Against All Reason, Indiana Dismantles Rooftop Solar — Episode 193 of Local Energy Rules

For a long time it was, a Hoosier by birth, I cared a lot about Indiana policy, but was never very high in anybody’s priorities when talking about state policy, renewable energy because we are a bit of a laggard on a lot of these key things. But whenever I would look at what’s happening in Indiana, I would always see this organization, Citizens Action Coalition popping up. They were always involved in intervening in the dockets even when nobody else was and they were lobbying at the State House for good laws and they were out raising hell, organizing people and standing up to powerful monopoly utilities. And so long story short, when the opportunity arose to join them, I jumped at it and have been thrilled working with them. It’s a great opportunity to work on the front lines of the energy transition.

We are working on everything in the state from cleaning up coal ash to distributed energy policy to rate cases, to working on cutting edge issues like carbon capture and sequestration project proposals, hydrogen hub proposals, these other types of new energy technologies that are coming down the pike.

Now in recent years, some places like California or Hawaii have made changes because as local solar grew very substantially, it started to eat into the revenue base of the utility and there were concerns raised about who was paying expenses for the grid and a variety of other things. So I don’t want to get it too far in the weeds yet, but one of the things I think is so interesting is how you have some states like Hawaii or California where the decision was really driven to make changes by the fact that there was a lot of solar. One in four, maybe even one in three households in Hawaii has solar on the rooftop. In California, the distributed solar market is over seven gigawatts. Indiana don’t think has quite as much rooftop solar, but what did they decide to do with the policy and why is this such an important issue for electricity consumers?

First, it reduced the compensation rate, so it phased out net metering and replaced it with what we call an excess distributed generation credit rate or EDG tariff. And that compensation rate specified in the statute is you look back at the previous year’s wholesale market prices applicable to the utility. So you look at the LMP prices in MISO, for instance, and you calculate what that average is and then you give that as the compensation rate plus a 25% bonus tacked on kind of waving your hand of, well, we know there’s some other benefits that solar provides above just whatever the wholesale market price is, but we aren’t going to bother to figure out what the right number is, so let’s just tack on 25%. The second thing it did was it created this very unpredictable credit rate. So that rate is not a long-term rate. It changes every single year. Every single year. Utilities look back, what were the wholesale prices last year? They do this calculation. That’s the new rate going forward for one year.

So as somebody who’s maybe wanting to install solar, you really have no idea what the payback period is going to be. You don’t even know what you’re going to get paid next year for any extra energy you put on the grid. And then the most consequential aspects of this law is the third point, and that is excess distributed generation ultimately became determined to be measured on an instantaneous basis, and this was something that wasn’t clear in the statute. It was kind of a vague wording, and so this took going all the way to the Indiana Supreme Court to adjudicate and it had a really profound impact. So the statute says when you’re figuring out what is excess distributed generation, what is the amount that you’re going to be crediting this wholesale rate plus an extra 25%? You need to look at the difference between the kilowatt hours you send to the grid and the kilowatt hours you take off the grid, right? You do this calculation. Sounds an awful lot like net metering, right? It sounds like you’re taking the difference between what you’re giving to the utility and what you’re taking off the grid. And so if you calculate that over a monthly period, that would be very similar to net metering.

Utilities interpreted it as taking the difference not over the monthly period, but rather thousands of times per second. So on an instantaneous basis if you will. So if you’re exporting anything to the grid that’s getting credited this very low credit rate, if you’re taking energy off the grid, they charge you this very high retail rate. So at first the IURC upheld the utilities version. We and a number of other groups took that to court and the appeals court actually agreed with us and overturned the IURCs decision, the Indiana Utility Regulatory Commission, which is our public service commission in the state of Indiana. But then that was challenged at the Supreme Court who ultimately upheld the utilities interpretation.

So long story short is now customers are getting paid a much lower credit rate for any extra energy they generate and share with their neighbors, and that credit rate is extremely unpredictable changes every year. So it’s a pretty decent rate right now because we had super high wholesale prices last year when we had the invasion of Russia into Ukraine and energy markets spiked across the country, but then prices are low now in the wholesale power market, so we’re expecting that credit rate to crater again next year and then move unpredictably year to year after that.

And so these utilities were really the architects behind this law changing, and they wield tremendous power in our state. Some of these utilities have been operating in a state for over a hundred years. They have very close connections to lawmakers, to power brokers. They give a lot of money in terms of campaign donations and they force rate payers to pay for their trade association dues and a lot of other influence. Campaign costs, if you will, ostensibly, their direct lobbying costs are removed from rates, but I think we all know that there’s a lot of costs that still wind their way into rates one way or another that are designed to influence lawmakers, regulators, people in power, the general public’s perception of utilities and so forth.

So really the driving force behind Senate enrolled Act 309 that passed in 2017 that phased out net metering were the electric utilities and were the arguments made. They made all the traditional arguments to lawmakers that you’ve probably heard a million times about cost shifts and about this is technology for the rich and so on and so forth. It’s important to note that when this law passed, we’re talking about a solar market that is about the fifth of the size that net metering grew into over the subsequent five years while it was slowly being phased out, so very, very small amount. We’re talking like 40 megawatts of total distributed solar on the grid when that law was enacted. So you can really tell this wasn’t a meaningful impact. It wasn’t really harming customers and utilities didn’t really have any evidence about why the policy needed to change, yet they were still successful in getting this law enacted.

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But one of the things I thought it was interesting in his essay is he looked at that from an anti-monopoly antitrust perspective and he said, you know what? Regulators don’t typically think about competition and think about the actual market when they are making those kinds of decisions. They more often than not, are only looking at this issue of is this rate well-designed? Is it prudent and reasonable? Some of those key terms that pop up in utility regulation. And his argument was if in a utility docket where they’re talking about interconnection policy or net metering compensation, that the commission is not actually scrutinizing potential impacts on market participants like those independent solar companies, or for example, in a lot of states now we’re having conversations about EV charging and it being provided by non-utility companies, that if commissions don’t think about this and it’s not part of the public record, this issue of competition, they could actually expose utilities to antitrust scrutiny. And I’m just kind of curious what you think of that and if you think it would be welcome for us to have more antitrust scrutiny of utilities given the experience you’ve had with net metering policy in Indiana?

There was a dispute over how you measure excess distributed generation that was taken all the way to Supreme Court, but the actual compensation rate is spelled out in the statute: 1.25 times last year’s wholesale price, essentially. I think that’s the major problem is that our utility commission does not just kind of end net metering or institute a policy on its own accord. It was actually the general assembly that passed this law. So when I look in Indiana, three of the kind of challenges that I see are one, legal standing. We have unfortunately some bad precedent in Indiana that can make it really difficult for a public interest organization like the Citizens Action Coalition to challenge a policy in court. It’s not impossible, but there are some pretty big barriers, if you will, that can limit your opportunities there.

Second is I would say we don’t have some of these really big distributed solar companies in the state. The folks that might have the capacity, the resources, the budgets to litigate this kind of a case. So when we’re just talking about mostly we have a lot of local or in a few regional rooftop solar companies, much easier path for them is just to go next door, go to the state next door and operate there as opposed to waging a multi-year, maybe hundreds of thousands, maybe millions of dollars legal battle.

And then last, I would say that even if that pathway was successful, the courts agreed that there was some antitrust issue and they slapped the utility on the wrist, I think the utilities would then likely go to the general assembly and get the law changed, which we have unfortunately seen a number of times in the past in Indiana where we get a favorable ruling in court, the very next legislative session, the utility is working behind the scenes and getting a law passed to essentially negate the court ruling. And that unfortunately happens multiple times in the last decade. And so you also have to think through that aspect as well. So even if you go through the time, the expense, the trouble and you’re victorious, that victory could be very short-lived.

So tossing aside antitrust, I was interested in sort of asking you about that academically, but there have been cases of net metering decisions curtailing local solar that have been overturned before by state regulators, legislators, even ballot measures. Do you have any kind of prospect for reversing this decision in Indiana? Do you feel like it would be in the best interests of Indiana electricity consumers? But also feel free, you’re I think, very well placed to know is this a fight you would want to pick? So I guess I’m curious, number one, is there any hope for picking this fight and winning? And if not, what are the fights that you are trying to pick that can advance clean energy in a way that’s good for Indiana consumers?

But there is one other pathway may be worth mentioning, and that is utilities do have authority under current law to propose alternative tariffs if they wanted to, or if for instance, as a result of a settlement agreement in a case they were required to as part of that settlement, they could put forth an alternative solar tariff that could provide a better structure, a better compensation rate, a better measurement of distributed generation and how you’re compensated. So that’s a potential possibility as well as you can imagine, utilities have not been forthcoming with such a proposal to date. So we are continuing to work all potential pathways.

Another way we’re trying to work to just to get more clean energy in the state of Indiana is putting a lot of resources behind our involvement and integrated resource planning and looking for viable pathways to have a more holistic consideration of distributed generation as a resource that could be selected within an integrated resource plan, as well as make sure that resources like solar, wind, battery storage are all fairly being considered in integrated resource planning, and that’s been very successful. To date, I would say a surprising success story in the state of Indiana, we’ve had four out of our five investor-owned utilities commit to closing all of the coal plants that they own by the end of this decade. So we are a very traditionally coal heavy state. We were 90% coal just a decade or two ago. We’re now down to about 50% coal in terms of our electricity grid, and we’re going to see that continue to shrink, and we’re building lots of solar and wind in the meantime, and we’re pushing to make sure it’s not just the utility scale stuff, but also the tremendous benefits that come from local distributed energy as well.

Electricity service is, your listeners probably are very acutely aware. It’s an essential service. You need it to participate in society. People need it just to stay alive If they have medications that are refrigerated or they use medical equipment that relies on electricity. And so we really do need to kind of end this model where if a for-profit company that’s controlling the grid that’s brokering or laws, if they can just shut off your power because you’re no longer helping them profit and you can’t pay your bill, that’s a crisis. So if I had my way thinking very big picture could possibly be done would be some sort of government run program that goes to folks that are struggling to pay their bills, that they go into low income communities and they help these communities and the people living in them through first retrofitting their houses, making sure there’s no health and safety issues, closing up the house envelope, doing weatherization, energy efficiency, giving people rooftop solar right on their roofs, free of charge, that kind of a program funded through a tax on the top 1% earners in America, for instance, could have untold benefits in terms of helping people stay in their homes, not be homeless, reducing their financial concerns and immediate issues. It could help reduce their inability to pay, and it would also be helping address our climate crisis while creating tons of local jobs.

So there are creative solutions out there. I know that’s pie in the sky thinking to a lot of folks and might go counter to a lot of folks is where their thinking policy is achievable. But that’s where my thoughts are is that we really do need to help the most vulnerable people. We need to help those who are struggling. And it’s a bummer that rooftop solar is less affordable in Indiana, for instance. But when it comes to immediate crisis, number one to me is making sure people are connected to electricity service. You have to address that issue before you then address, okay, how can we clean up the sources of energy? How can we make sure distributed generation is equitably distributed across incomes, across other demographic factors? Make sure it’s not just benefiting the most fortunate among us.

So that might not be exactly where you’re taking that question, but I think it’s important to emphasize this point because I think it’s something I didn’t really realize or place as much emphasis on until I got into my current role as more of a consumer advocate, and I educated myself more and I learned more about what was happening, and I saw the connections between making sure folks have stable, reliable, affordable electricity and how that’s going to then influence our ability to meaningfully put more solar on the grid, clean up our grid and lead to a prosperous future for all of us.

If it’s just the Citizens Action Coalition going up against the five biggest utilities in the state of Indiana, we’re going to lose most of the time. They make billions of dollars a year. They have very sophisticated dozens of lobbyists. They outnumber us, tens of thousands of employees to a dozen of us. So we certainly can’t beat them on our own. And that’s exactly why we see the wisdom of things like joining broad coalitions, for supporting community solar coalitions that include conservative groups, liberal groups, religious groups, public interest organizations, business organizations. I think that’s really how you can take on powerful entrenched interests is by having that kind of a broad coalition that can make the case before lawmakers that can speak to the very different perspectives and ideologies across lawmakers. I think it’s important to emphasize some folks who maybe haven’t spent a lot of time in a conservative state might think all Republican lawmakers are the same or very similar, but we actually see there’s a very broad spectrum of interests, of philosophies, of ideologies just within the Indiana Republican Party, for instance.

So it’s important to get to know those lawmakers, to spend a lot of time working with them to find champions. And there’s very different perspectives among Republican lawmakers when it comes to these issues. So it’s important not to write them off, and it’s important to spend a lot of time and effort on the ground and talking with them, educating them, not speaking down to them, not thinking that they don’t know about the issue. I think that’s where a lot of Democrats often fall into this trap of thinking, Republicans just aren’t educated on the issue. I just need to educate them. And oftentimes that’s not the case. It’s just you have a different political philosophy, a different ideology, and so it’s often finding common ground finding where you might have ideological differences, but you still agree on this narrow issue of solar makes a lot of sense.

Whether I’m motivated for the reasons of climate change or whether you’re motivated for reasons of independence and property rights and local ability to reduce your energy bill as a life, liberty and pursuit of happiness in your district. So I think that’s kind of one other important thing. And then oftentimes we’re fighting and it’s kind of asymmetric warfare, right? You’re kind of the gorilla groups that are working on these issues. You don’t have the power. You have to look for creative ways to fight, to raise this issue in the public, to work with journalists and others who can shine a light on these issues and make sure the public is informed and the public is your best asset, is getting people mobilized and organized. You have to get people organized and out there raising this issue, bringing the salience forward and demanding their lawmakers take action because without them behind you, you’re very easy to ignore.