PSC studying unintended consequences
It’s a tax incentive for homeowners and small businesses that has succeeded beyond all expectations. That’s one of the reasons why officials want to change it.
Federal and state credits, which generally cover about 80 percent of the price, are aimed at promoting the installation of solar panels, and cut the price of individual monthly electric bills by about half.
The Louisiana Department of Revenue estimates that the credit will cost the state about $13.5 million for the fiscal year that began July 1.
Meanwhile, the solar industry has exploded, creating hundreds of well-paying jobs for the licensed contractors and technicians who install and maintain the power source that creates no pollution and decreases reliance on the power companies.
But some utilities and state regulators say the growth in the number of customers augmenting their electricity use with solar power is quickly creating a system in which customers who cannot afford solar panels are paying higher monthly electricity bills to subsidize those who can.
The Louisiana Public Service Commission is studying the issue, trying to determine whether to change the accounting rules, called “net metering,” for logging the energy on monthly bills.
At least one regulator, PSC Commissioner Clyde Holloway, of Forest Hill, is asking the Louisiana Legislature to revisit the tax credit altogether. Another regulator, PSC Commissioner Jimmy Field, of Baton Rouge, agrees the system may need tweaking, but wants to wait for the results of the PSC staff’s study before committing to a course of action.
“I’m not opposed to solar,” Holloway said in a prepared statement. “But, I’m against what this state is doing.”
Rolling back the tax credits would smother the nascent solar industry in its infancy, said contractor Wade Byrd, of Greenwell Springs. “Overnight. They would kill it overnight,” he said.
The Louisiana Legislature changed existing law in 2008 to create the system that allows for expanded use of solar energy.
Louisiana offers a 50 percent tax credit for residences using renewable energy systems. A federal government incentive enacted in 2005 kicks in an additional 30 percent.
“These credits can be used together to help people decrease the overall cost of a solar system, which can easily run $25,000 to $35,000,” according to a report by the Alliance for Affordable Energy, a New Orleans group that studies energy policies from an individual consumer’s perspective. “With 80 percent in tax credits, that brings the price down to $5,000 to $7,000.”
But the savings come at tax time. The buyer of solar power still must come up with the initial $25,000 to $35,000 and wait, sometimes for months, to be repaid by the state and federal governments.
The savings on monthly bills can be significant, particularly on homes with roofs that face the South, where the sun is more intense. “... the Alliance believes that customers with unobstructed south-facing roofs could save hundreds of dollars ...”, according to the report.
The issue is that the sun only provides power when it is shining, and usually produces more than can be consumed at that time. When the sun goes down or the day is exceptionally cloudy, the customer’s system draws power from the traditional source, the local utility company grid.
The electricity generated during the day by the sun, but not used to power air conditioners, appliances and lights, etc., is “sold” to the utility companies. The billing procedure is called “net metering.” What actually happens is that the unused electricity is credited against the power drawn from the utility company’s grid once the sun sets, further lowering the bill.
Very generally, the rate on monthly electricity bills is comprised of the costs of doing business — making and transporting electricity — plus a profit divided by the number of customers. The rate is then charged by the amount of electricity used.
This is for the rate only, which is called the “Energy Charge” on monthly residential bills of Entergy Gulf States Louisiana L.L.C. Other parts of the bill that deal with fuel charges and gas service are not impacted.
What happens is that when more customers buy less electricity, the formula adjusts, increasing the rate in order for the utility company to recover its cost of doing business.
“Two major factors appear to be driving the growth of net metering in Louisiana: lower prices for solar equipment and tax policy,” stated an Entergy report submitted in response to the PSC’s investigation of the solar power system. “These new developments have caused the (Entergy) companies to incur a level of administrative and engineering costs that were not foreseen when the Commission’s net metering rules were initially adopted.”
“We have elderly citizens, on fixed incomes, who cannot afford solar in this state, paying for solar panels on homes of those who can,” Holloway said in a prepared statement.
“There has to be a fair way, where people who install solar panels would pay their fair share of having the utility’s reliable system hooked up to them when they need it,” said Michael Heinen, general manager of Jefferson Davis Electric Cooperative.
Otherwise, the customers who can’t afford solar are picking up a disproportionate share of the costs of building and maintaining transmission lines, substations and the like. He suggests a higher service charge for solar customers, maybe $30 to $50, instead of the usual $6 to $10.
In 2010, the size of the solar market across the country grew 67 percent, and now represents a $6 billion a year industry, according to a report by The Gulf States Renewable Energy Industries Association, a New Orleans-based trade group.
The group cites a University of California Berkeley survey that shows solar created eight times as many installation jobs as the more conventional fuel sources like natural gas or coal.
Solar industry created more than 1,000 full-time jobs in Louisiana since 2007, a growth that the trade association attributes, largely, to Louisiana’s tax credits.
Mississippi passed a new law, which began on July 1, that tracks the Louisiana law, but provides more lucrative income tax credits for some power customers who invest in solar energy.
“Entergy has seen the number of customers in Louisiana jump from 13 “net metered facilities” in 2008 to 542 in 2011, an Entergy report submitted in response to the PSC’s investigation of the solar power system.
The three Entergy subsidiaries operating in Louisiana, which account for about 1.2 million customers as many as all the other utility companies combined, reported an increase in solar installations that far outpace solar demand for the company’s operations in Arkansas, Mississippi and Texas, according to the report submitted to the PSC.
“The incentives are merely accelerating the rate at which people are installing solar systems,” said D. Andrew Owens, Entergy’s director of regulatory affairs.
“It’s a statement that doesn’t reflect the small size,” said Byrd, president of Performance Building Consulting Inc. in Greenwell Springs, pointing to Entergy’s own figures: 542 out of 1.2 million.
“At some point, yes, that is going to be a significant, but not at the infinitesimal amounts being used now. It’s a red herring. It attempts to cut off a potential issue that they see in the future,” Byrd said.
PSC Commissioner Field said the issues should be addressed sooner, rather than later. It’s clear that the expansion of solar — powered by tax incentives and lower costs — is growing geometrically each year, he said.
“As a commissioner it is sometimes necessary to make a policy decision that would support the renewable source of energy, help develop it,” Field said. “Maybe we allow the additional costs to help establish that renewable energy source for the future. But we need to make a conscious decision.”