As rooftop solar power grows, the electric utility business model could change. (Photo: Lauren Sommer/KQED)
As rooftop solar power grows, the electric utility business model could change. (Photo: Lauren Sommer/KQED)

California has been a champion of solar incentive programs and so far, those policies have largely worked: the state is home to more than half of all rooftop solar projects in the country.

But they may have worked a little too well in one respect. As increasing numbers of Californians generate their own electricity, they rely less on electric utilities and that’s raising major questions about the future of California’s utilities.

The utility business model has been largely the same for decades. Utilities build transmission lines, deliver power to customers and recover those costs via your monthly bill.

So it’s not hard to see why a customer like Chuck Pershing might make utilities nervous. “This is from PG&E,” he says, digging through a folder of bills. “Electric is $4.73. Here’s another which was $5.01.”

Chuck and his wife Suzanne Pershing pay next-to-nothing to Pacific Gas & Electric because of the solar panels atop their four-bedroom house in San Leandro. On a sunny afternoon, the panels are cranking out power – more than the couple are actually using. That extra power goes onto PG&E’s grid, where it supplies other homes.

“You can see where it says ‘received,” says Pershing, pointing to his electric meter. “So PG&E is receiving from us right now 4.32 kilowatts per hour.” PG&E keeps track of this and credits the Pershings on their bill. While they still have to buy electricity from PG&E at night when there’s no sun, it’s effectively cancelled out by the extra power they feed back to PG&E during the day.

It’s called “net energy metering” and it helps solar projects like this one make financial sense. “It’s great,” says Pershing, who says he can’t resist going outside and checking the meter daily.

Victims of Success

“It has been a great program so far,” says David Rubin, who works on net-metering at PG&E. “It was an appropriate thing to do to help the solar market grow. We do, however have a concern.”

About 85,000 PG&E customers have gone solar. Under state law, once these homegrown electrons make up five percent of peak demand, utilities don’t have to buy the power anymore.

The problem, Rubin says, is that solar customers aren’t paying their fair share. “Solar customers really use the grid more intensively than non-solar customers,” he says.

Everyone pays for the grid – building and maintaining the wires and substations – through the price of electricity. By reducing their bills close to zero, Rubin says solar customers avoid paying for power lines they’re still using.

“Those costs then become the responsibility of our other customers,” he says, who subsidize about $200 million a year in lost electricity sales. That’s why the state’s big utilities are bringing the issue to the California Public Utilities Commission, the agency that sets power prices. Utilities want to see the net-metering program changed, so solar customers get smaller credits or are charged a fixed monthly fee to support the grid.

“We don’t think that we are losing customers,” says Rubin. “We are proud that we represent that largest number of solar customers within the country. We just want to make sure it grows in a sustainable way.”

New Competition

“The utility anxiety is palpable,” says Edward Fenster, co-founder of Sunrun, a residential solar company based in San Francisco. He says the growth of rooftop solar is a fundamental threat to utilities and the monopoly they’ve held.

“PG&E has never had to compete in 140 years,” Fenster says. “It doesn’t have a sales force. Utilities just can’t raise rates forever now, without having to worry about a competitive force.

Solar companies don’t dispute that their customers still need PG&E’s grid. “In theory you should pay something for that,” says Fenster. “That said, you’re also providing a benefit to everybody, which is that you’re reducing the need for the utility to invest in transmission and power generation, saving everybody money.”

Several Bay Area solar companies including Sunrun recently formed the Alliance for Solar Choice, a coalition set up to defend net metering. Fenster says they only expect to fight more of these battles as solar claims more of the market.

“I think this is a 20-year journey for us,” Fenster says. “But again, I think the populous is very much behind solar. I mean, being on the wrong side of history, you can win battles, but it’s very difficult to win wars.”

The Death Spiral

“The real concern is that as we move toward higher and higher levels of renewable power on the customer side, we’re going to see bigger shortfalls and the utilities are going to have to raise more revenue,” says Severin Borenstein, an energy economist at UC Berkeley.

Here’s the catch: as utilities raise electricity prices, it encourages more of their customers to go solar. That equals an even bigger shortfall and utilities raise prices again. It quickly becomes what Bornstein calls a “death spiral.”

“Even for those who hate utilities, it’s not a death spiral that should make them happy because none of these solar customers are really energy independent,” says Borenstien. “They still require having a grid.”

The Public Utilities Commission is expected to release its net-metering analysis by the end of the summer. Many say whatever regulators decide to do, it will set a precedent not just for solar customers in California, but for the solar industry across the country.

  • aG

    Easy fix. Break up consumer’s electric bill in a more granular fashion – show the fixed grid costs and the variable electric costs. Force all consumers to pay for their fair share of the grid maintenance costs and people who break even the variable portion of their electricity bills still get to save $.

  • Chris J

    Sounds like the utility companies are running a bit scared if the premise of this ‘death spiral’ continues. For what it’s worth, I agree that the utility companies should be compensated for the costs of generating and maintaining the grid/means of delivery, so I have no particular grief about their fair compensation for these products and service.

    Typical, though, that they cry out loud about wanting more than they might deserve. Thinking about the suburban disaster of San Bruno, though, and how assiduously they fought to minimize their culpability and how it seems to be conventional wisdom that they simply have NOT maintained their grid properly, I have little sympathy for the fat cats who run that show.

  • foreignthinker

    Perhaps the greatest threat to utility companies is clinging to the old ways of doing business. The story reads as if PG&E has it rough, and the consumers are freeloading off of PG&E’s investments.

    That does not jibe with the reality that they spent $79 million on lobbying and did not pay any taxes from 2008-2010, or getting $1 billion in tax rebates, despite making a profit of $4.8 billion and increasing executive pay by 94% to $8.5 million in 2010 for its top 5 executives. PG&E benefits greatly from the infrastructure its product and service professionals use to deliver its products.

    There are trade-offs here that require we look at this in a different manner. Each of these rooftop producers amounts to a new mini-powerplant which did not require PG&E to attain permits and go through certification by the CPUC, nor do they have any of the maintenance costs associated with the means of production. Further these solar installations are supplying power during periods when PG&Es cost to meet peak demand is at its highest, resulting in reduced demand by PG&E for higher cost fuels. It is also important to note that in the evenings when power demanded by these roof-top power producers is greatest, PG&E’s cost to produce power is at its lowest, since it is drawing from base-load power technologies that are inherently some of the cheapest and cannot be shut off due to their scale.

    Instead of enlisting reporters to lament the loss of decentralized power generation and the primacy of the big grid, PG&E leadership needs to plan on a future where power generation is decentralized and heterogeneous. Employing perhaps as much as 65% renewable in as little as 20 years and much closer to what it was like at PG&E’s founding in 1905 when power generation was addressed at municipal level or individual consumer level. There is a place for large utilities like PG&E in California’s renewable future but not if they continue to think they have to maintain a de-facto monopoly on energy production and pricing. PG&E’s greatest opportunity my be in energy logistics.

  • Alecs Stan

    No, we really DON’T need the grid. There are cheap large capacity batteries on the way. The utilities are f’d.

  • BenTheGuy

    This seems like a good thing in every way…. Except for slow people, who will be left behind until they complain enough, then the government will step in and find a way to make everything worse for the environment and everyone involved, except of course the utilities and the government officials in bed with them.

  • bitcoin for hydrogen fuel cells

  • justchemicals

    The only reason why PGE could see renewables as a threat is because they could potentially lose their grasp on the monopoly, which will make them lose their investor-base. I can’t feel any empathy for the corporation’s loss, but like those who work for other investor owned utilities, good people work for PGE and they will soon have to secure jobs in the growing parts of the renewable industry after PGE decides to lay them off (just like SCE has done with a lot of their workforce in order to make their investors richer).

  • T Weemz

    All these reactions, to an incomplete story…OOOOH you’ve been found out.
    According to this story the answer is obvious: just use a battery to store your surplus power for the times when you need it, then disconnect from the evil utility. OOOOH here’s the problem you were not made clear about: the utilities are being forced to buy the tiny surplus power at a MUCH higher rate and the seller still gets to buy power at the regular rate, hence near zero bills even though they used three times as much power from the utility than they sold. WHUH? Yeah, there’s science and truth to deal with, but y’all go bash the man and keep listening for the drum beat, you’re doing your part. I know this will be pulled down, truth is not a part of modern media.

  • Tim Alton

    As a roof top solar owner I was surprised to hear that I am not paying a connection charge, contrary to what my monthly bill states, and this is not covered by energy sales. Also surprised by the comment from PG&E that we are using the grid more intensively than others, when in fact we are propping it up during peak hours. Also the comment below about selling high and buying low is because only energy generated during peak hours is sold into the grid hence demanding a higher price, as found in some plans using smart metering.. This is an alternative to a polluting single cycle gas turbine with an RMR contract that gets paid whether it generates or not all year round. PG&E owns no generation and as we saw in 2000 is at the mercy of manipulative generators and brokers. Rooftop solar seems like small potatoes.


Lauren Sommer

Lauren is a radio reporter covering environment, water, and energy for KQED Science. As part of her day job, she has scaled Sierra Nevada peaks, run from charging elephant seals, and desperately tried to get her sea legs - all in pursuit of good radio. Her work has appeared on Marketplace, Living on Earth, Science Friday and NPR's Morning Edition and All Things Considered. You can find her on Twitter at @lesommer.

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