The accounting methods behind the utilities' claims about rooftop solar
by Dave Rosenfeld
The continued growth of rooftop solar and battery storage is key to a successful clean energy transition, one that puts the needs of the public at the center, with lower costs, protection from blackouts, and quicker pollution reductions. Because remote, industrial scale generation has long worked to the advantage of California’s Investor Owned Utilities, they have actively lobbied for state regulations that would discourage rooftop solar. It is the purpose of this article to counter their principal arguments.
The most detailed study of its kind shows that integrating lots of local solar and storage with large-scale renewables as part of the clean energy transition could save Californians $120 billion over the next thirty years. These savings occur because local distributed energy reduces the price tag of long-distance power lines and peak demand infrastructure.1 It does not eliminate the power lines altogether. But it reduces their risk and expense, with major economic benefits flowing to individuals and the community.
These savings are happening right now and will increase if rooftop solar and storage keeps growing. For example, in 2018, rooftop solar and energy efficiency prompted the state to scale back more than twenty power line projects, saving $2.6 billion in unneeded investment.2
Growing rooftop solar is the majority position of the California public and social change community
Public opinion polling shows overwhelming support for the foundational policy driving rooftop solar growth – net metering. 64% are opposed to making negative changes to net metering. In addition, seven out of ten voters believe California should do more, not less, to support the expansion of solar energy.3
Over 600 local, state, and national organizations have come together to call for the continued and equitable expansion of rooftop solar and battery storage and stand in opposition to utility-led efforts to make rooftop solar unaffordable for the working class. These groups are committed to environmental and racial justice, consumer protection, affordable housing, community empowerment, climate change, land conservation, and faith-based stewardship.
Utilities want to slow down the growth of rooftop solar
In their argument to the California Public Utilities Commission (CPUC), the Investor Owned Utilities have a different story: they claim that rooftop solar is bad for California. They assert that solar users impose an annual cost of $3 billion on other ratepayers.4 This “cost shift,” as they call it, happens because solar users don't pay their fair share for the electrical grid, and that the credit solar users receive for the energy they share back to the grid is overvalued. These claims are unsupported by the evidence and are promoted using three questionable accounting fallacies.
How the utilities justify their claim: Three accounting fallacies
The utilities base their claims on computer models that purport to account for the value to ratepayers of each kilowatt-hour of solar energy generated by on-site (i.e. rooftop) solar, both in the past, present, and future. The utilities make their claim of a solar “cost-shift” by manipulating the computer modeling, specifically through three accounting fallacies, outlined below. When these accounting fallacies are corrected, the cost shift claim falls flat.
Accounting fallacy #1: Counting solar energy made and used on-site (instead of buying it from the utility) as a "cost" to other ratepayers
When solar users make and use their own solar energy on-site, they reduce the amount of electricity they would otherwise receive from the electrical grid. These “load reductions” add up, reducing strain on the California electric grid which, in turn, reduce total costs of building and maintaining the power grid. These cost reductions benefit all ratepayers.
The most detailed energy modeling ever performed in the U.S. shows that if we do not increase local generation as we turn to electric vehicles and electrified buildings, it will lead to a super-sized grid that has supersized costs.5
In contrast to the evidence and common sense, the utilities assume that self-consumed energy from rooftop solar does not significantly reduce the total costs of the grid.6 They thus conclude that the energy produced and used by rooftop solar owners – and the subsequent bill savings – should be counted as a "cost" to other ratepayers.
This is similar to arguing that households that hang-dry their clothing force households that use a clothes dryer to pay more for electricity. It also flips a standard principle of ecology on its head, suggesting that reducing one's burden on society's infrastructure is negative and should be penalized.
Accounting fallacy #2: Omitting over a decade of rooftop solar benefits
Typical energy planning credits the benefits of an "energy asset" to all ratepayers for the asset's entire lifetime. An energy asset is a power plant, a wind turbine, or in this case, a rooftop solar system. Rooftop solar systems are usually warranted for twenty to twenty-five years and can actually last a lot longer. That means that we should calculate the costs and benefits of each rooftop solar system over that time period. In contrast, the utilities only calculate a single year of rooftop solar benefits, and then attribute those benefits for only the next ten years (2020-2030).7
This method shortchanges the true value of rooftop solar, and only provides a partial picture of rooftop solar's savings over time. It hides the fact that rooftop solar's value increases in the later years of the clean energy transition, as it gets harder to site and build large scale energy and power lines over time. Rooftop solar installed today will be there in the future when we need it even more.
Accounting fallacy #3: Low-balling the long-distance power line costs that rooftop solar helped avoid
The computer model used by the CPUC is supposed to include assumptions about how rooftop solar reduces spending on long-distance power lines, but the computer model shortchanges these savings. Specifically, the CPUC's computer model only counts deferred long-distance power line spending. It doesn't count spending that was proposed and eliminated due to rooftop solar, and thus never built.
This is a critical omission. The Protect Our Communities Foundation estimates that the transmission costs avoided by rooftop solar are more than twice that of the utilities' alleged "cost shift.”8 In 2018, the California Independent Systems Operator (CAISO) canceled $2.6 billion in proposed transmission projects in the Pacific Gas and Electric (PG&E) service territory, citing both rooftop solar and energy efficiency. Protect Our Communities Foundation estimates that each solar system installed in PG&E territory in the 2015-2017 period alone avoided approximately $620/yr in new transmission costs. These savings far outweigh the alleged "cost shift” but are not included in the computer model.9
This is not a one-time effect. CAISO's recent 2020-2021 report continues to credit rooftop solar and efficiency for reducing transmission line spending.10 Protect Our Communities Foundation shows how this effect could be even greater were it not for the utilities' influence at the CPUC to approve unnecessary transmission projects, such as the $1.8 billion Sunrise Powerlink Transmission line and the $3.07 billion Tehachapi Renewable Transmission Project.11
The real cost shift: Rate hikes, blackouts and wildfires
These irregular accounting methods help the utilities deflect attention from the root cause of California's ever-rising electricity bills – the escalating costs of long-distance power lines. California's utilities are incentivized by the government to maximize spending on this infrastructure, reaping a guaranteed 7–10% profit margin for every ratepayer dollar spent. This perverse incentive, coupled with lax regulatory oversight, has led to a massive spending spree by utilities – all shouldered by ratepayers.12
This infrastructure involves the same power lines that have sparked massive wildfires due to utility neglect, causing death and destruction, and more rate hikes to pay for expensive "wildfire mitigation.” These same power lines must now be de-energized for extended periods of time every year, as the planet warms and wildfire threats intensify. These rolling blackouts pile on even more economic loss and danger to the public, in the form of lost work and school days, food and medicine spoilage, and loss of life-supporting medical devices.
California utilities and their allies are now pushing to make the current system the exclusive path forward. By excluding consumer choice and prosumer solutions like rooftop solar, it is a recipe for failure. California needs all clean energy and decarbonization strategies on the table. And, as noted earlier, the data points to a much better way.
The Utility Echo Chamber
One of the first times the phrase "cost shift" appeared in print was in a leaked 2016 utility industry strategy memo. The memo was part of an effort by the American utility industry to figure out a way to blunt the impact of rooftop solar through propaganda.13 Armed with this new strategy, the California utilities spent over $30 million in campaign donations to California politicians, nonprofit organizations, and academic research groups aimed at building an echo chamber of voices making the cost shift claim.14
Today, the utilities' "cost shift" claim is promoted by a small group of seemingly independent utility allies in coordination with the major investor-owned utilities. These include organizations who should know better: the Energy Institute at the Haas School of Business at UC Berkeley, Natural Resources Defense Council (NRDC), The Utility Reform Network (TURN), Public Advocate's Office at the California Public Utilities Commission (CPUC), AARP and utility-favored consulting firms like Energy & Environmental Economics (E3) and Verdant Associates.
Each of the organizations listed above use the same accounting methods outlined earlier to justify their position, in many cases referring to each other in a circular pattern, and in one instance, simply using the utilities' raw calculations.
Take for example the CPUC's favored consultant, E3. Because they are the CPUC's official consultant, their work is assumed to be independent. However, E3 is also a vendor for utilities nationwide, including PG&E, SDG&E, and SoCal Edison.15 This strongly suggests a significant conflict of interest. Unsurprisingly, E3 uses the utilities' accounting fallacies listed above to reach their conclusions, including counting behind the meter consumption (energy produced and used on site without ever entering the grid) as a cost16, 17 and omitting a decade of rooftop solar benefits.18
NRDC and TURN rely on E3's work to justify their claims, or employ the same accounting fallacies in their own work.19, 20, 21 NRDC's co-founder was also the CEO of Edison International.22 The organization has publicly entered into numerous strategic alliances with the American utility industry that led NRDC to promote deregulation,23 shield the utilities from liability,24 and lobby side-by-side with utilities to undermine rooftop solar going as far back as 2016.25 More about NRDC and TURN respectively on the Solar Rights Alliance blog.
The Public Advocate's Office, which is supposed to be an independent advocate for ratepayers, is even more transparent about its coordination with the utilities. In response to a data records request, the Public Advocate revealed that their supposedly independent analysis is simply a copy/paste of the utilities own calculations that we cited above.26, 27
The Haas School of Energy at Berkeley also uses the accounting fallacies outlined in this article.28, 29 Haas is led by an individual who has a long track record of making incorrect energy predictions. Utilities are among Haas' funding sources.30 More about the Energy Institute on the Solar Rights Alliance blog. <https://solarrights.org/haas-rooftop-solar/>
Conclusion: Rooftop solar saves all ratepayers money and should be expanded, not blocked. The real “cost-shift” is our continued reliance on PG&E and the other profit-driven utilities.
At this writing, state officials at the California Public Utilities Commission (CPUC) are considering utility-backed changes to rooftop solar policy that would put local clean energy out of reach for most consumers. The CPUC is pointing to the utilities' cost shift claims as the reason why their proposed changes are necessary. The CPUC is expected to make a final decision before the year ends.
It would be a tragedy if California's rooftop solar success was ended because of a clever deception. We urge members of the news media, policymakers and the public to closely examine the utilities' cost shift claims to understand their questionable underpinnings, and hold state officials accountable for allowing the utilities to have so much over their supposedly independent fact-finding.
Dave Rosenfeld is Solar Rights Alliance's executive director. Solar Rights Alliance is the nonprofit association of California solar users. We believe you have the right to make energy from the sun without unreasonable interference by the utility. Learn more at www.SolarRights.org.
1) Vibrant Clean Energy, July 2021, Role of Distributed Generation in Decarbonizing California by 2045. <https://www.vibrantcleanenergy.com/wp-content/uploads/2021/07/VCE-CCSA_CA_Report.pdf>.
2) See Utility Dive breakdown of this CA Independent Systems Operator report. <https://www.utilitydive.com/news/california-distribution-system-operations-distributed-energy-resources-DER-grid-services-markets/624376/>.
3) Benenson Strategy Group public opinion poll of rooftop solar, Jan 2021.
4) Utility proposal to CPUC, March 2021, p. 42 including Fig. 6. <https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M371/K711/371711892.PDF>.
5) See footnote 1.
6) Utilities' response to CalSSA data request in the NEM proceeding. The utilities did not provide the source of their calculations in their proposal to the CA Public Utilities Commission (CPUC). However, in response to a data request from the CA Solar & Storage Association (CALSSA), the utilities provided a spreadsheet and represented it as the source of their claim. See either the "Cost Shift NEM 1.0", 2.0 and 3.0 tabs. Formula for calculating the Cost Shift simply uses customer savings at full retail rates for different components times a figure for annual production. The correct method should only calculate the cost of compensating solar users for exported solar energy, not total annual production, since solar users are only credited for exports.
7) Utilities' response to CalSSA data request in the NEM proceeding, General Inputs tab D4:E15 feed into Tabs "Cost Shift NEM 1.0", 2.0 and 3.0 tabs, using single-year snapshots of benefits over a ten year period (2020 to 2030).
8) Protect Our Communities Foundation, 7/16/21, Rebuttal testimony of Bill Powers, P.E. pp. 16-17; 39-41 <https://drive.google.com/file/d/1T2AJ0J39IBu5HNIm_mbuJDMVY0ek9uiX/view>.
9) Protect Our Communities Foundation, pp. 18-23
10) California ISO, 3/24/21, 2020-2021 Transmission Plan, p. 1 <http://www.caiso.com/Documents/BoardApproved2020-2021TransmissionPlan.pdf>.
11) Protect Our Communities Foundation, pp. 35-39
12) CA Public Utilities Commission: Utility Costs and Affordability of the Grid of the Future - this is the topic of the entire report. <https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/office-of-governmental-affairs-division/reports/2021/senate-bill-695-report-2021-and-en-banc-whitepaper_final_04302021.pdf>.
13) Edison Electric Institute, 4/2016, Communications Handbook: A Guide to the Future of Energy (“Cost shift” strategy starts on p. 22) <https://www.documentcloud.org/documents/3512310-Edison-Electric-Institute-Communications-Handbook.html>.
14) Inside Climate News, 2/8/22, Is the California Coalition Fighting Subsidies For Rooftop Solar a Fake Grassroots Group? <https://insideclimatenews.org/news/08022022/is-the-california-coalition-fighting-subsidies-for-rooftop-solar-a-fake-grassroots-group/>; Solar Rights Alliance, 3/2022, CA Utility Industry Campaign Contributions 2017-2022 <https://www.fastcompany.com/90338797/newly-revealed-reports-show-that-energy-and-utility-giants-poured-60-million-into-campaigns>.
15) E3 Client List
16) Verdant, Net Energy Metering 2.0 Lookback Study, January 2021. Methodology description on p. 40 "Verdant calculated the cost-effectiveness and cost to serve NEM 2.0 customers using a model built for this study. The model accounts for a customer’s consumption, retail rate (including changes to retail rates over time), and distributed energy resource (DER) characteristics when calculating bill savings, cost-effectiveness, and cost of service.” <https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/net-energy-metering-nem/nem-evaluation/nem-2_lookback_study.pdf>.
17) E3 and Verdant: Alternative Ratemaking Mechanisms for Distributed Energy Resources in California, January 2021, explicitly includes self-generation and consumption as a cost: "Total costs are defined as the bill reductions NEM customers receive due to the total generation from their customer-sited renewable generation systems (i.e., bill reductions from onsite use as well as from exports) plus the cost of interconnecting these systems and the incremental metering costs incurred by the utilities to track their generation (p. 11). In addition, if there is any question about the author's bias, the paper refers back to the NEM Lookback Study cited in footnote 19 above: "The recent Net-Energy Metering 2.0 Lookback Study completed by Verdant Associates, with input from E3 and Itron, found that the compensation given to participating NEM customers for load reductions and grid exports greatly exceeds the incremental benefits." (p. 8) This sentence reveals how the authors let their bias creep into the methodology of both studies. In fact, solar users are not compensated for reducing their energy load, they are only credited for the extra energy they share back to the grid. This sentence only makes sense if you've decided to count load reduction as a cost.
18) E3 and Verdant: Alternative Ratemaking Mechanisms for Distributed Energy Resources in California, January 2021, page 29 Figure 8 shows avoided cost values for just one year, rather than 20 years. Had E3 looked at 20 years, the 2020 avoided costs would have been 12 cents per kWh rather than the 6 cents in the table.
19) Counting solar energy consumed on-site as a cost: NRDC proposal to CPUC, March 2021, p. 7 "To summarize, the NEM 2.0 Lookback Study found that the NEM 2.0 program currently fails multiple California Standard Practice Manual (SPM) cost-effectiveness tests. Most importantly, the Lookback Study found that the NEM program isn’t fulfilling its statutory mandate to ensure that benefits from NEM are equal to or greater than the costs borne by all ratepayers. The CPUC NEM Successor Tariff Whitepaper confirmed these findings."
20) Omitting over a decade of rooftop solar benefits: NRDC proposal to CPUC, March 2021, pp. 3, 11 & 20 acknowledge that rooftop solar systems last 25-30 years in their proposal to the CPUC. Yet, in their opening comments to the CPUC filed in October 2020, NRDC used just a single year of rooftop solar's benefits (2020) to make the claim of a cost shift (p. 4 last graf). NRDC's presentation to the CPUC on March 23, 2021, slide 8, admits that they omit most of the years that solar benefits the grid, and shows what the benefits would be if we looked out to 2040 (blue line). NRDC amazingly stated they prefer to compare rooftop solar's benefits to existing fossil fuel generation (orange line) rather than projected large-scale renewables (blue line), even though we are not building any new fossil fuel plants. <https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/net-energy-metering-nem/nemrevisit/natural-resources-defense-council-slides.pdf>.
21) TURN proposal to CPUC, March 2021, p. 11. TURN's proposal does not offer supporting calculations to justify its cost shift claim, but TURN's proposal to impose a fee on solar users based on the total amount of solar energy they produce indicates the organization also incorrectly counts the solar energy produced and consumed on-site as a "cost" to other ratepayers. <https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M430/K903/430903088.PDF>.
22) Wikipedia entry on John Bryson
23])Reprinted article from SF Bay Guardian, 10/8/97, The Private Energy Elite: How the Energy Foundation has abandoned environmentalists and used big money to greenwash the private utility industry.
24) LA Times, 7/15/2019, PG&E’s bankruptcy could slow California’s fight against climate change
25] Southern California Edison company's, San Diego Gas & Electric Company’s, and Natural Resources Defense Council’s application for rehearing of resolution, 7/25/2016
26) Counting solar energy consumed on-site as a cost: Public Advocate's Office proposal to CPUC, March 2021 and response to data request from CALSSA. Description of methodology on page 11. Like the utilities, they count all total solar production as a "cost", rather than simply the cost of crediting solar users for their excess energy.
27) Omitting over a decade of rooftop solar benefits: Public Advocate's office response to CALSSA data request in NEM proceeding, Their chart appears to be a close replication of the utilities' chart cited in footnote 25, with a similar problematic accounting method.
28) Counting solar energy consumed on-site as a cost: Energy Institute at the Haas School of Business at UC Berkeley: Designing Electricity Rates for An Equitable Energy Transition, February 2021. Section 5-4 pp. 27-28. <https://haas.berkeley.edu/wp-content/uploads/WP314.pdf> Findings calculated by creating a fictional scenario in which solar customers paid the utility for their on-site solar consumption and then "reduced" all rates with those funds. This method relies on two problematic assumptions: a) customers who make their own energy and thus buy less energy from the grid do not pay their correct share of grid costs and; b) their solar does not measurably reduce the cost of long-distance power lines (see Appendix Sections 1-2 and 1-3 pp. 3-4). The underlying thinking is explained in the Executive Summary to his February 2021 report (p. 5): "..by recovering total system costs through high volumetric prices, California’s IOUs are now operating a pricing scheme that sends misleading signals about the true cost to society of consuming electricity.” Haas' version of "true cost" is that consuming less is bad, and consuming more is good.
29) Omitting over a decade of rooftop solar benefits: UC Berkeley Haas School of Business: Designing Electricity Rates for An Equitable Energy Transition, February 2021. The calculations in this report look only at a single year of rooftop solar benefits in 2019. This is confirmed in the supporting documentation: Appendix refers to their data repository,folder "2019", file "ACC 2019 v1b", tab "Dashboard", cell G7 is set to just one year. The proper method is to set this to at least 20 years.
30) Energy Institute at Haas, Funder list, results of public records request showing $223,000 in donations from the IOUs since 2018. More about the Energy Institute on the Solar Rights Alliance blog.