By Chris O’Malley

Wisconsin’s 18 MW of solar power represents only one-tenth of 1% of the state’s installed generation capacity. But the state’s utilities are joining those in sunnier climes in treating distributed solar as an existential threat.

Milwaukee-based We Energies is among three utilities facing pushback over proposals to increase fixed costs and reduce how much the company pays customers for their own solar generation fed back to the grid.

Madison Gas & Electric this summer asked the state Public Service Commission to more than double its fixed charge from $10.44 a month to nearly $22 for a typical residential customer. After an earful from consumer and environmental groups, MG&E lowered its request to $19 a month, an 82% increase.

In Green Bay, Wisconsin Public Service also proposed more than doubling its fixed charge, to $25 a month from $10.40.

We Energies has proposed increasing monthly fixed charges by more than 75%, to $16 a month from $9. It also proposed a new “capacity demand” charge and restrictions on solar energy financing options. (Docket #5-UR-107)

Environmental group Renew Wisconsin said the capacity charge would offset nearly 30% of a customer’s savings from solar. It also complains that the utility would pay those who generate their own solar just 4.2 cents for each extra kilowatt-hour of electricity they create, while reselling the electricity to other customers for as much as 28 cents during peak summer hours.

The utilities argue they need more revenue to cover their fixed costs as customers improve energy efficiency and generate more of their own power.

NRDC-EEI Agree on Decoupling

At least some renewable advocates, such as the Natural Resources Defense Council, agree with the idea of “decoupling” revenue from consumption. In February, the NRDC and the Edison Electric Institute, lobbying arm of the nation’s investor-owned utilities, issued a joint statement urging state regulators to adopt new rate designs to protect utilities’ finances when they accommodate distributed generation and prevent cost shifts. (See related story, Postcards from the Future.)

Agreeing on the details of those new rate designs has proven far more difficult.

About half the states have decoupled revenue from consumption, often after “ferocious” fights, says Ralph Cavanagh, co-director of NRDC’s energy program.

The battle was on display at a public hearing in Milwaukee earlier this month on We Energies’ proposal. More than 200 people attended the session, at which both the utility’s supporters and opponents claimed to be protecting the poor.

We Energies says that only 25% of its fixed costs are covered by the “facilities” charge on customers’ bills. The increased fixed charges, it says, would eliminate the cost shift that has low-income consumers subsidizing wealthier homeowners’ rooftop solar panels.

Opponents say the proposed increase in fixed charges is too high. Because low-income consumers generally use less electricity, they say, the proposed change is regressive. The Chicago-based Environmental Law & Policy Center says the Wisconsin utilities would have by far the highest fixed costs in the Midwest if the proposed increases are approved. (See chart.)

Opponents also contend the change would discourage rooftop solar and cripple the state’s budding solar industry. The Environmental Law & Policy Center says there are more than 12,000 Wisconsin jobs tied to about 300 solar and wind power supply chain businesses.

Brad Klein, senior attorney at the center, said utilities are attempting “to support and protect an outdated business model.”

In an Oct. 10 editorial, the Milwaukee Journal Sentinel recommended a smaller increase, noting that less than 700 of the company’s 1.1 million customers have distributed generation systems. The shortfall from subsidizing those customers is $116,000, a rounding error compared to We Energies’ $4.52 billion in revenue.

“The harm that’s being caused by the unfairness in the current system is too small right now to warrant the changes in the proposal by the utility (and similar proposals by two other utilities),” the paper wrote. “Some increase in the monthly charge for fixed costs makes sense, but that increase should be more modest than the proposed increase.”

Solar’s Growth

While solar is barely a blip in Wisconsin, the number of installations nationwide have soared by 1,600% since 2006, according to the Solar Industry Association. Distributed residential installations increased 61% in 2012, most of them leased from companies such as Solar City rather than through electric utilities.

Some experts say that by as soon as 2016, installed distributed solar photovoltaic capacity could reach 30 GW, nearly one-third the U.S. nuclear generation capacity.

Steven Kihm, director of market research and policy at the Energy Center of Wisconsin, warns that utilities fighting solar firms that threaten their monopolies may no longer be able to count on sympathetic state regulators, as some of their battles are finding their ways into the courts.

In July, the Iowa Supreme Court shot down objections posed by Alliant Energy and Iowa regulators over Eagle Point Solar’s plans to install panels on the roof of a Dubuque government building. The utility argued the solar company was unfairly competing with Alliant’s monopoly footprint, but the court ruled in favor of the solar company.

Strategic Choices

In a recent Energy Law Journal paper co-authored with Arizona State University professor Elisabeth Graffy, Kihm says that utilities face “two very different strategic choice pathways.”

One reaction can be to take “backward-looking, defensive” positions to protect past infrastructure investment. The other would be to look for new ways to create value in seeking opportunities in the renewables market.

They point to cable television companies that were wise enough to capitalize on the coaxial cable’s wide bandwidth that satellite couldn’t deliver. Those companies added high-speed Internet and other services that helped them thrive in the more competitive new environment.

Kihm argues that utilities that take defensive positions to discourage their customers from adding solar panels run the risk of alienating them such that they sever connections to the grid all together — particularly as solar providers offer them more advanced and compelling product offerings.

“There is no imminent death spiral or disruption,” agrees Cavanagh. “There is no reason why utilities cannot be engaged and effective partners in the clean-energy [future].”

Theodore F. Craver Jr., CEO of Edison International, parent of Southern California Edison, told PJM’s Grid 20/20 conference last week that maximizing the best features of distributed resources — flexibility, resiliency and customer engagement — with the efficiency and installed base of the bulk power system is a central task for his company. “There’s a seam between those two systems that can certainly be problematic.”

David Owens, executive vice president of the Edison Electric Institute (EEI), sees distribution utilities assuming a role akin to RTOs as “distribution system operators” to integrate the two and make decisions about planning and building the system. “There’s got to be an architect of that distribution system that Wall Street understands” to ensure sufficient investment, he said.

If You Can’t Beat ‘Em…

Some traditional electric utilities are now treading on the turf of solar firms. For example, Arizona Public Service recently said it plans to install solar panels on up to 3,000 homes in Phoenix.

We Energies is looking for the upside. We Energies’ parent, Wisconsin Energy, will acquire a rooftop solar business if it wins regulatory approval for its acquisition of Integrys Energy Group, of Chicago. (See related story, Michigan Gov.: Wisconsin Energy-Integrys Merger Could Stifle Competition.)

“We’s strategy would be to do renewable — on their side of the meter,” Kihm said.