s what we want. Economic efficiency. What I do know is that we assume that two people in a capitalist negotiation will negotiate for the best possible price, but that is only true if they both have the same agency coming in. If they don’t, then the person with more agency, which is usually the utility in this case, they’re going to get the more advantageous outcome. And if we don’t recognize that, then we’re missing the whole point of a PUC and a regulatory system to cover these monopoly utilities. Energy should not be a monopoly industry anymore. I don’t want competing wires in my neighborhood. That’s fair. Right? There is a certain natural monopoly that exists. Your suggestion about an independent third party grid operator, a DSO, a distribution system operator and an ISO, an independent system operator, that’s the transmission operator. These are ideas that have been thrown about and they have real merit.

I think there’s a real opportunity given modern control systems, given computing power that we have, given the large investments we’ve already made in this infrastructure, there’s a real opportunity to take these assets and have them managed for the public benefit. Look at what public agencies are already doing. SMUD had long been an innovator in this space. Other utilities and cooperatives, rural cooperatives are thinking about how we can reform this system and this is an opportunity to do that. Solar is a game changer. Batteries, we knew, knew by the way, John, that batteries had to be part of the solution. We knew that 15 years ago when we’re starting the CSI program and I was sitting at the PUC and we all knew that batteries had to come, but we only had solar to really work with at the time. And there are ways that you could through rates, proper compensation and real focus on the neediest frontline communities that you can make that work.

John Farrell:

I know I’m running out of time to ask you another question, but I only have one left. How is Vote Solar changing its plans to deal with the fallout from the California PUC decision, whether it’s your work in California or even your work nationally?

Sachu Constantine:

Well, one thing I will say is that I think we took California for granted a little bit. We assumed that because it was such a leader and there were such great leaders in this state, that we continue to move towards optimal solutions. So we’re going to really think about California and what we can do here to change course a little bit. But around the country, we’re continuing to focus in on things like planning. At the planning stage are utility, thinking about what distributed resources can provide them, how it can contribute to a low cost system. Because if you establish that with both regulators and the utility planners, then there’s much less motivation down at the rate design and the rubber hitting the road stage to say, well, I should undermine all these distributed resources. We’ve already said they should be part of the mix.

So we’ve got really great campaign and regulatory staff out there in five regions working on that planning phase. We want to spend a lot of time on education, making sure that our partner groups, our allies, our frontline communities actually do have information and agency. So we’ve put a lot of resources and our staff is working really hard to build our own competency around partnerships, our own understanding of the issues facing many of these communities so that we can help elevate their voices and that they have the tools to argue for their own best interests in front of regulatory commissions. That has been a space that has largely been cut off to them for many years. And then finally, we’re going to continue in rate design and cost allocation proceedings and cost of service analysis. We’re going to keep fighting that really technical inside fight. And I think we, in light of all this, we’ve got to sharpen those arguments. We’ve got to have better modeling about the cost of solar because these accusations, these dubious assertions of cost shift and cost drivers were thrown at us and we had responses, but we’ve got to sharpen those responses.

So we’re also looking to build our technical analytical capacity around modeling, partnering with folks like Kavalla in that DER proceeding that you talked about. And I think if we’re able to do all of those things, of course success is never guaranteed. But I think Vote Solar can continue to be that really relevant driver of this market that we’ve been for the last couple of decades. I’m pretty optimistic that this is a setback, but if we respond appropriately, this can be a call to action and a way for us to really continue to make distributed energy resources and consumer cited solar and storage and resources, a part of the mix instead of something that utilities are trying to always deal with and suppress.

John Farrell:

Well, Sachu, thank you so much for taking the time to talk with me about what’s been going on in California and its broader implications. Just such a rich conversation. Thanks for getting in the weeds with me and indulging my questions about things like West facing panels. And thank you for all the work that you do standing up for local solar.

Sachu Constantine:

John, thank you. This has been great. I hope I didn’t get too wonky or go too deep into those weeds. It’s an issue I get really excited about this. So the chance to talk with you about it was fantastic and I hope we’ll get to do it again.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Sachu Constantine, executive Director of Vote Solar, about the decision of the California Public Utilities Commission to sharply reduce compensation for rooftop solar, often abbreviated as NEM 3.0. On the show page, look for links to an overview of net metering as well as several Vote Solar resources on this policy and the California decision. On our website at the Institute for Local Self-Reliance, you can also find some other related interviews, including my discussions with Carl Rabago and with Gabe Chan about the value of solar, an interview with Thad Culley about the decision to settle similar solar issues in the Southeast, and my discussion with Bill Nussey about the role of solar as a breakthrough technology in the electricity business. Coming next episode, check out my interview with Ben Inskeep from the Citizens Action Coalition in Indiana, where a similar policy to curb local solar was passed with similar justification as in California, but with a solar market a hundred times smaller. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.