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In New York, solar companies and utilities form an unlikely alliance

By David Robinson

News Business Reporter

New York’s biggest utilities and some of the nation’s largest solar energy developers, including SolarCity, just might be able to get along.

In an industry in which utilities and solar energy companies often fight like cats and dogs, New York’s utilities and some big players in the solar industry have formed an unlikely alliance to try to hammer out a mutually acceptable proposal on how much solar power system owners will be paid for the electricity they sell back to the utility.

Utilities now complain that those payments are too high and they effectively pay solar customers higher retail prices for power they could purchase from conventional sources at a much lower wholesale price. But solar advocates say the retail price is warranted as a way of encouraging the development of solar energy, which can’t compete with conventional electricity sources without subsidies but provides a source of clean, renewable power.

The compromise plan would reduce the payments but also place a value on the environmental benefits of solar power and its role in helping utilities avoid having to make costly upgrades to the power grid.

If it works, New York would stand out as the rare exception among states that have tackled the highly contentious issue of how much solar energy providers should be paid for their excess electricity.

The two sides are “finally playing nicely in the sandbox,” said Patrick Jobin, a Credit Suisse analyst who has tracked the often bitter regulatory battles that have raged across the country.

“Seeing joint comments between utilities and solar companies are pretty rare,” said Joseph Hally, the manager of energy transformation and solutions at Central Hudson Gas & Electric, one of the utilities involved in the “Solar Power Partnership.”

“Now that we have a foundational proposal, I think it’s much easier to, at least, start the conversation and include those perspectives in the future,” Hally told state regulators and energy industry officials during a recent conference.

At issue is a controversial regulatory policy called “net metering,” which for years has paid solar power system owners the retail price for the power they sold back to utilities.

The utilities have long sought to change those net metering policies, arguing that paying the retail price is an unfair burden on their other customers because it forces the utilities to buy power at the higher retail price when they have options to purchase electricity at the lower wholesale price.

The utilities also argue that solar and other renewable forms of energy place an undue burden on their remaining customers, who must start paying a greater share of the costs for maintaining the power grid as more customers drop out because they are generating much of the electricity they use.

On the other hand, solar power developers view the changes elsewhere in net metering as a threat that could drive them out of business.

They also have argued that solar power producers shouldn’t have to pay to maintain a power grid they no longer use.

The compromise proposal, filed in April with the state Public Service Commission, lays out a plan that would gradually move New York away from a system in which solar energy owners are paid the retail price for their excess power – something utilities across the country have wanted.

“We’re working together to keep our state’s solar market vibrant, while enabling us to maintain the robust power grid that solar energy requires and in a way that is fair to all customers,” said John McAvoy, the chairman and CEO of Consolidated Edison Co. of New York, which also owns Orange and Rockland Utilities.

Lyndon Rive, the CEO of SolarCity, which is building a solar panel factory in Buffalo, said the “creative approach” being taken by the Solar Progress Partnership is “inspiring” and could “lay the foundation for the grid of the future.”

There’s no guarantee the PSC will go along with the proposal, but it does follow the general direction state regulators want to head in reshaping the state’s energy markets. And the path New York is taking has been far less contentious than the path in other states.

Still, not everyone supports the proposal. A group of big industrial customers opposes the compromise, arguing it would continue, or possibly expand, subsidies for solar power at the expense of other customers, said Michael Mager, an attorney for the 60 manufacturers.

Changes in net metering policy late last year prompted SolarCity and another big solar developer, Sunrun, to pull out of Nevada, one of the nation’s strongest solar power markets, after it reduced its payments to solar power system owners. Clashes over net metering have taken place in states from Maine to California and Hawaii.

New York’s partnership among its six biggest utilities and three major solar developers is “deviating from all other net metering discussions that can only be described as acrimonious and overly contentious,” Jobin said in a research note.

He called the New York proposal “a healthy approach to net metering policy discussions.”

The proposal would keep the current net metering system in place until 2020. It would gradually phase in a new formula that considers the wholesale price of power, the environmental benefits of solar energy and whether the project is located in an area that stands to benefit the most from having more solar capacity.

The location of the project is a key part of the pricing formula. Putting more solar in an area where power supplies are tight could have a bigger impact by allowing the local utility to save money by not having to invest in new power plants or power grid improvements.

How fast the new system would be phased in isn’t clear: The utilities want it to be put in place after three years, while the solar industry seeks a five-year phase-in.

The partnership includes National Grid, New York State Electric & Gas Corp., Rochester Gas & Electric Corp., Central Hudson, Con Ed and Orange and Rockland Utilities.

The solar developers include SolarCity, SunPower and SunEdison, which filed for bankruptcy in April.

But the partnership’s proposal isn’t the only one on the table. A study prepared by Energy and Environmental Economics proposes a more sweeping change to the way electricity prices are set.

It proposes a “full value tariff” that would be structured much like a cellphone bill. The first part of the proposed rate would be a flat-rate charge that covers system costs, such as meters and billing.

The second part would be a network subscription that would work much like the way cellphone companies bill consumers for packages of phone services and data. The study recommends the monthly network subscription be based on how much electricity a consumer used during the highest-use month the previous year. That would reward customers who cut their electricity use, especially during their periods of highest consumption, by pushing them into a lower-cost tier.

The third part of the bill would be a variable price for electricity that would rise when demand is highest and fall when demand is low, such as during the nighttime hours.

The study’s authors said their pricing system eventually could eliminate net metering for solar power because consumers would have an incentive to adopt power-saving alternatives, from solar to smart thermostats and energy efficiency, that would push them into a lower-cost network subscription tier.